The Central Bank’s governor has reaffirmed his commitment to “bridge the gap” between the commercial banking industry and web shop operators, and help ease his licensees’ compliance concerns.
John Rolle praised the quality of the web shops’ electronic monitoring systems, suggesting they were good enough to facilitate the exchange of Know Your Customer (KYC) information on their clients with the banks.
Speaking at a Friday press conference that was called to address correspondent bank ‘de-risking’, and its impact on the Bahamas, he added that the ability of web shops to track client winnings showed “how good their systems are”.
The Central Bank governor said this created the potential for integrating commercial bank and web shop IT platforms, so that the financial services industry could track and trace funds moving through the latter.
“We’d like to bridge the gap in terms of business platforms between the two sectors, so we don’t have gaps in the movement of funds from that sector to the financial sector,” Mr Rolle said.
He was responding after being asked by Tribune Business whether the increasing tendency of large global banks to terminate their correspondent relationships with institutions in the Bahamas and other countries would make it more difficult for the local commercial banking industry to accept web shop deposits.
All Bahamas-based commercial banks, apart from the Government-owned Bank of the Bahamas, are refusing to do business with web shops, citing either their parent’s global policies or the ‘high risk’ nature that the sector poses.
Web shop gaming operators have only recently been legalised, and have yet to receive their full licenses. Their previously unlawful status, and cash-intensive business nature, underpin the commercial banking industry’s concerns.
Sectors that generate large volumes, and amounts, of cash are seen as being more vulnerable to abuse and exploitation by criminal elements for a variety of financial crimes, including money laundering.
Given that perceived money laundering risks are one of the most frequently cited causes for global banks to terminate correspondent relationships with their Bahamian counterparts, this has only served to make local institutions even more wary about conducting business with the web shops.
Yet such concerns, which are being exacerbated by global correspondent banking trends, are conspiring to defeat a key Government policy goal that was behind the decision to legalise, tax and regulate web shop gaming.
This was to bring the industry out of the ‘informal’ economy into the formal sector and, most importantly, to bring the multi-million dollar sums recycled by the web shops into the proper banking and financial system.
The reluctance of Bahamian commercial banks to accept web shop business is thus defeating this objective. And it is also impacting a key element of the Central Bank’s defence strategy against correspondent relationship terminations.
Mr Rolle said the Central Bank was seeking to promote the increased use of electronic payments, so that companies could “pivot” away from reliance on cash-based transactions.
He added that the regulator was also “trying to promote more financial inclusion”. This, the Governor explained, was intended “to provide the highest number of customers with access to the formal banking system”.
With the web shops almost totally excluded, that goal is not being met.
Mr Rolle emphasised that the prevalence of web shop gaming in this nation “is not the reason why the Bahamas is experiencing the level of de-risking that it is now”.
However, he acknowledged that commercial banks tended to perceive industries and businesses that typically generated “high value cash” transactions - such as web shops - of being a greater risk in terms of money laundering and other financial abuses.
“It could cause financial institutions not to want to take on that type of business,” the Central Bank governor acknowledged.
He also pointed to the global policies of the three Canadian-owned banks - Royal Bank of Canada (RBC), CIBC FirstCaribbean and Scotiabank - not to accept monies derived from casinos or any form of gaming (including the Internet).
Several sources, though, have suggested that these policies have been ‘waived’ in the Bahamas when it comes to accepting deposits from Atlantis and other local casinos.
This has led to claims that the commercial banks are discriminating against Bahamian-owned businesses, and calls for the web shop industry to establish their own bank or credit union. Wayne Munroe QC was the latest to make this argument last week.
Still, Mr Rolle indicated that the Central Bank is focused on bringing the commercial bank and web shop industries together, largely through increasing the former’s understanding of the KYC and due diligence systems employed by local gaming houses.
“We see opportunities in the Bahamas, given the quality of operations in the web shops and quality of electronic monitoring of the web shops, for a framework for the exchange of information from the web shop industry so we can audit and track transactions,” Mr Rolle said.
“This is so financial institutions that bank these operations can trace fully the source of funds from them.”
Mr Rolle added that it was “possible to have tracing and auditing of the winnings” earned by individual Bahamians from their web shop gaming activities.
He said these winnings were already being deposited by these persons in their accounts with commercial banks.
“There can be, with a little bit of tweaking, an audit trail from the operator to follow these winnings,” the Governor said. “This is how good the systems are in web shops.”