‘De-Risking’ Hits Bahamas Costs Clearance Times


Tribune Business Editor


Bahamian financial institutions have incurred higher customer due diligence costs, and experienced longer transaction clearance times, due to global correspondent banking ‘de-risking’ trends.

A newly-published International Monetary Fund (IMF) paper ranked the Bahamas among those nations which have either seen ‘no significant impact’, or just ‘a moderate impact’, from the increasing tendency of developed country banks to reassess relationships with their Caribbean counterparts.

It suggested that the main impact on Bahamian financial institutions related to efficiencies and cost structures, with a wide range of products and services required by local businesses and residents in the conduct of every-day commerce affected.

Likely drawing on previous Central Bank of the Bahamas findings, the IMF report said: “Adverse impacts on bank operations have been reflected mainly in prolonged clearance procedures and higher investment and staffing costs, stemming from additional reporting requirements and scrutiny.

“Business segments that have been affected include credit card payments, cash management services, investment services, clearing and settlement, international wire transfers and remittance services.”

Describing the impact on the Bahamas and its financial services industry in more detail, the IMF added: “In the Bahamas, six institutions, mainly standalone international banks and a few domestic commercial banks, together representing a small share of total banking system assets, have recently lost correspondent banking relationships (CBRs).

“All of them had additional CBRs, found replacements, or were able to negotiate a continuation in service (including against an additional annual fee). Canadian banks and other international banks maintained direct or indirect access to US dollar CBRs as they are able to rely on the sound anti-money laundering and counter terror financing frameworks in place across the group as a whole.

“Money transmission operators have also been affected. One domestic bank closed its Western Union money transfer franchise in summer 2015, while another money transmission operator provider had been notified about a possible termination of its banking relationship.”

To counter this trend, the IMF report said of the Bahamas: “In addition to engaging with regional stakeholders, authorities have been strengthening their overall risk-based framework for regulation and supervision, and the Central Bank of the Bahamas has finalised amendments to its anti-money laundering and counter terror financing guidelines and introduced new wire transfer regulations.”

Banks in major industrialised countries have embarked on an increasing trend of severing correspondent relationships with foreign banks, and the Caribbean region is among those that have been most heavily impacted.

The move is being driven by the ‘risk/reward’ analysis, with developed country banks perceiving correspondent relationships with their Caribbean counterparts as too ‘high risk’ when measured by the financial rewards.

They are particularly concerned that Caribbean banks are susceptible to financial abuses, such as money laundering and anti-terror financing, which could lead to financial sanctions being imposed on themselves by home country regulators.

Correspondent bank ‘de-risking’ has potentially major ramifications for the wider Bahamian economy, given that this nation’s model is that of an international business and financial services provider, which also imports the majority of what it consumes.

Bahamian banks rely on foreign correspondents, which are often major developed world banks, to clear foreign currency transactions and payments on behalf of their local clients.

While the ‘de-risking’ impact has yet to truly bite, it could - if it becomes more widespread - threaten to cut off Bahamian banks and businesses from the international finance and commerce systems, undermining the economy’s very existence.


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