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Governor: 'Great Concern' Remains Over Bank Access

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Central Bank's governor yesterday said correspondent bank 'de-risking' remains a "great concern", given that the Bahamas' current economic viability depends on these relationships.

John Rolle told Tribune Business that the regulator had seen no further deterioration in Bahamian banks' international ties since its August 2016 survey, which found that almost 25 per cent of respondents had lost at least one correspondent relationship.

But, emphasising that the danger had not gone away, Mr Rolle said the global financial system access provided by correspondent banks was "very critical" to the business models of Bahamian financial institution and the wider economy.

"We have not taken note of any further shift," the Governor replied, when asked whether relations between Bahamas-based financial institutions and their correspondents had deteriorated further over the past 14 months.

"But that is not to say the issue is not being closely monitored, or not on the minds of the banks," he added. "We have not noticed any further shifts or tensions in this regard, but it is a matter of great concern to the sector.

"We still see the access to correspondent banking as being very critical to the business model, or the viability of the business model, for our financial institutions. Those in the international sector, because that's part of the product mix that makes it feasible for them to provide services to their clients.

"In the local sector, it's critical to providing payment/settlement services, whether it relates to trade or investments that flow across our borders."

Mr Rolle conceded that the Bahamas' "daily existence" was heavily dependent on access to the global financial system and commerce, which is currently provided by foreign banks via their correspondent relationships with local institutions.

"This is an economy where there is a high degree of dependency on international transactions for daily existence," he told Tribune Business, "whether it's tourism or income-earning sectors, and all the requirements for imports.

"We source lots of goods from abroad, and also consume a lot of services in every sector of the economy. The ability to have access to all these services depends on making payments for these services."

Mr Rolle's comments underscore just how serious a threat is posed by correspondent banking 'de-risking', not only to Bahamian financial institutions but, potentially, the functioning of the entire economy as we know it.

Correspondent relationships allow Bahamian financial institutions to use their physical and electronic banking infrastructure to conduct business in their countries, enabling transactions to clear and be settled on a timely basis, and foreign currency deposits to be taken.

Yet banks in major industrialised countries have frequently severed correspondent relationships in recent years, with the Caribbean region among 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 compared to the financial rewards.

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

While the Bahamas has avoided any major fall-out to-date, a recent International Monetary Fund (IMF) working paper revealed that the impact has been felt by the private sector and Bahamian consumers through increased compliance costs and fees.

The Fund said fees for cross-border transactions had increased by as much as 186 per cent between 2011-2015, the greatest rise in the Caribbean. Wire transfer fees alone grew by 20 per cent over that same five-year period.

Mr Rolle did not comment directly on the IMF paper's findings, which were taken from the Central Bank's own August 2016 survey, but he indicated that the fee increases were consistent with international experience.

"In countries where there's a high dependency on money transfer services to get funds from one place to the next, the cost of wire transfers has started to increase in regions where correspondent banking challenges are greatest," he said.

"That is because the money services businesses are incurring higher costs in terms of compliance and monitoring systems they have to put in place. For some of those money services businesses, they may be encountering increased costs because they have to align themselves with more costly correspondents."

Banking fees, and their constant increases, have frequently provoked anger among many Bahamian consumers. The Central Bank, though, has resolutely refused to impose price controls or other draconian measures demanded by the public, warning that these would have adverse, unintended consequences.

The regulator has frequently stressed that competition and consumer education are better solutions, and Mr Rolle yesterday said the Central Bank was preparing to conduct "more research in terms of some the structural factors that are driving the costs of services".

He added that "financial inclusion" and access to banking services remained a priority for the Central Bank, and said: "From that point of view, the ability of the sector to provide services in a cost efficient manner is going to be important.

"We also continue to see the importance of credit markets, in terms of the risk and cost of credit. A risky and costly credit market can lead to costs showing up in other areas where financial services is provided."

Mr Rolle declined to comment on the IMF paper's "anecdotal evidence" that some Bahamian financial institutions had lost correspondent relationships because of the latter's concerns about them doing business with the web shops.

Instead, he told Tribune Business: "As a jurisdiction we have to continue to strive to show we have a holistic approach to dealing with money laundering risks, irrespective of where they originate."

The Central Bank governor said the Bahamas' efforts to combat correspondent bank 'de-risking', and its consequences, were directly linked to the strength of its anti-money laundering/counter terror financing regime.

Improvements in this area will improve 'risk perceptions' of the Bahamas among foreign governments and banks, which is why the Government, Central Bank and others are moving to rapidly address deficiencies identified by the Caribbean Financial Action Task Force (CFATF) in its recent assessment of this nation.

"We need to continue to work to reduce the risk assessment for the jurisdiction," Mr Rolle said. "That speaks to the efforts of the Central Bank and other regulators to continue strengthening their systems, and how they interact with the sector.

"For us, one of the key criteria is really to push ahead and show the documented improvement in the quality of our anti-money laundering and counter-terror financing regime. We're going to continue to work for improvements in that area.

"Aside from making sure our financial institutions deliver on their responsibilities, we will be continuously strategising around ways in which we make the sector less cash intensive, and we get more transactions happening in ways that make it easier to be monitored and less susceptible to criminals and other elements."

He also acknowledged that increased compliance pressures imposed on Bahamian financial services providers had resulted in rising fees for consumers, as the extra costs and bureaucracy

Comments

Well_mudda_take_sic 3 years, 6 months ago

Mr Rolle declined to comment on the IMF paper's "anecdotal evidence" that some Bahamian financial institutions had lost correspondent relationships because of the latter's concerns about them doing business with the web shops.

This pathetic idiot has obviously somehow been "bought" by the numbers bosses in much the same way that Minnis and the FNM party leadership have been "bought". Whomever replaces Sidney Collie as the Chairman of the FNM party will have to have the stamp of approval of Sebas Bastian who has become the de facto King of the FNM party. Even Minnis is afraid to do anything that might in any way offend or be against Bastian's aggressive racketeering and money laundering activities in the eyes of the global financial community and its regulatory apparatus put in place by the developed countries.

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concerned799 3 years, 6 months ago

So surprising to hear this given the endless of amount of effort to keep off of blacklists. Could it be that such efforts were pointless as there was no guarantee the Bahamas would have any set level of access even if it met every single blacklist "demand" ever made to it!

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Porcupine 3 years, 6 months ago

Unfettered personal greed is allowed to sink a nation. That Mr. Rolle has remained silent on the dangers posed by the web shops to our economy is quite telling. Further, with the continuous stream of bad economic news for The Bahamas, isn't it time to replace Rolle with someone who may try and shift the direction we are headed. After how many losing seasons would we expect a coach to be replaced? And this isn't a game.

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Reality_Check 3 years, 6 months ago

Fully agree - Rolle should be shown the door!

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killemwitdakno 3 years, 6 months ago

Bahamians keep complaining about using the cards and direct deposit instead of cashing checks though. Then they also complain about getting robbed.

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John 3 years, 6 months ago

What John Rolle failed to tell you is that the Central Bank of the Bahamas is owned by a small group of private bankers as is every central bank around the world and the US's Federal Reserve. Their intention is to control the entire world economy as they almost do so they get pissed with people like Sebas Bastian, Flowers and other web shop owners whose finances are not yet under their control. So they squeeze John Rolle by his testicles to get the web shops to comply. The Bible speaks of this one world economy that will be under the control of the wicked one. We see it unfolding even as we speak. No one will be able to buy or sell unless they are a part of that system.

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baldbeardedbahamian 3 years, 6 months ago

How did john rolle get to be governor of the central bank? Has he ever actually worked in the banking sector? Has he ever worked in the private sector? Has he only ever been a civil servant? No Qualifications. Empty barrels.

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bogart 3 years, 6 months ago

Fee increases have been the highest in the Caribbean and the Central Bank has refused to impose Price Controls or other Draconian measures.

Actually the Central Bank has other measures to impose rather than going back to the dark ages for solutions. Then again when the the Govt majoroty owned Bank of the Bahamas was allowed to accept funds from the previously unregulated illegal web shop gambling business, the CB did not stop it even though thete are Bahamian laws by no less than a former Prime Minister and Privy Counsilor Putting extra cash causes high liquidoty,increased statutory deposit to CB etc and causing drop in interest rates. t the end of the day normal customers would withdraw funds from the bank with the illegal deposits and put funds into other accounts bearing higher interest rates at the Canadian and other banks. End result the entire system is populated with increased cash originating from web shop deposits. The Central Bank has the power to take over the keys of the irregular bank but did not. The Irregular bank even launched a lawsuit against the Central Bank. Shockingly the new govt even went and bailed out the BoB and indicated the lawsuit would not continue. A public investigation on how and why the peoples money was going but did not happen. Such hyper inflation of banking fees would definately be warranted with investigation or measures by the Central Bank to slow this hyper inflation of bank fees but nothing was done or as the Govenor indicates will be done. The Consumer protection government agency given the hyper inflation of banking fees still leaves the public with the fees. There is noone to help the people it appears. It is then expected that when there appears no effective means to steer the financial business from within that outsiders will want to protect their investments from outside. It is time for an overhaul of our second largest sector. The Consumer Bureau should be disbanding for an independant agency to supervise and audit the activities of banks. Many bank customers have challenges with banks but after being aggrieved over some shortfall the customer is usually broke and noone to turn to, therefore there must be someone to help the people. Recommended our Prime Minister be involved as he spoke passionately protecting the people against price gouging by stores selling food items.

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bogart 3 years, 6 months ago

Where I said the Consumer (Protection) Bureau should be disbanding should instead read be disbanded for an independent agency to supervise and audit the activities of banks.

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John 3 years, 6 months ago

Some of the clearing banks will exit the Bahamas and Caribbean because they can no longer extract those outrageous interest rates and other fees from their customers. RBC has admitted that the loan market in the Bahamas has virtually disappeared and so they have taken to closing branches, charging outrageous fees and reducing staff levels. The staff that remain will eventually become overburdened, fatigued and unable to perform their duties. Some will quit their jobs in self preservation. The least of RBC's concern seem to be the faustration of customers due to poor service. They already admitted that they make no money of most of the services they provide and so their message is 'you can leave when you want to.' Will they and other banks eventually exit from the Bahamas and the Caribbean?

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bogart 3 years, 6 months ago

The Bahamas actually has more banks than necessary and this is actually also pointed out by a previous Governor. We may not actually benefit if the one(s) to go leave us with the one(s) left. RBC the first Canadian bank has proven to have a tremendous benefit overall.

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