The Tribune

By NATARIO McKENZIE

Tribune Business Reporter

nmckenzie@tribunemedia.net

Caribbean financial services regulators yesterday warned that the decision by developed country banks to exit correspondent banking relationships with the region could drive an increase in “informal and unregulated” banking channels.

A Bahamas Institute of Financial Services seminar was told that leading financial global institutions were effectively in danger of scoring of an ‘own goal’, as their correspondent banking pull-back threatened to increase - not decrease - risk.

Kevin Higgins, former managing director at the Financial Services Commission in Turks & Caicos, said: “The problem is that we are going to see these kinds of transactions moving to the informal, irregular, underground channels which obviously will increase the risk of money laundering we are attempting to prevent, and therein lies the dilemma.

“Should we maintain them [correspondent relationships] in the channels that exist with greater compliance, due diligence, monitoring etc, or do we shut down the channels and then allow them to seek unregulated, unlicensed channels, which is going to create another problem.”

Abhilash Bhachech, the Central Bank of the Bahamas’ inspector of banks and trust companies, added: “Certainly you will see the informal banking sector being expanded.

“If you can’t use normal banking channels to do the wire transfers, you end up using certain informal channels. The de-risking will drive some of this consumer behaviour, where persons will use other less regulated, higher risk methods for money transfers.”

They were not alone in their concerns yesterday. Ryan Pinder, former minister of financial services, used his 2016-2017 Budget debate contribution to urge the Bahamas to take the regional lead in fighting against the correspondent banking ‘push back’, instead of relying on CARICOM to do this.

“We have experienced the loss of correspondent banking here in the Bahamas,” Mr Pinder said.

“Our independent institutions are constantly under this threat; some have had to close accounts because of loss of correspondent banking, and others are at risk and looking for options.

“This poses a real danger to financials services in particular, but to the economy in general, as we all depend on the banking system.”

Correspondent banks are those foreign entities that allow Bahamian financial institutions to provide services in their home countries, using their physical and electronic banking infrastructures.

They give Bahamian banks, and their clients, access to the international capital markets and financial system, enabling transactions to clear and be settled on a timely basis, and foreign currency deposits to be taken.

Foreign correspondent banks thus provide the key gateway to the world economy and financial system, lubricating the conduct of international commerce by Bahamian companies- an access that is now being threatened region-wide.

Mr Higgins said there could now be increasing pressure or momentum building to seek a reserve currency to the US dollar.

“The US dollar has been, for some time, the international reserve currency. Gold and oil, for example, are all are priced in US dollars, but if we are doing business with China, if we are importing goods from China, why do we need to go into a New York bank to pay Beijing?” he asked.

“Why can’t we go through Luxembourg, where the Chinese yuan is traded in Europe?”

In response to the de-risking trend, Mr Higgins said the Caribbean should seek intermediary correspondents, segregated correspondents and multi-currency correspondents.

“The Bahamas, because of its economic model,has been tied to the US dollar,” said Mr Higgins.

“It may well be today that banks need to start looking at where the money is ultimately going, and whether we need to keep a tranche in the currency in which the ultimate payment is made. A more analytic approach to the management of the international relationships and the correspondent relationships needs to be  taken.”