The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Central Bank wants to reduce the traditional Bahamian reliance on cash-based transactions as part of its strategy to combat the threat posed by correspondent bank ‘de-risking’.

John Rolle, its governor, in an address to the Grand Bahama Chamber of Commerce on Friday, said the banking regulator was targeting such transactions because they were “more susceptible” to money laundering and organised crime.

He added that the Central Bank was also working to bring the ‘unbanked;’ persons outside the formal banking system, into the mainstream financial services sector to further decrease ‘risk’.

Mr Rolle also pledged to work with the Gaming Board to help bridge the divide between the web shop gaming industry and the Bahamian commercial banking sector, which has seen the latter - apart from Bank of the Bahamas - display a marked reluctance to accept the newly-legalised business’s deposits.

While acknowledging that the Central Bank could not force its licensees to accept web shop monies, Mr Rolle said better dialogue between the two sides would enable commercial banks to better assess the risks, and ensure decisions were based on fact.

“We will also have to promote changes in other areas of our society and economy,” Mr Rolle said of how the Bahamas should respond to pressure on its correspondent banking relationships.

“This includes policies to reduce the prevalence of cash-based activities, as such transactions are harder to trace and more susceptive to being infiltrated by criminal elements.

“We also need to regularise un-banked activities and un-banked persons, having them more integrated into the financial sector.”

Bahamian society has traditionally relied heavily on cash-based transactions for most of its commercial dealings, a trend that has persisted despite the commercial banking industry’s best efforts to introduce electronic payments and Internet-based services.

The Central Bank is thus proposing to drive a major cultural shift for most Bahamians, and Mr Rolle said: “We have identified accelerated development of the payment systems as a priority. Work is underway to finalise the regulations for e-payments and mobile money, which would contain risks from external disruptions to domestic e-payments and promote more non-cash forms of transactions.”

As for the ‘un-banked’, many lower income Bahamians and immigrants - both legal and illegal - are thought to exist outside the formal banking system, using money transmission businesses to send and receive funds if necessary.

“We are also putting more emphasis on the promotion of financial inclusion, through appropriate reforms either already within the scope of our regulatory mandate or through appropriate recommendations to the Government,” Mr Rolle said.

“We can promote financial inclusion by striving for more universal access to banking and banking services. This is true for documented and improperly documented persons within our borders.”

Mr Rolle added that the term ‘un-banked’ equally applied to web shop operators, given the reluctance of the commercial banking industry to accept their deposits - something that was a key government objective in legalising the sector.

“In the case of web shop activities, the Central Bank will work closely with the Gaming Board to promote comprehensive understanding of the adequacy of anti-money laundering and compliance systems within the sector, and provide this exposure to the compliance units within local licensees,” Mr Rolle promised.

“While the decision of who should be provided with services is still up to each bank, the Central Bank can ensure that the mutual exposure that is needed for both our licenses and gaming industry is facilitated, so that such outcomes can be driven by facts as opposed to anecdotes.”

Some may still interpret this as a policy to help push web shop gaming into the formal banking system, though, despite Mr Rolle’s reassurances, with the Central Bank governor admitting that pressure on correspondent banking relationships were unlikely to “dissipate”.

“We are headed towards fostering better understanding among global regulators and stakeholders; towards adapted and more informed compliance mechanisms; and likely towards a permanently-reduced footprint for correspondent banking operations,” he added.

Correspondent banks are those 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.

Foreign correspondent banks thus provide a vital gateway to the world. This access, though, has tightened in recent months as international banks respond to increased global regulatory pressures to either place tighter controls on or drop altogether their correspondent banking relationships.

The potential loss of access to the US financial system would be fatal to many Bahamas-based and Caribbean financial institutions, and the private sectors in their countries.

Mr Rolle said the Bahamas also had to address foreign “misconeptions” that its regulatory regime was weak and lacked transparency, suggesting this was partly an offshoot of this nation being labelled as an ‘offshore financial centre’.

“To deflect the threats to the sector, we have to tackle the misconceptions about the regulatory quality and transparency of our regime,” he added.

“The Bahamas’ has a documented record of increasing regulatory cooperation and transparency, including under a significant number of tax information exchange agreements.

“Our indigenous banks are also more vulnerable because they start out by having less access to independent global banking networks. Indigenous banks often serve niche markets overlooked by foreign banks. Their viability impacts the access of such niche customers to financial products and services.”