The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A senior insurance executive yesterday slammed the Bahamas’ “ridiculous” Know Your Customer (KYC) regime, describing it as “one of the biggest impediments” to economic growth.

Tim Ingraham, Summit Insurance Company’s president, challenged John Rolle, the Central Bank’s governor, to survey the Bahamian public on whether they thought the financial services’ due diligence regime was “reasonable”.

Their exchange occurred at a Rotary Club of south-east Nassau luncheon, after Mr Ingraham suggested that a Bahamian grandmother was required “to prove she’s not a criminal” before she can open a bank account to receive her National Insurance Board (NIB) pension.

“That is one of the biggest impediments to getting to the economy to move,” Mr Ingraham, a former Bahamas Insurance Association (BIA) president, said of the KYC regime.

He added that his involvement with three different associations had revealed just how difficult it was to add new signatories to their bank accounts.

“I challenge you on one thing,” Mr Ingraham said to Mr Rolle. “Do a survey among the Bahamian public and see how many think the KYC rules are reasonable.”

Mr Rolle, who was the luncheon’s guest speaker, replied that the Central Bank was working with the commercial banks to ease the KYC process by making it more risk-based.

“One of the areas we’re looking at is where the risk posed by the customer is negligible, financial institutions will be able to open up accounts for those persons easier,” the Central Bank governor said.

“Account opening procedures will be less onerous for those who do not pose a significant risk for money laundering and other criminal activity.”

Mr Rolle described this as “ongoing work” with the Central Bank’s licensees, adding that financial institutions needed to understand their customers’ sources of income, and ensure this matched account activity and usage.

Explaining that this was part of the Central Bank’s drive to make financial services more inclusive, the Governor added that KYC procedures were not intended “to deter” consumers.

But he added: “We will not have an outcome that eliminates due diligence.”

Mr Ingraham’s KYC concerns echo those of Fred Smith QC, the Callenders & Co attorney and partner, who on Wednesday told Tribune Business that the “suffocating” due diligence procedures had blocked a five-year effort to add another lawyer as a signatory on his firm’s bank account.

Mr Smith argued that the over-zealous application of the KYC regime by compliance officers and financial institutions was “stifling” routine commercial transactions in the Bahamas, with the procedures akin to “the tail that wags the economic dog”.

He urged the Minnis administration to legislate a more “reasonable” KYC regime, suggesting that the current rules - and the way in which they were being applied - were deterring potential foreign direct investment (FDI).

Complaints about the Bahamas’ KYC regime are nothing new, and have frequently been voiced since its introduction in 2000 as part of the Bahamas’ regulatory reform package to escape the Financial Action Task Force (FATF) ‘blacklisting’.

Many Bahamians frequently suggest it is far easier to open a bank account in Miami or New York compared to Nassau because this nation’s reforms went too far.

Mr Rolle, meanwhile, said the risk-based KYC approach was part of the Central Bank’s strategy to ensure that more residents were brought into the formal banking system.

“We’re putting the thrust on financial inclusion,” he added, “and the ease of opening an account in the banking system. We have a sizeable immigrant population in the Bahamas that is completely shut off. We have to reduce the exposure of this population to criminality and other ills from amassing unbanked cash.”

The Governor acknowledged that developing a consumer protection framework for Bahamian financial services customers was “long overdue”, revealing that the Central Bank was recommending the creation of an industry ombudsman.

“We’re looking, from an advisory point of view, having in place in the near term a financial services ombudsman, so that there is a more defined mechanism for persons to seek recourse around disputes involving products and services,” Mr Rolle said.

“While it’s most effective with supporting legislation in place, we anticipate significant benefits from such an office even before that happens.”

Mr Rolle said the Central Bank expected to be “fully entrenched” in its consumer protection plans within nine months, having already sought bids from companies to assist it on the project.

The banking sector regulator is also planning to work with fellow supervisors, the Insurance Commission of the Bahamas and Securities Commission, to make sure “we’re all on the same page” on the issue.

“There’s a need for consumers to better understand their rights as users of financial products and services,” Mr Rolle said. “We believe that functional financial literacy provides the best form of consumer protection.

“We want citizens to have a much better understanding of debt management issues. How much debt is too much?”