The Tribune

THE Central Bank’s governor yesterday said the Bahamas needs to target “a Caribbean leadership position” by reducing its financial crime risk profile to a ‘low medium’ ranking.

John Rolle, responding to Tribune Business questions following the release of the Central Bank’s new anti-money laundering/counter terror financing strategy, said the move to “continuous” supervision of such risks would address one of the deficiencies identified in the Caribbean Financial Action Task Force’s (CFATF) assessment of the Bahamas. “The CFATF report has driven much of the detail of our approach, and will address the CFATF’s valid criticism that the Central Bank was only examining AML (anti-money laundering) risk periodically, not supervising it continuously,” Mr Rolle said.

“Beyond the CFATF, however, it is increasingly clear that one condition precedent to a strong domestic or international financial industry is a solid reputation for AML and financial misconduct risk management. Improving the Central Bank’s AML supervision of its supervised entities is an appreciable step in improving the Bahamas’ performance and reputation for managing AML risks.

Explaining the change in the Central Bank’s approach, the regulator’s newly-released strategy said: “The bank has concluded that Bahamas [financial institutions], and the Bahamian financial system, will be better served if the bank shifts from periodic examination of AML/CTF (counter terror financing) risks to continuous supervision of these risks.

“In addition to continuing the current examination regime, the Bank will substantially lift its offsite surveillance and assessment of AML/CFT risks. Broadly speaking, the Bank will deploy the same tools and resources on AML/CFT risks that it currently deploys on financial failure risks.”

The Central Bank’s strategy added that the more-intense regulatory approach would better protect Bahamian society, the economy and financial system from financial crimes “and the many harms” this causes.

Mr Rolle told Tribune Business this would “considerably increase our supervisory time focused upon AML and financial misconduct risks more generally”, thereby improving the Bahamas’ international reputation when it came to combating corruption, fraud and money laundering.

He added that the improved reputation would make the Bahamas’ international bank and trust company sector “more competitive” in competing with rival financial centres for global business, while also “making access to correspondent banking services easier for Bahamian domestic banks”.

Mr Rolle said improved correspondent access would make the conduct of cross-border trade and commerce easier, and potentially cheaper, for Bahamas-based businesses, thereby benefiting the economy.

He added that the Bahamas needed to target an AML/CTF risk profile in “the upper end” of the ‘medium risk’ spectrum, meaning this nation presents a ‘low to medium’ risk of being abused by money launderers and other financial criminals.

“For the domestic banking industry, we need to avoid any risk of FATF (Financial Action Task Force) blacklisting, which would materially constrain local banks in their ability to service customers,” the Central Bank governor told Tribune Business. 

“This particularly applies to Bahamian customers who would like to invest, travel or otherwise engage internationally. We are reasonably confident that the Bahamas can achieve and maintain this minimum international reputation.

“For the international banking industry, the stronger our jurisdiction’s actual and perceived ability to manage financial misconduct risk, the better the quality of the business the industry will be able to undertake, and the higher the volumes of such business,” Mr Rolle continued.

“Right now, most international assessments would have the Bahamas at the better end of the ‘high risk’ spectrum, or the lower end of the ‘medium risk’ spectrum. We aspire to move the jurisdiction to the upper end of the ‘medium risk’ spectrum, noting that in this area few, if any, jurisdictions are considered truly low risk for AML and other financial misconduct.

“If we can place ourselves towards the middle to better end of medium risk in a global context, this will establish a Caribbean leadership position, and also position us well for success within our international banking and trust industries.”

The Central Bank’s own strategy echoed the Governor’s ambitions, stating: “By moving to a continuous AML/CFT supervision regime, the Bank expects that the Bahamas’ jurisdiction will improve both its actual and perceived risks in these areas.

“Furthermore, as outlined in this paper, the Bank is hopeful that these improvements can be achieved at modest additional costs to itself and to the industry.... In the medium term, the Bank’s objective is to see the Bahamian banking, credit union, and trust industries both actually, and perceived as, among the global leaders in effective AML/CTF risk management.”

Mr Rolle said the regulator was increasing its focus, and collecting more data, on suspicious financial transaction (STR) reports in a bid to better identify which institutions and products needed tighter regulation.

“This was a major area of focus in CFATF’s 2017 mutual evaluation report, and is also an area where industry has signalled a strong demand for more feedback,” he added.

“We note that the Central Bank’s work is not meant to repeat what the Financial Intelligence Unit does, which focuses upon responses to each STR. Our work is intended to use the lessons from the STR stream in aggregate to better identify which regulated entities, and which products, need closer supervisory attention for AML risk.”