The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

THE Central Bank has blamed "carelessness rather than deliberate rule breaking" for a "higher than usual level" of licensee non-compliance with "simpler" regulations.

Charles Littrell, its inspector of banks and trust companies, in a just-released letter to all Bahamas-based banks and trust companies warned that the slackness would receive "a supervisory response". Among the infractions identified in the January 29 letter was the issuance of loans that exceeded an institution's "large exposure limits" without obtaining the Central Bank's approval.

There were also "many instances of non-compliance" with the regulator's requirements and guidelines for Bahamas-based banks and trust companies when outsourcing functions to external providers and related 'service-level agreements'.

Mr Littrell's letter also focused on "slow and incomplete responses" by its licensees to the Central Bank's information requests, and the appointment of interim officers and directors without revealing the temporary nature of these posts prior to gaining regulatory approval.

"In the most recent period, supervisors have encountered a higher than usual level of non-compliance, across our SFI (supervised financial institution) population, with some of the simpler regulatory requirements," he revealed.

"These lapses, which tend to feature carelessness in execution rather than deliberate rule breaking, are of obvious concern, and in need will attract a supervisory response."

Mr Littrell urged Bahamas-based banks and trust companies to lean more on their internal and external auditors if they were unsure whether they were complying with the law and Central Bank regulations.

"To the extent SFIs are less than fully confident that their institution is complying with the objective standards set out in the bank's regulations and legislation, our experience is that both internal and external auditors can be relied upon to identify and recommend remediation programmes for such breaches," he added. "We will soon begin to take more direct action in these areas."

The Central Bank also expressed unhappiness over a foreign regulator's inspection of a Bahamian institution without prior notification or approval.

"The Bank was made aware of an inspection, at the request of a foreign supervisory authority, after it was conducted," Mr Littrell wrote. "SFIs are reminded that a foreign supervisory authority, or a body appointed by them, should not conduct an inspection of its Bahamian premises, books and records unless that supervisory authority has obtained prior approval from the Inspector, in accordance with Section 14 of the Banks and Trust Companies Regulation Act 2000 (BTCRA).

"Further, such inspections are to be conducted under conditions of confidentiality, solely for the purpose of consolidated supervision and in compliance with the provisions of the BTRCA and any condition imposed by the Inspector."

Turning to more positive developments, the Inspector of Banks and Trust Companies praised the commercial banks' efforts to reduce a non-performing loan pile that peaked at a collective $1.2 billion.

"We have been pleased with the proactive response from the domestic banks, and we look forward to seeing the benefits of these efforts reflected in steadily improving asset quality during 2018," Mr Littrell said. He added that the Central Bank had been encouraging the banks to 'raise their game' in addressing credit delinquency since mid-2017.

The regulator also plans to "rate and rank" all Bahamian financial institutions during the 2018 first quarter for the risks they present when it comes to anti-money laundering and counter-terror financing.

It will also review current requirements for loan loss provisioning and asset impairment as a result of new international accounting standards (IFRS 9) that were introduced on January 1, 2018.

The Central Bank also touted that it is doing its part to improve the Bahamas' 'ease of business' where financial services is concerned. "In the second half of 2017, the Bank streamlined its approach to approving regulatory requests from SFIs," Mr Littrell said.

"This has resulted in a pleasing decrease in average response times, with (for example) the typical director approval requests requiring five to seven working days from receipt of final documents."