The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Central Bank is moving to ensure politically exposed persons (PEPs) are “not excluded” from the Bahamian banking system by making scrutiny of them “more client friendly”.

John Rolle, the regulator’s governor, yesterday told Tribune Business it had received feedback that the enhanced due diligence applied to PEPS by local commercial banks was “problematic” to the extent that some were almost being driven out of the financial system.

He spoke out after the Central Bank’s newly-released analysis of anti-money laundering data revealed that Bahamian commercial banks collectively hold some 4,249 accounts related to so-called PEPS, with these facilities containing some $358.34m in total deposits.

PEPS are individuals such as Cabinet ministers, MPs, senior civil servants and their close families and relatives. They automatically attract a higher “risk rating” from financial institutions given that they are perceived as more likely to be involved in, or targeted with, corrupt practices such as bribes due to their posts. Efforts to conceal the proceeds of such activities result in money laundering.

“What we have as a special work programme is improving the customer due diligence standard around PEPS so that the system can work in ways that are more business and client friendly,” Mr Rolle disclosed to this newspaper, suggesting existing guidance - and its application by Bahamian financial institutions - has been too onerous in some cases.

“We think, in our domestic system in particular, there’s room for improving the guidance around how one deals with politically exposed individuals. We don’t want being classified as a PEP to frustrate or exclude anyone from access to financial services.

“We are getting some feedback that this is problematic. We want to make certain improvements to the guidance and practices. The system establishes the identity of the individual, and uses that to gauge how to monitor them, but we’re not using it as a means to exclude individuals from access to financial services. We want to make sure the system doesn’t lead to exclusion.”

Based on the data obtained from its licensees, the Central Bank said the number of accounts held in the commercial banking system by PEPS rose by 10 percent or almost 400 in 2020, rising from 3,852 in 2019 to 4,249.

The latter figure, though, represented just 1 percent of all domestic bank accounts in The Bahamas. And the total deposits in PEP-related bank accounts dropped by 5 percent year-over-year to $358.34m, as opposed to $375.614m in 2019.

PEPS accounted for just 4 percent of domestic banking system deposits, and an equal proportion of its outstanding loans. Loans to PEPs, according to the data, fell by 45 percent year-over-year, dropping from $362.467m to $198.665m in 2020.

“While the number of PEP accounts and relationships increased since last year, the deposit and loan values decreased,” the Central Bank report said. “SFIs (supervised financial institutions) were required to report PEPs separately and provide a breakdown of the risk rating of the PEPs in the client database.

“Approximately 75 percent of the accounts were rated high-risk, 23 percent were rated medium-risk and 2 percent were rated low-risk. In terms of relationships, approximately half of these were rated high-risk, while approximately one quarter of these were rated medium-risk and low-risk each.”

Some 92.5 percent of accounts in the domestic banking system were rated by the banks as posing a “low risk”, or threat, of being used for money laundering or other financial crimes. This compared to 92 percent a year earlier.

The proportion of “medium risk” accounts declined from 6.5 percent to 5.2 percent, while “high risk” accounts rose only slightly from 0.7 percent to 1.3 percent of the total.

“As at December 31, 2020, domestic banks reported having approximately 495,000 customers and 580,000 accounts, which represents a contraction of 9 percent and expansion of 2 percent, respectively, when compared to 2019,” the Central Bank said.

“The balances associated with these customers at December 31, 2020, were as follows: Deposits of $8.9bn, loans of $6.2bn and off-balance sheet/fiduciary assets of $447m.”

As for the Bahamian international financial services industry, which holds the bulk of the assets, some 15 percent of bank accounts were rated as “high risk” at end-2020. For banking relationships, the proportion deemed “high risk” was even greater at 20 percent.

“This represented a slight increase in the proportion of accounts held by high risk customers in the sector. The majority of the relationships (55 percent) and the accounts (59 percent) reported by the international sector were associated with low-risk customers,” the Central Bank said.

“High risk” accounts held the so-called offshore sector rose from 12.9 percent in 2019 to 15.1 percent last year. “In the international sector, 5 percent and 4 percent of the relationships and accounts, respectively, were associated with PEPs, which is consistent with the results reported in 2019,” the Central Bank report said.

“Of note is that 12 percent of the total number of relationships in the restricted SFIs peer group had some PEP association.” The number of PEP-related accounts in the international financial services sector rose by 9 percent year-over-year in 2020, jumping from 1,316 the year before to 1,439.

Total deposits held in these accounts also increased, this time by 49 percent, from $1.115bn to $1.661 - an increase of almost $550m. And loans from Bahamian international financial institutions to politically exposed persons soared by an even greater margin, 76 percent, to $382m from $217m.