Bank: Correspondent pull back vindicates web shop refusal

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Commonwealth Bank’s president yesterday said the increasing ‘pull back’ by correspondent banks from the Caribbean had vindicated its decision not to accept web shop industry deposits.

Ian Jennings told Tribune Business that the BISX-listed institution’s relationship with its international counterparts would have been “endangered” had it agreed to do business with the newly-legalised sector.

Emphasising that Commonwealth Bank’s main correspondent banking partner had a “very strong policy” against accepting gaming industry monies, Mr Jennings indicated this relationship would have been severely strained - especially in the current ‘de-risking’ climate - had it ‘gambled’ over the web shops.

“This is one of the reasons we gave back in the [gaming] referendum time as to why Commonwealth Bank would not bank the web shops because of the correspondents. That’s still our position,” Mr Jennings told Tribune Business of the correspondent industry’s growing withdrawal from the Caribbean.

His comments indicate that the growing correspondent banking pressures mean there is little to no possibility of any Bahamas-based commercial banks, apart from Bank of the Bahamas, accepting deposits - and doing any kind of business - with the web shop industry in the near future.

No institution will want to jeopardise its correspondent banking relationships, and risk being cut off from the global financial system, for one set of clients, especially given the ‘de-risking’ environment.

But, as Tribune Business has repeatedly pointed out, this undermines one of the Government’s main objectives behind legalising web shop gaming, namely to get the multi-million dollar sums generated by the industry into the banking system and formal economy.

The Commonwealth Bank chief, meanwhile, described the increasing correspondent withdrawal trend as “a very big issue” for not just the Bahamas, but the region as a whole, adding that it had the potential to “destabilise” not just the financial services sector but whole economies.

He added that the US government, in the form of the Treasury Department, was “not quite equipped to deal with it” because it had little to no influence over privately-owned banks’ decisions to sever correspondent banking relationships with this region.

While Commonwealth Bank had not been impacted by this trend, Mr Jennings told Tribune Business: “It’s [growing] into what could potentially be a destabilising influence in the Caribbean.

“We are doing everything we can to meet the requirements our correspondents set out, but we are concerned as far as the long-term position of the banks.

“One would have to think it would be a fairly incredible scenario for no correspondent banking relationships to be maintained with a particular country.”

Yet Belize is in just such a position, and should the Bahamas ever suffer the same fate, it would be catastrophic for an economy totally reliant on services exports, financial services, and international commerce and trade for its survival.

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, and foreign currency deposits to be taken.

Foreign correspondent banks thus provide the key gateway to the world economy and financial system, an access that is now being threatened region-wide.

“We are concerned about it, but we are optimistic that wiser heads will prevail,” Mr Jennings said of the current situation. “Where correspondents have indicated their issues to us, we are doing everything to meet their requirements.”

Referring again to the web shops, he told Tribune Business: “It’s a difficult situation, but we have to say there are certain types of business we will not entertain, as it will endanger our relationships with correspondent banks and impact the services we offer to all-comers, not just a select few.

“That was the whole premise of us declining to do business with web shops, which was the position of our correspondent - the primary correspondent in the region for banks.

“They have a very strong position internally on banking gaming. We went through a process with them to review our relationship, and they made a decision to continue to serve us,” Mr Jennings continued.

“We’re not anticipating any change in our stance on banking the web shop industry at this time.”

The Bahamas is already feeling the impact from the correspondent bank ‘de-risking’ trend. A Central Bank of the Bahamas survey, published in January 2016, acknowledged that local institutions were being subjected to “heightened due diligence” by their US correspondent counterparts.

Abhilash Bhachech, the Central Bank’s inspector of banks and trust companies, said: “In sum, the results indicated ‘de-risking’ of global correspondent banks has mainly impacted local commercial banks and standalone international banks.

“While the impact does not appear to be systemic, the bank has observed several instances of scrutiny and/or downsizing of correspondent relationships initiated both locally and internationally.

“For example, while four banks reported having a correspondent banking relationship terminated, all were able to find replacements. However, the level of difficulty or ease with which they were able to replace their correspondent bank was due in part to the nature of their operations, as well as the foreign correspondent bank’s onboarding requirements.”

Mr Bhachech added: “A small number of banks confirmed that de-risking has had an adverse impact on their operations, and an even smaller number has advised that this has had an impact on their remittance services.

“In the event of a withdrawal of a correspondent bank, 15 banks (or 30 per cent) indicated that they had a contingency plan in place for its replacement.

“Thirty-five banks indicated they had no contingency plan in place.”

The Central Bank received 53 responses from the 97 public banks and trust companies that it sent the correspondent banking survey to.

Comments

John says...

Yet these same correspondent banks accept money from Las Vegas Atlantic City and Atlantis And if they refuse they will face lawsuits. No matter how you look at it still discrimination. But after all who owns the central banks of the world?

Posted 27 April 2016, 9:59 p.m. Suggest removal

MonkeeDoo says...

John: When you can't buy on Anazon because the banks and credit cards are shut down come back and talk your talk !
Big Shot !

Posted 27 April 2016, 11:31 p.m. Suggest removal

MonkeeDoo says...

Bahamians are just too stupid. Amd it starts with the Govt

Posted 27 April 2016, 11:34 p.m. Suggest removal

Well_mudda_take_sic says...

This comment was removed by the site staff for violation of the usage agreement.

Posted 28 April 2016, 9:35 a.m.

Well_mudda_take_sic says...

This comment was removed by the site staff for violation of the usage agreement.

Posted 28 April 2016, 3:28 p.m.

aldo says...

With appropriate and integrated gambling and AML/CFT regulation for Webshops the government and its regulatory agencies could have provided a better defensive position. However, we are told that when seeking consultants it went to the **USA (where Webshop type gambling is illegal)**, **South Africa (where Webshop type gambling is illegal)**, and the **UK** which has had many problems and amendments since legalising Webshop type gambling in that country and **no experience in dealing with internet gambling and AML/CFT and banks in non-G20 countries**.

It is not good enough to get consultants able to cut & paste laws without understanding specific needs. When sweetheart deals are done with sweetheart consultants then the outcome cannot be what's needed for the country and its industry.

Posted 28 April 2016, 6:42 p.m. Suggest removal

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