By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian commercial banks were yesterday warned not to “stifle” the goals behind the investment currency market’s outsourcing through “compliance trepidation”.

Gowon Bowe, the Clearing Banks Association’s (CBA) chairman, told Tribune Business that the Central Bank’s objective of “cutting out an extra layer of bureaucracy” could be undermined if banks and their staff became too nervous about running afoul of its regulations.

With the Central Bank delegating authority to the commercial banks for foreign currency transactions involving the purchase of foreign securities, real estate and outside business interests from New Year’s Day 2019, Mr Bowe said the purpose could be defeated if banks subjected such customers to an extensive grilling over the purpose of their dealings.

“We’re sometimes gun shy at the beginning and really cautious,” he told this newspaper. “What we have agreed with the Central Bank and the Governor is to hold workshops so we have a clear understanding of what they expect from us, and so there is consistency in terms of the framework and template so that when an investor goes from one bank to the next they will not experience any difference.

“I think the Central Bank’s primary objective is cutting out an extra layer of bureaucracy. It’s not a revolutionary shift where everyone will want to change their patterns. It’s more of a change in the process to remove a level of bureaucracy. The Central Bank is not a client-facing institution and, now that has been removed, hopefully we don’t add to this by stifling it with the compliance side.”

Mr Bowe said removing the Central Bank from the role of buying/selling investment currency directly should also boost The Bahamas’ ease of doing business by reducing the time, cost and complexity associated with such transactions.

“When we talk about growing the economy, the ease of doing business, a large part of that is carrying out a transaction,” he added. “If we demonstrate we are doing things to make the average business transaction more smooth, that’s a positive thing.

“People will see the benefit of doing something less bureaucratic and expensive. There will be opportunities for institutions with delegated authority, as they are being compensated, as well as for persons carrying out transactions.”

Mr Bowe said the outsourcing will increase Bahamian commercial banks’ monitoring and reporting requirements, and transfer the 2.5 percent premium paid by investors on repatriated capital to the Central Bank. The banks themselves will be compensated by retaining a portion of the 5 percent premium paid on outgoing transactions.

“Effective January 1, 2019, the Central Bank will cease to buy or sell investment currency directly from/to the investing public,” the regulator said yesterday in unveiling the move.

“Instead, such transactions will be executed through authorised dealers (commercial banks). The new Investment Currency Market (ICM) framework will transfer a portion of the premium on sales to commercial banks, while retaining full liability for premium on ICM redemptions (capital repatriated to The Bahamas) with the Central Bank.”

“Except where approval is granted by the Central Bank for investments to be funded at the official rate of B$1=US$1, the public must buy the required foreign exchange at a premium of 5 percent above the official rate,” the Central Bank continued.

“ On repatriation of the capital to The Bahamas, investors may convert their proceeds into local currency at a premium of 2.5 percent above the official rate. However, profits and income associated with the repatriation must be converted at the official rate.

“The investment currency market facilitates buying and selling of foreign securities by Bahamian residents, such as equities and bonds and other capital market products. Direct ownership of real estate and business interests outside The Bahamas must also be channelled through the ICM when the investments value exceed the thresholds that can be funded at the official rate.”

Commercial banks will now conduct the buying/selling of investment currency at these rates once customers obtain exchange control approval from the Central Bank. “Commercial banks will not vary the breakdown of the transaction from the amounts specified in the Central Bank’s approval,” the regulator said.

“For the investing public, foreign exchange transactions for investment currency are still subject to Government stamp tax and other commercial bank charges that might apply.”