By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Central Bank has conceded that Hurricane Dorian’s devastation has prompted a rethink on permitting its financial institution licensees to store confidential client data overseas.

The monetary regulator, in its analysis of the “lessons” learned from the category five storm, said customer confidentiality now needed to be balanced with financial system resilience and the need for critical data to be backed-up outside The Bahamas.

“Paper documents do not work in a world of 200 mile per hour winds and 20-plus foot storm surges,” the Central Bank said, in a nod to Dorian’s destructive powers. “Even if the documents themselves survive the destruction, they may be housed in sites that are no longer accessible.

“The Bahamian financial system has already made substantial strides towards electronic documents. The Central Bank’s view is that our financial system must become fully protected against the loss or inaccessibility of physical documents.”

It added: “Electronic documents do not work in a world of 200 mile per hour winds and 20-plus foot storm surges either - unless they are robustly backed up, either in The Bahamas or internationally.

“Traditionally the Central Bank has focused upon customer confidentiality when considering offshore data repositories. We will now balance this focus with a consideration of the resilience benefits attaching to multi-country electronic data storage.”

The Central Bank also conceded that The Bahamas’ domestic financial system must become completely paperless to achieve “the levels of disaster resilience that we need”. It argued: “One essential element in this outcome is the widespread but not yet universal use of electronic documents. The Bahamian financial system will need to become fully electronic to maintain the levels of disaster resilience we need.

“Across our domestic supervised financial institutions (SFIs), however, queue management at physical branches has sometimes presented a challenge in the COVID environment. We need to ensure that all or nearly all domestic clients have good access to electronic payments and ideally electronic banking channels.”

The Central Bank added that its licensees also needed to treat staff safety, and that of their families, as a priority following a catastrophic hurricane. “It is not enough to restore the SFI’s facilities if the SFI’s staff have no place to live,” it said.

“For international SFIs, back-up arrangements in other countries through outsourcing arrangements may be the best answer. For domestic institutions, various forms of staff emergency housing may need to feature in contingency plans.”

The regulator continued: “The Central Bank intends to construct a new headquarters in Nassau, and work has commenced on this project. The new headquarters building will withstand a Category five hurricane and associated storm surge, and will allow not only staff but staff families to shelter on-site.

“The Central Bank intends similar arrangements for a new currency and coin storage and distribution centre on New Providence. For several years, the Central Bank has moved current and archived documents to electronic storage. The COVID work from home arrangements have demonstrated that over 90 per cent of Central Bank staff are able to effectively access documents.”

As for the ramifications for Know Your Customer (KYC) compliance, the Central Bank said it has “encouraged SFIs to move away from customer verification and communication, via physical documents and mail, to electronic communications channels.

“The current rule for SFIs is that they must be able to communicate with clients through at least two methods, only one of which can be physical mail. The Central Bank is likely to undertake more work in this space,” it added.

“Experience demonstrates that, after a disaster, the mails will not work well, and the clients may not be at their former physical addresses. Those same clients are more likely to retain their mobile phone numbers and their e-mail addresses.”