Global Banking Issues and the Impact on Financial Services in The Bahamas. Presented by Governor John Rolle IBFS Summit 2 nd March, 2018

Transcription

1 Global Banking Issues and the Impact on Financial Services in The Bahamas Presented by Governor John Rolle IBFS Summit 2 nd March, 2018

2 2 Some High Level Observations Balance sheet adjustments have been exaggerated relative to shifts in economic impacts & employment Adjustments to international forces expose tensions between domestic and international sector Latest impacts from client regularization of tax compliance status may not be not as damaging as feared Proactive as opposed to reactive stance is needed; with fact based appeals to global community.

3 3 Some High Level Observations Application of KYC and CDD frameworks remained too stagnant as global frameworks shifted more to risk based approach; Detrimental effects on ease of access to domestic financial services [Current FATF guidance encourage adaptation of standards; similar expectations for safety and soundness regulations that apply to supervision of sector] At risk: domestic systems for monetary and financial system: BEPS raises transparency and level playing field questions about At risk fiscal systems: tax reform of international sector could, if done poorly, undermine domestic source revenue, increase fiscal exposure to less reliant revenue; increase cost of revenue administration; introduce inefficient arbitrage if personal income taxes excluded

4 International Developments Impacting the Jurisdiction FATF focus on adequacy of ML Standards AML/CFT Requirements Correspondent banking challenges (de-risking) Shifting business strategies/models Tax & Information Exchange: FATCA, CRS, and BEPS Global financial crisis and great recession : strained fiscal resources (having to rebuild buffers) Fintech & Digital Currencies

5 AML/CFT Ongoing impact of FATF Recommendations & Standards Invoked legislative changes in in the Bahamas (2000) Introduced a new compliance infrastructure Introduced structural shifts in sector

6 6 AML/CFT CFATF Mutual Evaluation Reports Emphasis now placed on technical compliance and effectiveness in practice Highlighted gaps including absence of a National Risk Assessment (NRA) New outcomes: NRA & Coordinated strategy to address AML/CFT risks identified systemic weakness.

7 7 AML/CFT The Central Bank s response:- shifting to continuous supervision performing risk-focused assessments more targeted examinations of SFI s compliance programs supporting inter-agency co-operation in the AML/CFT arena

8 AML/CFT Dec. 2017: CBB surveyed the Bank & Trust Sector. Results: For International Firms A broad spectrum of Correspondent Banks Near zero cash deposits/transactions Typically low volume of activity within customer accounts For Domestic Firms Continued improvement in the number of unverified accounts

9 9 DE-RISKING To combat de-risking, banks must:- stay abreast of legal and regulatory changes adapt and evolve to retain their CBRs leverage available technology (to reduce the costs and inefficiencies) continue to demonstrate commitment to their AML/CFT compliance programs These complement policy level actions.

10 IMPACT of International Regulatory Initiatives Increases uncertainty in the sector Erodes the historical competitive advantage of The Bahamas Increases SFI s compliance burden, reporting obligations and the risks and costs of servicing clients Requires a new value proposition Compels an innovative response May re-shape domestic policy

11 IMPACT of International Regulatory Initiatives Reshaping domestic policy Tax reform policy and BEPs analysis could expose unnecessary threats to monetary and fiscal stability Corporate vs personal taxes; rates of taxation; exchange control/national investment policy Resources & capacity constraints in policy and technical responses point to suboptimal regulatory structure at agency Examples: regulatory guidance notes; risk-based supervision, onsite supervision

12 Fintech Innovations Public policy should not stiffle: Developing standard setting bodies consensus is to regulate where financial stability other systemic risks emerge; scale of impact will matter for timing of action. Bahamas will need a forward looking, proactive regulatory infrastructure: Being forward looking as to the market conduct risks for cryptocurrencies Avoid any posturing based on adverse international regulatory arbitrage

13 Fintech Innovation In The Bahamas, Fintech companies (and digital currencies) have the potential to:- reduce our reliance on physical bank branches, cash and cheques promote financial inclusion lower transaction costs and expedite service delivery introduce better and more tailored financial services

14 Some Data 14

15 Economic Contribution Expenditures of the Banking Sector (B$M) Staff Other GovFees

16 16 Sector breakdown of Bank s contribution (B$ Millions) Domestic International

17 In 2000, The Bahamas overhauled its legislative system to enhance financial supervision, and deter money laundering and other criminal abuses. These developments have impacted the composition and number of licensees

18 Shifting business models In an effort to eliminate shell banks, physical presence requirements were introduced in 2003 Almost all licensees are now physically present.

19 Shifting business models Employment Implications of Physical Presence Requirements 6000 Total Employment in Banking Sector (Bahamians vs. Non-Bahamians) Bahamians Non-Bahamians Total employment

20 1400 Shifting business models Employment in International Banking Sector Bahamians Non-Bahamians Total Employment

21 Shifting business models Employment in Domestic Banking Sector Bahamians Non-Bahamians Total

22 Employment in Domestic Banking Sector Employment in International Banking Sector Bahamians Non-Bahamians Total Bahamians Non-Bahamians Total Employment

23 These and other changes have resulted in a decline in both Public and Non- Public licensees Shifting business models

24 Bank s Balance Sheet 700,000 Total Claims and Liabilities in the Int'l Banking Sector (in USD millions -- BIS Data) 600, , , , , ,000 0 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Total Assets Total Liablities

25 25 Having international voice is important Mechanisms and forums exist to voice concerns on impact international standards. Evidence or data based interventions are more effective ways to persuade change than anecdotes. CARICOM (Both at the political and agency levels of governments) IMF/World Bank (Political representation) FSB Regional Consultative Group for the Americas OECD Global Forum; CFATF, Many other industry specific regulatory bodies

26 Conclusion The financial sector in The Bahamas remains under significant international pressures More reforms at the structure of the regulatory systems will have to be prioritized Further clarity is needed on the value proposition to skillfully navigate adverse spillovers on domestic policy space

27 Thank You!