Global Banking Issues and the Impact on Financial Services in The - - PowerPoint PPT Presentation

Global Banking Issues and the Impact on Financial Services in The Bahamas

Presented by Governor John Rolle IBFS Summit 2nd March, 2018

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.

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› 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…

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Some High Level Observations

› 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

International Developments Impacting the Jurisdiction

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

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.

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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

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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

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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.

DE-RISKING

IMPACT of International Regulatory Initiatives

˜ Increases uncertainty in the sector ˜ Erodes the historical competitive advantage of The

Bahamas

˜ Increases SFI’s compliance burden, reporting

• bligations and the risks and costs of servicing clients

˜ Requires a new value proposition ˜ Compels an innovative response… ˜ May re-shape domestic policy

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

Fintech Innovations

› Public policy should not stiffle: Developing standard

setting bodies consensus is to regulate where financial stability other systemic risks emerge; scale

• f 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

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

Some Data

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Economic Contribution

100 200 300 400 500 600 700 800 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

Expenditures of the Banking Sector (B$M)

Staff Other GovFees

Sector breakdown of Bank’s contribution (B$ Millions)

16 100 200 300 400 500 600 700 800 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Domestic International

These developments have impacted the composition and number of licensees

In 2000, The Bahamas

• verhauled its

legislative system to enhance financial supervision, and deter money laundering and

• ther criminal

abuses.

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

Shifting business models

Employment Implications of Physical Presence Requirements

Shifting business models

1000 2000 3000 4000 5000 6000 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

Total Employment in Banking Sector (Bahamians vs. Non-Bahamians)

Bahamians Non-Bahamians Total employment

Employment in International Banking Sector

Shifting business models

200 400 600 800 1000 1200 1400 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Bahamians Non-Bahamians Total Employment

Employment in Domestic Banking Sector

Shifting business models

500 1000 1500 2000 2500 3000 3500 4000 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Bahamians Non-Bahamians Total

500 1000 1500 2000 2500 3000 3500 4000 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Employment in Domestic Banking Sector

Bahamians Non-Bahamians Total 200 400 600 800 1000 1200 1400 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Employment in International Banking Sector

Bahamians Non-Bahamians Total Employment

These and other changes have resulted in a decline in both Public and Non- Public licensees

Shifting business models

Bank’s Balance Sheet

100,000 200,000 300,000 400,000 500,000 600,000 700,000 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 Claims and Liabilities in the Int'l Banking Sector (in USD millions -- BIS Data) Total Assets Total Liablities

Having international voice is important

Mechanisms and forums exist to voice concerns

• n 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…

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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

Thank You!