More fallout

Budget poses uncalculated risk – Stephen

Economist Jeremy Stephen has poured further cold water on Minister of Finance Chris Sinckler’s recent Budget, saying it had not taken into consideration the serious threat posed by de-risking to the very survival of the vital international business sector.

Among the measures announced by Sinckler in his March 30 Financial Statement and Budgetary Proposals was a controversial two per cent levy on all foreign exchange transactions.

Stephen observed that the levy was due to take effect here on July 1 but the process for implementation had not yet been spelt out by Government.

And while it was among the proposed short-term solutions to conserving foreign exchange, the economist said when taken with a lack of domestic legislation, it “showed a clear disregard for the whole effect of de-risking”, which is the umbrella term used to describe strategies adopted by global banks to lower the overall risk exposure of their asset portfolio in response to tighter regulatory standards imposed by national and international regulatory bodies.

From left: Economists Jeremy Stephen and Ryan Straughn, and Manager of Compliance at Republic Bank Michelle Williams-Boyce during today’s panel discussion.

This has led to termination of correspondent banking relationships with local banks, as well as strategic market repositioning, withdrawal from selected markets, closure of the accounts of selected clients and classes of clients, and relocation of business , particularly to the US, to take advantage of regulatory arbitrage.

Antigua and Barbuda, Barbados, Belize and Jamaica are among regional states which have reported that they have begun feeling the impact of de-risking.

Addressing business leaders at a breakfast seminar this morning at the Lloyd Erskine Sandiford Centre, Stephen said “not only now are we raising the whole spectra of de-risking, but we also have a two per cent commission to pay on top of any transaction that you are going to do and there is no clarity although two weeks from now it seems as if it is going to be business as unusual”.

He further warned that the measures would make more challenging to do business in Barbados.

“The whole point I am making is that we have domestic policies that are not paying attention to a lot of these external policies. Suppose all the banks had to be de-risked in Barbados? Now you have a compounded issue where you still need to use US dollar on a credit card, but purchase something out of Europe you have to pay a two per cent fee but you are not certain if the transaction will clear,” Stephen said.

He suggested that commercial banks and other financial institutions in the region could not afford to sit back and wait for their ties to be severed, but that they must begin to form closer ties with financial institutions in Asia and Africa.

The University of the West Indies lecturer also suggested that local and regional financial institutions consider block chain technology to help mitigate the challenges surrounding de-risking.

“I am just saying there are several alternatives that we need to open our minds to now. Even if we can’t engage in a meaning full relationship that has economies of scale there are options.

“Last but not least, advocate for clarity with respect to budgetary proposals that are now out but might also come up in the near future because with the impending incidents of de-risking you definitely need clarity especially in these times,” he added.

Meanwhile, pointing to the “unprecedented” increase in regulations over the past decade due to perceived abuses of the financial system, BIBA President Gregory McConnie said the issue of de-risking had reached a critical point.

“Loss of access to basic financial services and payment mechanisms can really only result in the unbanked seeking alternative methods in order to up their business, and that can only lead to an even larger unregulated or black market,” warned McConnie.

He also said the issue of US banks cutting ties with some businesses here had been “extended to some international business sector customers where commercial banks would have seen these customers as too high risk to maintain banking relationships with.

“Competitiveness and attractiveness of Barbados as a place to invest and to carry on business continues to be eroded by the challenges we have with the ease of doing business that seem to just continue to mount. This has been exacerbated by the significant impending budgetary tax increases that we expect will almost certainly drive inflation to near double digit levels and also likely to have a shrinking impact on the economy,” he said, adding that the lack of clarity on how they will be implemented did nothing to quell investor uncertainty.

“As serious as the issues of ease and cost to doing business, as well as the negative impact of potential uncertainty are, we think that ultimately they pale in comparison to the very serious implications that de-risking, taken to its ultimate extreme, could have on the overall economic development of Barbados,” McConnie warned.

Legal Counsel at the Central Bank of Barbados Sadie Dixon gave the assurance that the concerns regarding de-risking were being addressed at the highest level among regional states and the international community.

marlonmadden@barbadostoday.bb.

22 Responses to More fallout

  1. Renee Ricardo Harewood
    Renee Ricardo Harewood June 15, 2017 at 3:17 am

    We need a man like Trump in our country to fire ministers, we cant have ministers doin as they like when makin decisions that would make us suffer more.real talk

    Reply
    • Santini More
      Santini More June 15, 2017 at 7:08 am

      When you say a man like Trump do you truly think a racist, sexist, narcisistic, disabled mocking, lying, uneducated person is who would be most effective in Barbados at this point in time?

      Reply
    • Renee Ricardo Harewood
      Renee Ricardo Harewood June 15, 2017 at 7:35 am

      The mindset he has he doesnt wast time You’re Fired

      Reply
    • Renee Ricardo Harewood
      Renee Ricardo Harewood June 15, 2017 at 7:36 am

      The mindset he has he doesnt wast time..You’re Fired

      Reply
    • Renee Ricardo Harewood
      Renee Ricardo Harewood June 15, 2017 at 7:36 am

      The mindset he has he doesnt waste time..You’re Fired

      Reply
  2. Itz Queen
    Itz Queen June 15, 2017 at 7:01 am

    From what I observed about the minister of finance,he very thin skin and pride is in the way of his common sense,downgrades have embarrassed him and and to have another will be blow .he want out and his behavior speak loud to this.

    Reply
  3. Santini More
    Santini More June 15, 2017 at 7:10 am

    “More challenging” is obviously a euphenism for “bloody impossible”. This budget is a job killer.

    Reply
  4. F.A.Rudder June 15, 2017 at 9:58 am

    International banks have experienced a contraction in economic activity around the globe and their economists along with world stock markets have given them indicators for them to do implement some harsh measures globally. Our National bank would have been a sheltering harbor in these economic knee jerk times maybe our credit unions can come together to form “First Bank of Barbados”!

    Reply
  5. Carson C Cadogan June 15, 2017 at 10:18 am

    They are all singing for their supper.

    Reply
  6. Carson C Cadogan June 15, 2017 at 10:23 am

    Would it not be better for Jeremy Stephen to ask Mia to produce her LLB and Law Certificate for every one to see?

    if some one of the rank of The Hon. Dr. Dennis Lowe challenge your legal qualifications in the Parliament of all places in Barbados, would you not within an hour produce your LLB and LEC to shut him up as he did to her?

    Not come TWO YEARS LATER DISPLAYING O levels certificates.

    One would especially want to rubbish HIS CHALLENGE especially if one IS ALSO A QC.

    Is this why OWEN ARTHUR has been fighting for years for her not to become Leader of the Barbados Labour Party and possibly a PM in Barbados? He had to know this all along and the danger it poses to Jurisprudence in Barbados if this became known. We recall OWEN ARTHUR made Clyde Mascol “”CO-LEADER”” of the Barbados Labour Party.

    Reply
  7. Milli Watt June 15, 2017 at 10:25 am

    stupse de risking my arse………people want to know you can pay your debts now that is a RISK once you clear that hurdle then you dig out the undesirable elements. Finance Minister got it right balance the budget, get that credit rating up…………..remember all a we responsible fuh dis ALL

    Reply
  8. Carson C Cadogan June 15, 2017 at 10:29 am

    Is Jeremy is properly qualified in economics, the inexact “science”?

    It is said that if you ask 12 Economists a question one would get 12 different answers to the same question.

    Reply
  9. Toyab June 15, 2017 at 10:29 am

    I’m confused, didn’t the PM state they are looking to re-visit the 2% foreign exchange charge, but then we have MoF who said yesterday, there will be no changes to the budgetary measures.

    I am confused as to who leading this country. Is it the PM or MoF?

    At the end of the day, we rely on the International business sector, whether we like to accept or not, so this fee will affect them greatly. This will result in more of these business closing, more people unemployed, loss of revenue for gov’t, increase unemployment benefits and it continues.

    MoF you asked for suggestions, people have been giving you suggessions, but you prefer to ignore and come back and talk about where are the suggestions.

    My sugesstions are: fire all the people that are responsible for gov’t departments where the figures don’t add up to the auditor general’s figure, fire all those who have stolen money from the gov’t, let the school children pay bus fare, dun with the free summer camps, fire all those persons who are unproductive in their posts, create a group to monitor customer service in the gov’t departments and fire those who are unprofessional, reduce the number of high end gov’t vehicles used for couriering and these vehicles should be parked on the compound at the end of the business day.

    So yes i said it, send home some of the people, close the constituency counsels, let the school children pay bus fare and make sure you put some legislation in place that makes it mandatory for anyone being eligible in becoming MoF, they must be knowledgeable in ECONOMICS.

    Reply
  10. joan Worrell June 15, 2017 at 10:57 am

    I have posted an article captioned

    ”De-Risking: The ‘Perfect Hurricane’ Threatening Caribbean IFCs” written by Alicia Nicholls of the Caribbean Trade Law & Development”.

    However it is awaiting approval from B.T editor. If it is not published in its entirety, please Google it ,read it to understand what de-risking is all about and draw your conclusions on the timing of Mr Jeremy’s pronouncements. God Bless the Internet.

    Reply
  11. jrsmith June 15, 2017 at 11:06 am

    All of these experts coming out the wood work now its time to vote again, attacking the (Minister of Finance) who would challenge him to a debate letting us see all of these clever people.
    ,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,I will give full marks to the present government , to have fool the educated bajan people for the past 2 political terms.. making sure the 1% of our nation plus themselves , have no real concern as to the black masses in barbados whether the people sink or swim…
    *****************************************************
    The clever way in which they have allowed to hide 900 millions dollars from our treasury , with out the opposition lifting a finger and have gotten away with it……… What i would want to know if the (BLP) won the next election , would they go after the crooks who steal our money, ……………………. If all parties in opposition cant agree to recover our money , bajans dont vote for them, this mean they would do the same…………………………….

    Reply
  12. joan Worrell June 15, 2017 at 12:07 pm

    Economists are a special breed of people. They are no different from the old ‘’village bush doctors’’ who prescribed a thousand and one different bush teas to cure blood pressure. They know what is wrong with something but they can’’t tell you the correct way to fix the fault. It isn’t only Barbadian economists, the ones in U.K know what is wrong with European Union and called for a BREXIT cure and all hell has broken loose since they have had the referendum . Trump’s advisers knew how wasteful Obamacare was but are yet to find a suitable replacement. Hollande in France knew what was wrong with austerity and he tried anti-austerity measures. He was a failure and bowed out of the recent elections for fear of being disgraced at the polls. Jeremy Corbyn promised that he would roll back the Tories’ welfare cuts before election date was announced . However when it was time to publish his manifesto, no such promise appeared in it. There is a saying that you can fool us some of the times but not all the time. Well economist have proven us wrong. They fool us all the time.
    I will wait to see if B.T will publish the De-risking article which I posted . If it isn’t published, then they will be confirming what the editor of another Blog wrote almost 2 years ago when the topic first surfaced quote ‘’This is the kind of information our media and government actors should be creating awareness in the region. Instead our priorities appear to be located elsewhere. In Barbados the dearth in the media and wider space on financial and trade matters belies the fact we are labelled an educated people.’’ Ends quote

    Reply
  13. Peter June 15, 2017 at 1:39 pm

    A Bajan guy who lives in NYC sent me the following… Peter, If a reallyn upset, tire4d and stressed Bajan who can’t tek it no moe get ah few o’dem easy to get high powered gluks, go into DEMs headquarters dey pun Georgr Street an start tekkin out from Fruendel to Chris an bout ten o’DEM . How much o DEM gon raise DEM han in de air an say dem want to become a politician?

    Crson c cadogan . Understand me clearly . This is NOT A THREAT! um is Just a wuh you think? question……. I write back that DEM buddy Stephen Blackett promise Blood gine flow in de street an Noboddy ain’t tell he niffen. Stuartee can’t even fire he. But I cud unerstan he desperation. All I gon do is pray fuh dis cun-tree.

    Reply
  14. smiley June 15, 2017 at 3:18 pm

    BARBADOS NEED TO PRAY FOR THE NEXT GOVERNMENT THIS DLP DON’T KNOW WHAT THEY ARE DOING.BLP CAN’T SAY WHAT THEY WILL DO IF ELECTED.POWER HUNGRY PEOPLE ARE DESTROYING THE COUNTRY…. WE NEED A MOSES TO DELIVER US LORD HELP.

    Reply
  15. jrsmith June 15, 2017 at 5:04 pm

    We need a black Jesus, not a fake one , (NELSON MANDELA) our own, the brown haired blueyed one belongs to them white folk….

    Reply
  16. greengiant June 15, 2017 at 5:45 pm

    I love economists, as you said Joan they can diagnose every economic weakness, but to prescribe a cure that will definitely work is beyond their skill. Every economic solution that’s been tested and proven was unique to the particular environment. There’s no one shoe fit all economic solution.

    My only concern with the announced austerity measures is, I believe a time period should be given for certain targets to be met. This will place citizens in a position that they can sacrifice with a plan. However I know the vehicle will be serviced, refueled, and ready to drive come election 2018. I hope whoever the driver is that they get enough practice now. To be a good government, you have to hone your skills in opposition. Like in the Exodus, the time in the wilderness prepared the children of Israel for the promised land.

    Reply
  17. joan Worrell June 15, 2017 at 9:32 pm

    Now that the Minister of Finance proposed measures to correct the economic downturn, all we are getting is criticisms but no alternatives. Yes, I am unhappy with the proposals but day after day I am looking for alternative suggestions to austere measures locally and internationally but none are forthcoming. I was hoping that Jeremy Corbyn and his economic advisers would have won the elections so that we down here could copy his anti-austerity programs but he lost at the polls .
    The most recent criticism of the local budget is the effects the 2 % foreign exchange tax will have on the economic de-risking hurricane threatening Barbados. Since when have our economists addressed the threat of de-risking to our economy? How much does the average Barbadian know about de-risking? I am sure that half of the people who attended the meeting and possibly ¾ of them , left without understanding what de-risking is all about . We in Barbados will live in ignorance as long as the views of one set of people are highlighted on the front page of our newspapers.
    . The following is a statement from the Bahamas Central Bank on De-risking. I will post in two or three parts

    De-risking FAQs
    Published: Friday November 18th, 2016
    Frequently Asked Questions on De-Risking November 18, 2016
    Q1: What is “De-Risking”? A: De-risking is the intentional rejection or termination of financial relationships with clients or groups of clients considered “high risk” to avoid, rather than manage, risks. Chiefly, the risk of money-laundering and terrorist financing. One form of “de-risking” is the withdrawal (or ending) of correspondent banking relationships (CBRs).
    Q2: What are correspondent banks?
    A: Correspondent banks are usually large, international banks located in places such as the United States of America, Europe and Canada. They provide vital access to the international financial system by offering services to banks and financial institutions, including those that operate from or with foreign jurisdictions such as The Bahamas and the Caribbean.
    CBRs are essential for people and businesses to complete international payments. International payments and settlements are critical to developing regions of the world, because they support the trade in goods and services between countries, and the movement of capital and financing for businesses. For example, such arrangements allow consumers and businesses to:
    Receive payments for services provided to businesses and persons located abroad or payments for goods exported to other countries
    Make payment for purchases of goods and raw materials from abroad
    Make purchases online using credit cards or debit cards
    Wire funds abroad for various purposes such as medical expenses and college tuition
    Transfer wages earned to families abroad
    Q3: Why are correspondent banks important in The Bahamas and the Caribbean?
    A: The examples of transactions above are essential to the ongoing growth and development growth of our domestic economies and integration with the rest of the global economy. The flow of payments through and across countries also sustains the business model of international banks that operate inside The Bahamas. A loss of CBRs could threaten the region’s banking sector, as local banks would no longer be able to complete international transactions on behalf of their customers.
    Q4: How has The Bahamas been impacted?
    A: As a result of de-risking, withdrawal of CBRs has gained some momentum in the last two years. According to the Bank’s 2016 correspondent banking survey, approximately 26% of surveyed licensees indicated that they have been impacted by de-risking and/or the loss of a correspondent banking relationship. The impact has been primarily on standalone international banks and Bahamian-owned commercial banks.

    Reply
  18. joan Worrell June 15, 2017 at 9:36 pm

    All banks in the Bahamas still enjoy access to correspondent banks. However, some institutions have either had to establish new relationships or rely on fewer remaining ones. Both finding replacement CBRs and preserving existing relationships have become more demanding with banks experiencing greater scrutiny of their operations. See the 2016 Correspondent Banking Survey findings for more details.
    Q5: What are the drivers of de-risking? A: The drivers of de-risking are complex, and vary by country. The 2007-08 global financial crisis brought significant change to the financial sector. International banks now face higher fines, penalties and litigation costs for failing to comply with a variety of new laws and regulations. Due to more aggressive and high profile enforcement, there is also fear of reputational loss from being identified as conduits for money laundering or financing of terrorism. In addition, the ability to generate income from the deposits held in correspondent accounts have diminished considerably. These all impact profitability and the attractiveness of maintaining certain business relationships.
    Among other things, this has raised concerns about: – serving higher-risk categories of customers; – the rising compliance costs; – complex Anti-Money Laundering (AML) and counter-terrorist financing (CFT) requirements with greater risk of fines and reputational damage
    Global banks are also reluctant to operate in countries and regions that are perceived to be higher risk, for example, due to the existence of “offshore” banking centres or perceived gaps in international tax transparency.
    In response to these concerns, banks have adopted a range of approaches. These tactics are largely known as de-risking strategies. In addition to the termination of CBRs, some of these are: strategic market re-positioning, exiting certain markets, closing the accounts of selected clients and classes of clients, or relocation of business.
    Q6: What are Caribbean governments and regulators doing about de-risking?
    A: There has been a great deal of engagement on this topic, both at the international and regional levels. While being receptive to continued improvement in their anti-money laundering and combating financing of terrorism frameworks, Caribbean governments and regulators have consistently called for clarity from outside regulators and authorities to identify the specific gaps in Caribbean regulatory systems that pose “high-risk” concerns. Along with banking sector, stakeholders in affected jurisdictions have successfully lobbied for more attention to be given to providing clearer guidance on how correspondent banks should manage rather than sever high risk clients and relationships.
    The Caribbean Community (CARICOM) has also committed to the Financial Stability Board’s (FSB) four-point plan to address de-risking. A key part of that plan is building capacity in the countries where banks have been affected. In this instance, “capacity building” refers to any number of activities, from making the necessary changes to laws, regulations, and policies; to ensuring that those working within financial institutions have the necessary guidance, skills and training.
    The discussion to understand and find solutions to de-risking has taken place in both regional and international forums which brought together, in the same rooms, Caribbean central banks and bank supervisors, US regulators and US law enforcement agencies, other foreign regulators, correspondent banks, Caribbean commercial banks, the FATF and FSB. Important studies to coalesce the issues have been undertaken by the IMF, World Bank and Commonwealth Secretariat.
    Q7: How are we addressing this challenge in The Bahamas? A: Like other regulators in the region, the Central Bank has participated in working groups and dialogue at the domestic, regional and international levels.
    The Central Bank has generally raised awareness about the need for its licensees to remain compliant with AML and CFT regulations, and in alignment with international bodies such as the Financial Action Task Force (FATF). Other regulators and government entities have done the same.
    In December 2015, the Bank released enhanced guidance on Anti-Money Laundering and Countering the Financing of Terrorism. This re-emphasized the high level of due diligence that banks and trust companies are required to observe when establishing and maintaining relationships with both local and international clients. Financial institutions are required to know at all times the ultimate persons either benefiting from or in control of funds passing through accounts or resting in accounts. Alternatively, they must have assurance that other banks or trust companies from which the funds originate can provide such answers. Institutions must also maintain adequate systems that can flag transactions that are suspected of being criminal in nature and report them to law enforcement agencies for investigation.
    The Central Bank continues to monitor the market by gathering information through surveys and interviews. The Bank also intends to provide ongoing support to the regulated community regarding this important topic.
    The Bank is also committed to working with other regulators, and the public, to develop policies for the government that help manage risks in the sector. Examples of this include promoting reforms that provide greater access to domestic banking services by all persons, thereby reducing the prevalence of untraceable activities outside the banking system. The Bank is also accelerating efforts to modernize the payments system and provide consumers and business with greater access to non-cash means of transacting. These are offshoots of a policy to promote financial inclusion.

    The greater ease of information flow and information sharing between financial institutions is also important. The Central Bank will explore how this can be achieved through changes in laws and regulations, including approaches that would allow financial institutions to share the cost of investments in automated systems for transactions monitoring.
    Other measures are discussed in the Bank’s press release dated 18 November, 2016: The Central Bank: Managing the “Threat” of De-risking in The Bahamas.

    Reply

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