International Challenges in Bahamian Banking Policy: Navigating Rules and Compliance

The speech delivered at the Nassau Conference in 2017 by Charles W. Littrell highlights the international challenges faced by Bahamian banking policies. It discusses the origins of prudential rules, compliance with Basel Committee and FATF standards, benefits and drawbacks of international rules, potential consequences of non-compliance, and proposes a new approach to balance international compliance and local priorities.

• Bahamian banking
• International rules
• Compliance
• Banking policy
• Prudential rules

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1. BAHAMIAN APPROACHES TO INTERNATIONAL BANKING RULES Speech to The Nassau Conference 4 October 2017 Charles W. Littrell Inspector of Banks & Trust Companies Central Bank of The Bahamas

2. International Challenges to Bahamian Banking Policy Where do the Rules Come From? Prudential rules: Basel Committee AML/CFT: FATF 2

3. International Challenges to Bahamian Banking Policy Benefits of International Rules Cross border comparability Vaccination herd protection Expert rule-makers 3

4. International Challenges to Bahamian Banking Policy The Drawbacks of International Rules The rules aren t made by or for The Bahamas BCBS focus is on huge, multinational banks FATF focus is on avoiding risk at all costs Reaching consensus leads to complexity Reduces small country sovereignty 4

5. International Challenges to Bahamian Banking Policy What Happens if The Bahamas is Less Than Compliant? FSAP: Sovereign credit ratings, cross border credit access FATF: Correspondent banking relationships Downside cases: credit squeeze, inability to access foreign currency, closed banks, impaired economy 5

6. International Challenges to Bahamian Banking Policy FSAPComparison Table Largely Compliant Partially Compliant Country Compliant Noncompliant Bahamas 2012 UK 21 9 0 0 20 9 0 0 USA 18 11 0 0 Canada 22 7 0 0 Singapore 25 4 0 0 6

7. International Challenges to Bahamian Banking Policy A New Bahamian Approach on Prudential Rules Former approach: comply and make fit locally New approach: three rule classes: International Compliance Useful Combination of the two Compliance rules: meet the international rule at minimum (ideally zero) local cost Useful rules: do what makes sense for The Bahamas Combination: Balance safety, efficiency, competition, while remaining compliant 7

8. International Challenges to Bahamian Banking Policy Implications for Bahamian Prudential Rules Much simpler More conservative than Basel minimum More stable Lower compliance costs 8

9. International Challenges to Bahamian Banking Policy COMPARABLE FATF EFFECTIVENESS ASSESSMENTS High Substantial Moderate Low Bahamas 2017 0 0 5 6 Jamaica 2017 0 1 4 6 USA 2016 4 4 2 2 Canada 2016 0 5 5 1 Singapore 2016 0 4 6 1 9

10. International Challenges to Bahamian Banking Policy COMPARABLE FATF TECHNICAL COMPLIANCE RATINGS 10

11. International Challenges to Bahamian Banking Policy Why no FATF Progress? Some items: because we made no progress Other items: because standards keep lifting Result: The Bahamas is in essence on probation Another evaluation scheduled for 2018 11

12. International Challenges to Bahamian Banking Policy The Central Bank s FATF Strategy Create a comprehensive AML/CFT supervision framework Clarify guidelines/regulations where possible Expand industry participation Work with Government on legislation and enforcement Work with other regulators on open issues May 2018 delivery date 12

13. International Challenges to Bahamian Banking Policy What does Continuous AML/CFT supervision look like? Yet to be fully developed Annual cycle of formal review Mainly document based with some data Closer engagement with MLROs, compliance, audit More and sharper supervisory interventions 13

14. Can the Central Bank Help Industry Reputation? Annual report on AML/CFT in Bahamas Like Financial Stability Report? Annual AML/CFT conference? Provision of annual status letter to each relevant SFI? Helps with correspondents? 14

15. International Challenges to Bahamian Banking Policy What Do We Need From Industry? Continued compliance with legislation, guidelines From compliance to risk management Clear unverified accounts STRs Be prepared to spend some money Third party review? More statistics? 15

16. International Challenges to Bahamian Banking Policy The Special Case of Low Risk Bank Accounts Risk-based seems to mean lots of paperwork Maybe move to menu-based system? Safe harbor for complying banks? 16

17. International Challenges to Bahamian Banking Policy Summary on AML/CFT We must improve, and rapidly We have a lot of work in front of us. Industry participation and cooperation is critical. The stakes are high 17

18. International Challenges to Bahamian Banking Policy Thank you 18