Formed over 30 years ago with the aim of giving a voice to the sector, the Caribbean Association of Banks is now helping members push back against external threats
[dropcap]T[/dropcap]he Caribbean banking industry is a sector under siege. Faced with an onslaught of ramped-up regulation from global watchdogs, the region’s financial providers face a stark choice – comply, or face heavy penalties. The squeeze on so-called ‘tax havens’ began shortly after the 2008 global recession and has steadily intensified, leading Caribbean governments and bankers through various iterations of automatic exchange of information such as the US Foreign Account Tax Compliance Act, Base Erosion and Profit Shifting and, most recently, the Common Reporting Standard.
General Manager of the Caribbean Association of Banks (CAB) Mary Popo says this is a new era for the industry, with much at stake. “One of the things that has really changed [since the CAB formed in 1974] is the barrage of regulation and legislation that has impacted the sector,” she says. “We are not just little countries operating in silos, we are exposed to what happens externally and internationally.”
Many Caribbean nations rely on their financial services sector – as a means of employment and a substantial contributor to GDP – and, for these jurisdictions, a blacklisting can be devastating. Saint Lucia had its own brush with the EU’s notorious tax haven blacklist when it found itself named and shamed in December 2017. The country was removed from the list four months later but other Caribbean jurisdictions have not been so lucky, with some suffering extended stays on the dreaded list and others hopping on and off so rapidly that the industry can’t keep up. The resulting negative press does not help the Caribbean shed its image as a hideout for wealthy tax evaders.
“The reputational risk is huge,” says Popo. “Perception is very difficult to change. We have to be very strategic and we have to have a plan. It will take a concerted effort by heads of governments to come together and to really strategise on this and do the things we ought to do.”
The CAB is playing its part by ensuring the region has a seat at the table for any international discussions. CAB leaders are frequent attendees at IMF forums, international conferences and high-level meetings. Popo says: “CAB has played an important role in educating civil society, governments and the players in the industry. We provide information and raise the consciousness.”
DE-RISKING
Another pressing issue on the agenda for the CAB is helping its members overcome the effects of de-risking. In recent years, correspondent banks have retrenched, closing down operations in Caribbean countries as they attempt to cut costs and minimise risk. Popo explains: “It is a business decision. It is about the dynamic between risk and return. Every time you have another blacklisting it just exacerbates it. Correspondent banking relationships are so important for us. The financial services sector is the bedrock of the regional economy. It is our livelihood.”
Popo suggests that better communication, both with international banks and with the global financial services sector in general, can help the region maintain its correspondent banking relationships. Financial providers, governments and advocacy groups need to be more proactive and vocal about the region’s strengths, skills and stability.
Bankers can also look to technology to reduce costs and streamline their compliance infrastructure, using transparent, stringent and cost-effective measures to put international partners at ease. “Digilisation gives banks the tools they need [to deal with the threat of de-risking],” says Popo. “It helps them see where the gaps are [in their compliance infrastructure] and work to close those gaps. Over the past five years we have seen an acceleration of banks that spend on technology.”
Working with fintech companies can help banks automate their AML/CTF regimes and transform both back-office and front-of-house services. Innovation can help providers stay ahead of the curve and satisfy customers and regulators. Popo points to Application Programming Interfaces (APIs) as an exciting area with a lot of potential for financial institutions. APIs are an opportunity for banks to collaborate with fintechs, resulting in a more personalised customer experience, new revenue streams, new products and operational efficiencies. “APIs provide that connectivity, the fintechs are there and they are evolving,” says Popo.
With greater use of technology, comes a corresponding increase in vulnerability. Banks navigating this new space must make cybersecurity a priority. For Caribbean providers, it’s important to keep an eye on technology trends and prepare, says Popo who adds: “It’s like a hurricane – you know it is coming, so you have to ask yourself how you can prepare for it. Building resilience [to cyber threats] in the sector is critical.”
A BRIGHT FUTURE
The threats may be many and the challenges great, but Popo is sanguine about the banking industry’s survival saying: “The way we bank is changing and will continue to change [but] I’m optimistic about the sector’s future. Banking is here to stay, just not in its traditional form. We have to find new and innovative ways of doing business. We are in a transformative stage.”
Encouraging new blood into the sector will lead to new thinking in this transformative period, and the CAB is focused on supporting the next generation of banks through training, scholarships, mentoring and networking.
The organisation offers three US$10,000 banking scholarships every three years and has also teamed up with Bangor University and University of Wisconsin-Madison to provide scholarships to those schools. Popo says: “The opportunities for employment in the Caribbean are limited so financial services is a sector that gets a lot of young people coming in. It is an area that is attractive to them. Our young people are our future; we have to continue to encourage them and build their education.”
There is definitely no shortage of interest and passion in the sector. The CAB recently held its 45th conference in The Bahamas and around 250 attendees converged on the event to mingle, learn, debate and discuss. One of the main issues on the agenda was digitisation and how banks can arm themselves with technological know-how to withstand the challenges ahead. It is a topic that resonates throughout the industry, according to Popo, who warns: “Banking is evolving and we have to evolve with it and be ready.”
