Offshore banks face challenges with local banking

| 08/10/2015 | 3 Comments

CNS Business(CNS Business): The problem of local retail banks no longer wanting to do business with money transfer firms as a result of perceived regulatory risks is also beginning to impact offshore, or Class B, banks registered in the Cayman Islands, the premier has revealed. Following widely reported concerns over the last few weeks regarding expatriate workers and the cash remittance challenges because of the position taken by the high street banks, the problem appears to be having a far wider impact and is now affecting the offshore sector.

As the Cayman Islands continues to deal with external pressures regarding regulation and reputation over its lucrative financial services industry, perceived pressures and risks by Cayman’s Class A banks and their American banking partners is also affecting their relationships with the Class B banks that are doing their banking business with overseas clients but still need access to local banking services for their financial transactions here.

During his speech to the Chamber of Commerce last week, when he spoke about the problems that money transfer businesses are facing, the premier indicted that concerns are being raised by the offshore banks of a similar nature.

“The Chamber has highlighted the issue of Class B banks also facing challenges in retaining local bank accounts. I can say that CIMA and the ministry are very aware of this and, as such, the ministry has already contacted the Chamber’s chair of the committee that is focused on this matter,” McLaughlin told the audience. “In the near future, the ministry will coordinate meetings with Class B banks that have concerns in order to better understand those concerns and how the ministry can best assist.”

Although he gave no further details, the growing reluctance of local Class A high street banks wanting to take cash from their class B counterparts appears to be as a result of the same risk-reward pressures surrounding the money transfer question, which are being posed by overseas regulators. There are concerns regarding the origins of cash that Class B banks would want to deposit with Class A banks locally, as local banks seek to comply with international as well as local regulations concerning terrorist financing and anti-money laundering.

It is understood that these are business decisions being made by the local retail banks based on perceptions of risk and in the interests of the banks. However, officials in Cayman have indicated that there is no evidence to suggest any genuine increase in risk.

The problem for the money transfer sector has been apparent over the last few weeks with the mounting shortage of US currency, but the Bankers Association has now confirmed with the Ministry of Financial Services that they are now importing sufficient cash to meet the increased demand.

This week most banks were able to offer at least $500 US cash to customers and non-customers on exchange, and although some banks reportedly demanded fees as high as $50 to undertake an exchange, enquiries by CNS Business revealed that $3 appears to be the most banks are admitting to charging as an additional service fee over and above the regular exchange rate of CI$0.84 for US$1.

The money transfer problem has caused real concern in Cayman, given the number of people using money transfer services each week. It is estimated that expatriate workers here send more than $180 million overseas every year, with the largest amount by far being sent to Jamaica. However, workers from the Philippines and Honduras also remit significant amounts.

Speaking about the issue, McLaughlin said government was working on the problem and he understood the challenges as he, too, employs four Jamaican workers.

“Like everyone else I have to scramble every Friday to find US dollars to pay them,” he said. “This issue is also damaging to our economy and we have to find a way to resolve is. The ministry, together with CIMA has been working to find a solution that once again allows remitters to transact in CI dollars.”

Commercial solutions were needed, he said, but government was doing everything it could to facilitate a resolution.

“We have already made some key decisions and I am optimistic that we will be able to announce at least a partial fix of the situation very shortly, but because of the sensitive nature of the commercial negotiations underway I regret that I cannot say more about that at the moment,” he added, as he urged people not to believe the “doom and gloom” on talk shows or “glibly expounded” simplistic solutions.

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Category: Finance, Financial Services

Comments (3)

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  1. Anonymous says:

    lolol…it now becomes a “problem” when it has trickled down to you

  2. Anonymous says:

    “Class B” banks are not real banks, and no one cares what happens to them.

    • Anonymous says:

      The Caymanians working for them care – I’m one!!!! Just because we do not take local deposits, nor supply services to residents, it does not mean that we are not real. Do you realize the amount of annual fees Government collects from us (yes, we pay license fees)? You will care when the revenue is lost and is no longer available for things such as schools, roads, hospital etc etc

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