Recent discussions on the call-in programmes, social media posts, and complaints to Business Support Organisations, reveal that consumers – individuals and businesses alike – are unhappy about the manner in which some banks are applying the new AML/KYC reforms.
The hoops to go through to open an account have been described as exhaustive by many, with overseas companies opting at times to set up business in other jurisdictions. New start-ups, young people having their first job, those from the Diaspora, etc., have all recounted the stories of excessive regulations and requirements to set up an account. It has been so ridiculous that in one instance a start-up was asked to provide financial statements to open the account – imagine a start-up with no historical data and in need of an account to help create a record of financial activity. A clear case of the cart before the horse.
The most recent humbug is the retrospective due diligence regime.
Appreciatively, the country wishes to maintain compliance with international rules fearing the proverbial blacklisting that can occur. Backlisting, which appears to be only applicable to small open economies in circumstances where these countries’ contribution to global trade and global governance is minuscule, to the point of not being quantifiable.
The demand for AML/KYC compliance has ushered in a regime of onerous regulations and requirements that threaten the otherwise longsuffering and tolerant nature of the Barbadian spirit. The most recent development has been the blocking of customers from accessing their funds due to the accusation of being uncompliant.
Some banks have simply gone too far! While it is appreciated that updates are needed to personal and company records to satisfy anti-money laundering and know your customers’ rules, the steps being adopted by some are draconian, to put it mildly. In the normal course of commercial activity, customers are being met with the embarrassing reality that they cannot access their funds to pay vendors. They are being informed their accounts were blocked. What compounds the madness is the kind of information being given in some situations. Some customers were told:
- There was no need to update the data if there was no material change to the previous records
- Only persons with US accounts need to update their records
- Information can only be updated by physically visiting the bank.
This latter point defies doing business in a digital environment. There are ways to complete these transactions in a secure and convenient manner using technology.
There are even examples of people visiting branches to update their information but still unable to access their account from another branch of the same institution.
It is understandable that the changes in retrospective due diligence requirements in Barbados are influenced by international and regional efforts to enhance compliance with AML and Combating the Financing of Terrorism (CFT) standards. It is recognised that the country has implemented these updates primarily to address the findings of mutual evaluations conducted by the Caribbean Financial Action Task Force (CFATF). These evaluations assess the effectiveness of AML/CFT frameworks and identify areas requiring stronger enforcement, particularly in response to global standards set by the Financial Action Task Force (FATF).
Some argue that since Barbados was not compliant with the FATF standards, i.e. it was put on the grey list, the FATF produced a mutual evaluation report in 2018 to provide Barbados with the relevant measures to be AML/CFT compliant – the country’s’ response was the creation of the AML/CFT Guidelines 2021. The main contention in this article is the way some banks are applying the rules. The experience of ordinary Barbadians in having their accounts blocked in questionable circumstances cannot be fair application of the guidelines.
Even the OECD in a recent note on Regulatory Developments concerning Due Diligence for Businesses opined that there are areas of the AML/CFT compliance regime that can negatively impact small firms. These include:
- Resource Constraints
Small businesses lack the resources, both human and physical, to manage complex due diligence processes. Time spent on compliance activities could detract from focusing on growth and customer service, particularly where personnel typically wear multiple hats.
- Increased Costs
The need to comply with retrospective checks may lead to additional costs for small businesses. For some firms this might be a financial strain.
- Legal and Regulatory Uncertainty
Even though they may be aware, micro, small, and medium enterprises often struggle to interpret complex legal frameworks. As a result, may need to hire personnel to assist with understanding and complying with the rules.
- Supply Chain Pressures
Small businesses often have limited influence over the larger entities within their supply chains, which complicates the implementation of due diligence measures. The challenge is further amplified when supply chains span multiple countries, as navigating varying frameworks becomes increasingly complex.
It is not advocated that small firms and individuals should not be compliant. The process being employed by some needs to be reviewed and better regulated. In support of the OECD guidelines two obvious solutions can be adopted immediately:
- Scaling Guidelines
As MSMEs vary in size, a way to combat the negative impact of the rules is to ‘tailor reporting obligations’ based on the size of the firm.
- Extended transition time
The Central Bank should appreciate the difficulties that small firms face when complying with the guidelines and provide MSMEs with additional time to gather the relevant documentation/information before penalties are applied.
