The small business community in the Caribbean has had a love-hate relationship with the commercial banking sector. The savings & deposits instruments, and other services provided by banks for business transactions, are seen as a necessity for the effective functioning of the business. However, based on the monopolistic nature of these entities, clients are often disadvantaged due to the unjustified high fees and arduous administrative burdens imposed. Some even argue that they are ‘lords unto themselves’ with little or no regulation in the market to protect the vulnerable.
In Barbados, there are a couple of banks that are considered small business friendly, as these have overtime adopted policies and programmes that enable business more so than retard their growth.
Business Basics is concerned with the majority of these institutions that appear to make it difficult for small firms to efficiently use their services. In citing their frustrations with some of the processes encountered in their interactions with some commercial banks, several small business owners opined that the Caribbean market may now be a ‘nuisance market’ for some brands.
The last decade since 9/11 has witnessed enhanced regulation in the financial sector, based on the view that the international financial architecture requires greater transparency and accountability. The global institutions have preached a gospel of needed financial reforms characterised by new Know your Customer (KYC), Politically Exposed Persons (PEPs) and Anti-money Laundering (AML) policies. Governmental regulators, banks and other financial institutions have been converted to the idea that these new policies will help to track terrorism financing, expose money laundering and crack down on those corrupt regimes that aid and abet the proliferation of criminal activity.
While the jury remains out on this, some evidence suggests there has been no retardation of terrorism funding, corrupt political regimes continue to exist, and money continues to be laundered in some of the most sophisticated financial systems in the developed world. US-based FTI Consulting published a report last year, which proffered that in 2020 compliance spending topped USD$213 billion worldwide, however funds estimated to have been laundered reached upward of USD$2 trillion for the same period – nearly nine times as much.
What has been the result of these new policies on small economies like Barbados? – increased regulation and administrative burden that makes doing business more arduous. In the area of banking compliance, small players are made to jump through hoops in order to open and operate a business account. Government regulators continue to impose onerous processes in the guise of compliance and some banks, otherwise headquartered outside the region, employ policies that are questionable in the realm of practically.
Several complaints have been made over time by business practitioners but one that challenges any right-thinking individual, is the request for the business to provide 12 months financial statements in order to open a business account and in some instances audited financial statements. In the proverbial saying of many activists today, mek it mek sense!
Anyone who logically assesses this requirement must conclude one thing – this does not make sense. Setting up a current account at the start of the business is encouraged to ensure a proper record is maintained of payment transactions. This account also aids in financial reporting for tax purposes, provides a history of the business operations, ensures transparency and an accurate record of the firm’s income and expenditure. How then can a firm produce statements after a year’s operation without a current account? Where was the income stored for the twelve-month period; how were payments made to vendors, staff, etc.? This is but one example of policies not being aligned to common sense and practicality but being adopted hook, line, and sinker from misguided sources.
Beyond the general KYC information, another area of consternation is the introduction of the PEP requirement – an example of foreign dictates in circumstances where the practicality can be challenged. In Barbados and other small jurisdictions, most adults can be considered PEPs. They are family and/or close associates of parliamentarians, Board chairs and directors, senior public servants, etc. In circumstances where there are two major political parties in Barbados, which tend to form the government at a point in time, most citizens will at some point fall into one or more of the above categories. It therefore begs the question why this term, PEP, has been accepted in the lexicon of business regulation in the Caribbean.
For the avoidance of doubt, these issues are not unique to Barbados. A scan of the financial system in Jamaica, Trinidad & Tobago and the Bahamas reveal some similarity in the requirements to open business accounts with commercial banks. This is not to be a surprise since some brands are Pan-Caribbean and operate in several jurisdictions. The added requirement of being registered with the Financial Intelligence Unit is noted in the conditions in some regional territories.
It is not being advocated that banks return to any archaic system of operation. We appreciate that times have changed, and market conditions necessitate that institutions keep pace with change. It is however required that the medicine fits the illness. In the quest to be compliant there must be a commitment to policies and procedures that fit the business environment and local culture. It should be about enabling business to be done and done profitably – after all it is still about the economy.
