Editorial | Banking reform welcome
Scores of small-business operators, minimum-wage earners, and others who were locked out of the formal banking system, because they could not meet eligibility requirements, can now breathe a sigh of relief as banks are beginning to relax some of the rules.
Typically, one needed identification and proof of address, and maybe a job letter, to open a new account at an established financial institution. However, the compliance checklist for opening an account grew substantially with the demand for at least two bank references or recommendations, a photo, and ‘Know Your Customer’ form.
Many minimum-wage earners were intimidated by these requirements, particularly because they could not easily get those references, and, understandably, they became frustrated.
Banks are necessary to keep an economy going. However, significant changes in the banking environment in recent years, aimed at fighting money laundering and terrorism funding, led to stringent measures being introduced by central banks to satisfy the demands of the correspondent banks.
For instance, the global financial community reportedly spent more than US$180 billion in efforts to ensure financial crime compliance last year. The new global regime, backed by laws and regulations, began a chain of reaction among banking leaders. Fear of dealing with ‘high-risk customers’ meant that an account could be closed on a whim if the customer was unable to provide the required documentation to prove his bona fides. Entire countries such as Cuba and Venezuela have been affected.
These measures have resulted in a significant portion of the population in Caribbean and Latin American countries being shut out of the system. They are either unbanked or underbanked — in any event, creating low banking penetration. But the same is not true in, say, the United States (US), where the compliance requirements appear less stringent.
ACCOUNTS OPENED IN MINUTES
Take an American customer. He could open an account within minutes by showing his driver’s licence, a utility bill as proof of address, and as little as US$100. Meanwhile, in many parts of Europe, accounts can be opened entirely online, the process being completed by uploading a selfie from a remote location. This includes all manner of accounts, such as savings, money market, credit card, or even mortgage. It is puzzling, therefore, that even with such liberal policies, the European Union (EU) added Jamaica to the blacklist for not being fully compliant with money-laundering guidelines.
The European Commission reports that one per cent of the EU’s annual domestic product is involved in suspect financial activities. It reports that around €160 billion is enmeshed in money laundering connected to corruption, arms dealing, human and drug trafficking, tax evasion, terrorism financing, or other illicit activities, so not exactly a success story after 30 years of the anti-money laundering regime. But the US and the EU are well connected in the global financial system and are, therefore, able to flex in a way that others in financial hubs such as Singapore and Hong Kong are not able to.
There is also the thought that some banks are only interested in clients who maintain a high credit balance, but we feel there must be space within the financial system for the small player, the ‘low-risk customer’, who wants to open and maintain an account and to receive his bank card, which would allow him the convenience of transacting business 24/7.
Many customers are unhappy with their banking relationships, and from time to time, they have complained to this newspaper about lack of transparency, poor customer service, and prohibitive due diligence for new-account opening. We welcome the fact that changes are being made following legislative amendments, and we expect to hear that small businesses and minimum-wage earners are now enjoying customer-friendly service at our banking institutions. With access to banking services, they will be brought into the formal system and have an opportunity to contribute to the country’s economic growth, which will be critical as Jamaica seeks to rebound from the COVID-19 pandemic. We urge the business community to monitor these new measures, for we feel that access to basic banking services should not be an obstacle course.