NCB drops cambios as clients
National Commercial Bank (NCB) of Jamaica has told Jamaica's cambio sector that it no longer wants their business, setting off a firestorm in the foreign-exchange market.
The Cambio Association of Jamaica has turned to the minister of finance to intervene and to mediate a resolution.
NCB is reportedly taking steps to close accounts for companies registered as money-service businesses.
The bank has not responded to repeated requests for comment on why it is taking such steps, but a draft of a letter written by the cambio association to Finance Minister Dr Peter Phillips indicates that it is meant to satisfy their foreign bankers.
NCB is reshaping its business ahead of a planned initial public offering of shares on the New York Stock Exchange.
"We wish to bring to your attention this situation which we consider very grave. For the third time in less than two years the money-services businesses, including cambios and remittance companies have been told by two major commercial banks that their business cannot be accommodated," read the draft letter.
RBC Jamaica was the first to drop the cambios. In 2011, RBC (before its rebranding from RBTT) closed all money services accounts.
Barrington Watson, head of business development at RBC, told the Financial Gleaner said that the traders did not satisfactorily meet some of the bank's internal compliance requirements.
Watson said he would provide details in a later statement, which did not arrive at press time.
Cambio association president Heather Ferguson said she would not comment on the issue.
"I know of an issue and I cannot speak on it until we have discussed it further with NCB," said Ferguson, who is also the FX trader at Barita Investments Limited.
The association's past president, Dennis Hickey, said the finance ministry was to inform the cambio association on Thursday of the details of the arrangements for a promised meeting. He, otherwise, told the Financial Gleaner that the press should mind its own business.
The draft letter said reasons given by the two banks for their action is that the correspondent banks in the US and Canada will cease accommodating banker's draft and wire transfers for any company in Jamaica registered as a money service-business.
"The reasons being cited by these correspondent banks in support of this drastic action are that our businesses do not meet their operational risk policy threshold and tolerance," the association said in the letter.
"Essentially, they are saying that we are risky business despite us meeting all the regulatory requirements under the supervision of the Bank of Jamaica, as well as the Financial Investigations Division."
Neither the Bank of Jamaica nor the Ministry of Finance responded to requests for comment.
The outreach to Phillips is the cambio association's second attempt at intervention from the authorities. A similar appeal was to then Finance Minister Audley Shaw in 2011, but he did not take up the issue, the cambio operators said.
They are concerned that other banks will eventually follow suit, creating serious problems for the viability of the operations of cambios.
NCB is Jamaica's largest bank; RBC is the third-largest of seven.
"The work carried out by these sectors (cambios and remittance companies) for many years in helping the Government get foreign currency inflows, bring stability to the FX market, could seriously be under threat with a smaller number of large players having too much influence over the FX flows and rates," the association said.
"Additionally, we believe that if these sectors were ever to be destroyed the black market could again rear its ugly head, given that cambios control approximately 43 per cent of the market share of FX volumes traded."
The cambio association said it is seeking clarity about international standards that they might be ignorant about, as well as guarantee of future banking services from the minister's intervention and mediation.
UPDATE: Dennis Hickey said on Friday that his initial comments on the issue to the Financial Gleaner should not, as reported, be seen as dismissive to the press. Rather, he said, he was conveying that the issue was still developing and needed time to be discussed before engaging the media.