Commercial banks and credit unions can expect changes to policies governing the financial services sector in the coming months as regulators seek to encourage greater financial inclusion.
Governor of the Central Bank of Barbados Cleviston Haynes gave the indication on Friday as he knocked commercial banks especially on the vexing issue of bank fees, the lack of ease to individuals accessing financing and the difficulty some individuals encounter in obtaining a bank account due to anti-money laundering and combating the financing of terrorism (AML/CFT) rules.
Referring to those three issues as “main risks to financial inclusion”, Haynes said having a high level of financial inclusion was key to individual and national development.
He said while Barbados can boast of having higher inclusion levels than the global average, he insisted that it must be preserved and improved.
Haynes was addressing the monthly meeting of the Barbados Association of Insurance and Financial Advisors at the Lloyd Erskine Sandiford Centre on Friday.
In relation to the niggling issue of bank fees, Haynes pointed out that financial institutions often justify them on the basis of compliance costs and technological investments.
However, stating that it had become “difficult” for the regulator to control all the charges instituted by these institutions over the past ten years when the last set of guidelines were issued, the Governor suggested that while the industry was “largely compliant” new rules were needed.
“The ATM fees, the teller fees, the minimum balance fees, the paper statement fees, large value withdrawal fees and monthly service charges, just to name a few – these fees in a low interest rate environment create the risk that some persons may be charged more for maintaining an account than they are earning from it,” he pointed out.
“We can then be faced with a situation where persons withdraw from the financial system either because they literally cannot afford to have a bank account or because they are not willing to, as we have heard them say, ‘pay the banks to keep their money’,” said Haynes.
“We believe that we must, at a minimum, seek to safeguard the interest of small account holders, and we are looking at precedents set in other Commonwealth countries for addressing this precise problem. We expect to update our guidance shortly to industry,” he noted.
In addition, he said, it was the Central Bank’s intention to publish key fees and charges of the respective institutions on its website similar to regional counterparts so that customers are aware of their options when conducting transactions.
He also pointed out that the Central Bank would be giving credit unions access to the Automated Clearing House (ACH) network, an electronic system that facilitates financial transactions including payroll, direct deposit and other payment services.
“The Central Bank will, in the coming months, extend access to the credit unions to the ACH or the Automated Clearing House so that they can do direct debits more directly and efficiently,” said Haynes.
“The demand for mobile payment is increasing and new players want to enter the payments arena. While the bank continues to work on the legislative framework to guide these developments, the interoperability of systems will be necessary to maximize efficiency and encourage greater financial inclusion,” he said.
He said while most residents have access to banking services, there was still too many strict requirements for some individuals to even open a bank account.
He said while he understood banks were being careful to follow international AML/CFT rules, there were provisions for them to allow individuals to open accounts without some of the documents requested.
In fact, the Governor said he saw no reason a secondary school leaver should be deprived of having an account due to the lack of a proof of address, or a self-employed individual such as a taxi operator or hairdresser not being able to access a loan to expand their operations because they did not have a job letter.
“I am hopeful that the imminent passage of credit reporting legislation, which will provide for the sharing of information about loans, applicants’ credit history, will allow financial institutions to more accurately assess the risk of lending and set rates accordingly,” he said.
He said: “Financial institutions need to establish a reasonable risk-based approach to onboarding and maintaining customers which includes dealing with exceptions and to demonstrate to regulators through proper documentation, how the international standard has been applied. Compliance with the guidelines should not mean that ordinary Barbadians should be deprived of the ability to open or maintain a bank account.”
Pointing also to the need for increased financial literacy among the population, Haynes said the Central Bank would be taking the lead in that regard, and was in the process of developing a comprehensive financial literacy campaign in partnership with the Financial Services Commission and other stakeholders.