Understanding the Changing Financial Environment

by Cerlian Russell

Senior Manager, Business and Operations

Bank of St Vincent and the Grenadines Ltd

Once again the Eastern Caribbean Central Bank (ECCB) is recognizing the month of October as Financial Information Month. It would be remiss of me not to take advantage of this opportunity to commend the ECCB on their efforts to educate the general public on financial matters. As a practitioner in the financial sector, it is incumbent on me at this time to contribute collectively towards this noble effort in enhancing our public knowledge on finance, as our people grapple with the changing financial environment.{{more}}

Over the past several years and more recently since the meltdown of the global financial system in 2008, we have seen a shift in gear by the financial regulators with new legislation all centred around ensuring the soundness and safety of the financial system. Increased legislation and accompanying regulations from anti money laundering, Foreign Account Tax Compliance Act (FATCA), the implementation of a new Banking Act, with increased capital requirements, etc are all part and parcel of the changes in the regulatory framework geared towards engendering a safer and sound financial system. Depositors, on the other hand, are faced with increases in fees, requests from financial institutions for more information and requirements for opening accounts or securing credit. All these changes are coming so rapidly that some financial institutions are so caught up with regulatory compliance that they fail to keep their customers and, by extension, the general public up to date with these changes and their implications. Twenty-five years ago when I entered the financial sector, to open a bank account required no documentation such as ID, proof of address or job letter. Also withdrawing your cash was based only on your signature with you being present or your written instruction as evidence. Banking then was simple; financial institutions provided a safe place for persons to save their funds, while on lending these funds to the public to make a profit. Today, with the advancement in technology and the Internet, financial institutions can now offer more sophisticated products and services that allow customers to access their funds and transact business from any part of the world at a faster and more efficient manner. For example, a customer, while vacationing in the USA, can use a debit card to pay for his hotel room, while using online banking to pay all utility bills back home.

While technology has created new opportunities for financial institutions to serve their customers with better payment infrastructure, increased product offering and increased access to funds and market, it comes with increased challenges and risks, such as identity theft, Internet security, more rigorous business continuity planning or your back-up systems, staff capacity, etc. Regulators had to respond with new legislation, regulations and increased supervision to safeguard the financial system, while avoiding any systemic collapse. Faced with these new risks, new challenges and, in the case of the indigenous banks, the added challenges of capital adequacy and the delisting of corresponding banking relationships, amplified costs and the pressure of more enhanced regulatory compliance, financial institutions collectively have failed in effectively communicating the impact of these issues to the general public and the wider economic landscape.

The ECCB month of activities will go a long way in helping to bridge the communication gap; however, more is needed to inculcate and engender a more financially literate public that understands these changes in the sector and the impact on their finances. For example, it is one thing to request a significant amount of information from customers as part of the due diligence process when opening an account; however, to what extent have we explained to our customers that the increased due diligence is to ensure the financial institution complies with anti money laundering, and FATCA regulations. Failing to comply with these regulations could result in massive fines and criminal penalties for both the institution and staff involved. There is also the possibility of losing corresponding banking relations and banking licence. These are real issues that are impacting the financial landscape and having a more educated public could only help us in collectively navigating the challenges and mitigating risks more efficiently.