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Jamaica only has a single correspondent bank that’s willing to provide it with cash services, and that is partly why consumers are subjected to such large spreads on the foreign currency they buy and sell in transactions with local banks, the central bank has said.
Of the eight to 10 international banks that provide correspondent banking services to Jamaican institutions, Bank of America, BOA, is the only conduit for physical cash, and it results in less than optimal foreign exchange rates for consumers, the Bank of Jamaica said on Wednesday.
As such, there is little option other than to accept the price BOA charges for the service, central bank officials said. The banks build those costs into their spreads on foreign exchange transactions.
“There was a time when all correspondent banks took cash from Jamaica. But with de-risking, most of the banks stopped taking cash due to the risks they saw for the region. BOA is the last man standing,” said BOJ Deputy Governor Natalie Haynes at the central bank’s quarterly press briefing.
She was responding to queries that emanated from Member of Parliament Lisa Hanna’s recent commentary about bank foreign-currency spreads.
The central bank expects that Jamaica’s removal from the Financial Action Task Force grey list in June could see more competition emerging as the risk posed by cash transactions wanes.
Local banks are charged 10 to 20 US cents on each dollar they send to BOA, which translate to around $16 to $32 in Jamaican currency at current exchange rates.
“We just have to take it. The trade-off is to accept this cash and sell it to BOA,” said Haynes at the press conference.
On Friday, foreign exchange rates advertised by Jamaica’s two largest banks showed spreads ranging between $19 and $22 on cash transactions for US dollars.
Jamaica was initially placed on the FATF’s list of jurisdictions with weak anti-money laundering and counter-terrorism financing frameworks in 2020, but its correspondent banking started souring years earlier.
“Back in 2013 or 2015, the regulators in the United States started sanctioning their own banks for their weak money laundering frameworks. And so these banks in the United States and other jurisdictions, UK, Canada, started to become more restrictive with who they were dealing with outside of the United States, Canada, and the UK, and therefore started closing accounts,” said BOJ Deputy Governor Dr Jide Lewis.
Jamaica’s removal from the FATF list is the first step towards rebuilding these relationships, said Lewis.
The deputy governor stressed that other correspondent banking arrangements are in place and working, and that cash was an outlier.
“So, I don’t want there to be an impression that, in terms of access to financial resources, there’s only one bank. That’s not what the headline should read. It should be that, in relation to cash services, there’s one bank, but of course we have in the region of maybe eight to maybe 10 banks that provide other services, including remittances, including supporting other transactions for trade,” he said.
The challenge of re-establishing correspondent banking relationships lies in demonstrating the robustness of Jamaica’s financial system. As the BOJ pointed out, US banks need to ensure that cash coming from Jamaica is legitimate and traceable. Lewis said that a federally regulated bank in the United States has to answer to their regulator: Where did the cash come from? And for what purposes were those funds repatriated to the United States, Canada or UK?
“So the challenge of cash is that it’s anonymous, and therefore it is then incumbent on the jurisdiction to demonstrate that its own framework is robust enough,” said Lewis.
English (US) ·