The grim-reaping reality of the Jamaican banking system
ANYONE who has tried to open a bank account within the last 10 years can bear witness to the hassle it can be. In most circumstances, a bank requires two forms of personal identification, external references, a job letter, and a utility bill in your name. However, they argue that this is all a part of their “know your customer” (KYC) policy.
The KYC of the Bank of Jamaica requirements are in keeping with their banking licence.
Practising lawyers in Jamaica have a similar responsibility which compels them to prove all their clients’ sources of funds. Attorneys must also keep their funds separate from their clients in a different account. This rule is sacrosanct, and lawyers have been disbarred and restricted from practising by Jamaica’s General Legal Council (GLC) when they cannot provide the details for clients’ funds.
Watching the daily media reports on the events at Stocks and Securities Limited (SSL) it came to mind that the burden on the customers seemed more demanding than on the financial institutions with the duty to manage your funds.
The agency with the obligation to ensure that Jamaican financial institutions comply with established regulations is the Financial Services Commission (FSC). In 2017 the FSC had several red flags with SSL but did not insist on compliance, nor did it provide any public notification of their non-compliance. But most alarming to me was that the auditors, KPMG, said they could not authenticate the integrity of SSL’S accounts for the financial year ending June 30, 2016, which the company presented in January 2017. KPMG went as far as to say that it had doubts about SSL’S ability to continue as a going concern.
What’s even more egregious was that on February 17, 2017 the FSC met with and wrote to the representatives of SSL outlining the conditions to be satisfied to avoid a suspension of the operating licence. Yet, based on current events, the FSC fumbled. The question now is how come? Why wasn’t SSL’S licence revoked?
IT’S MADNESS!
The Jamaican banking sector has witnessed a significant transformation. It used to be that bankers were revered next to pastors, viewed as conservative, reserved, and avoided the limelight. Back then, bankers made their money primarily from interest rate spreads, the difference between what they paid on your deposits and what they charged on loans. Somewhere on the journey, some ‘bright bankers’ perhaps felt that their return on equity and assets should be more in keeping with the big corporations rather than conservative institutions.
Subsequently, the banks invented new sources of income, including a fee structure on which they charged their customers a fee for almost every transaction. In some banks, the fee income exceeded the net interest margin. One cost I will never understand is that banks charge customers a fee for depositing large sums of cash. This is sheer madness! It’s tantamount to a restaurant charging you a fee just to enter to make the order and then charging you for the food separately.
Isn’t the purpose of a commercial bank to collect customers’ funds and lend these funds to other customers? But, in Jamaica, banks are allowed to charge for collecting the cash.
Due to the SSL situation, the Jamaican financial sector has made global headlines in all the major financial media outlets — Forbes, Bloomberg, and CNN — because of the disappearance of Usain Bolt’s money. As a result, our little country now has another black eye in the international community. So, on top of crime and violence, now our financial sector appears corrupt as the staff of these entities and other deposit-taking institutions illegally raid their consumers’ money.
WE ARE POWERLESS!
The three most outrageous practices by our banks now are:
(1) their interest rate spread, (2) their unregulated and unchecked banking fees, and
(3) their ability to digitally debit of our accounts and failure to respond promptly when questioned.
The interest rates Jamaican banks are paying on savings accounts range from 0.08 per cent to 1.46 per cent. While the Bank of Jamaica pays the banks themselves 7 per cent on the money they get from us (TVJ, December 2022). Therefore the banks are making anywhere between 6.92 per cent and 5.54 per cent on our money while giving us next to nothing on our savings.
In most businesses, the consumer is protected by competition. Usually, a company will make a profit margin based on marking up their cost of goods to the consumer. Competitors limit this mark-up. Not so, however, in the Jamaican banking sector, as their fees seem arbitrary to their expenses. For example, banks charge $1,500 for a returned cheque, but what is the bank’s cost for such a transaction? I doubt it exceeds $150.
In most recent times it is how the banks debit our accounts with unauthorised transactions and, worse, take their time to address the issue when you raise the alarm. Speaking personally, I had a standing order and subsequently gave written instructions revoking it. Yet the bank continued to debit my account for several months until I “went on bad”.
I also know of instances in which low-income earners have had their savings wiped out, and the banks fail to provide the account holder with any reliable explanation, and, worse, they will not put anything in writing.
Within the past two months we have seen the arrest of employees from Sagicor and National Commercial Bank for fraud. Now we have an investigtion at SSL. Still, I presume that most cases are not reported because some banking institutions fear negative publicity.
It’s time that the Consumer Affairs Commission establishes an arm to deal with Jamaican customers and their banking complaints as the Bank of Jamaica is not equipped to manage these issues. This arm should also have the legal bite to help Jamaicans who cannot afford a lawyer.
If we do not act now and take steps to effectively protect our consumers from the Jamaican banking oligarchy, like the grim reaper, they will continue to use their power scything our resources and dignity.