a risk-based approach to conducting business, and the transference of some of the costs of non-compliance to customers through higher fees and reduced services. However, these are not without discouraging side effects. For example, one of the biggest impacts of the risk based approach is de-risking, where customers whose accounts are assigned a high risk profile are subjected to enhanced due diligence and, where applicable, the severing of business relationships between institutions and customers.
“ Banks that quickly learn
how to balance meeting compliance requirements with serving their customers will be the ones to stay viable and reap the reward of having loyal customers
”
Banks in the United Kingdom, Australia, and the United States of America are frequently engaged in the de-risking of certain sectors; including money service businesses, foreign embassies, nonprofit organisations and correspondent banks. In their de-risking, these banks have categorised the Caribbean region as high risk, which has already resulted in some regional banks losing their correspondent banking relationships, while others currently face the threat of losing their relationship with correspondent banks.
According to an OXFAM November 2015 report entitled Understanding Bank De-risking and its effect on Financial Inclusion, de-risking practices are argued to have significant“ humanitarian, economic, political, and security implications, effectively cutting off access to finances, further isolating communities from the global financial system, exacerbating political tensions, and potentially facilitating the development of parallel underground“ shadow markets.”
The report further concludes that,“ De-risking represents a market failure. All invested stakeholders( banks, regulators, and bank customers and clients) appear to be acting rationally and in their own best interest, but in so doing, have created unintended consequences for financial inclusion goals.”
Unbanked Caribbean? The pressures to better safeguard the Caribbean banking sector and customers from money laundering and terrorist financing activities has led to more rigid account opening requirements, existing customers being asked to provide additional verification information; customers are being required to pay higher fees and undergo longer transaction times, which can inevitably lead to a marked deterioration of the bank-customer relationship.
It is not uncommon to hear customers say that when they first opened an account, they simply visited the Bank with a form of ID and the necessary cash to open the account. Now, they are being asked to present proof of income, proof of residential address, to update their IDs, and to complete a variety of sometimes complex and lengthy formal paperwork. Caribbean banking customers often say that they feel like their banks no longer know them; that they are no longer important to banks. Caribbean banking customers are in danger of becoming unbanked.
Instead, these customers are now turning to the non-bank financial institutions as they explore creative alternatives to saving and investing. While this practice is not widely prevalent in the Caribbean, it is already an area of notable concern. Some banks within the Eastern Caribbean Currency Union who are faced with excess liquidity and the cost to pay interest on deposits, actually welcome the loss of deposits. However, should the practice of customers leaving continue, over time, the banking sector will be significantly affected as the mounting loss of customers could lead to even greater financial loss and possibly closure of some banks altogether.
It is of critical importance that banks do what they can to retain their customers in light of the demands that come with regulations, compliance and customers’ growing discomfort with the changes to rules and procedures. In the long run, doing this works out to the benefit of both banks and their customers. Considering that it costs five times as much to attract a new customer than to keep an existing one, retain-
Kasabov, E.( 2010):“ Customer Satisfaction? Try Customer Compliance.” Retrieved September 5, 2016 from
http:// www. forbes. com / 2010 / 07 / 23 / customer-service-compliance-leadershipmanaging-mitsloan. html
Mortgageorb. com:“ Combining Objectives for Compliance and Customer Experience.” Retrieved September 5, 2016 from http:// www. mortgageorb. com / online / issues / SVM1503 / FEAT _ 05 _ Combining-Objectives-For- Compliance-And-Customer-Experience. html
OXFAM( 2015):“ Understanding Bank De-Risking and its effect on Financial Inclusion.” Retrieved September 14, 2016 from
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Patel, F.:“ Why Compliance and Customer Experience Go Hand-in-Hand.” Retrieved September 5, 2016 from
http:// www. banktech. com / compliance / why-compliance-and-customerexperience-go-hand-in-hand / a / d-id / 1296691?
Saleh, K.:“ Customer Acquisition Vs. Retention Costs – Statistics And Trends.” Retrieved September 15, 2016 from http:// www. invespcro. com / blog / customer-acquisition-retention /
West Virginia Bankers Association:“ Frontline Compliance.” Retrieved September 5, 2016 from http:// www. wvbankers. org / sites / default / files / pdfs / Frontline % 20Compliance % 20- % 202 % 20part. pdf
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