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The addition of the Bahamas and Panama to the European Union’s blacklist of countries it deems to have insufficient anti-money laundering controls will pile pressure on the countries’ local banks and lead to spiralling compliance costs, according to local advisors.
Unsurprisingly, last week’s announcement by the EU’s Commission was met by widespread condemnation from Panamanian and Bahamian authorities who said they had been consistently improving their compliance protocols over the past few years.
As a result of their inclusion on the list, which includes 12 new additions, accounts and funds moving between the listed countries and the European Union would require greater regulatory scrutiny from banks and advisory firms based in those countries.
For the Bahamas and Panama, which have historically served as offshore hubs and booking centers for banks and brokerage firms looking to do business in Latin America or the US offshore space, the prospect of having to grapple with imposed restrictions from the EU could potentially upend local and national banks who can’t afford the additional compliance costs.
According to Werner Gruner, a former relationship manager at SYZ Bank’s operation in the Bahamas who, alongside another former SYZ banker, recently launched an advisory firm based in the archipelago nation, the regulation will increase back-office costs of doing business.
‘The only thing this does is that it would become increasingly difficult for a startup or a smaller firm to engage in the financial services industry because the amount of capital you need to be able to start a business is huge as most of the expenses go to compliance, legal fees and regulation,’ he said.
Gruner and his colleague purchased SYZ Bank’s business in the Bahamas earlier this year to launch their own group and said that at that time they had decided to revoke the banking licence in the Bahamas partly to not have to deal with hefty compliance fees.
Gruner also noted that the Bahamas has also seen a number of private banks leave their shores, as compressing margins within the advisory industry have led to increased scrutiny on regulatory costs.
Among the notable exits are that of Julius Baer, which recently sold its Bahamas offshore booking center, and of Andorran private bank Andbank which also decided to close its Bahamas outpost as part of a ‘strategic review’ of its business in 2018.
A business model where an offshore outpost was key to banking would change as a result of a ‘trend of greater regulation in the financial industry,’ said Gruner.
It’s basically the same story in Panama, according to Maria Andreina Gomez, the head of Swiss wealth manager and advisory firm AIS Financial Group’s office in Panama. She noted that while the blacklist wouldn’t be a problem for her firm, it could very well be for local and national ones in the country.
‘We won’t be very affected because of our business structure and the international agreements we have with our firm in Switzerland…. Our clients are local, they’re regional and European accounts for us, are serviced from our base across the Atlantic,’ she said.
‘From my perspective, it’s really more of the same kind of regulation we’ve been seeing for the past few years,’ Gomez continued, while adding that the EU’s decision had been rather abrupt in its nature.
For firms like AIS who are able to leverage an international business model, a regulatory change like this wouldn’t be burdensome.
In fact, AIS could potentially see greater business opportunity as a result, being used as an intermediary between local firms and clients based in Europe, noted Gomez.
‘All the world is obviously focused on other problems at the moment during this pandemic, and while this list is something most firms in Panama are used to dealing with, it still came as a surprise,’ she added.
The vote to finalize the EU’s blacklist is set for October of this year.