The Jamaican banking sector has undergone a significant transformation.
Anyone who has tried opening a bank account in the past 10 years can attest to the hassle it can be. In most cases, a bank requires two forms of personal identification, external references, a letter of employment, and a utility bill in your name. However, they argue that this is all part of their “know your customer” (KYC) policy.
Bank of Jamaica KYC requirements are in accordance with their banking license.
Lawyers practicing in Jamaica have a similar responsibility that requires them to prove all sources of funding for their clients. Lawyers should also keep their funds separate from their clients in a different account. This rule is sacrosanct and lawyers have been disbarred and barred from practicing by the General Legal Council (GLC) of Jamaica when they cannot provide details of client funds.
Watching the daily media reports of Stocks and Securities Limited (SSL) happenings, it occurred to me that the burden of customers seemed more onerous than that of the financial institutions responsible for managing your funds.
The body responsible for ensuring 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 or provide public notification of their non-compliance. But most alarming to me was that the auditors, KPMG, said they could not verify the integrity of SSL’s accounts for the fiscal year ending June 30, 2016, which the company reported in January 2017. KPMG went so far as to say he had doubts about SSL’s ability to continue in business.
What is even more egregious is that on February 17, 2017, the FSC met and wrote to SSL representatives outlining the conditions that must be met to avoid a suspension of the operating license. Yet, based on current events, the FSC has fumbled. The question now is how come? Why was the SSL license not revoked?
This is madness !
The Jamaican banking sector has undergone a significant transformation. Previously, bankers were revered alongside pastors, seen as conservative, reserved and avoiding the spotlight. 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 along the journey, some “brilliant bankers” may have felt that their return on equity and assets should be more in line with big business rather than conservative institutions.
Subsequently, banks invented new sources of revenue, including a fee structure on which they charged their customers a fee for almost every transaction. In some banks, commission income exceeded the net interest margin. One cost I will never understand is that banks charge customers a fee for depositing large sums of money. This is pure madness! This is equivalent to a restaurant charging you a fee just for walking in to place the order and then charging you for the food separately.
Isn’t the purpose of a commercial bank to collect funds from customers and lend those funds to other customers? But, in Jamaica, banks are allowed to charge for collecting the money.
Due to the SSL situation, the Jamaican financial sector made global headlines in all major financial media — Forbes, Bloombergand CNN — due to the disappearance of Usain Bolt’s money. As a result, our small country now has another black eye in the international community. So, in addition to crime and violence, our financial sector now appears to be corrupt as the staff of these entities and other depository institutions illegally plunder their consumers’ money.
We are helpless!
The three most scandalous practices of our banks today are:
(1) their interest rate spread,
(2) their unregulated and uncontrolled bank charges, and
(3) their ability to digitally debit our accounts and their inability to respond promptly when questioned.
Interest rates paid by Jamaican banks on savings accounts range from 0.08% to 1.46%. Whereas the Bank of Jamaica pays the banks themselves 7% of the money they receive from us (TVJ, December 2022). Therefore, the banks earn between 6.92% and 5.54% on our money while giving us next to nothing on our savings.
In most businesses, the consumer is protected by competition. Usually, a business will make a profit margin based on the markup of the consumer’s cost of goods. Competitors limit this increase. This is not the case, however, in the Jamaican banking industry, as their fees seem arbitrary compared to their expenses. For example, banks charge $1,500 for a returned check, but what is the cost to the bank of such a transaction? I doubt it goes over $150.
Lately this is how banks are debiting our accounts with unauthorized transactions and worse taking their time to fix the problem when you raise the alarm. Personally, I had a standing order and subsequently gave written instructions to revoke it. However, the bank continued to debit my account for several months until I “turned bad”.
I also know of cases where people with low incomes have seen their savings run out, and the banks provide no reliable explanation to the account holder and, even worse, they put nothing in writing.
Over the past two months, we have seen employees of Sagicor and the National Commercial Bank arrested for fraud. Now we have a survey at SSL. Yet I suspect most cases go unreported because some banking institutions fear negative publicity.
It is time for the Consumer Affairs Commission to establish an arm to deal with Jamaican customers and their banking complaints because the Bank of Jamaica is not equipped to handle these issues. This arm should also have the legal teeth to help Jamaicans who cannot afford a lawyer.
If we don’t act now and take steps to effectively protect our consumers from Jamaica’s banking oligarchy, like the Grim Reaper, they will continue to use their power to scythe our resources and our dignity.
Lisa Hanna is MP for St Ann South Eastern, People’s National Party Spokesperson for Foreign Affairs and Foreign Trade and former Cabinet Member.