Abstract
The Bank Supervision Department (BSD) of the Central Bank of the Bahamas (CBoB) has a generally effective supervisory program in place for the size and complexity of the Bahamian banking system. Since the prior FSAP in 2012, clear progress has been made enhancing the framework in a number of areas as well as in the execution of its supervision program. CBoB supervision continues to evolve in a number of positive directions, with most of the areas viewed by assessors as warranting enhancements included in the execution of the program.
Introduction1
1. The Bank Supervision Department (BSD) of the Central Bank of the Bahamas (CBoB) has a generally effective supervisory program in place for the size and complexity of the Bahamian banking system. Since the prior FSAP in 2012, clear progress has been made enhancing the framework in a number of areas as well as in the execution of its supervision program. CBoB supervision continues to evolve in a number of positive directions, with most of the areas viewed by assessors as warranting enhancements included in the execution of the program.
2. Several initiatives undertaken by CBoB have strengthened the overall regulatory and supervisory framework for the banking and trust company sector. CBoB, together with the Ministry of Finance (MoF), has either introduced or updated several key pieces of legislation and regulations pertaining to AML/CTF as well as issued guidance (Applications Manual, Administrative Money Penalty regime) and consultation proposals for Basel II/III regulatory reforms (capital, DSIB designation, and liquidity). In addition, CBoB has broadly enhanced its risk-based supervision regime, including as it pertains to AML/CTF, which is evidenced by enhanced off-site surveillance (review of all AML/CTF policies and procedures of all SFIs) and on-site targeted examinations conducted at SFIs to assess compliance with requirements.
3. CBoB has enhanced its engagement with the largest SFIs with respect to addressing the lingering non-performing loan (NPL) problems in the banking sector. CBoB has communicated to the SFIs its expectations that banks take action to significantly lower overall NPL levels. CBoB now regularly monitors the actions SFIs are taking in this regard and has periodic meetings to discuss strategy and progress.
Methodology
4. This assessment of the current state of the implementation of the Basel Core Principles for Effective Banking Supervision (BCP) in The Bahamas has been completed as part of the 2019 FSAP. The Financial Sector Assessment Program (FSAP) was undertaken by the International Monetary Fund (IMF) and the BCP assessment mission took place January 8 to 28, 2019.
5. The ratings assigned during this assessment are not directly comparable to those from the previous assessment. The methodology issued by the Basel Committee on Banking Supervision (BCBS) in September 2012 was used for the current assessment and the authorities have opted to be assessed and graded on the essential criteria (EC) only. The 2013 BCP assessment, prepared in the context of the 2012 FSAP, was based on the 2006 methodology. Since then, the methodology has been revised leading to some substantive changes.
6. The 2012 methodology reflects lessons from the global financial crisis (GFC) and emerging supervisory best practices. New principles have been added to the methodology along with new EC for each principle that provide more detail. Altogether, the revised CPs now contain 247 separate essential and additional criteria against which a supervisory agency may be assessed. In particular, the revised BCPs strengthen the requirements for supervisors, the approaches to supervision and supervisors’ expectations of banks. While the BCPs set out the powers that supervisors should have to address safety and soundness concerns, there is a heightened focus on the actual use of the powers, in a forward-looking approach through early intervention.
7. The 2019 FSAP assessment team reviewed the framework of laws, rules, and guidance and held extensive meetings with authorities and market participants. The assessment team met officials of the CBoB, the MoF, auditing firms, and banking sector participants. The authorities provided a comprehensive self-assessment of the CPs, as well as detailed responses to additional questionnaires, and facilitated access to staff and to supervisory documents and files on a confidential basis.
8. The team appreciated the very high quality of cooperation received from the authorities. The team extends its warm thanks to staff of the authorities, who provided excellent cooperation, including provision of documentation and technical support.
9. The standards were evaluated in the context of the sophistication and complexity of the financial system of The Bahamas. The CPs must be capable of application to a wide range of jurisdictions whose banking sectors will inevitably include a broad spectrum of banks. To accommodate this breadth of application, a proportionate approach is adopted within the CP, both in terms of the expectations on supervisors for the discharge of their own functions and in terms of the standards that supervisors impose on banks. An assessment of a country against the CPs must, therefore, recognize that its supervisory practices should be commensurate with the complexity, interconnectedness, size, and risk profile and cross-border operation of the banks being supervised. In other words, the assessment must consider the context in which the supervisory practices are applied. The concept of proportionality underpins all assessment criteria. For these reasons, an assessment of one jurisdiction will not be directly comparable to that of another.
10. An assessment of compliance with the BCPs is not, and is not intended to be, an exact science. Reaching conclusions required judgments by the assessment team. Banking systems differ from one country to another, as do their domestic circumstances. Furthermore, banking activities are undergoing rapid change after the GFC, prompting the evolution of thinking on, and practices for, supervision. Nevertheless, by adhering to a common, agreed methodology, the assessment should provide The Bahamian authorities with an internationally consistent measure of the quality of their banking supervision in relation to the revised CPs, which are internationally acknowledged as minimum standards.
Institutional and Market Structure—Overview
A. Institutional Framework for Regulation and Supervision
11. CBoB is responsible for the prudential regulation and supervision of banks, trust companies and credit unions that operate both from and within The Bahamas. Besides this responsibility, CBoB in its capacity as central bank, also acts as the lender of last resort for financial institutions. If and when necessary, it also oversees the operations of the Deposit Insurance Corporation (DIC).
12. The Bahamas regulatory framework include other financial sector authorities responsible for financial regulation. These are as follows:
The Securities Commission of The Bahamas oversees the registration, supervision and regulation of broker-dealers, mutual fund administration, securities investment advisors, and public companies.
The Registrar of Insurance Companies is responsible for the licensing, registration, supervision and regulation of registered re-insurers, insurers, and insurance intermediaries.
The Inspector of Financial and Corporate Service Providers oversees the licensing and regulation of financial and corporate service providers.
The Compliance Commission of The Bahamas is responsible for enforcing compliance with AML requirements of designated financial institutions (e.g. co-operative societies, friendly societies, trustees, administrative managers or investment managers of superannuation schemes, trustee, counsel, attorney or accountants receiving money in the course of business).
13. These regulators, known as the Group of Financial Service Regulators (GFSR), meet to discuss domestic issues of importance primarily focused on greater harmonization of the regulatory system. The GFSR, chaired by CBoB, meets at least quarterly in an effort to achieve supervisory coordination across the financial system in addressing common domestic themes. A memorandum of understanding (MoU), signed in 2002, outlines the ability to share information amongst the regulators as well as conduct joint on-site examinations and develop joint guidance and procedures where applicable.
B. Overview of the Banking Sector
14. The off-shore component of The Bahamas banking system is large compared to the operations of the domestic financial institutions. As at June 30, 20182, seven commercial domestic banks with total assets of B$12.3 billion3 include three indigenous domestic banks (B$3.3 billion) and four foreign bank subsidiaries (B$9 billion). In addition, one development bank and ten credit unions, which represent only B$0.5 billion of total domestic assets, have a considerable number of small retail depositors. The Bahamas international (offshore) financial sector, made up of many firms,4 had total off-shore balance sheet assets of B$255.6 billion. Of this total, 208 banks and trust companies, including 121 nominee trust companies, represented B$168.2 billion of total assets.
15. The domestic banks primarily deal in residential mortgage lending and consumer financing (with some commercial lending) while the off-shore banks focus on either private banking and trust services or conduct treasury operations on behalf of affiliated institutions. Offshore banks hold substantial off-balance sheet fiduciary assets on behalf of international clients (about B$120 billion), with a relatively smaller amount of primarily liquid on-balance sheet assets. As of June 2018, domestic banks’ loan books consisted of residential mortgages (43 percent); consumer credit (38 percent), business credit (17 percent) and commercial mortgages (2 percent).
16. Overall, the banking sector has strong capital and liquidity levels. As of September 2018, the system-wide capital adequacy ratio stood at 32 percent, well above the regulatory requirement of 17 percent. The ratio of liquid assets to total assets was 30 percent as at June 30, 2018.
17. Although the growth in consumer credit is very low, the banking sector remained profitable mainly due to fee income, stable lending rates, and lower deposit rates. System-wide return on assets has remained stable in the 2.2–2.5 percent range over the last three years. Asset growth was minimal and mainly driven by credit to the central government.
18. NPL’s remain high at 9 percent, after peaking at 17.2 percent in 2014, with three institutions representing 61 percent of aggregate NPLs. NPLs are made up of residential mortgages at B$323.6M (or 61.7 percent), consumer loans at B$143.7M (or 27.4 percent) and commercial loans at B$57.1 million (or 10.9 percent). The real estate market in The Bahamas has been relatively soft for the past several years, as evidenced by the significant stock of distressed properties listed for sale.
19. The Bahamas has been listed by the Financial Action Task Force as a country with strategic AML/CFT deficiencies and is taking steps to address this. Several laws and regulations have been revised in The Bahamas in 2018 to address AML/CFT requirements of both banking and non-banking institutions. CBoB, in its capacity as the regulatory and supervisory authority of financial institutions has strengthened its risk-based supervisory framework to include the testing of bank’s compliance with AML/CFT requirements.
Preconditions for Effective Banking Supervision5
20. The Bahamian economy has returned to moderate growth after a period of stagnation. After a decline in real GDP from 2013–2015, growth in this tourism-driven economy is projected at 2.3 percent in 2018. Growth is vulnerable to downturns in the U.S., the largest source market for tourism, which accounts for 45 percent of GDP. Real estate investment and construction are also important economic drivers, representing about 22 percent of GDP.
21. Debt-to-GDP has risen to 55 percent in FY2017, from 38 percent in FY2012. In response, the government has increased VAT from 7.5 to 12 percent and announced austerity measures.
22. The Bahamas has a fixed exchange rate and capital controls. The Bahamian dollar is pegged to the U.S. dollar at parity. Capital controls afford some scope for monetary policy independence, for example through reserve requirements, changes in the discount rate and selective rate controls.
23. CBoB has the mandate to promote financial system stability. CBoB’s mission is to foster an environment of monetary stability conducive to economic development, and to ensure a stable and sound financial system. On matters of systemic importance, CBOB it works closely with the MoF, including on the drafting or formulation of any legislation pertaining to financial stability measures. Further, the MoF has primary responsibility for all fiscal matters, including the funding of any resolution-related interventions pertaining to financial institutions.
24. Although the GFSR seeks to coordinate certain regulatory and supervisory matters pertaining to financial institutions, it does not act in a capacity to contribute to financial stability policy measures. Although the GFSR contributes to the consistency in the regulation and supervision of financial and non-financial institutions in The Bahamas, it does not have representation of the MoF nor does it examine in-depth macroprudential issues at this time.
25. The Bahamas legal system is well developed for the regulation and supervision of financial institutions. The CBoB can operate independently and has the authority to impose sanctions, take preventive corrective action and resolve weak banks, including revocation of the license.
26. CBoB has the primary regulatory responsibility for The Bahamas payments system, including the systemically important payment systems. Since 2004, the CBB has been operating a Real Time Gross Settlement (RTGS) system, the Bahamas Interbank Settlement System, which constitute a systemically important payment system and provides RTGS (with finality and irrevocability) for payments of B$150,000 or larger. CBoB also governs the payments systems through the Payments Policy and Oversight Unit as well as through its participation in the National Payments Council.
27. The framework for crisis management, recovery and resolution is currently under development in The Bahamas. Proposed legal reforms will bring the CBoB’s resolution framework more in line with international best practice and if passed, will give the central bank the authority to require banks to have recovery plans, resolution plans for DSIBs, and the ability to appoint a statutory administrator.
28. With the passage of the proposed legislation, CBoB, together with other relevant authorities, will need to build the critical crisis management infrastructure needed to manage a major bank failure. The CBoB would like to make use of an expanded GFSR as the informal financial crisis management committee (FCMC). This committee would require representation from the MoF on the GFSR, and would be tasked with the responsibility of not only ensuring that the pending legal reforms contain all the necessary powers to minimize legal risk but also to become fully operational including developing a national crisis management plan once promulgated.
29. The DIC continues to build toward its target funding level of B$88.5 million. The DIC, a public corporation established under the Protection of Depositors Act, 1999, insures eligible Bahamian dollar deposits of licensed banks. The current DIC fund stands at B$56M as of December 31, 2018, which represents approximately 0.8 percent of insurable deposits and 2.9 percent of insured deposits.
30. Although the DIC has a Board of Directors in place, the infrastructure needed to manage the failure of a member financial institution would fall to CBoB. At this time, the DIC has the power to take control of the assets of an insolvent financial institution. However, under the proposed legislative resolution reforms, CBoB will have the power to appoint a statutory administrator that would, among other things, ensure prompt payouts of the deposits of a bank in liquidation.
31. The proposed legislation will formalize CBoB’s authority to provide emergency liquidity assistance. Amendments to emergency liquidity assistance provisions clarify the purpose of such lending and address solvency tests, collateral mandates, penalty rates, and maturity limits.
32. Transparent information is provided by SFIs to the public. Given The Bahamas’ requirement to adhere to International Accounting Standards (IAS) and the expectation that IFRS 9 implementation by the supervised institutions will be complete effective January 1, 2018, SFIs are required to disclose their financial statements to enable users to evaluate the nature and extent of risks arising from financial instruments to which the entity is exposed and its management of those risks. In addition, the publicly-traded domestic banks are also subject to disclosure requirements imposed by the Securities Commission of The Bahamas.
Main Findings
A. Responsibilities, Objectives, Powers, Independence (CP 1–2)
33. CBoB has broad powers and clear responsibilities underpinned mainly in the CBBA, BTCRA and CUA. CBoB’s primary objective is to promote financial system stability in The Bahamas. CBoB has broad corrective action and sanction powers. Laws and regulations provide CBoB with the power to set and enforce prudential regulations to support delivery of its statutory mandate.
34. The sufficiency of BSD’s supervisory resources should be re-examined in light of CBoB’s current legislative initiatives and to further strengthen the effectiveness and efficiency of its’ risk-based supervision framework. BSD would benefit from additional staff to: i) carry out periodic in-depth on-site examinations of key practices (which may entail additional risk specialists to be hired); ii) support further enhancements to the off-site surveillance program; iii) assist in the implementation of regulatory reforms (Basel II/III, IFRS 9 implementation); iv) address the ongoing need for enhanced supervision of SFI’s compliance with AML/CTF standards and v) specialize in dealing with intervention staged SFIs.
35. The reasons for the removal of a CBoB board member or the Governor should be required to be publicly disclosed.
B. Licensing, Changes in Control, and Acquisitions (CP 4–7)
36. CBoB has a very thorough licensing framework in assessing licensing applications which follows criteria that are consistent with ongoing supervision requirements. The BTCRA defines the “banking business” and restricts deposit taking activities to banks and credit unions only. CBoB’s framework for assessing licensing applications follows criteria pertaining to the financial strength of investors, fit and proper guidance for the appointment of senior management and Board members, analysis of proposed business strategy, and determines minimum capital adequacy requirements.
37. CBoB has the power to review, reject, and impose prudential conditions on proposals to transfer significant ownership or controlling interests in SFIs. The BTCRA empowers CBoB to establish clear provisions on acquisitions and investments that require prior supervisory approval or prior notification to CBoB.
C. Supervisory Cooperation and Cross Border Supervision (CP 3, 12, 13)
38. CBoB has MoUs in place to support information sharing as well as co-operation and co-ordination between both domestic and foreign regulatory authorities in dealing with a crisis.
39. The introduction of a resolution regime will help bolster CBoB’s power to undertake recovery and resolution actions in a coordinated manner with other regulatory authorities.
D. Supervisory Approach (CP 8–11)
40. Certain aspects of CBoB’s risk-based supervision framework should be reassessed for efficiency and effectiveness, with the goal of providing CBoB with greater confidence in assessments of key corporate governance, risk management and control practices. CBoB’s off-site supervision surveillance program uses a number of methods for assessing an SFI’s financial condition and compliance with prudential requirements and standards, including those related to corporate governance and risk management. Both domestic and international (including offshore) SFIs are subject to the same risk-based supervisory framework with more emphasis being placed on the largest SFIs in both categories. The program should be re-calibrated to include more frequent on-site examinations that can support more comprehensive assessments of DSIB’s key corporate governance, risk management and internal controls practices, as well as in-depth reviews of material risks (e.g. credit risk, AML, etc.) depending on the business model of the SFI.
41. A careful balancing of the risk-based supervisory framework between onsite and offsite work may allow for enhanced efficiency in the program while promoting CBoB’s ability to gain greater confidence in assessments of the effectiveness of SFI’s governance and risk management practices. In practice, and as noted above, what is likely needed is an increase in resources which could support further development of strong offsite analytic capabilities and increased use of onsite examinations in key areas. A strong supervisory framework for the DSIBs would help ensure CBoB is better equipped to take early intervention measures to address weaknesses in key practices in need of timely and effective remediation.
42. CBoB utilizes a principles-based approach to supervision and maintains wide discretionary powers to select the appropriate measures through which to require firms to address identified weaknesses. The Central Bank’s Guide to the Ladder of Supervisory Intervention provides an overview of the intervention measures CBoB may take depending on the severity of the situation. Over the past years, CBoB has been heavily engaged in the recovery efforts of one of its largest domestic banks. Although CBoB has successfully made use of several corrective measures over the past 10 years pertaining to this SFI, CBoB’s powers to require swift actions will be strengthened with the introduction of the proposed resolution regime.
E. Corporate Governance and Interval Audit (CP 14, 26)
43. Supervision of corporate governance has become a more direct area of emphasis for CBoB, as it has with supervisors in many jurisdictions and in line with the updated Basel Core Principles. However, the current practice of assessing governance largely in the context of individual specific risk areas may attenuate the ability to clearly and directly hold accountable those with key responsibilities on a firm-wide basis before identified weaknesses lead to significant observable events. The Guidelines for Corporate Governance (amended and expanded in 2013) appropriately detail the extensive duties of boards of directors and senior management. CBoB’s principles-based approach to supervision places primary responsibility for ensuring the establishment of an effective framework for risk management and controls with boards of directors and clearly articulates the appropriate split between the oversight role of the board and the active role of management. CBoB has recently notified the industry of plans to step up the level of direct engagement with boards of directors as a part of this enhanced governance focus.
44. In addition to placing significant emphasis on the roles of the board and senior management, the program relies on internal and external auditors and periodic attestations required to be made by boards regarding compliance with laws, rules and standards. It combines substantial offsite analyses and assessments with relatively infrequent onsite examinations where those are deemed warranted by the risk assessment process in its risk-based supervision framework. This balance can be hard to strike effectively. Assessors note that CBoB supervision would benefit from greater interaction with the firms and more use of comprehensive thematic onsite examinations. These exams could cover all aspects of a particular area or practice to increase their level of confidence in assessments of risk management, internal controls and corporate governance. For example, regular periodic reviews of credit risk or ICAAP covering all elements articulated in credit risk, ICAAP, corporate governance and internal audit guidelines.
45. CBoB’s significant reliance on the required board of directors’ annual certifications of compliance—or notice of noncompliance, as applicable—with laws, rules and expectations would benefit from a formal process for the escalation of requirements when there is a discovery that a certification was materially inaccurate. To increase the accountability of the board when signing off on the certification, CBoB should make it clear that if there are material errors it will require a third party or supervisory review of all aspects of the certification and supporting processes. If using external auditors/consultants for this work, CBoB should require the SFI’s board to get an opinion supported by a ‘reasonable assurance’ opinion.
46. The role of internal audit is particularly and increasingly important in the CBoB supervision program and as such internal audit effectiveness warrants even greater attention. CBoB has recently increased the importance of the role of internal audit with respect to supervision of SFIs and heightened associated accountability by requiring the chief internal auditor to attest in writing when signing off on remediation of an area of weakness that requires attention. CBoB’s supervision would benefit from more comprehensive assessments of internal audit, including a periodic review that can shed light on internal audit effectiveness across many elements of its role, as detailed in BCP 26 in this report. When it is discovered that internal audit has missed key issues that are later found by CBoB supervisors, CBoB should consistently articulate these findings to the Board in writing and hold the board accountable for its duty to ensure an effective audit function.
F. Capital (CP 16)
47. CBoB has updated its capital regime and it is now largely in line with the key aspects of Basel standards, though further work is to be done with respect to implementing Basel III. Current required regulatory capital ratios are super-equivalent to Basel, with DSIBs being required to meet a 17 percent target for capital and at a 14 percent trigger supervisors escalate coverage of the SFIs. Credit, Operational and Market risks are now all captured in capital requirements and CBoB issued Guidelines on ICAAP in 2016 to address those risks not well captured in the regulatory regime.
48. More emphasis should be placed on in-depth reviews of the largest SFIs’ ICAAPs. While CBoB published Guidelines requiring periodic ICAAPs at SFIs in late 2016, assessors noted the supervisory reviews of SFIs’ ICAAP reports to date have been done at a fairly high level and focused primarily on ensuring the SFIs’ ICAAP reports contained all required elements, rather than the effectiveness of the overall process. Given the importance of ICAAP with respect to both risk management and SFIs’ internal capital planning processes, more attention should be given during ICAAP reviews to the various inputs into and practices driving the process, as well as the controls around those.
G. Credit Risk and Problem Assets, Provisions and Reserves (CP 17–18)
49. CBoB should undertake deeper and more frequent reviews of credit risk management practices at its largest SFIs, including a review of the current treatment of non-performing loans and impaired assets. CBoB’s credit risk and impaired asset guidelines allow SFIs a variety of credit risk reporting methodology for non-performing loans and provisioning levels. Inconsistent asset classification, collateral valuation and loan loss provisioning practices for asset backed loans (particularly residential mortgages) may lead to an overestimation of the accuracy and comparability of SFI’s reported financial data and underestimation of the overall level of credit risk within and across the SFIs. CBoB has conducted only five in-depth credit reviews on the DSIBs since 2015 (not including the on-site credit reviews undertaken on the problem DSIB), it is imperative that CBoB assure itself that bank’s credit risk management internal controls are in place and effective as well as gaining a view on the extent of the differences in practices across firms. With the implementation of IFRS 9 (beginning January 1, 2018), the banking sector requires further guidance on CBoB’s expectations and discretion as it pertains to the validation of credit risk models used to assess and measure expected credit losses.
H. Risk Management (CP 19–25)
50. Monitoring compliance with quantitative requirements and a focus on financial strength metrics are key areas of focus and resource expenditure. CBoB requires frequent reporting across a wide spectrum of regulatory requirements and positions in order to assess the financial condition of the SFIs and to assess compliance with quantitative elements of the regime—e.g., country and transfer risks; large exposure management and reporting; etc. CBoB’s qualitative expectations and standards are generally in line with international practices and are articulated to the SFIs through clear written Guidelines, examination reports (when examinations are carried out), discussions during semi-annual meetings with the firms and other less formal communications.
I. Abuse of Financial Services (CP 29)
51. Given the importance of this risk area, as well as release of several new or updated pieces of associated legislation, regulations and guidelines, CBOB should continue its enhanced supervisory oversight of SFI’s compliance with AML/CFT requirements. CBoB has made a concerted effort to review most of the SFI’s board policies and procedures pertaining to AML/CTF requirements as well as undertaking a targeted on-site review program aimed at approximately twenty percent of all SFIs, which were identified as warranting reviews. It will be essential for CBoB to take timely corrective measures when discovering gaps in SFI’s compliance with AML/CTF requirements to ensure remediation efforts are carried out on a timely basis. CBoB should undertake a review of the compliance of Credit Unions with the AML/CTF requirements.
Detailed Assessment
A. Supervisory Powers, Responsibilities, and Functions
| Principle 1 | Responsibilities, objectives and powers. An effective system of banking supervision has clear responsibilities and objectives for each authority involved in the supervision of banks and banking groups.6 A suitable legal framework for banking supervision is in place to provide each responsible authority with the necessary legal powers to authorize banks, conduct ongoing supervision, address compliance with laws and undertake timely corrective actions to address safety and soundness concerns.7 |
| Essential criteria | |
| EC1 | The responsibilities and objectives of each of the authorities involved in banking supervision8 are clearly defined in legislation and publicly disclosed. Where more than one authority is responsible for supervising the banking system, a credible and publicly available framework is in place to avoid regulatory and supervisory gaps. |
| Description and findings re EC1 | The Central Bank of the Bahamas Act, 2015 (CBBA), the Banks and Trust Companies Regulation Act, 2015 (BTCRA) and the Bahamas Co-operative Credit Unions Act and the Bahamas Cooperative Credit Unions Regulations, 2015 (CUA) set out the powers, responsibilities, and objectives of the Central Bank of The Bahamas (CBoB) as the supervisor of banks (including branches of foreign banks), trust companies, credit unions and money transfer businesses (referred to as supervised financial institutions or SFIs) operating within and from within The Bahamas. The Acts and Regulations are complemented by a series of Guidelines that supplement but do not replace any requirements under the relevant legislation or accounting standards. S. 13 of the BTCRA designates the CBoB (in the person of the Inspector) as the banking supervisor and gives it such powers as are reasonably necessary to perform its supervisory function. S. 17 (First Schedule) of the BTCRA sets out the rules of inspection and supervision of banks. All legislation, regulations and guidelines are published and are available on the CBoB Website. |
| EC2 | The primary objective of banking supervision is to promote the safety and soundness of banks and the banking system. If the banking supervisor is assigned broader responsibilities, these are subordinate to the primary objective and do not conflict with it. |
| Description and findings re EC2 | S. 17 (First Schedule) of BTCRA states that the Inspector of Banks and Trust Companies of the CBoB (Inspector) is responsible to regularly evaluate the condition of solvency and liquidity of all licensees and to establish appropriate and prudent standards for the conduction safe and sound banking and trust business. CBoB’s risk-based supervision framework includes an off-site examination together with an off-site supervision surveillance program designed to make judgments about the financial soundness of banks. |
| EC3 | Laws and regulations provide a framework for the supervisor to set and enforce minimum prudential standards for banks and banking groups. The supervisor has the power to increase the prudential requirements for individual banks and banking groups based on their risk profile9 and systemic importance.10 |
| Description and findings re EC3 | S. 17 (First Schedule) of the BTCRA specifies that CBoB (the Inspector) shall establish appropriate and prudent standards for conducting safe and sound banking (and trust business). The Schedule also states that CBoB shall set prudent and appropriate capital adequacy requirements for banks not less than those in the Basel Capital Accord and Amendments. Detailed prudential standards are set out in Regulations. Further S. 6 of the BTCRA, states that the CBOB may impose new conditions or limitations on the license of an SFI or amend or revoke any authorization, condition or limitation contained in the license. In addition, S. 18(1)(h), the CBOB may issue directions requiring a licensee to cease or refrain from committing an act or pursuing a course of conduct that is an unsafe or unsound practice, or that is in contravention of any law, or to perform a remedial act, or to do anything required to be done; and require such action to be taken by the licensee as CBoB considers necessary. The Guideline entitled “A Guide to the Central Bank’s Ladder of Supervisory Intervention”, revised May 2017 (Ladder of Intervention Guideline) outlines a wide range of discretionary intervention actions that CBoB may take if it determines that the cause of concern is not being addressed. |
| EC4 | Banking laws, regulations and prudential standards are updated as necessary to ensure that they remain effective and relevant to changing industry and regulatory practices. These are subject to public consultation, as appropriate. |
| Description and findings re EC4 | The BTCRA and the CBBA, updated in 2015, together with several Guidelines pertaining to various risks (Market, Operational, Interest Rate Risk, etc) together with several guidelines and legislation pertaining to Anti-Money Laundering and Terrorist Financing (AML, CFT) have been introduced in the past several years. All amendments to laws, regulations and material changes to guidelines are issued for public consultation as a normal practice. |
| EC5 | The supervisor has the power to:
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| Description and findings re EC5 | S. 35 of CBBA and S.13(3) of BTCRA authorize CBoB to have access to such information and records of each bank as it requires to enable it to perform its duties and to require banks to provide such information in the form and frequency deemed necessary. S. 13(3) of BTCRA specifies that CBoB (the Inspector) shall be entitled at all reasonable times to have access to such books, records, vouchers, documents, cash, and securities of a bank and to call upon the manager or any officer designated by the manager of any bank for such information or explanation as is reasonably required to enable the CBoB to carry out its functions under the Act. |
| EC6 | When, in a supervisor’s judgment, a bank is not complying with laws or regulations, or it is or is likely to be engaging in unsafe or unsound practices or actions that have the potential to jeopardize the bank or the banking system, the supervisor has the power to:
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| Description and findings re EC6 | S. 18 (1)(h) of BTCRA, states that the CBoB may issues directions requiring a licensee to cease or refrain from committing an act or pursuing a course of conduct that is an unsafe or unsound practice, or that is in contravention of any law, or to perform a remedial act, or to do anything required to be done and require such action to be taken by the licensee as the central bank considers necessary. S. 18 of the BTCRA also states that the CBOB may impose a range of sanctions from issuing a warning, suspension or the revocation of the license. The Ladder of Intervention Guideline outline the various steps CBoB’s may take to intervene in the case of supervisory/regulatory breaches, or where the bank poses a risk to depositors. These discretionary intervention measures range from the issuance of warnings, more intensive supervision, increase in capital, liquidity and provisioning levels, imposition of fines, conditions/directions (e.g., restricting further lending/deposit-taking), removal of directors/senior management, appointment of special advisors, increased reporting from the external auditor, suspension of license, revocation of license. These measures are not explicitly stated in the BTCRA at this time (the proposed 2018 Amendment to the BTCRA proposes the insertion these intervention measures). CBoB has successfully been able to utilize s. 18(1)(h) of the BTCRA in the past to take the necessary intervention measures required to deal with problem entities. The proposed 2018 Amendment to the BTCRA will enhance CBoB’s powers by explicitly listing the intervention measurers CBoB has typically utilized in the past. In a situation where CBoB has issued a direction which is not being honored, CBoB may apply to the Supreme Court for an order to compel the bank to comply with the direction. Draft amendments have been proposed to the BTCRA to establish an enhanced bank resolution framework. CBoB has signed MOUs with all relevant domestic and foreign supervisory authorities to share information during a time of crisis. The CBoB does not have a formal legislative resolution regime in place at this time. |
| EC7 | The supervisor has the power to review the activities of parent companies and of companies affiliated with parent companies to determine their impact on the safety and soundness of the bank and the banking group. |
| Description and findings re EC7 | CBoB requires banks to prepare financial reports on a consolidated basis. CBoB also receives the financial statements of the bank’s parent company and significant financial subsidiaries. |
| Assessment of Principle 1 | Compliant |
| Comments | CBoB has broad powers and clear responsibilities underpinned mainly in the CBBA, BTCRA and CUA. CBoB’s primary objective is to promote financial system stability in The Bahamas. CBoB has broad corrective action and sanction powers. Laws and regulations provide CBoB with broad power to set and enforce prudential regulations to support delivery of its statutory mandate. Draft amendments have been proposed to the BTCRA to establish an enhanced bank resolution framework. |
| Principle 2 | Independence, accountability, resourcing and legal protection for supervisors. The supervisor possesses operational independence, transparent processes, sound governance, budgetary processes that do not undermine autonomy and adequate resources, and is accountable for the discharge of its duties and use of its resources. The legal framework for banking supervision includes legal protection for the supervisor. |
| Essential criteria | |
| EC1 | The operational independence, accountability and governance of the supervisor are prescribed in legislation and publicly disclosed. There is no government or industry interference that compromises the operational independence of the supervisor. The supervisor has full discretion to take any supervisory actions or decisions on banks and banking groups under its supervision. |
| Description and findings re EC1 | S. 5(3) of the CBBA states that CBoB shall have power to do anything, whether in The Bahamas or elsewhere, which is calculated to facilitate, or is incidental or conducive to the discharge of its duty under this section. For significant actions or activities, the CBoB is required to make notification to the Minister of Finance (MoF), for example when an SFI is a category stage 3 in accordance with the Ladder of Intervention Guideline. After the fact notifications to the MoF would include the granting of, or refusal to grant a license (see BTCRA s.4(2)(c)) and the revocation of a license (see BTCRA s. 18(1)(a)). In practice, CBoB’s ability to act with complete independence may not be the case for state-owned banks. Although CBoB is only required to notify (post decision) the MoF of intervention measures taken with respect to problem entities staged rated 3 and above, with respect to the state-owned bank, CBoB should strengthen its ability to undertake regulatory and supervisory processes on a timely basis without undue influence from the government or the MoF. |
| EC2 | The process for the appointment and removal of the head(s) of the supervisory authority and members of its governing body is transparent. The head(s) of the supervisory authority is (are) appointed for a minimum term and is removed from office during his/her term only for reasons specified in law or if (s)he is not physically or mentally capable of carrying out the role or has been found guilty of misconduct. The reason(s) for removal is publicly disclosed. |
| Description and findings re EC2 | The Schedule to CBBA sets out the terms under which the Governor (or any other director) may be removed. These include where the director: is absent from meetings longer than three consecutive months without the permission of the board of directors; declared bankrupted; is incapacitated by physical or mental health; has a court conviction involving dishonesty; becomes a member of Parliament; becomes a director, officer or employee of, or is a shareholder of with an interest of one percent or more in the ordinary paid up share capital of, or has a controlling interest in, any financial institution regulated by CBoB. The head(s) of the supervisory authority is (are) appointed for a minimum term. At this time, CBoB is not required to publicly disclose the reasons for the removal of the Governor. |
| EC3 | The supervisor publishes its objectives and is accountable through a transparent framework for the discharge of its duties in relation to those objectives.11 |
| Description and findings re EC3 | CBoB’s objectives are set out in the CBBA and the BTCRA. S. 32 of the CBBA requires CBoB, within four months after the end of each financial year, cause to be made and transmit to the MoF, a report of the operations of the Bank during the year and a statement of the accounts of CBoB in respect of that year certified by auditors. The MoF lays a copy of the report before both Houses of Parliament and causes a copy to be published in the Official Gazette. The Governor also holds regular meetings with the MoF. |
| EC4 | The supervisor has effective internal governance and communication processes that enable supervisory decisions to be taken at a level appropriate to the significance of the issue and timely decisions to be taken in the case of an emergency. The governing body is structured to avoid any real or perceived conflicts of interest. |
| Description and findings re EC4 | The Inspector oversees the Bank Supervision Division (BSD) which has internal mechanisms for raising significant issues. Further, the Inspector reports to the Governor any issues of significance on a regular basis. The Governor meets with the MoF on a weekly basis and is able to raise any issues of significance when required on an emergency basis. SFIs rated stage 1 and above are subjected to enhanced supervision and reporting requirements (Stage 1: early warning; Stage 2: heightened risk to financial viability or solvency; Stage 3: severe risk to financial viability or solvency; Stage 4: imminent insolvency or non-viability; Stage 5: insolvency or non-viability). The decision to stage or change the stage rating of an SFI is discussed with BSD senior management and senior representatives within CBOB. Further, the status of stage rated SFIs are discussed regularly with CBoB senior management. |
| EC5 | The supervisor and its staff have credibility based on their professionalism and integrity. There are rules on how to avoid conflicts of interest and on the appropriate use of information obtained through work, with sanctions in place if these are not followed. |
| Description and findings re EC5 | CBoB’s supervision has a staff complement of over 70 persons. Technical staff with direct supervisory and examination responsibilities are well qualified with university degrees, with some risk specialist expertise in AML, credit, Operational and IT risk. With respect to confidentiality and conflict of interest, upon joining CBoB, staff sign a confidentiality agreement on the appropriate use of information obtained through work. In addition, staff are subject to Code of Conduct requirements. |
| EC6 | The supervisor has adequate resources for the conduct of effective supervision and oversight. It is financed in a manner that does not undermine its autonomy or operational independence. This includes:
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| Description and findings re EC6 | CBoB uses its own resources (fees paid by SFIs) to carry out its statutory objectives and responsibilities, including the supervision and regulation of SFIs. CBoB’s BSD has a current complement of 70 staff with only a few vacancies at this time. Salary scales are acceptable as CBoB has been able to retain or attract staff as needed. There is a training budget and a technology budget to sufficiently equip staff. CBoB is able to commission external experts when needed (as demonstrated in the past). |
| EC7 | As part of their annual resource planning exercise, supervisors regularly take stock of existing skills and projected requirements over the short- and medium-term, taking into account relevant emerging supervisory practices. Supervisors review and implement measures to bridge any gaps in numbers and/or skill-sets identified. |
| Description and findings re EC7 | CBoB provides learning opportunities to ensure that all members of staff have the requisite technical competencies and soft skills to perform all of their functions effectively. They are expected to be very knowledgeable and aware of financial services sector trends and best practices, and have the ability to adjust to the evolving needs of the Bank. A series of in-house, local, and overseas training opportunities were facilitated by the Department over the year. Supervision staff specifically, benefit from a vocational training arrangement designed to balance depth and breadth in their knowledge and experience. The framework defines specialties that are vocationally valuable to Supervision and the CBoB and matches training to staff career progression. The Assessors observed that the BSD could use additional staff to ensure that the Domestic Systemically Important Banks (DSIBs) are subject to regular full scope on-site examinations (which may entail additional risk specialists to be hired) and added staff to oversee the off-site supervision surveillance program as well as the implementation of regulatory reforms (Basel II/III) and address the need for enhanced supervision pertaining to SFI’s compliance with AML/ATF standards. |
| EC8 | In determining supervisory programs and allocating resources, supervisors take into account the risk profile and systemic importance of individual banks and banking groups, and the different mitigation approaches available. |
| Description and findings re EC8 | CBoB assesses banks on a risk-based approach. This assessment is used to better allocate supervisory resources with high risk banks being assessed more frequently. In addition, the DSIB SFIs are grouped together under the Domestic Financial Institution Unit. |
| EC9 | Laws provide protection to the supervisor and its staff against lawsuits for actions taken and/or omissions made while discharging their duties in good faith. The supervisor and its staff are adequately protected against the costs of defending their actions and/or omissions made while discharging their duties in good faith. |
| Description and findings re EC9 | S. 13A of the BTCRA provides that no civil or criminal liability shall attach to the Inspector or a staff member for anything done or omitted in the good faith discharge or purported discharge of such person’s functions under the Act. S. 13A of the BTCRA also provides that the CBoB’s Board of Directors may indemnify the Governor and the Governor may indemnify the Inspector or staff member against the cost of defending their actions while discharging their functions in good faith. |
| Assessment of Principle 2 | Largely Compliant |
| Comments | CBoB needs to reassess the adequacy of its supervision complement given the wide range of emerging risks impacting SFIs, including the AML/CFT enhanced monitoring, the needed continued focus on credit risk in-depth on-site reviews required for all DSIBs and the need to conduct more in-depth and frequent corporate governance/internal controls reviews). Further, additional resources may be required to deal with proposed regulatory reforms (Basel II/III, IFRS, AML). The reasons for the removal of a CBoB board member or the Governor should be required to be publicly disclosed. The Schedule to the draft Central Bank of The Bahamas Bill, 2018 provides for public disclosure of the reasons for the removal of the Governor. The proposed amendments to the BTCRA 2018 will introduce added legal protection for any proceedings brought against CBBA, the Inspector, a director, officer, employee of the CBoB in relation to any action taken relating to intervening in or resolving banks. CBoB should contemplate the creation of regulations or guidelines that would help strengthen its ability to regulate and supervise state-owned banks. |
| Principle 3 | Cooperation and collaboration. Laws, regulations or other arrangements provide a framework for cooperation and collaboration with relevant domestic authorities and foreign supervisors. These arrangements reflect the need to protect confidential information.12 |
| Essential criteria | |
| EC1 | Arrangements, formal or informal, are in place for cooperation, including analysis and sharing of information, and undertaking collaborative work, with all domestic authorities with responsibility for the safety and soundness of banks, other financial institutions and/or the stability of the financial system. There is evidence that these arrangements work in practice, where necessary. |
| Description and findings re EC1 | S. 38 (9) of the CBBA allows CBoB to cooperate and exchange information with any other regulatory authority in The Bahamas where it is considered by the Governor that such cooperation or information may be relevant to the functions of such other regulatory authority or as a necessary part of a framework for consolidated supervision, oversight or regulation of the financial services sector. The Group of Financial Service Regulators (GFSR), represented by: CBoB, Securities Commission, Insurance Commission, Compliance Commission, and the Inspector of Financial and Corporate Services have signed a Memorandum of Understanding (MoU) specifying the terms of co-operation and collaboration and has been in force since 2002. Information sharing amongst the domestic regulatory agencies, as well as between these agencies and foreign regulatory authorities, is governed by the Information Sharing Arrangements in the Bahamas, July 2008 (referred to as the Information Sharing Handbook). The GFSR meets periodically to coordinate regulation/examination of financial institutions and to coordinate their activities within the financial sector. The CBoB is the lead regulator for bank and trust companies. The MoF is not a member of the GFSR. |
| EC2 | Arrangements, formal or informal, are in place for cooperation, including analysis and sharing of information, and undertaking collaborative work, with relevant foreign supervisors of banks and banking groups. There is evidence that these arrangements work in practice, where necessary. |
| Description and findings re EC2 | S. 38 (3) of the CBBA provides that CBoB may disclose to an overseas regulatory authority information necessary to enable that authority to exercise regulatory functions including the conduct of civil or administrative investigations and proceedings to enforce laws, regulations and rules administered by that authority. S. 19 (5) of the BTCRA permits the CBoB to share information on the beneficial owners, director, officers and operations of a bank with the supervisory authority responsible for regulating the head office of the bank for the purpose of consolidated supervision. The Information Sharing Handbook also provides guidance of the manner in which all domestic regulatory authorities, including CBoB, will share with foreign supervisory authorities. CBoB has signed MoUs with a number of jurisdictions including Argentina, Canada, Costa Rica, Brazil, Guatemala, Panama, Peru, and an MoU with regional supervisory authorities (CARICOM). CBoB has responded to requests to share information with foreign supervisory authorities on a timely basis. |
| EC3 | The supervisor may provide confidential information to another domestic authority or foreign supervisor but must take reasonable steps to determine that any confidential information so released will be used only for bank-specific or system-wide supervisory purposes and will be treated as confidential by the receiving party. |
| Description and findings re EC3 | S. 38 (7) of the CBBA authorizes CBoB to disclosure information only where CBoB has satisfied itself that the assistance requested by the overseas regulator is required for the purposes of the overseas authority’s regulatory functions. Any confidential information acquired by others, including a Supervisory Authority, is covered by the confidentiality provisions (S. 19) of BTCRA. CBoB is required to share information as necessary as it pertains to AML/CFT disclosure reporting requirements. |
| EC4 | The supervisor receiving confidential information from other supervisors uses the confidential information for bank-specific or system-wide supervisory purposes only. The supervisor does not disclose confidential information received to third parties without the permission of the supervisor providing the information and is able to deny any demand (other than a court order or mandate from a legislative body) for confidential information in its possession. In the event that the supervisor is legally compelled to disclose confidential information it has received from another supervisor, the supervisor promptly notifies the originating supervisor, indicating what information it is compelled to release and the circumstances surrounding the release. Where consent to passing on confidential information is not given, the supervisor uses all reasonable means to resist such a demand or protect the confidentiality of the information. |
| Description and findings re EC4 | S. 7 of the CBBA authorized the CBoB to deny any demand for confidential information when it is not satisfied that it will be treated confidentially or used for supervisory purposes and that it must be given an undertaking by the recipient authority not to disclose the information provided without the consent of the CBoB. |
| EC5 | Processes are in place for the supervisor to support resolution authorities (e.g. central banks and finance ministries as appropriate) to undertake recovery and resolution planning and actions. |
| Description and findings re EC5 | Certain provisions of the CBBA, the BTCRA and the Protection of Depositors Act and Regulations describe current processes CBoB will undertake with respect to recovery and resolution planning and actions. No formal recovering planning or resolution planning is in place at this time. |
| Assessment of Principle 3 | Largely Compliant |
| Comments | CBoB has MoUs in place to support information sharing as well as co-operation and coordination between both domestic and foreign regulatory authorities in dealing with a crisis. Proposed amendments to the CBBA and the BTCRA and Regulations to provide for the establishment of CBoB as the sole resolution authority for banks and to expand the regulatory toolkit available to CBoB to address issues relating to failing banks (e.g. the ability to appoint a statutory administrator), including the requirement for SFIs to have recovery plans and CBoB to have resolution plans in place for DSIBs. |
| Principle 4 | Permissible activities. The permissible activities of institutions that are licensed and subject to supervision as banks are clearly defined and the use of the word “bank” in names is controlled. |
| Essential criteria | |
| EC1 | The term “bank” is clearly defined in laws or regulations. |
| Description and findings re EC1 | The term “bank” is defined in S. 2 of the BTCRA as any person lawfully carrying on banking business including the acceptance of deposits of money withdrawable by cheque. |
| EC2 | The permissible activities of institutions that are licensed and subject to supervision as banks are clearly defined either by supervisors, or in laws or regulations. |
| Description and findings re EC2 | S. 3 of the BTCRA specifies that only banks authorized by the CBoB may carry out the business of banking and S. 2 defines “banking business” as the business of accepting deposits of money which may be withdrawn or repaid on demand or after a fixed period or after notice and employing those deposits in whole or in part by lending or otherwise investing them for the account and at the risk of the person accepting them. It also includes the provision of money transmission services. |
| EC3 | The use of the word “bank” and any derivations such as “banking” in a name, including domain names, is limited to licensed and supervised institutions in all circumstances where the general public might otherwise be misled. |
| Description and findings re EC3 | S. 7 of BTCRA as well as the Banks and Trust Companies (Restriction on the Use of Banking Names and Descriptions) Regulations, 2001 (as revised in 2002) specifies that no person other than a bank license holder can use the term “bank” or any derivative thereof without the permission of the CBoB. CBoB’s general policy is not to give consent for the use of a prohibited word where its use could mislead the public into believing that the company in question is, or may be a bank license holder or that it is under the direct supervision of CBoB. The Registrar of Companies will refer any company whose name contains a restricted word to CBoB for its review. |
| EC4 | The taking of deposits from the public is reserved for institutions that are licensed and subject to supervision as banks.13 |
| Description and findings re EC4 | Other than banks, credit unions are the only entities permitted to accept deposits from the public. |
| EC5 | The supervisor or licensing authority publishes or otherwise makes available a current list of licensed banks, including branches of foreign banks, operating within its jurisdiction in a way that is easily accessible to the public. |
| Description and findings re EC5 | The CBoB publishes a list of all licensed banks, including branches of foreign banks, on a quarterly basis on its website. Up-to-date lists are available from CBoB on request. |
| Assessment of Principle 4 | Compliant |
| Comments | The BTCRA clearly defines the “banking business” and restricts deposit taking activities to banks and credit unions only. |
| Principle 5 | Licensing criteria. The licensing authority has the power to set criteria and reject applications for establishments that do not meet the criteria. At a minimum, the licensing process consists of an assessment of the ownership structure and governance (including the fitness and propriety of Board members and senior management)14 of the bank and its wider group, and its strategic and operating plan, internal controls, risk management and projected financial condition (including capital base). Where the proposed owner or parent organization is a foreign bank, the prior consent of its home supervisor is obtained. |
| Essential criteria | |
| EC1 | The law identifies the authority responsible for granting and withdrawing a banking license. The licensing authority could be the banking supervisor or another competent authority. If the licensing authority and the supervisor are not the same, the supervisor has the right to have its views on each application considered, and its concerns addressed. In addition, the licensing authority provides the supervisor with any information that may be material to the supervision of the licensed bank. The supervisor imposes prudential conditions or limitations on the newly licensed bank, where appropriate. |
| Description and findings re EC1 | S. 3 (1) of the BTCRA provides that the CBoB is the only authority responsible for the granting of a bank license. S. 4(6) of the BTCRA states that the CBOB may impose conditions or limitations on a new or existing license. S. 8 of the CUA stipulates the criteria for the registration of a credit union. |
| EC2 | Laws or regulations give the licensing authority the power to set criteria for licensing banks. If the criteria are not fulfilled or if the information provided is inadequate, the licensing authority has the power to reject an application. If the licensing authority or supervisor determines that the license was based on false information, the license can be revoked. |
| Description and findings re EC2 | S. 4 of the BTCRA sets the criteria for the licensing of banks (and trust companies). It also provides that the CBoB may reject an application if the applicant does not meet the necessary authorization criteria, including: the fitness and probity of the applicant to carry out banking business; the fitness and probity of the directors and senior management; the sufficiency of financial resources to provide continuing financial support; the soundness and feasibility of the business plan; the business record and experience of the applicant; the best interests of the financial system of the Bahamas. The CBoB may also refuse to grant a license if it considers it to be in the public interest. The Bank and Trust Companies (License Application) Regulations, 2008 (License Regulations) which detail the requirements for new license applications, are augmented by the Guidelines for Licence Applications for Banks and/or Trust Companies, May 2015 (Licence Guideline) and the Applications Manual, December 6, 2018. Section 18(1)(a)(vi) of the BTCRA provides that the CBoB may revoke a license, the granting of which was based on false or misleading information. |
| EC3 | The criteria for issuing licenses are consistent with those applied in ongoing supervision. |
| Description and findings re EC3 | Banks are required to provide at the authorization stage details of their proposed internal organization structures including internal audit and compliance arrangements and the outline of their internal policies on risk management requirements as they relate, for instance, to such issues as credit, liquidity, provisioning, large exposure, country risk. CBoB does not review policies in detail at the time of issuing a license. It generally performs an onsite visit to the newly licensed SFI within 18 months of operation. |
| EC4 | The licensing authority determines that the proposed legal, managerial, operational and ownership structures of the bank and its wider group will not hinder effective supervision on both a solo and a consolidated basis.15 The licensing authority also determines, where appropriate, that these structures will not hinder effective implementation of corrective measures in the future. |
| Description and findings re EC4 | CBoB carries out a review of the proposed legal, managerial, operational and ownership structures during the licensing application process. CBoB will only authorize banks where it is satisfied that it can carry out effective supervision on both a solo and consolidated basis (see S. 4(4)(b) of the BTCRA). |
| EC5 | The licensing authority identifies and determines the suitability of the bank’s major shareholders, including the ultimate beneficial owners, and others that may exert significant influence. It also assesses the transparency of the ownership structure, the sources of initial capital and the ability of shareholders to provide additional financial support, where needed. |
| Description and findings re EC5 | S. 4 (2) of the BTCRA states that the CBoB must be satisfied about the nature and sufficiency of the financial resources of the applicant (body corporate, annual statements plus most recent unaudited financial statements, for each applicant current statement of assets and liabilities certified by a public accountant) to provide continuing financial support to carry on banking business, before the granting of a license. Additionally, the Licence Regulations permit CBoB to vet the suitability of all shareholders proposing to hold 5 per cent or more of the shares, directly or indirectly, in the bank. |
| EC6 | A minimum initial capital amount is stipulated for all banks. |
| Description and findings re EC6 | Page 19 of the Licence Guidelines indicate that the CBoB has established the minimum paid up capital requirements at $5 million for commercial and public banks as reflected in the Licence Guideline. CBoB can stipulate a higher minimum figure based on a review of the proposed business activities of the applicant. |
| EC7 | The licensing authority, at authorization, evaluates the bank’s proposed Board members and senior management as to expertise and integrity (fit and proper test), and any potential for conflicts of interest. The fit and proper criteria include: (i) skills and experience in relevant financial operations commensurate with the intended activities of the bank; and (ii) no record of criminal activities or adverse regulatory judgments that make a person unfit to uphold important positions in a bank.16 The licensing authority determines whether the bank’s Board has collective sound knowledge of the material activities the bank intends to pursue, and the associated risks. |
| Description and findings re EC7 | S. 4 (2) of the BTCRA stipulates that the CBoB must be satisfied that those who will operate the bank (or trust company) will do so responsibly and that such persons have the character, competence and experience for operating a bank. This requirement is supplemented by the Licence Regulations which allow CBoB to analyze the proposed ownership and managerial structure and the background, integrity and suitability of proposed directors and managers using traditional fit and proper criteria. Tools such as World Check and regulatory contacts are used during the due diligence process in assessing the fitness and probity of the promoters, shareholders, directors, and senior management of applicants. Senior management are required to submit police certificates from their respective home jurisdictions and to declare, inter alia, information related to criminal records, or adverse regulatory judgments in a confidential statement. S. 3E and 4(2) of the BTCRA, states that the Board (and senior) management must satisfy the CBoB that they will manage the bank responsibly and that they have the proper character, competence and experience to operate a bank. CBoB also assesses the collective sound knowledge of material activities of the proposed licensee. |
| EC8 | The licensing authority reviews the proposed strategic and operating plans of the bank. This includes determining that an appropriate system of corporate governance, risk management and internal controls, including those related to the detection and prevention of criminal activities, as well as the oversight of proposed outsourced functions, will be in place. The operational structure is required to reflect the scope and degree of sophistication of the proposed activities of the bank.17 |
| Description and findings re EC8 | S. 4(2) of the BTCRA states that each applicant must submit for consideration by the CBoB such information as the CBoB deems necessary to undertake a full assessment of the application. CBoB relies upon a number of Regulations and Guidelines including Licence Regulations, Guidelines for Assessing the Fitness and Propriety of Applicants for Regulated Functions and General Information Guidelines for Licence Applications. The Licence Guidelines require the applicant to submit a strategic and operating plan and feasibility study, pro-forma financial statements covering a three to five-year timeframe, information on its internal organization, details on internal audit and compliance functions. These are supplemented by the CBoB’s Guidelines on corporate governance, internal controls, outsourcing, AML/CFT and risk management requirements. The submitted data is required to take into account the nature and complexity of the proposed activities of the applicant. CBoB’s authorization division is responsible for the processing of authorizations. Once an application has been approved a supervisor/analysist is assigned to the supervisory oversight of the new SFI. The SFI is monitored by the off-site supervision surveillance team and in general an on-site examination is conducted within 18 months of operation. At the time of licensing, CBoB’s authorization division examines the general outline of risk management policies and has discussions with the applicants regarding the corporate governance and internal control framework for the proposed SFI. |
| EC9 | The licensing authority reviews pro forma financial statements and projections of the proposed bank. This includes an assessment of the adequacy of the financial strength to support the proposed strategic plan as well as financial information on the principal shareholders of the bank. |
| Description and findings re EC9 | The Licence Regulations require applicants to provide pro forma financial statements covering a three year to five-year timeframe. Applicants must also submit a strategic and operating plan and feasibility study. Shareholders are required to submit net worth statements to enable CBoB to assess their financial strength. Where an application is made by a corporate entity or a bank, audited financial statements for the three years immediately preceding the application are required to assess the financial strength of the parent. S. 4 (2) of the BTCRA states that the CBoB must be satisfied about the nature and sufficiency of the financial resources of the applicant to provide continuing financial support for the bank. |
| EC10 | In the case of foreign banks establishing a branch or subsidiary, before issuing a license, the host supervisor establishes that no objection (or a statement of no objection) from the home supervisor has been received. For cross-border banking operations in its country, the host supervisor determines whether the home supervisor practices global consolidated supervision. |
| Description and findings re EC10 | S. 4(4) of the BTCRA stipulates that a license shall not be granted unless the CBoB is satisfied that the bank will be subject to adequate consolidated supervision by the home supervisor; that the latter makes no objection to the establishment of the branch or subsidiary in the Bahamas; and that there are no constraints on internal or external audits imposed by the home regulator. |
| EC11 | The licensing authority or supervisor has policies and processes to monitor the progress of new entrants in meeting their business and strategic goals, and to determine that supervisory requirements outlined in the license approval are being met. |
| Description and findings re EC11 | The CBoB’s off-site supervision surveillance monitor the progress of its new licensees in meeting their business and strategic goals through a quarterly review of financial statements (as well as audited statements when they become available), prudential discussions are held with banks on an annual basis or more frequently if the need arises. All banks are subject to periodic on-site inspection. |
| Assessment of Principle 5 | Compliant |
| Comments | CBoB has a thorough licensing framework and processes in place to assess licensing applications, CBoB follows criteria explicit criteria pertaining to financial strengthen of investors, fit and proper guidance for the appointment of senior management and Board members, analysis of proposed business strategy, and minimum capital adequacy requirements. To avoid problems at a later date, for new licensees who do not have a strong parent company to oversee the startup of operations, CBoB should conduct a more in-depth review of applicant’s risk management policies and conduct an on-site view prior to the 18 months of operation of the SFI. |
| Principle 6 | Transfer of significant ownership. The supervisor18 has the power to review, reject and impose prudential conditions on any proposals to transfer significant ownership or controlling interests held directly or indirectly in existing banks to other parties. |
| Essential criteria | |
| EC1 | Laws or regulations contain clear definitions of “significant ownership” and “controlling interest”. |
| Description and findings re EC1 | S. 2 of the BTCRA outlines the definition of “controller” which means a person who is able to exercise a significant influence over the management of a licensee by virtue of (i) a holding of shares or other securities in the licenses or such other company; (ii) an entitlement to exercise, or control the exercise of, the voting power at any general meeting of the licensee, or such other company. S. 6A of the BTCRA states that the CBoB may grant/refuse approval of an application by a person to become a controller of a licensee or to increase a controller’s shareholding in a licensee. S. 6 of the BTCRA states that in the case of publicly traded banks approval is required at the 5 percent level and notification at the 3 percent level (as stated in the Acquisition of Shares Regulations (ASR)). |
| EC2 | There are requirements to obtain supervisory approval or provide immediate notification of proposed changes that would result in a change in ownership, including beneficial ownership, or the exercise of voting rights over a particular threshold or change in controlling interest. |
| Description and findings re EC2 | S. 6 of BTCRA specifies that no shares in a bank or any other securities shall be issued and no issued shares shall be transferred or disposed of in any manner without the prior approval of the CBoB. S. 6A of the BTCRA also empowers the CBoB to approve the application of a person who wishes to become a controller of a licensee. This is also reflected in the ASR which requires that any person wishing to acquire shares in a bank (5 percent in the case of a publicly traded bank) must receive the prior approval of CBoB. Paragraph 2(a)(i) of the Schedule to the ASR—requires banks to provide a list of, and background information on, all direct or indirect shareholders who represent, either individually or as a group acting together, 10 percent or more of the voting rights, shares and/or other controlling interest of each applicant at the time of the application. Paragraph 2 (a)(iii) of the Schedule also requires the applicant to provide CBoB with an organization chart showing the structure of the direct and indirect shareholding of each applicant analyzed according to holdings of voting rights, shares and/or other controlling interests. The Registrar of Beneficial Ownership Bill, 2018, effective January 1, 2019 will provide the CBoB with an additional source of information to check prior to granting any approvals related to a controller pertaining to the prevention of criminals or associates from holding any interest, significant or otherwise in the any SFI. |
| EC3 | The supervisor has the power to reject any proposal for a change in significant ownership, including beneficial ownership, or controlling interest, or prevent the exercise of voting rights in respect of such investments to ensure that any change in significant ownership meets criteria comparable to those used for licensing banks. If the supervisor determines that the change in significant ownership was based on false information, the supervisor has the power to reject, modify or reverse the change in significant ownership. |
| Description and findings re EC3 | S. 6 of the BTCRA indicates that no shares can change hands without the consent of CBoB. The same criteria that apply upon authorization apply also, where relevant, upon change of ownership. Accordingly, the proposed new owners and controllers must meet the fitness and propriety criteria and the acquisition must not hinder effective supervision and must be in the best interests of the financial system of The Bahamas. |
| EC4 | The supervisor obtains from banks, through periodic reporting or on-site examinations, the names and holdings of all significant shareholders or those that exert controlling influence, including the identities of beneficial owners of shares being held by nominees, custodians and through vehicles that might be used to disguise ownership. |
| Description and findings re EC4 | Banks are required to submit an annual statement of shareholders, directors and senior officers to CBoB (as well as to the Registrar of Companies). As stipulated in the Licensing Guidelines and the Applications Manual, the Confidential Statement (which is completed by all shareholders, directors and senior officers seeking CBoB’s approval of their appointment) requires that each SFI should inform CBoB, within 21 days, if it becomes aware of any material information that may affect the completeness or accuracy of the information contained in the statement (as per s. 13B of the BTCRA). |
| EC5 | The supervisor has the power to take appropriate action to modify, reverse or otherwise address a change of control that has taken place without the necessary notification to or approval from the supervisor. |
| Description and findings re EC5 | S. 6 of BTCRA states that no acquisition is valid without the consent of CBoB and specifically 6B states that CBoB may object to an existing controller and may take steps to ensure that such a person ceases to be a controller. |
| EC6 | Laws or regulations or the supervisor require banks to notify the supervisor as soon as they become aware of any material information which may negatively affect the suitability of a major shareholder or a party that has a controlling interest. |
| Description and findings re EC6 | The Confidential Statement (which is completed by all shareholders, directors and senior officers seeking CBoB’s approval of their appointment) requires that each bank should inform the Inspector, within 21 days, if it becomes aware of any material information that may affect the completeness or accuracy of the information contained in the statement. |
| Assessment of principle 6 | Compliant |
| Comments | CBoB has the power to review, reject, and impose prudential conditions on proposals to transfer significant ownership or controlling interests in SFIs. |
| Principle 7 | Major acquisitions. The supervisor has the power to approve or reject (or recommend to the responsible authority the approval or rejection of), and impose prudential conditions on, major acquisitions or investments by a bank, against prescribed criteria, including the establishment of cross-border operations, and to determine that corporate affiliations or structures do not expose the bank to undue risks or hinder effective supervision. |
| Essential criteria | |
| EC1 | Laws or regulations clearly define:
|
| Description and findings re EC1 | The Banks and Trust Companies (Equity Investments) Regulations 2005 (Equity Regulations) stipulates that no bank, without the prior written approval of CBoB can acquire, either directly or indirectly, more than 5 percent of the shares, securities and/or any other interest in any other person (e.g., companies, partnerships, trusts, etc.) S. 5 of the BTCRA requires that written approval of CBoB be obtained for the establishment of foreign subsidiaries (as well as foreign branches and representative offices) by banks. Regulation 3 of the Equity Regulations specifies that no bank shall, without the prior written approval of the CBoB, acquire or hold the shares, securities or other interests in or of any person that is a related party to the bank. |
| EC2 | Laws or regulations provide criteria by which to judge individual proposals. |
| Description and findings re EC2 | In general, the CBoB seeks to ensure that any acquisition proposal made by a bank is sound and feasible and is in the best interests of depositors and the financial system in The Bahamas. If the proposed investment is in a bank (or trust company), the proposal is judged by the criteria outlined in S. 4(2) of the BTCRA. (i.e., authorization criteria). |
| EC3 | Consistent with the licensing requirements, among the objective criteria that the supervisor uses is that any new acquisitions and investments do not expose the bank to undue risks or hinder effective supervision. The supervisor also determines, where appropriate, that these new acquisitions and investments will not hinder effective implementation of corrective measures in the future.19 The supervisor can prohibit banks from making major acquisitions/investments (including the establishment of cross-border banking operations) in countries with laws or regulations prohibiting information flows deemed necessary for adequate consolidated supervision. The supervisor takes into consideration the effectiveness of supervision in the host country and its own ability to exercise supervision on a consolidated basis. |
| Description and findings re EC3 | In general, the CBoB seeks to ensure that any acquisition proposal made by a bank is sound and feasible and is in the best interests of depositors and the financial system in the Bahamas. S. 5 of the BTCRA states that a licensee incorporated or registered in The Bahamas shall not without the prior written approval of the Bank establish outside of The Bahamas, a subsidiary, branch, or representative office. S. 4 of the Guidelines for the Establishment or Acquisition of Overseas Branches, Subsidiaries and Representative Offices address the requirement for consolidated supervision and provides that for CBoB’s ability to successfully supervise entire banking groups on a consolidated basis, it must have an ability to review banking and nonbanking activities conducted by its licensees, either directly or indirectly (through branches, subsidiaries or representative offices) and activities conducted at both domestic and foreign offices. To facilitate CBoB’s ability to supervise on a consolidated basis, it has entered into several MoUs with host regulators. The Guidelines states this as a condition of final approval to the establishment of a branch or subsidiary. CBoB will only allow a bank to make significant investments in other countries where it is satisfied that the supervisors in those other countries implements adequate consolidated supervision and there are no constraints on internal and external audits imposed by those supervisory authorities. The CBoB will only allow an acquisition where it can effectively supervise the bank on a consolidated basis (S. 7 of the Licence Guidelines). |
| EC4 | The supervisor determines that the bank has, from the outset, adequate financial, managerial and organizational resources to handle the acquisition/investment. |
| Description and findings re EC4 | Section 4 (2) of BTCRA provides that CBoB must be satisfied about the nature and sufficiency of the financial resources of the acquiring bank to provide continuing financial support in respect of the proposed acquisition. It must also satisfy itself regarding the soundness and feasibility of the proposal. The Guidelines for the Establishment or Acquisition of Overseas Branches, Subsidiaries and Representative Offices set out the factors which the Bank will consider when determining whether or not to approve an application to establish a foreign subsidiary. Paragraph V(1)(b) and (e) of these Guidelines includes the amongst the various criteria to be considered by the Bank: “(b) the fitness, propriety and managerial capacity of the applicant to expand its banking and/or trust business overseas in a prudent and reputable manner; and (e) the nature and sufficiency of the financial resources of the applicant to provide continuing financial support to the branch, subsidiary or representative office overseas, should it be necessary. The financial condition and likely future requirements of the entity in terms of possible injections of capital and liquidity will also be considered to ensure that there will not be undue hardship on the financial resources of the licensee;” The Equity Regulations 2005 stipulates that no bank, may without the prior written approval of CBoB acquire, either directly or indirectly, more than 5 percent of the shares, securities and/or any other interest in any other person (e.g., companies, partnerships, trusts, etc.). The off-site supervision surveillance team, together with the authorization unit, engages in discussions with SFIs of potential major acquisitions to determine if the SFI has the organizational resources to handle the acquisition or investment. |
| EC5 | The supervisor is aware of the risks that non-banking activities can pose to a banking group and has the means to take action to mitigate those risks. The supervisor considers the ability of the bank to manage these risks prior to permitting investment in non-banking activities. |
| Description and findings re EC5 | CBoB will only permit an investment in a non-banking entity where it is sound and feasible and in the best interest of depositors and the financial system in The Bahamas. |
| AC1 | The supervisor reviews major acquisitions or investments by other entities in the banking group to determine that these do not expose the bank to any undue risks or hinder effective supervision. The supervisor also determines, where appropriate, that these new acquisitions and investments will not hinder effective implementation of corrective measures in the future.20 Where necessary, the supervisor is able to effectively address the risks to the bank arising from such acquisitions or investments. |
| Description and findings re AC1 | |
| Assessment of Principle 7 | Compliant |
| Comments | The BTCRA empowers CBoB to establishes clear provisions on acquisitions and investments that require prior supervisory approval or prior notification to CBoB. |
| Principle 8 | Supervisory approach. An effective system of banking supervision requires the supervisor to develop and maintain a forward-looking assessment of the risk profile of individual banks and banking groups, proportionate to their systemic importance; identify, assess and address risks emanating from banks and the banking system as a whole; have a framework in place for early intervention; and have plans in place, in partnership with other relevant authorities, to take action to resolve banks in an orderly manner if they become non-viable. |
| Essential criteria | |
| EC1 | The supervisor uses a methodology for determining and assessing on an ongoing basis the nature, impact and scope of the risks:
The methodology addresses, among other things, the business focus, group structure, risk profile, internal control environment and the resolvability of banks, and permits relevant comparisons between banks. The frequency and intensity of supervision of banks and banking groups reflect the outcome of this analysis. |
| Description and findings re EC1 | CBoB has identified six Domestic Systemically Important Banks (DSIB) which based on their nature, impact and scope of risks were determined to have the potential impact on the safety and soundness of The Bahamas banking system. These DSIBs are subject to more enhanced off-site supervision surveillance focus requiring a three-year cycle for a risk assessment versus the other SFI’s being subject to a 5-year risk assessment cycle. The off-site supervision surveillance teams meet more frequently (semi-annually) with the DSIB’s senior management to discuss prudential issues, and progress in addressing supervisory requirements. At times, the DSIBs are also subject to more regular on-site examinations than other SFIs, however the on-site examinations do not include a deep effectiveness review of corporate governance, internal audit function nor an examination of some of the material risks (e.g. credit) on a regular basis. The international SFIs (including branch operations) are subject to similar risk assessment processes, but less frequently (e.g. annually). |
| EC2 | The supervisor has processes to understand the risk profile of banks and banking groups and employs a well-defined methodology to establish a forward-looking view of the profile. The nature of the supervisory work on each bank is based on the results of this analysis. |
| Description and findings re EC2 | CBoB’s off-site supervision surveillance includes:
When an on-site examination takes place, CBoB evaluates banks’ policies, practices, and procedures relating to their loan and investment portfolios, and ensures that banks have in place internal controls adequate to the nature and scale of their operations. The off-site supervisors prepare risk assessments (on a cycle of 3 (DSIBs) and 5 years (all other SFIs), annual/semi-annual analysis as well as reports on examinations provide for a good understanding of the overall risk profile of the SFI. The ever-greening tool which has been developed and implemented (although a few remaining adjustments are required to make it fully operational) provides the off-site supervisors the ability to update the risk assessment matrix/profile frequently, which incorporates an impact assessment of the direction of risk. |
| EC3 | The supervisor assesses banks’ and banking groups’ compliance with prudential regulations and other legal requirements. |
| Description and findings re EC3 | CBoB requires the Board of Directors to provide an annual certification which is relied upon to ensure that SFIs are in compliance with prudential regulations and other legal requirements. Additionally, banks are expected to notify the CBoB of any breaches of prudential norms or prudential regulations. |
| EC4 | The supervisor takes the macroeconomic environment into account in its risk assessment of banks and banking groups. The supervisor also takes into account cross-sectoral developments, for example in non-bank financial institutions, through frequent contact with their regulators. |
| Description and findings re EC4 | As part of the risk based supervisory framework, CBoB assesses the effect of economic factors of licensees including trends in national and regional gross domestic products (GDP), trends in national inflation and foreign investments in The Bahamas to name a few. CBoB also assess the impact of changes in the competitive environment of licensees including the impact of changes in international rules for disclosure (exchanges of information between tax authorities), levels of new entrants/exits from the industry/sector, trends in margins and profitability for the industry/sector as well as the industry structure. CBoB also conducts aggregate stress testing to test SFI’s abilities to withstand certain shocks in the macroeconomic environment. Although CBoB is in the preliminary stages of developing these macro stress tests, the stress testing to date has assisted the BSD with assessing the impact on the risk profile of the DSIBs. |
| EC5 | The supervisor, in conjunction with other relevant authorities, identifies, monitors and assesses the build-up of risks, trends and concentrations within and across the banking system as a whole. This includes, among other things, banks’ problem assets and sources of liquidity (such as domestic and foreign currency funding conditions, and costs). The supervisor incorporates this analysis into its assessment of banks and banking groups and addresses proactively any serious threat to the stability of the banking system. The supervisor communicates any significant trends or emerging risks identified to banks and to other relevant authorities with responsibilities for financial system stability. |
| Description and findings re EC5 | CBoB conducts reviews of trends and concentrations within and across the banking system as a whole. CBoB’s Quarterly Economic Review, produced by CBoB’s Research Department, reviews key economic and financial developments, including an analysis of the developments in the financial services sector, performance of the domestic banks, credit quality, capital adequacy, and profitability. The report also speaks to capital markets developments as well as developments in the international environment. This analysis, together with the marcro stress testing conducted by CBoB is factored into the risk assessment of the SFIs. In addition, based on the current credit environment in The Bahamas, the off-site supervision surveillance team has made an effort over the past 18 months to communicate these findings with the DSIBs, along with CBoB’s expectation that these SFI work towards lowering the overall level of NPLs in the banking sector. The overall NPL levels have been gradually decreasing since that time, with the exception of one DSIB. |
| EC6 | Drawing on information provided by the bank and other national supervisors, the supervisor, in conjunction with the resolution authority, assesses the bank’s resolvability where appropriate, having regard to the bank’s risk profile and systemic importance. When bank-specific barriers to orderly resolution are identified, the supervisor requires, where necessary, banks to adopt appropriate measures, such as changes to business strategies, managerial, operational and ownership structures, and internal procedures. Any such measures take into account their effect on the soundness and stability of ongoing business. |
| Description and findings re EC6 | CBoB reviews and assesses all relevant information received by licensees, other regulators or obtained by other means which may have an impact on the soundness and stability of licensees’ business operations. CBoB has the power under the BTCRA to impose intervention measures on licensees should there be any supervisory concerns. CBoB’s Ladder of Supervisory Intervention Guidelines provide CBoB with the ability to take the necessary intervention measures in a timely manner. At this time, proposed amendments to the BTCRA will enhance the CBoB’s resolution framework as well as when enacted would allow the CBoB to require banks to make changes to remove barriers to orderly resolution. |
| EC7 | The supervisor has a clear framework or process for handling banks in times of stress, such that any decisions to require or undertake recovery or resolution actions are made in a timely manner. |
| Description and findings re EC7 | At this time, CBoB works informally with the Group of Financial Services Regulators (domestic agencies through an MoU) as well as with the MoF to deal with the handling of banks in stress. Amendments to the BTCRA have proposed an enhanced resolution framework that would empower the BTCRA to require SFIs to undertake recovery or resolution actions in a timely manner. It is essential for the CBoB to be formally recognized as the Resolution Authority as well as having the power to take the necessary steps to ensure any actions that are required to be taken are done so in a timely manner. |
| EC8 | Where the supervisor becomes aware of bank-like activities being performed fully or partially outside the regulatory perimeter, the supervisor takes appropriate steps to draw the matter to the attention of the responsible authority. Where the supervisor becomes aware of banks restructuring their activities to avoid the regulatory perimeter, the supervisor takes appropriate steps to address this. |
| Description and findings re EC8 | SFIs are required to seek formal approval of any restructuring activities and therefore it would not approve of any activities that an SFI conducts in order to avoid regulatory requirements. |
| Assessment of Principle 8 | Largely Compliant |
| Comments | CBoB has a strong off-site surveillance program that entails direct interaction with the DSIBs on a semi-annual basis, international firms annually, that entails discussions around periodic reporting, discussion of emerging prudential risks (credit) that could impact the firm. CBoB must ensure that its DSIBs have an adequate on-site examination program that includes an in-depth review (which can be conducted on a cycle basis) of corporate governance, internal controls and a deep assessment of the most prominent risks in the business model (e.g. credit risk for the domestic retail asset backed lending books). This enhanced risk assessment process should be conducted more frequently for DSIBs to minimize the potential negative impact on the financial stability of the banking system in The Bahamas. A supervisory regime for the assessment of resolvability is still a work in progress. |
| Principle 9 | Supervisory techniques and tools. The supervisor uses an appropriate range of techniques and tools to implement the supervisory approach and deploys supervisory resources on a proportionate basis, taking into account the risk profile and systemic importance of banks. |
| Essential criteria | |
| EC1 | The supervisor employs an appropriate mix of on-site21 and off-site22 supervision to evaluate the condition of banks and banking groups, their risk profile, internal control environment and the corrective measures necessary to address supervisory concerns. The specific mix between on-site and off-site supervision may be determined by the particular conditions and circumstances of the country and the bank. The supervisor regularly assesses the quality, effectiveness and integration of its on-site and off-site functions, and amends its approach, as needed. |
| Description and findings re EC1 | CBoB’s off-site supervision surveillance program uses a number of methods for assessing an SFI’s financial condition and compliance with prudential requirements and standards, including those related to corporate governance and risk management. Both the domestic and international SFIs are subject to the same risk based supervisory framework with more emphasis being placed on the largest SFIs in both categories. The on-site examination program does not include a deep effectiveness assessment of DSIB’s key corporate governance, risk management and internal controls practices, as well as in-depth reviews of material risks (e.g. credit risk) depending on the business model on a regular basis. |
| EC2 | The supervisor has a coherent process for planning and executing on-site and off-site activities. There are policies and processes to ensure that such activities are conducted on a thorough and consistent basis with clear responsibilities, objectives and outputs, and that there is effective coordination and information sharing between the on-site and off-site functions. |
| Description and findings re EC2 | Each year the BSD formulates a strategic plan that references the continuous off-site supervision surveillance requirements (including semi-annual/annual meetings with senior management of SFIs), planned on-site examination work required to be undertaken depending on the in-depth risk assessments conducted by the off-site supervision surveillance team’s requirements together with the requirement to address all regulatory guidance needs (e.g. implementing Basel II/III reform initiatives, etc.). |
| EC3 | The supervisor uses a variety of information to regularly review and assess the safety and soundness of banks, the evaluation of material risks, and the identification of necessary corrective actions and supervisory actions. This includes information, such as prudential reports, statistical returns, information on a bank’s related entities, and publicly available information. The supervisor determines that information provided by banks is reliable23 and obtains, as necessary, additional information on the banks and their related entities. |
| Description and findings re EC3 | In addition to the documentation used in a risk assessment, CBoB reviews information obtained from statutory filings (prudential returns), financial reporting requirements for capital liquidity and earnings performance (to name a few) on a weekly, quarterly and monthly basis, external audit reports, consolidated annual reports from the parent company), correspondences, service level agreements, newspaper articles and press releases, internal audit reports, ICAAP reports and management reporting to the Board of Directors (“the Board”) (including minutes of the Board and Board committee meetings) as well as reports emanating from Discovery Review meetings. |
| EC4 | The supervisor uses a variety of tools to regularly review and assess the safety and soundness of banks and the banking system, such as:
The supervisor communicates its findings to the bank as appropriate and requires the bank to take action to mitigate any particular vulnerabilities that have the potential to affect its safety and soundness. The supervisor uses its analysis to determine follow-up work required, if any. |
| Description and findings re EC4 | CBoB uses a variety of tools to regularly review and assess the safety and soundness of SFIs, including the review and analysis of financial statements and accounts, business model analysis (part of the analysis conducted annually as well as the in-depth risk assessments conducted every 3 years for DSIBs land 5 years for all other SFIs). Horizontal peer reviews are conducted in an informal manner, but it is conducted nonetheless. The outcome of SFI produced stress tests are reviewed and discussed with the institution when relevant. CBoB on-site examiners review corporate governance, including risk management and internal control systems when a specific risk is being reviewed as part of the examination. In general, CBoB does not conduct a deep dive review of corporate governance per se. |
| EC5 | The supervisor, in conjunction with other relevant authorities, seeks to identify, assess and mitigate any emerging risks across banks and to the banking system as a whole, potentially including conducting supervisory stress tests (on individual banks or system-wide). The supervisor communicates its findings as appropriate to either banks or the industry and requires banks to take action to mitigate any particular vulnerabilities that have the potential to affect the stability of the banking system, where appropriate. The supervisor uses its analysis to determine follow-up work required, if any. |
| Description and findings re EC5 | CBoB is in its early stages of developing appropriate models and detailed guidelines for supervisory stress testing, but these have not been issued as yet. Most licensees are subsidiaries or branches of international banking groups and have advanced models that are employed subject to home country supervision standards. For the local operation, the CBoB reviews the results of the models and stress testing and is initiating work with the local operation to adapt their models. |
| EC6 | The supervisor evaluates the work of the bank’s internal audit function, and determines whether, and to what extent, it may rely on the internal auditors’ work to identify areas of potential risk. |
| Description and findings re EC6 | The off-site supervision surveillance receives all internal audit reports throughout the year on all SFIs and the team meets face to face with the internal auditors to review the findings of such reports. In addition, the on-site examiners review the scope and work papers of the auditor during onsite examination visits. As part of a licensee’s risk assessment, examiners also assess the issues identified and recommendations made in internal and group internal audit reports. |
| EC7 | The supervisor maintains sufficiently frequent contacts as appropriate with the bank’s Board, non-executive Board members and senior and middle management (including heads of individual business units and control functions) to develop an understanding of and assess matters such as strategy, group structure, corporate governance, performance, capital adequacy, liquidity, asset quality, risk management systems and internal controls. Where necessary, the supervisor challenges the bank’s Board and senior management on the assumptions made in setting strategies and business models. |
| Description and findings re EC7 | It is CBoB’s policy, that all licensees meet at least annually with BSD. These meetings encompass all material issues arising from both off-site monitoring of prudential indicators and the CBoB’s on-site examinations. The frequency for onsite examinations is determined by the risk-rating of the bank. For example, a bank rated as high Risk (i.e., high probability of an event occurring and high systemic or jurisdictional impact if the event crystallizes) would be subject to at least annual reviews. Lower risk banks will be subject to less frequent reviews (based on the risk rating). Licensees are required to submit, in advance of the meetings, relevant recent internal risk reports for their operations in The Bahamas, as well as internal audit reviews and the external auditor’s management letter. More frequent meetings are held with higher risk entities. Licensees are required to notify the CBoB of any significant changes in their activities, as well as discuss activities and financial performance at the annual prudential meeting. The inclusion of external auditors, non-executive directors and middle management of licensees in prudential discussions is determined on a case-by-case basis (at the discretion of the Inspector). The risk–based assessment (profile) for licensees is used for determining the frequency of examinations. Meetings are routinely held and correspondence regularly exchanged with the external auditors of banks. In general, CBoB has focused mainly on SFI senior management executives, however, CBoB recently communicated its intent to engage boards directly on a go forward basis. The intent is to engage more closely with the boards of supervised financial institutions on matters of financial and AML risk. |
| EC8 | The supervisor communicates to the bank the findings of its on- and off-site supervisory analyses in a timely manner by means of written reports or through discussions or meetings with the bank’s management. The supervisor meets with the bank’s senior management and the Board to discuss the results of supervisory examinations and the external audits, as appropriate. The supervisor also meets separately with the bank’s independent Board members, as necessary. |
| Description and findings re EC8 | CBoB traditionally meets with SFI senior management either through regular prudential meetings (annual/semi-annual) or to discuss a Report of Examination which is provided to the licensee after the examination. In the past, CBoB has taken sometimes months to release its Report of Examination. However, in 2018 CBoB has narrowed the release of final Reports of Examination within 20 business days after the onsite visit. Licensees are expected to satisfactorily address all issues/deficiencies identified in the report in a timely manner. Validation of same is conducted during the next onsite examination visits. Since 2018 CBoB has conducted quarterly/semi-annual meetings with the DSIBs to discuss, among other things, progress in addressing the overall level of NPLs (specifically focusing on the top 20 large exposures as well as the top 20 NPLs) These meetings with the DSIBs have provided a perspective of the credit profile, lending initiatives and the licensees’ perspective on the marketplace trends, as well as delinquency management practices. |
| EC9 | The supervisor undertakes appropriate and timely follow-up to check that banks have addressed supervisory concerns or implemented requirements communicated to them. This includes early escalation to the appropriate level of the supervisory authority and to the bank’s Board if action points are not addressed in an adequate or timely manner. |
| Description and findings re EC9 | CBoB monitors the progress of licensees’ ability to satisfactorily address issues or deficiencies identified in the Report of Examination by way of letter. Licensees are required to provide status updates periodically to CBoB via “Response to Report of Examination” letters until all matters are fully addressed. CBoB advises the licensee of the next reporting date in each letter until all matters are resolved. Further enhancement was made to the monitoring process this year via the development of a “Register of Supervisory Issues”, which is a compilation of all outstanding supervisory matters for each licensee. Included in the register are all outstanding directives, requirements, expectations and requests made of a licensee by the CBoB. The register is provided to licensees each year and they are advised to share the document with external auditors and other persons listed in Section 16(1) of the BTCRA. In addition, CBoB has required the Internal audit function to provide an attestation that confirms the SFI has in fact addressed any outstanding supervisory requirement. |
| EC10 | The supervisor requires banks to notify it in advance of any substantive changes in their activities, structure and overall condition, or as soon as they become aware of any material adverse developments, including breach of legal or prudential requirements. |
| Description and findings re EC10 | The BTCRA indicates that licensees are expected to inform CBoB in advance of any significant change that may impact the operation of their business. For example, via Notice, licensees were directed by the CBoB to immediately notify the Inspector of Banks and Trust Companies, if they become aware that a material event could have a significant adverse impact on its safety and soundness or reputation. The matter is to be reported whether it had already occurred, or may occur in the foreseeable future. |
| EC11 | The supervisor may make use of independent third parties, such as auditors, provided there is a clear and detailed mandate for the work. However, the supervisor cannot outsource its prudential responsibilities to third parties. When using third parties, the supervisor assesses whether the output can be relied upon to the degree intended and takes into consideration the biases that may influence third parties. |
| Description and findings re EC11 | The BTCRA enables CBoB to use independent third parties. Section 13 (3) (c), (d) (e) and 4 of the BTCRA notes the following: “In the performance of his functions under this Act and subject to the provisions of section 19, the Inspector shall be entitled at all reasonable times — (c) to call upon the auditors of any licensee for such auditor’s reports, working papers, information or explanation; (d) to require that the auditor of a bank report to the Inspector on the extent of the procedures of the auditor in the examination of the annual financial statements and may require that the auditors enlarge the scope of that examination or direct that any other particular procedure be performed in any particular case; (e) to require that the auditor make a particular examination relating to the adequacy of the procedures adopted by the bank for the safety of its creditors and shareholders, or any other examination as considered necessary by the Inspector, as the Inspector may reasonably require for the purpose of enabling him to perform his functions under this Act. (4) The Inspector with the approval of the Governor may in writing authorise any other person to assist the Inspector in the performance of his functions under this Act.” |
| EC12 | The supervisor has an adequate information system which facilitates the processing, monitoring and analysis of prudential information. The system aids the identification of areas requiring follow-up action. |
| Description and findings re EC12 | In 2015, CBoB launched its Online Reporting Information System (ORIMS), an electronic portal for licensees to upload their regulatory returns and submit same to the Bank. The ORIMS is an enhancement to CBoB’s existing infrastructure for regulatory filings, analytics and reporting. ORIMS allows licensees and other respondents to securely submit data, filings and documents via online forms submissions and file uploads. The system includes a mechanism for the downloading and subsequent uploading of returns through a secure web-based platform and built-in validation and integrity checks at the form submission level. There have been several updates since the system was launched, all in an effort to streamline the information exchange and to provide an efficient reporting system for licensees. Updates and enhancements to the system will continue as necessary. The supervisory team is then able to access the returns in the portal and conduct their own financial analysis of licensees. Areas of concern are addressed with the licensee with follow-ups if necessary. |
| Additional criteria | |
| AC1 | The supervisor has a framework for periodic independent review, for example by an internal audit function or third party assessor, of the adequacy and effectiveness of the range of its available supervisory tools and their use, and makes changes as appropriate. |
| Description and findings re AC1 | CBoB’s internal audit periodically conducts a review of all of the Bank’s processes and procedures. Findings and recommendations are provided to the Bank via an internal audit report with timelines to address any matters of concern. The last CBoB internal audit of the BSD was in the process of being finalized in January 2019. |
| Assessment of Principle 9 | Largely Compliant |
| Comments | CBoB has a good set of supervisory tools to allow for effective execution of its supervisory activities. The mix of off-site surveillance and on-site examination work needs to be reassessed by BSD to ensure the right balance and adequate coverage of the assessment of risk. Staff are knowledgeable, and assessors observed the work done by both the off-site supervisors and the on-site examiners. Written communications clearly articulate issues and through frequent engagement CBoB provides clarity to the firms on the issues raised and the general high-level expectations for addressing them. That being said, it will be important for CBoB to directly engage SFI Boards of Directors, especially DSIBs on a regular basis. Although CBoB made a public announcement that it plans to engage Boards more directly, this has not been a regular past practice. |
| Principle 10 | Supervisory reporting. The supervisor collects, reviews and analyses prudential reports and statistical returns24 from banks on both a solo and a consolidated basis, and independently verifies these reports through either on-site examinations or use of external experts. |
| Essential criteria | |
| EC1 | The supervisor has the power25 to require banks to submit information, on both a solo and a consolidated basis, on their financial condition, performance, and risks, on demand and at regular intervals. These reports provide information such as on- and off-balance sheet assets and liabilities, profit and loss, capital adequacy, liquidity, large exposures, risk concentrations (including by economic sector, geography and currency), asset quality, loan loss provisioning, related party transactions, interest rate risk, and market risk. |
| Description and findings re EC1 | S. 35 (1) of the CBBA empowers CBoB to gather any information from licensee at regular intervals, e.g., weekly, monthly, quarterly, in order for it to carry out its statutory function. Information received includes detailed profit and loss accounts and balance sheets and information on capital adequacy, liquidity, large exposures, risk concentrations, asset quality/impairment data, aggregate loan loss data, exposures to related parties, interest rate risk and market risk. S. 35 of the CBBA provides that the CBoB may require a bank to supply it in such form and within such time as it may determine such information as CBoB considers necessary to enable it to carry out its functions under the Act. Further, CBoB may require a bank, a person connected to the bank, or a person reasonably believed to have information relevant to an enquiry by CBoB to provide any information which it reasonably requires in connection with the carrying out of its functions or for the purpose of assisting an overseas regulator. S 4(4)(b), 8(3), 9 and 14 of the BTCRA supports consolidated supervision and the gathering of applicable information by obtaining key information on licensees and their parent and/or subsidiaries through regular and frequent teleconferences with other relevant regulators as well as consistently attending supervisory colleges held by foreign regulatory authorities. |
| EC2 | The supervisor provides reporting instructions that clearly describe the accounting standards to be used in preparing supervisory reports. Such standards are based on accounting principles and rules that are widely accepted internationally. |
| Description and findings re EC2 | Section 35 of the CBBA provides that CBoB can direct the form and content of financial returns. These must be prepared in accordance with IAS as adopted by the Bahamas Institute of Chartered Accountants (BICA) which is the body in The Bahamas statutorily charged with overseeing the implementation of accounting and auditing standards (See Regulation 38 of The Bahamas Institute of Chartered Accountants (General) Regulations, 2016). Further, CBoB has instructed SFI’s to be IFRS 9 compliant beginning January 1, 2018. |
| EC3 | The supervisor requires banks to have sound governance structures and control processes for methodologies that produce valuations. The measurement of fair values maximizes the use of relevant and reliable inputs and is consistently applied for risk management and reporting purposes. The valuation framework and control procedures are subject to adequate independent validation and verification, either internally or by an external expert. The supervisor assesses whether the valuation used for regulatory purposes is reliable and prudent. Where the supervisor determines that valuations are not sufficiently prudent, the supervisor requires the bank to make adjustments to its reporting for capital adequacy or regulatory reporting purposes. |
| Description and findings re EC3 | SFIs must abide by the valuation rules consistent with IAS and IFRS 9 CBoB relies on views of the external auditors to attest to the valuation practices of SFI’s and where necessary, SFI’s have had to make adjustments to prudential reporting requirements. |
| EC4 | The supervisor collects and analyses information from banks at a frequency commensurate with the nature of the information requested, and the risk profile and systemic importance of the bank. |
| Description and findings re EC4 | S. 9 of BTCRA requires banks to furnish to CBoB a special return and any such information as it reasonably sees fit to call for. It is on this basis that CBoB has requested that it receive weekly, monthly, quarterly and annual returns, and any other returns it requires from the SFIs. The type of information received will depend on the nature and complexity of the business of the bank. For instance, the domestic banks are subject to a more demanding regime regarding information requirements than the international banks. |
| EC5 | In order to make meaningful comparisons between banks and banking groups, the supervisor collects data from all banks and all relevant entities covered by consolidated supervision on a comparable basis and related to the same dates (stock data) and periods (flow data). |
| Description and findings re EC5 | In general, supervisory returns are received on a weekly, monthly, quarterly and annual basis. The layout and content of these returns are the same and banks are required to submit them at the same dates. While the different categories of banks (i.e., domestic/international) may have varying requirements, within those categories the requirements are the same. This allows for meaningful comparisons for banks in the same categories. |
| EC6 | The supervisor has the power to request and receive any relevant information from banks, as well as any entities in the wider group, irrespective of their activities, where the supervisor believes that it is material to the condition of the bank or banking group, or to the assessment of the risks of the bank or banking group or is needed to support resolution planning. This includes internal management information. |
| Description and findings re EC6 | The CBoB has the ability to request and receive relevant information from banks, including information on any entities in the wider group, but this power to request this information in with the SFI it regulates. Section 35 of the CBBA provides that the CBoB may require a bank to supply it in such form and within such time as it may determine such information as CBoB considers necessary to enable it to carry out its functions under the Act. Further, CBoB may require a bank, a person connected to the bank, or a person reasonably believed to have information relevant to an enquiry by CBoB to provide any information which it reasonably requires in connection with the carrying out of its functions. S. 13(3) of the BTCRA the Inspector may call upon the manager or any officer designated by the manager of any licensee for such information or explanation as he may reasonably require for the purpose of enabling him to perform his functions under this Act. |
| EC7 | The supervisor has the power to access26 all bank records for the furtherance of supervisory work. The supervisor also has similar access to the bank’s Board, management and staff, when required. |
| Description and findings re EC7 | S. 13(3) of the BTCRA indicates that the Inspector is entitled at all reasonable times to have access to such books, records, vouchers, documents, cash and securities of the bank and to call upon the management or any officer designated by the manager of any bank for such information or explanation as Inspector may reasonably require for the purpose off enabling it to perform its functions. CBOB also sets limits within which licensees must operate for single, related party and large exposures vis its Large Exposure Regulations and Guidelines. CBoB conducts discussion with DSIB senior management on a semi-annual and annual basis. CBoB off-site supervision surveillance speaks to management and staff when required. CBoB released a press statement in 2018 to the financial sector that it intends to engage SFI Boards of Directors on an annual basis beginning 2019. Copies of Results of On-site examinations are provided to the Board of Directors. |
| EC8 | The supervisor has a means of enforcing compliance with the requirement that the information be submitted on a timely and accurate basis. The supervisor determines the appropriate level of the bank’s senior management is responsible for the accuracy of supervisory returns, imposes sanctions for misreporting and persistent errors, and requires that inaccurate information be amended. |
| Description and findings re EC8 | As part of CBoB’s supervisory intervention regime, a licensee can be staged for intervention, particularly at Stage 1 in accordance with the Ladder of Intervention Guideline where a licensee may experience the following issues:
SFIs provide a certification regarding the compliance and accuracy of the reporting of information. CBoB has a wide range of supervisory measures that it can impose on licensees including administrative fines and monetary penalties. The Bank’s monetary penalties regime was officially implemented on 5th September 2016 with the coming into force of the Banks and Trust Companies (Administrative Monetary Penalties) Regulations, 2016 and the Bank’s “Guidelines for the Administration of Monetary Penalties”, amended 31st August 2016 (“AMP guidelines”). The AMP guidelines outline the monetary sanctions that the Bank can impose, under statutory authority, for violations related to late or erroneous filing of returns, amongst others. S. 37 of the CBBA and S. 11 and 13 of the BTCRA impose criminal sanctions in relation to the provision of false or misleading information. Fines of up to $100,000 or five years imprisonment or both are specified in the law. |
| EC9 | The supervisor utilizes policies and procedures to determine the validity and integrity of supervisory information. This includes a program for the periodic verification of supervisory returns by means either of the supervisor’s own staff or of external experts.27 |
| Description and findings re EC9 | During on-site inspections, examiners review the integrity of supervisory information. In addition, the External Auditors Guidelines, issued by the CBoB, contain a requirement for external experts to bring material short comings to the attention of the supervisors. Additionally, CBoB has staff members designated to verify that financial returns submitted via its ORIMS Portal use the correct reporting format and to check for inconsistencies between report forms (this is in addition to inconsistencies between reports identified by the ORIMS software). If any of the aforementioned exist, it is flagged and the licensee(s) and/or registrant(s) along with the supervisory teams are informed and the licensees and/or registrants are required to re-submit the relevant return before they are analyzed. |
| EC10 | The supervisor clearly defines and documents the roles and responsibilities of external experts,28 including the scope of the work, when they are appointed to conduct supervisory tasks. The supervisor assesses the suitability of experts for the designated task(s) and the quality of the work and takes into consideration conflicts of interest that could influence the output/recommendations by external experts. External experts may be utilized for routine validation or to examine specific aspects of banks’ operations. |
| Description and findings re EC10 | CBoB has the power to appoint external experts to assist it in the performance of its duty (S. 13 (4) of BTCRA). It is not the policy of CBoB to utilize external experts to assist in carrying out supervisory functions, per se. However, it does use external experts when, for instance, introducing a new skill (e.g., the supervision of market risk) or for the purpose of conducting overseas reviews of banks that have extensive outsourcing of activities abroad. CBoB has also engaged external auditors to conduct in-depth credit reviews (e.g. forensic review on a stage 4 SFI). |
| EC11 | The supervisor requires that external experts bring to its attention promptly any material shortcomings identified during the course of any work undertaken by them for supervisory purposes. |
| Description and findings re EC11 | S. 12(4) of the BTCRA provides that the external auditor of a bank, and in some cases a former external auditor of a bank, is required to inform CBoB in writing of any fact or matter of which the auditor has or had become aware and which is, or is likely to be of material significance for the CBoB in relation to the discharge of its duties. “Facts and matters of material significance” are set out in the Banks and Trust Companies (Auditors) (Facts and Matters of Material Significance) Regulations and include a situation where the auditor identifies any evidence of deliberate attempts by a chief executive or other senior executive to mislead the Inspector through the provision of materially false or misleading information |
| EC12 | The supervisor has a process in place to periodically review the information collected to determine that it satisfies a supervisory need. |
| Description and findings re EC12 | CBoB periodically reviews the information collected from prudential returns to reassess the ongoing needs of its supervisors. This review process has taken place more regularly in recent years than in the past given the need necessity to rely on prudential return information as part of CBoB’s newly developed electronic ever-greening supervisory assessment tool. |
| Assessment re Principle 10 | Compliant |
| Comments | CBoB has appropriate authority to collect the data that it needs to carry out its supervisory responsibilities. Prudential and statistical reporting by the SFIs provide information on supervised firms’ risk exposures, operating performance and financial condition. CBoB is committed to refining its data gathering efforts as well as working towards full implementation of an electronic ever greening risk assessment tool. CBoB’s strategy includes continuing to increase the use of quantitative analyses (evidenced by the creation of an analytics unit). |
| Principle 11 | Corrective and sanctioning powers of supervisors. The supervisor acts at an early stage to address unsafe and unsound practices or activities that could pose risks to banks or to the banking system. The supervisor has at its disposal an adequate range of supervisory tools to bring about timely corrective actions. This includes the ability to revoke the banking license or to recommend its revocation. |
| Essential criteria | |
| EC1 | The supervisor raises supervisory concerns with the bank’s management or, where appropriate, the bank’s Board, at an early stage, and requires that these concerns be addressed in a timely manner. Where the supervisor requires the bank to take significant corrective actions, these are addressed in a written document to the bank’s Board. The supervisor requires the bank to submit regular written progress reports and checks that corrective actions are completed satisfactorily. The supervisor follows through conclusively and in a timely manner on matters that are identified. |
| Description and findings re EC1 | The BTCRA provides a wide range of discretionary enforcement powers to the CBoB to address situations that give the CBoB cause for concern. S. 18 of the BTCRA outlines the enforcement powers of the CBoB with respect to banks and other SFIs. This includes the power to ultimately revoke a licence. S. 24 of the BTCRA empowers the Governor to make regulations and to establish fines. The CBoB’s Ladder of Intervention Guidelines outlines procedures for addressing regulatory and supervisory breaches. The objective of the intervention process is to identify areas of concern early and to intervene early and effectively to minimize problems and losses to depositors and other creditors of licensees. Licensees whose overall risk assessment is deemed medium high or greater may also be placed on CBoB’s Watch List for enhanced monitoring until the relevant issues/concerns are satisfactorily addressed. Licensees’ progress with corrective action is closely monitored by the off-site supervision surveillances team. CBoB communicates findings and recommendations to licensees senior management and where appropriate Board representatives in a timely manner. With respect to onsite examinations, CBoB’s internal policy requires that the final examination report be provided to the bank within four weeks (20 business days) from the completion of the onsite examination. The CBoB notifies SFI’s in writing of any enforcement action that is being taken or will be taken. The BTCRA enables the CBoB to share information with other supervisory authorities. CBoB monitors SFI’s progress in remediating actions (progress against plan with a sign-off/attestation from internal audit at times), |
| EC2 | The supervisor has available29 an appropriate range of supervisory tools for use when, in the supervisor’s judgment, a bank is not complying with laws, regulations or supervisory actions, is engaged in unsafe or unsound practices or in activities that could pose risks to the bank or the banking system, or when the interests of depositors are otherwise threatened. |
| Description and findings re EC2 | Where a bank is found to be in breach of a prudential requirement or any other conditions set by the CBoB, the CBoB may agree or impose a plan of corrective action with the bank. In considering the appropriate supervisory intervention to take in the event of a concern arising or a supervisory breach by a bank, the CBoB will take into account, amongst other things, the following: the requirement for an SFI to increase provisioning for NPLs, increase in capital or liquidity, the removal of directors and management, requiring expanded external audits, the imposition of fines and restrictions on payment of dividends, lending or investment activities, accepting new deposits and other restrictions deemed appropriate. |
| EC3 | The supervisor has the power to act where a bank falls below established regulatory threshold requirements, including prescribed regulatory ratios or measurements. The supervisor also has the power to intervene at an early stage to require a bank to take action to prevent it from reaching its regulatory threshold requirements. The supervisor has a range of options to address such scenarios. |
| Description and findings re EC3 | The minimum capital prudential limit is 8 percent. However, commercial banks are required to maintain a target level of 17 percent and a trigger level of 14 percent. The Ladder of Intervention Guidelines refer to a 2 percent margin that can be used in determining when a licensee may be reaching its capital adequacy ratio (CAR) and/or liquidity ratio prudential limits. This trigger is introduced at Stage 2 “Heightened Risk to Financial Viability or Solvency” where a licensee is compliant with established prudential norms, but is approaching the limit. The range of intervention measures that can be used is outlined in the Ladder of Supervisory Intervention Guidelines. |
| EC4 | The supervisor has available a broad range of possible measures to address, at an early stage, such scenarios as described in essential criterion 2 above. These measures include the ability to require a bank to take timely corrective action or to impose sanctions expeditiously. In practice, the range of measures is applied in accordance with the gravity of a situation. The supervisor provides clear prudential objectives or sets out the actions to be taken, which may include restricting the current activities of the bank, imposing more stringent prudential limits and requirements, withholding approval of new activities or acquisitions, restricting or suspending payments to shareholders or share repurchases, restricting asset transfers, barring individuals from the banking sector, replacing or restricting the powers of managers, Board members or controlling owners, facilitating a takeover by or merger with a healthier institution, providing for the interim management of the bank, and revoking or recommending the revocation of the banking license. |
| Description and findings re EC4 | The Ladder Intervention Guidelines outlines the conditions to initiate the Bank’s intervention measures which include but are not limited to the following: (i) concerns about the licensee’s ability to meet capital and/or liquidity requirements on an ongoing basis; (ii) noticeable deterioration in the quality of loan and/or investment portfolio, which could negatively impact the licensee’s/registrant’s asset values; (iii) less than satisfactory management quality or deficiency in risk management procedures or controls (including material breaches of standards of sound business and financial practices/prudential violations); (iv) rapid asset and/or liability growth relative to the other institutions in the industry and (v) noncompliance with regulatory requirements. Supervisory intervention measures outlined in the Ladder of Intervention Guideline may include the requirement for an SFI to increase provisioning for NPLs, increase in capital or liquidity, the removal of directors and management, requiring expanded external audits, the imposition of fines and restrictions on payment of dividends, lending or investment activities, accepting new deposits and other restrictions deemed appropriate. |
| EC5 | The supervisor applies sanctions not only to the bank but, when and if necessary, also to management and/or the Board, or individuals therein. |
| Description and findings re EC5 | CBoB has imposed fines under the CBBA for non-compliance with liquidity requirements; additionally, amendments to the BTCRA and regulations have been made to enhance the CBoB’s ability to impose administrative monetary penalties for supervisory breaches by granting the authority to apply sanctions to individuals. S. 18E, 18F and 18G of the BTCRA empower the CBoB to issue prohibition orders against individuals who are not or have ceased to be fit and proper persons. S. 18 of the BTCRA empowers CBoB to remove a director or officer of a licensee and apply the administrative penalties regime to sanction management and the board when deemed necessary. |
| EC6 | The supervisor has the power to take corrective actions, including ring-fencing of the bank from the actions of parent companies, subsidiaries, parallel-owned banking structures and other related entities in matters that could impair the safety and soundness of the bank or the banking system. |
| Description and findings re EC6 | In general, the CBoB has broad authority to protect the licensee or branch from affiliate transactions. The CBoB may impose conditions or limitations on a bank’s licence and may also issue directives to require the bank to take such action as the CBoB requires in the interests of the bank’s safety and soundness (see BTCRA s.6(4) and 18(1)(h)). This would include the ability to ring fence assets of SFIs operating in The Bahamas. |
| EC7 | The supervisor cooperates and collaborates with relevant authorities in deciding when and how to effect the orderly resolution of a problem bank situation (which could include closure, or assisting in restructuring, or merger with a stronger institution). |
| Description and findings re EC7 | According to Section 4(4)(f) of the BTCRA, as a part of the licensing criteria, the home supervisory authority must agree to inform the Governor of problems that could affect the licensee. Section 38(3) of the CBBA gives the CBoB the authority to cooperate with overseas regulators for the purposes of cross-border supervision. The Ladder of Intervention Guidelines provides some guidance on the actions required to recover and resolve a problem SFI as part of the staging mechanisms. The Guideline advocates collaboration between home and host regulators when a licensee is having problems. The proposed amendments to the BTCRA will formalize CBoB’s resolution regime in the law. |
| Additional criteria | |
| AC1 | Laws or regulations guard against the supervisor unduly delaying appropriate corrective actions. |
| Description and findings re AC1 | There are no regulatory requirements specifying timeframes for taking corrective action. |
| AC2 | When taking formal corrective action in relation to a bank, the supervisor informs the supervisor of non-bank related financial entities of its actions and, where appropriate, coordinates its actions with them. |
| Description and findings re AC2 | The CBoB has regular meetings with the other regulators. The Ladder of Intervention Guidelines advocates that the CBoB inform/ discuss/collaborate with the MoF, the Deposit Insurance Corporation and other domestic regulators, as is necessary, where substantive actions are undertaken. |
| Assessment re principle 11 | Compliant |
| Comments | CBoB has a broad range of tools and authorities across the spectrum to address problems at SFIs ranging from the requirement to increase capital, liquidity and provisioning levels to the removal of board and senior management, restrictions on dividends, payment of bonus to revoking a banking license. These powers are not explicitly stated in the BTCRA, although the proposed draft amendments, which will not only introduce added powers to assist CBoB with the resolution of bank, but it will specifically state the regulatory tools described above. CBoB’s preferred approach is to identify potential concerns on an ongoing basis and work with SFIs to address them before a firm is in danger of breaching a prudential standard or requirement (e.g. encouraging Board to remove incompetent senior management), rather than taking formal action. The supervision process provides for early intervention in the form of staging requiring enhanced supervisory oversight. |
| Principle 12 | Consolidated supervision. An essential element of banking supervision is that the supervisor supervises the banking group on a consolidated basis, adequately monitoring and, as appropriate, applying prudential standards to all aspects of the business conducted by the banking group worldwide.30 |
| Essential criteria | |
| EC1 | The supervisor understands the overall structure of the banking group and is familiar with all the material activities (including non-banking activities) conducted by entities in the wider group, both domestic and cross-border. The supervisor understands and assesses how group-wide risks are managed and takes action when risks arising from the banking group and other entities in the wider group, in particular contagion and reputation risks, may jeopardize the safety and soundness of the bank and the banking system. |
| Description and findings re EC1 | Section 14 of the BTCRA provides for the cooperation with supervisors in other jurisdictions to the extent necessary for the purposes of cross-border consolidated supervision. Banks are required to get prior written approval from the CBoB to establish a subsidiary branch, agency or representative office outside The Bahamas. Under the BTCRA, a banking license shall not be granted to an entity having its head office outside The Bahamas, unless the entity is subject to adequate consolidated supervision. The CBoB maintains contact with the home country regulator of parent institutions of CBoB banks on at least an annual basis, typically through the ‘annual regulatory letter’. Home regulators are asked to inform the CBoB of any information which has come to their attention which should be highlighted to the CBoB supervisors. Banks are required to prepare financial reports on a consolidated basis. The CBoB also receives the financial statements of banks’ parent companies and significant financial subsidiaries. Further contact with the bank or the overseas regulator is made in the event a material matter/ concerns arise. This contact is permitted by the BTCRA and the CBBA. The CBoB can engage the external auditors of banks to conduct overseas reviews of banks that have extensive outsourcing of activities abroad. The CBoB maintains one Regulatory College to inform the oversight of the one financial conglomerate operating in The Bahamas. CBoB participates in regulatory colleges in the Caribbean and Canada for Bahamian domestic systemically important commercial banks. The CBoB/SCB/ICB have an MoU for information sharing that has been in place since 2011. Through coordination with nonbank financial supervisors the CBoB evaluates impacts from other companies and has conducted joint examinations with nonbank domestic supervisors. The CBoB collects financial information from nonbank affiliates. However, guidance for examiners in the incorporation of impacts from nonbank affiliates and unregulated companies is very limited. The CBoB supervision department is a member of the Caribbean Group of Banking Supervisors and the Group’s working group on consolidated supervision. Since the prior FSAP report, CBoB completed its benchmarking exercise on jurisdictions with consolidated supervision guidance and has drafted Guidelines for Consolidated Supervision, but they have yet to be put out for public comment. The CBoB has the appropriate authority and supervises banks on a consolidated basis, including any overseas activities. Licensing rules include requirements for verifying home country consolidated supervision and obtaining the agreement of the home country supervisor on the establishment of banks, branches and subsidiaries in the Bahamian jurisdiction. Where the CBoB becomes aware that the home country supervisor is making significant changes to its regulatory framework, an assessment of whether the home country supervisor will continue to practice effective consolidated supervision is conducted. Banks must seek prior approval before the establishing any subsidiary (either locally or overseas). Changes in the ownership or group structure of a bank are reviewed for their effects on consolidated supervision. |
| EC2 | The supervisor imposes prudential standards and collects and analyses financial and other information on a consolidated basis for the banking group, covering areas such as capital adequacy, liquidity, large exposures, and exposures to related parties, lending limits and group structure. |
| Description and findings re EC2 | As noted above, the CBoB has authority to conduct consolidated supervision. However, it is typically the host regulator. The CBoB has not issued guidance to specifically define consolidated supervision, how The Bahamas will apply it and how its enforcement powers will apply to entities that would be part of the consolidated supervision umbrella. The CBoB cooperates with its overseas bank regulatory partners to assist in ensuring that The Bahamas is not used to escape proper oversight and that institutions established and based in The Bahamas are in compliance with internationally accepted standards and norms. To promote comprehensive oversight of commercial banks with regional cross-border operations, the CBoB regularly participates in supervisory colleges for foreign-owned domestically systemically important banks (DSIBs), which are led and hosted by the home supervisor of these institutions. |
| EC3 | The supervisor reviews whether the oversight of a bank’s foreign operations by management (of the parent bank or head office and, where relevant, the holding company) is adequate having regard to their risk profile and systemic importance and there is no hindrance in host countries for the parent bank to have access to all the material information from their foreign branches and subsidiaries. The supervisor also determines that banks’ policies and processes require the local management of any cross-border operations to have the necessary expertise to manage those operations in a safe and sound manner, and in compliance with supervisory and regulatory requirements. The home supervisor takes into account the effectiveness of supervision conducted in the host countries in which its banks have material operations. |
| Description and findings re EC3 | Foreign operations of Bahamian banks are small and closely supervised. CBoB, along with the other domestic financial regulators, released an Information Sharing Handbook, which outlines the procedures for regulatory requests from overseas regulators. Cross-border activities by locally incorporated banks are limited and closely monitored. It is part of the approval process and ongoing as relations with home supervisors are maintained. Assessment of management oversight of foreign operations is reviewed through ongoing supervision and surveillance activities and may be addressed during onsite examinations, where viewed as necessary. |
| EC4 | The home supervisor visits the foreign offices periodically, the location and frequency being determined by the risk profile and systemic importance of the foreign operation. The supervisor meets the host supervisors during these visits. The supervisor has a policy for assessing whether it needs to conduct on-site examinations of a bank’s foreign operations, or require additional reporting, and has the power and resources to take those steps as and when appropriate. |
| Description and findings re EC4 | The CBoB does not make visits to foreign jurisdictions for the purposes of direct supervision of foreign offices given the immaterial size of locally incorporated banks’ operations outside the Bahamas. |
| EC5 | The supervisor reviews the main activities of parent companies, and of companies affiliated with the parent companies, that have a material impact on the safety and soundness of the bank and the banking group, and takes appropriate supervisory action. |
| Description and findings re EC5 | Where applicable, CBoB supervisors request information on the controlling company to assess financial support. They also receive information on parent entities through discussions with home country supervisors, participation in regulatory colleges and through publicly available sources in order to keep abreast of parent operations and condition. Under the BTCRA, the CBoB may not grant a license to a foreign-based bank unless the home supervisory authority has agreed to inform the CBoB as soon as reasonably possible of any circumstances that arise which may seriously jeopardize the interests of creditors of a supervised financial institution. |
| EC6 | The supervisor limits the range of activities the consolidated group may conduct and the locations in which activities can be conducted (including the closing of foreign offices) if it determines that:
|
| Description and findings re EC6 | The BTCRA gives the CBoB the authority to impose, amend or vary any conditions upon the license of a SFI or require such action to be taken by the SFI that CBoB considers necessary. As outlined in the “Guidelines for the Establishment or Acquisition of Overseas Branches, Subsidiaries and Representative Offices”, CBoB may revoke approval of specific activities when it determines the operation may have an adverse impact on the SFI. The Ladder of Supervisory Intervention Guidelines allows the CBoB to restrict an increase in the number of branches of SFIs, close branches, downsize operations and restrict new business. |
| EC7 | In addition to supervising on a consolidated basis, the responsible supervisor supervises individual banks in the group. The responsible supervisor supervises each bank on a stand-alone basis and understands its relationship with other members of the group.31 |
| Description and findings re EC7 | CBoB supervisors at the bank level and the holding company level where a holding company assessment is warranted – i.e., there is activity at the holding company level. Financial strength is assessed at both banks and holding companies. As noted above in BCP 8, CBoB uses a combination of quantitative and qualitative methods in supervising SFIs. These methods include: the review of consolidated annual reports of the parent company as well as the production of consolidated prudential reports; risk-based supervisory reviews of SFIs; off-site surveillance and monitoring, on-site and joint examinations of licensees; exchange of information through home/host relationships; and Memoranda of Understanding (MOUs) with other domestic and foreign regulatory authorities including CARICOM member states. |
| Additional criteria | |
| AC1 | For countries which allow corporate ownership of banks, the supervisor has the power to establish and enforce fit and proper standards for owners and senior management of parent companies. |
| Description and findings re AC1 | The CBoB can request information on the controlling company to determine fit and proper qualifications. Current regulations do not provide the CBoB with the authority to take specific actions with respect to a non-financial parent of a SFI. There is only one such firm operating in the Bahamas at this time. |
| Assessment of Principle 12 | Largely Compliant |
| Comments | CBoB is currently working on drafting guidelines for consolidated supervision. On balance the supervisory approach is adequate for the consolidated supervision issues they face. However, they would benefit from the issuance of formal expectations articulated in guidelines. In addition, the creation of authorities that would allow CBoB to directly assess the strength of support provided by the parent entity and hold accountable the non-bank parent of a SFI if its actions and/or practices negatively affect bank soundness and prudential management. |
| Principle 13 | Home-host relationships. Home and host supervisors of cross-border banking groups share information and cooperate for effective supervision of the group and group entities, and effective handling of crisis situations. Supervisors require the local operations of foreign banks to be conducted to the same standards as those required of domestic banks. |
| Essential criteria | |
| EC1 | The home supervisor establishes bank-specific supervisory colleges for banking groups with material cross-border operations to enhance its effective oversight, taking into account the risk profile and systemic importance of the banking group and the corresponding needs of its supervisors. In its broadest sense, the host supervisor who has a relevant subsidiary or a significant branch in its jurisdiction and who, therefore, has a shared interest in the effective supervisory oversight of the banking group, is included in the college. The structure of the college reflects the nature of the banking group and the needs of its supervisors. |
| Description and findings re EC1 | The CBOB is a member of the Caribbean Group of Banking Supervisors (CGBS). The CGBS has its goal enhancing, and coordinating on the harmonization of, bank supervisory practices in the English-speaking Caribbean, with a view to bring them more in line with internationally accepted practices. CBoB supervisors participate in supervisory colleges hosted by home country supervisors of the parent entities of SFIs operating in its jurisdiction, particularly with respect to foreign-owned Bahamian DSIBs. CBoB will occasionally lead colleges and discussions on cross-border banking operations which are facilitated through the CGBS. The Bank is also a member of the CGBS Steering Committee, Association of Banks of the Americas (ASBA), Offshore Group of Banking Supervisors (OGBS), and the Caribbean Financial Action Task Force (CFATF). |
| EC2 | Home and host supervisors share appropriate information on a timely basis in line with their respective roles and responsibilities, both bilaterally and through colleges. This includes information both on the material risks and risk management practices of the banking group32 and on the supervisors’ assessments of the safety and soundness of the relevant entity under their jurisdiction. Informal or formal arrangements (such as memoranda of understanding) are in place to enable the exchange of confidential information. |
| Description and findings re EC2 | As noted above, the BTCRA requires that in licensing a bank with a head office outside The Bahamas, the CBoB must be satisfied that the bank is subject to adequate consolidated supervision by the home supervisory authority and that the supervisory authority has no objection to the establishment of the branch or subsidiary in The Bahamas. The CBoB can allow the head office of a SFI to be located outside of The Bahamas if the home supervisor agrees to inform the CBoB of adverse circumstances which may seriously jeopardize the interest of creditors of the SFI. Under the BTCRA, the CBoB must cooperate with inspectors and supervisors in other jurisdictions to the extent necessary for the purposes of cross-border supervision. Section 14 of the BTCRA provides that a home country supervisor of a parent entity (in the performance of consolidated supervision) can conduct examinations of the books and accounts of a Bahamian bank to determine if the group has adequate risk management and meets other relevant prudential standards. The CBoB has the authority to provide information on the beneficial owners, directors, officers and operations of a bank to the home country supervisor responsible. The CBBA gives the CBoB the authority to assist and cooperate with overseas regulatory authorities. The CBBA also permits the CBoB to share with overseas regulatory authorities information necessary to enable such authorities to exercise regulatory functions, including the conduct of civil or administrative investigations and proceedings to enforce laws, regulations and rules administered by that authority. In practice, home/host supervisory letters for consolidated supervision purposes are issued periodically. Additionally, as noted above, senior staff participate in regulatory colleges for domestically systemically important commercial banks in the Caribbean and Canada. There are no material operations of Bahamian banks in other jurisdictions. Nevertheless, the CBoB has established arrangements to obtain and share information as needed. |
| EC3 | Home and host supervisors coordinate and plan supervisory activities or undertake collaborative work if common areas of interest are identified in order to improve the effectiveness and efficiency of supervision of cross-border banking groups. |
| Description and findings re EC3 | As noted in EC2 above, the CBoB has information sharing arrangements and coordinates as necessary with other regulators. The CBoB sends an annual letter to banks’ home country supervisors highlighting areas of regulatory concern and requesting that the home supervisor inform CBoB of any concerns with the parent institution. The BTCRA and the CBBA permit the sharing of information between The Bahamas and SFIs other foreign supervisors. As noted above, the BTCRA permits the on-site examination of banks in the Bahamas by home supervisory authorities. The CBoB and the other domestic financial regulators have jointly published a handbook outlining the procedures to be followed for addressing foreign regulatory requests for information. The Bahamas has established a number of MoUs to allow for cooperation arrangements. CBoB maintains communications with significant home country supervisors and collects needed information. |
| EC4 | The home supervisor develops an agreed communication strategy with the relevant host supervisors. The scope and nature of the strategy reflects the risk profile and systemic importance of the cross-border operations of the bank or banking group. Home and host supervisors also agree on the communication of views and outcomes of joint activities and college meetings to banks, where appropriate, to ensure consistency of messages on group-wide issues. |
| Description and findings re EC4 | Such arrangements are not warranted given the small size of Bahamian operations in relation to the parent companies. Typically, the home/host letters and regulatory colleges are sufficient. |
| EC5 | Where appropriate, due to the bank’s risk profile and systemic importance, the home supervisor, working with its national resolution authorities, develops a framework for cross-border crisis cooperation and coordination among the relevant home and host authorities. The relevant authorities share information on crisis preparations from an early stage in a way that does not materially compromise the prospect of a successful resolution and subject to the application of rules on confidentiality. |
| Description and findings re EC5 | The CBoB is typically a host jurisdiction with only very modest operations of Bahamian SFIs abroad. Nonetheless, as outlined in the Ladder of Supervisory Intervention Guidelines, discussions are to be held with home regulators, especially where severe risk to financial viability or solvency exists, which if not remedied could lead to resolution. Proposed amendments to the BTCRA are expected to address resolution and recovery issues, if passed into law. The assessors observed no material current efforts in this area. |
| EC6 | Where appropriate, due to the bank’s risk profile and systemic importance, the home supervisor, working with its national resolution authorities and relevant host authorities, develops a group resolution plan. The relevant authorities share any information necessary for the development and maintenance of a credible resolution plan. Supervisors also alert and consult relevant authorities and supervisors (both home and host) promptly when taking any recovery and resolution measures. |
| Description and findings re EC6 | The CBoB is typically a host jurisdiction with only very modest operations of Bahamian SFIs abroad. Nonetheless, as outlined in the Ladder of Supervisory Intervention Guidelines, discussions are to be held with home regulators, especially where severe risk to financial viability or solvency exists, which if not remedied could lead to resolution. Proposed amendments to the BTCRA are expected to address resolution and recovery issues, if passed into law. The assessors observed no material current efforts in this area. |
| EC7 | The host supervisor’s national laws or regulations require that the cross-border operations of foreign banks are subject to prudential, inspection and regulatory reporting requirements similar to those for domestic banks. |
| Description and findings re EC7 | All banks in The Bahamas are subject to the same prudential standards. |
| EC8 | The home supervisor is given on-site access to local offices and subsidiaries of a banking group in order to facilitate their assessment of the group’s safety and soundness and compliance with customer due diligence requirements. The home supervisor informs host supervisors of intended visits to local offices and subsidiaries of banking groups. |
| Description and findings re EC8 | As noted in EC 2 above, The Bahamas allows home supervisors to conduct onsite examinations of Bahamian operations. |
| EC9 | The host supervisor supervises booking offices in a manner consistent with internationally agreed standards. The supervisor does not permit shell banks or the continued operation of shell banks. |
| Description and findings re EC9 | The Bahamas no longer permits shell banks to operate in its jurisdiction. All SFIs must have physical operations located in The Bahamas. |
| EC10 | A supervisor that takes consequential action on the basis of information received from another supervisor consults with that supervisor, to the extent possible, before taking such action. |
| Description and findings re EC10 | The standard MOU CBoB uses with foreign supervisors—in clauses 8 and 9—includes an agreement not to use information received from other supervisors for purposes not agreed upon between the two supervisors. |
| Assessment of Principle 13 | Largely Compliant |
| Comments | Current MoU’s in place are based on high level notification and sharing of information agreements. Although a formal legislative resolution framework will be put in place in the near future, the current lack of resolution plans or planning for the failure of SFI’s of systemic importance will be key for CBoB to address. |
| Principle 1 | Responsibilities, objectives and powers. An effective system of banking supervision has clear responsibilities and objectives for each authority involved in the supervision of banks and banking groups.6 A suitable legal framework for banking supervision is in place to provide each responsible authority with the necessary legal powers to authorize banks, conduct ongoing supervision, address compliance with laws and undertake timely corrective actions to address safety and soundness concerns.7 |
| Essential criteria | |
| EC1 | The responsibilities and objectives of each of the authorities involved in banking supervision8 are clearly defined in legislation and publicly disclosed. Where more than one authority is responsible for supervising the banking system, a credible and publicly available framework is in place to avoid regulatory and supervisory gaps. |
| Description and findings re EC1 | The Central Bank of the Bahamas Act, 2015 (CBBA), the Banks and Trust Companies Regulation Act, 2015 (BTCRA) and the Bahamas Co-operative Credit Unions Act and the Bahamas Cooperative Credit Unions Regulations, 2015 (CUA) set out the powers, responsibilities, and objectives of the Central Bank of The Bahamas (CBoB) as the supervisor of banks (including branches of foreign banks), trust companies, credit unions and money transfer businesses (referred to as supervised financial institutions or SFIs) operating within and from within The Bahamas. The Acts and Regulations are complemented by a series of Guidelines that supplement but do not replace any requirements under the relevant legislation or accounting standards. S. 13 of the BTCRA designates the CBoB (in the person of the Inspector) as the banking supervisor and gives it such powers as are reasonably necessary to perform its supervisory function. S. 17 (First Schedule) of the BTCRA sets out the rules of inspection and supervision of banks. All legislation, regulations and guidelines are published and are available on the CBoB Website. |
| EC2 | The primary objective of banking supervision is to promote the safety and soundness of banks and the banking system. If the banking supervisor is assigned broader responsibilities, these are subordinate to the primary objective and do not conflict with it. |
| Description and findings re EC2 | S. 17 (First Schedule) of BTCRA states that the Inspector of Banks and Trust Companies of the CBoB (Inspector) is responsible to regularly evaluate the condition of solvency and liquidity of all licensees and to establish appropriate and prudent standards for the conduction safe and sound banking and trust business. CBoB’s risk-based supervision framework includes an off-site examination together with an off-site supervision surveillance program designed to make judgments about the financial soundness of banks. |
| EC3 | Laws and regulations provide a framework for the supervisor to set and enforce minimum prudential standards for banks and banking groups. The supervisor has the power to increase the prudential requirements for individual banks and banking groups based on their risk profile9 and systemic importance.10 |
| Description and findings re EC3 | S. 17 (First Schedule) of the BTCRA specifies that CBoB (the Inspector) shall establish appropriate and prudent standards for conducting safe and sound banking (and trust business). The Schedule also states that CBoB shall set prudent and appropriate capital adequacy requirements for banks not less than those in the Basel Capital Accord and Amendments. Detailed prudential standards are set out in Regulations. Further S. 6 of the BTCRA, states that the CBOB may impose new conditions or limitations on the license of an SFI or amend or revoke any authorization, condition or limitation contained in the license. In addition, S. 18(1)(h), the CBOB may issue directions requiring a licensee to cease or refrain from committing an act or pursuing a course of conduct that is an unsafe or unsound practice, or that is in contravention of any law, or to perform a remedial act, or to do anything required to be done; and require such action to be taken by the licensee as CBoB considers necessary. The Guideline entitled “A Guide to the Central Bank’s Ladder of Supervisory Intervention”, revised May 2017 (Ladder of Intervention Guideline) outlines a wide range of discretionary intervention actions that CBoB may take if it determines that the cause of concern is not being addressed. |
| EC4 | Banking laws, regulations and prudential standards are updated as necessary to ensure that they remain effective and relevant to changing industry and regulatory practices. These are subject to public consultation, as appropriate. |
| Description and findings re EC4 | The BTCRA and the CBBA, updated in 2015, together with several Guidelines pertaining to various risks (Market, Operational, Interest Rate Risk, etc) together with several guidelines and legislation pertaining to Anti-Money Laundering and Terrorist Financing (AML, CFT) have been introduced in the past several years. All amendments to laws, regulations and material changes to guidelines are issued for public consultation as a normal practice. |
| EC5 | The supervisor has the power to:
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| Description and findings re EC5 | S. 35 of CBBA and S.13(3) of BTCRA authorize CBoB to have access to such information and records of each bank as it requires to enable it to perform its duties and to require banks to provide such information in the form and frequency deemed necessary. S. 13(3) of BTCRA specifies that CBoB (the Inspector) shall be entitled at all reasonable times to have access to such books, records, vouchers, documents, cash, and securities of a bank and to call upon the manager or any officer designated by the manager of any bank for such information or explanation as is reasonably required to enable the CBoB to carry out its functions under the Act. |
| EC6 | When, in a supervisor’s judgment, a bank is not complying with laws or regulations, or it is or is likely to be engaging in unsafe or unsound practices or actions that have the potential to jeopardize the bank or the banking system, the supervisor has the power to:
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| Description and findings re EC6 | S. 18 (1)(h) of BTCRA, states that the CBoB may issues directions requiring a licensee to cease or refrain from committing an act or pursuing a course of conduct that is an unsafe or unsound practice, or that is in contravention of any law, or to perform a remedial act, or to do anything required to be done and require such action to be taken by the licensee as the central bank considers necessary. S. 18 of the BTCRA also states that the CBOB may impose a range of sanctions from issuing a warning, suspension or the revocation of the license. The Ladder of Intervention Guideline outline the various steps CBoB’s may take to intervene in the case of supervisory/regulatory breaches, or where the bank poses a risk to depositors. These discretionary intervention measures range from the issuance of warnings, more intensive supervision, increase in capital, liquidity and provisioning levels, imposition of fines, conditions/directions (e.g., restricting further lending/deposit-taking), removal of directors/senior management, appointment of special advisors, increased reporting from the external auditor, suspension of license, revocation of license. These measures are not explicitly stated in the BTCRA at this time (the proposed 2018 Amendment to the BTCRA proposes the insertion these intervention measures). CBoB has successfully been able to utilize s. 18(1)(h) of the BTCRA in the past to take the necessary intervention measures required to deal with problem entities. The proposed 2018 Amendment to the BTCRA will enhance CBoB’s powers by explicitly listing the intervention measurers CBoB has typically utilized in the past. In a situation where CBoB has issued a direction which is not being honored, CBoB may apply to the Supreme Court for an order to compel the bank to comply with the direction. Draft amendments have been proposed to the BTCRA to establish an enhanced bank resolution framework. CBoB has signed MOUs with all relevant domestic and foreign supervisory authorities to share information during a time of crisis. The CBoB does not have a formal legislative resolution regime in place at this time. |
| EC7 | The supervisor has the power to review the activities of parent companies and of companies affiliated with parent companies to determine their impact on the safety and soundness of the bank and the banking group. |
| Description and findings re EC7 | CBoB requires banks to prepare financial reports on a consolidated basis. CBoB also receives the financial statements of the bank’s parent company and significant financial subsidiaries. |
| Assessment of Principle 1 | Compliant |
| Comments | CBoB has broad powers and clear responsibilities underpinned mainly in the CBBA, BTCRA and CUA. CBoB’s primary objective is to promote financial system stability in The Bahamas. CBoB has broad corrective action and sanction powers. Laws and regulations provide CBoB with broad power to set and enforce prudential regulations to support delivery of its statutory mandate. Draft amendments have been proposed to the BTCRA to establish an enhanced bank resolution framework. |
| Principle 2 | Independence, accountability, resourcing and legal protection for supervisors. The supervisor possesses operational independence, transparent processes, sound governance, budgetary processes that do not undermine autonomy and adequate resources, and is accountable for the discharge of its duties and use of its resources. The legal framework for banking supervision includes legal protection for the supervisor. |
| Essential criteria | |
| EC1 | The operational independence, accountability and governance of the supervisor are prescribed in legislation and publicly disclosed. There is no government or industry interference that compromises the operational independence of the supervisor. The supervisor has full discretion to take any supervisory actions or decisions on banks and banking groups under its supervision. |
| Description and findings re EC1 | S. 5(3) of the CBBA states that CBoB shall have power to do anything, whether in The Bahamas or elsewhere, which is calculated to facilitate, or is incidental or conducive to the discharge of its duty under this section. For significant actions or activities, the CBoB is required to make notification to the Minister of Finance (MoF), for example when an SFI is a category stage 3 in accordance with the Ladder of Intervention Guideline. After the fact notifications to the MoF would include the granting of, or refusal to grant a license (see BTCRA s.4(2)(c)) and the revocation of a license (see BTCRA s. 18(1)(a)). In practice, CBoB’s ability to act with complete independence may not be the case for state-owned banks. Although CBoB is only required to notify (post decision) the MoF of intervention measures taken with respect to problem entities staged rated 3 and above, with respect to the state-owned bank, CBoB should strengthen its ability to undertake regulatory and supervisory processes on a timely basis without undue influence from the government or the MoF. |
| EC2 | The process for the appointment and removal of the head(s) of the supervisory authority and members of its governing body is transparent. The head(s) of the supervisory authority is (are) appointed for a minimum term and is removed from office during his/her term only for reasons specified in law or if (s)he is not physically or mentally capable of carrying out the role or has been found guilty of misconduct. The reason(s) for removal is publicly disclosed. |
| Description and findings re EC2 | The Schedule to CBBA sets out the terms under which the Governor (or any other director) may be removed. These include where the director: is absent from meetings longer than three consecutive months without the permission of the board of directors; declared bankrupted; is incapacitated by physical or mental health; has a court conviction involving dishonesty; becomes a member of Parliament; becomes a director, officer or employee of, or is a shareholder of with an interest of one percent or more in the ordinary paid up share capital of, or has a controlling interest in, any financial institution regulated by CBoB. The head(s) of the supervisory authority is (are) appointed for a minimum term. At this time, CBoB is not required to publicly disclose the reasons for the removal of the Governor. |
| EC3 | The supervisor publishes its objectives and is accountable through a transparent framework for the discharge of its duties in relation to those objectives.11 |
| Description and findings re EC3 | CBoB’s objectives are set out in the CBBA and the BTCRA. S. 32 of the CBBA requires CBoB, within four months after the end of each financial year, cause to be made and transmit to the MoF, a report of the operations of the Bank during the year and a statement of the accounts of CBoB in respect of that year certified by auditors. The MoF lays a copy of the report before both Houses of Parliament and causes a copy to be published in the Official Gazette. The Governor also holds regular meetings with the MoF. |
| EC4 | The supervisor has effective internal governance and communication processes that enable supervisory decisions to be taken at a level appropriate to the significance of the issue and timely decisions to be taken in the case of an emergency. The governing body is structured to avoid any real or perceived conflicts of interest. |
| Description and findings re EC4 | The Inspector oversees the Bank Supervision Division (BSD) which has internal mechanisms for raising significant issues. Further, the Inspector reports to the Governor any issues of significance on a regular basis. The Governor meets with the MoF on a weekly basis and is able to raise any issues of significance when required on an emergency basis. SFIs rated stage 1 and above are subjected to enhanced supervision and reporting requirements (Stage 1: early warning; Stage 2: heightened risk to financial viability or solvency; Stage 3: severe risk to financial viability or solvency; Stage 4: imminent insolvency or non-viability; Stage 5: insolvency or non-viability). The decision to stage or change the stage rating of an SFI is discussed with BSD senior management and senior representatives within CBOB. Further, the status of stage rated SFIs are discussed regularly with CBoB senior management. |
| EC5 | The supervisor and its staff have credibility based on their professionalism and integrity. There are rules on how to avoid conflicts of interest and on the appropriate use of information obtained through work, with sanctions in place if these are not followed. |
| Description and findings re EC5 | CBoB’s supervision has a staff complement of over 70 persons. Technical staff with direct supervisory and examination responsibilities are well qualified with university degrees, with some risk specialist expertise in AML, credit, Operational and IT risk. With respect to confidentiality and conflict of interest, upon joining CBoB, staff sign a confidentiality agreement on the appropriate use of information obtained through work. In addition, staff are subject to Code of Conduct requirements. |
| EC6 | The supervisor has adequate resources for the conduct of effective supervision and oversight. It is financed in a manner that does not undermine its autonomy or operational independence. This includes:
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| Description and findings re EC6 | CBoB uses its own resources (fees paid by SFIs) to carry out its statutory objectives and responsibilities, including the supervision and regulation of SFIs. CBoB’s BSD has a current complement of 70 staff with only a few vacancies at this time. Salary scales are acceptable as CBoB has been able to retain or attract staff as needed. There is a training budget and a technology budget to sufficiently equip staff. CBoB is able to commission external experts when needed (as demonstrated in the past). |
| EC7 | As part of their annual resource planning exercise, supervisors regularly take stock of existing skills and projected requirements over the short- and medium-term, taking into account relevant emerging supervisory practices. Supervisors review and implement measures to bridge any gaps in numbers and/or skill-sets identified. |
| Description and findings re EC7 | CBoB provides learning opportunities to ensure that all members of staff have the requisite technical competencies and soft skills to perform all of their functions effectively. They are expected to be very knowledgeable and aware of financial services sector trends and best practices, and have the ability to adjust to the evolving needs of the Bank. A series of in-house, local, and overseas training opportunities were facilitated by the Department over the year. Supervision staff specifically, benefit from a vocational training arrangement designed to balance depth and breadth in their knowledge and experience. The framework defines specialties that are vocationally valuable to Supervision and the CBoB and matches training to staff career progression. The Assessors observed that the BSD could use additional staff to ensure that the Domestic Systemically Important Banks (DSIBs) are subject to regular full scope on-site examinations (which may entail additional risk specialists to be hired) and added staff to oversee the off-site supervision surveillance program as well as the implementation of regulatory reforms (Basel II/III) and address the need for enhanced supervision pertaining to SFI’s compliance with AML/ATF standards. |
| EC8 | In determining supervisory programs and allocating resources, supervisors take into account the risk profile and systemic importance of individual banks and banking groups, and the different mitigation approaches available. |
| Description and findings re EC8 | CBoB assesses banks on a risk-based approach. This assessment is used to better allocate supervisory resources with high risk banks being assessed more frequently. In addition, the DSIB SFIs are grouped together under the Domestic Financial Institution Unit. |
| EC9 | Laws provide protection to the supervisor and its staff against lawsuits for actions taken and/or omissions made while discharging their duties in good faith. The supervisor and its staff are adequately protected against the costs of defending their actions and/or omissions made while discharging their duties in good faith. |
| Description and findings re EC9 | S. 13A of the BTCRA provides that no civil or criminal liability shall attach to the Inspector or a staff member for anything done or omitted in the good faith discharge or purported discharge of such person’s functions under the Act. S. 13A of the BTCRA also provides that the CBoB’s Board of Directors may indemnify the Governor and the Governor may indemnify the Inspector or staff member against the cost of defending their actions while discharging their functions in good faith. |
| Assessment of Principle 2 | Largely Compliant |
| Comments | CBoB needs to reassess the adequacy of its supervision complement given the wide range of emerging risks impacting SFIs, including the AML/CFT enhanced monitoring, the needed continued focus on credit risk in-depth on-site reviews required for all DSIBs and the need to conduct more in-depth and frequent corporate governance/internal controls reviews). Further, additional resources may be required to deal with proposed regulatory reforms (Basel II/III, IFRS, AML). The reasons for the removal of a CBoB board member or the Governor should be required to be publicly disclosed. The Schedule to the draft Central Bank of The Bahamas Bill, 2018 provides for public disclosure of the reasons for the removal of the Governor. The proposed amendments to the BTCRA 2018 will introduce added legal protection for any proceedings brought against CBBA, the Inspector, a director, officer, employee of the CBoB in relation to any action taken relating to intervening in or resolving banks. CBoB should contemplate the creation of regulations or guidelines that would help strengthen its ability to regulate and supervise state-owned banks. |
| Principle 3 | Cooperation and collaboration. Laws, regulations or other arrangements provide a framework for cooperation and collaboration with relevant domestic authorities and foreign supervisors. These arrangements reflect the need to protect confidential information.12 |
| Essential criteria | |
| EC1 | Arrangements, formal or informal, are in place for cooperation, including analysis and sharing of information, and undertaking collaborative work, with all domestic authorities with responsibility for the safety and soundness of banks, other financial institutions and/or the stability of the financial system. There is evidence that these arrangements work in practice, where necessary. |
| Description and findings re EC1 | S. 38 (9) of the CBBA allows CBoB to cooperate and exchange information with any other regulatory authority in The Bahamas where it is considered by the Governor that such cooperation or information may be relevant to the functions of such other regulatory authority or as a necessary part of a framework for consolidated supervision, oversight or regulation of the financial services sector. The Group of Financial Service Regulators (GFSR), represented by: CBoB, Securities Commission, Insurance Commission, Compliance Commission, and the Inspector of Financial and Corporate Services have signed a Memorandum of Understanding (MoU) specifying the terms of co-operation and collaboration and has been in force since 2002. Information sharing amongst the domestic regulatory agencies, as well as between these agencies and foreign regulatory authorities, is governed by the Information Sharing Arrangements in the Bahamas, July 2008 (referred to as the Information Sharing Handbook). The GFSR meets periodically to coordinate regulation/examination of financial institutions and to coordinate their activities within the financial sector. The CBoB is the lead regulator for bank and trust companies. The MoF is not a member of the GFSR. |
| EC2 | Arrangements, formal or informal, are in place for cooperation, including analysis and sharing of information, and undertaking collaborative work, with relevant foreign supervisors of banks and banking groups. There is evidence that these arrangements work in practice, where necessary. |
| Description and findings re EC2 | S. 38 (3) of the CBBA provides that CBoB may disclose to an overseas regulatory authority information necessary to enable that authority to exercise regulatory functions including the conduct of civil or administrative investigations and proceedings to enforce laws, regulations and rules administered by that authority. S. 19 (5) of the BTCRA permits the CBoB to share information on the beneficial owners, director, officers and operations of a bank with the supervisory authority responsible for regulating the head office of the bank for the purpose of consolidated supervision. The Information Sharing Handbook also provides guidance of the manner in which all domestic regulatory authorities, including CBoB, will share with foreign supervisory authorities. CBoB has signed MoUs with a number of jurisdictions including Argentina, Canada, Costa Rica, Brazil, Guatemala, Panama, Peru, and an MoU with regional supervisory authorities (CARICOM). CBoB has responded to requests to share information with foreign supervisory authorities on a timely basis. |
| EC3 | The supervisor may provide confidential information to another domestic authority or foreign supervisor but must take reasonable steps to determine that any confidential information so released will be used only for bank-specific or system-wide supervisory purposes and will be treated as confidential by the receiving party. |
| Description and findings re EC3 | S. 38 (7) of the CBBA authorizes CBoB to disclosure information only where CBoB has satisfied itself that the assistance requested by the overseas regulator is required for the purposes of the overseas authority’s regulatory functions. Any confidential information acquired by others, including a Supervisory Authority, is covered by the confidentiality provisions (S. 19) of BTCRA. CBoB is required to share information as necessary as it pertains to AML/CFT disclosure reporting requirements. |
| EC4 | The supervisor receiving confidential information from other supervisors uses the confidential information for bank-specific or system-wide supervisory purposes only. The supervisor does not disclose confidential information received to third parties without the permission of the supervisor providing the information and is able to deny any demand (other than a court order or mandate from a legislative body) for confidential information in its possession. In the event that the supervisor is legally compelled to disclose confidential information it has received from another supervisor, the supervisor promptly notifies the originating supervisor, indicating what information it is compelled to release and the circumstances surrounding the release. Where consent to passing on confidential information is not given, the supervisor uses all reasonable means to resist such a demand or protect the confidentiality of the information. |
| Description and findings re EC4 | S. 7 of the CBBA authorized the CBoB to deny any demand for confidential information when it is not satisfied that it will be treated confidentially or used for supervisory purposes and that it must be given an undertaking by the recipient authority not to disclose the information provided without the consent of the CBoB. |
| EC5 | Processes are in place for the supervisor to support resolution authorities (e.g. central banks and finance ministries as appropriate) to undertake recovery and resolution planning and actions. |
| Description and findings re EC5 | Certain provisions of the CBBA, the BTCRA and the Protection of Depositors Act and Regulations describe current processes CBoB will undertake with respect to recovery and resolution planning and actions. No formal recovering planning or resolution planning is in place at this time. |
| Assessment of Principle 3 | Largely Compliant |
| Comments | CBoB has MoUs in place to support information sharing as well as co-operation and coordination between both domestic and foreign regulatory authorities in dealing with a crisis. Proposed amendments to the CBBA and the BTCRA and Regulations to provide for the establishment of CBoB as the sole resolution authority for banks and to expand the regulatory toolkit available to CBoB to address issues relating to failing banks (e.g. the ability to appoint a statutory administrator), including the requirement for SFIs to have recovery plans and CBoB to have resolution plans in place for DSIBs. |
| Principle 4 | Permissible activities. The permissible activities of institutions that are licensed and subject to supervision as banks are clearly defined and the use of the word “bank” in names is controlled. |
| Essential criteria | |
| EC1 | The term “bank” is clearly defined in laws or regulations. |
| Description and findings re EC1 | The term “bank” is defined in S. 2 of the BTCRA as any person lawfully carrying on banking business including the acceptance of deposits of money withdrawable by cheque. |
| EC2 | The permissible activities of institutions that are licensed and subject to supervision as banks are clearly defined either by supervisors, or in laws or regulations. |
| Description and findings re EC2 | S. 3 of the BTCRA specifies that only banks authorized by the CBoB may carry out the business of banking and S. 2 defines “banking business” as the business of accepting deposits of money which may be withdrawn or repaid on demand or after a fixed period or after notice and employing those deposits in whole or in part by lending or otherwise investing them for the account and at the risk of the person accepting them. It also includes the provision of money transmission services. |
| EC3 | The use of the word “bank” and any derivations such as “banking” in a name, including domain names, is limited to licensed and supervised institutions in all circumstances where the general public might otherwise be misled. |
| Description and findings re EC3 | S. 7 of BTCRA as well as the Banks and Trust Companies (Restriction on the Use of Banking Names and Descriptions) Regulations, 2001 (as revised in 2002) specifies that no person other than a bank license holder can use the term “bank” or any derivative thereof without the permission of the CBoB. CBoB’s general policy is not to give consent for the use of a prohibited word where its use could mislead the public into believing that the company in question is, or may be a bank license holder or that it is under the direct supervision of CBoB. The Registrar of Companies will refer any company whose name contains a restricted word to CBoB for its review. |
| EC4 | The taking of deposits from the public is reserved for institutions that are licensed and subject to supervision as banks.13 |
| Description and findings re EC4 | Other than banks, credit unions are the only entities permitted to accept deposits from the public. |
| EC5 | The supervisor or licensing authority publishes or otherwise makes available a current list of licensed banks, including branches of foreign banks, operating within its jurisdiction in a way that is easily accessible to the public. |
| Description and findings re EC5 | The CBoB publishes a list of all licensed banks, including branches of foreign banks, on a quarterly basis on its website. Up-to-date lists are available from CBoB on request. |
| Assessment of Principle 4 | Compliant |
| Comments | The BTCRA clearly defines the “banking business” and restricts deposit taking activities to banks and credit unions only. |
| Principle 5 | Licensing criteria. The licensing authority has the power to set criteria and reject applications for establishments that do not meet the criteria. At a minimum, the licensing process consists of an assessment of the ownership structure and governance (including the fitness and propriety of Board members and senior management)14 of the bank and its wider group, and its strategic and operating plan, internal controls, risk management and projected financial condition (including capital base). Where the proposed owner or parent organization is a foreign bank, the prior consent of its home supervisor is obtained. |
| Essential criteria | |
| EC1 | The law identifies the authority responsible for granting and withdrawing a banking license. The licensing authority could be the banking supervisor or another competent authority. If the licensing authority and the supervisor are not the same, the supervisor has the right to have its views on each application considered, and its concerns addressed. In addition, the licensing authority provides the supervisor with any information that may be material to the supervision of the licensed bank. The supervisor imposes prudential conditions or limitations on the newly licensed bank, where appropriate. |
| Description and findings re EC1 | S. 3 (1) of the BTCRA provides that the CBoB is the only authority responsible for the granting of a bank license. S. 4(6) of the BTCRA states that the CBOB may impose conditions or limitations on a new or existing license. S. 8 of the CUA stipulates the criteria for the registration of a credit union. |
| EC2 | Laws or regulations give the licensing authority the power to set criteria for licensing banks. If the criteria are not fulfilled or if the information provided is inadequate, the licensing authority has the power to reject an application. If the licensing authority or supervisor determines that the license was based on false information, the license can be revoked. |
| Description and findings re EC2 | S. 4 of the BTCRA sets the criteria for the licensing of banks (and trust companies). It also provides that the CBoB may reject an application if the applicant does not meet the necessary authorization criteria, including: the fitness and probity of the applicant to carry out banking business; the fitness and probity of the directors and senior management; the sufficiency of financial resources to provide continuing financial support; the soundness and feasibility of the business plan; the business record and experience of the applicant; the best interests of the financial system of the Bahamas. The CBoB may also refuse to grant a license if it considers it to be in the public interest. The Bank and Trust Companies (License Application) Regulations, 2008 (License Regulations) which detail the requirements for new license applications, are augmented by the Guidelines for Licence Applications for Banks and/or Trust Companies, May 2015 (Licence Guideline) and the Applications Manual, December 6, 2018. Section 18(1)(a)(vi) of the BTCRA provides that the CBoB may revoke a license, the granting of which was based on false or misleading information. |
| EC3 | The criteria for issuing licenses are consistent with those applied in ongoing supervision. |
| Description and findings re EC3 | Banks are required to provide at the authorization stage details of their proposed internal organization structures including internal audit and compliance arrangements and the outline of their internal policies on risk management requirements as they relate, for instance, to such issues as credit, liquidity, provisioning, large exposure, country risk. CBoB does not review policies in detail at the time of issuing a license. It generally performs an onsite visit to the newly licensed SFI within 18 months of operation. |
| EC4 | The licensing authority determines that the proposed legal, managerial, operational and ownership structures of the bank and its wider group will not hinder effective supervision on both a solo and a consolidated basis.15 The licensing authority also determines, where appropriate, that these structures will not hinder effective implementation of corrective measures in the future. |
| Description and findings re EC4 | CBoB carries out a review of the proposed legal, managerial, operational and ownership structures during the licensing application process. CBoB will only authorize banks where it is satisfied that it can carry out effective supervision on both a solo and consolidated basis (see S. 4(4)(b) of the BTCRA). |
| EC5 | The licensing authority identifies and determines the suitability of the bank’s major shareholders, including the ultimate beneficial owners, and others that may exert significant influence. It also assesses the transparency of the ownership structure, the sources of initial capital and the ability of shareholders to provide additional financial support, where needed. |
| Description and findings re EC5 | S. 4 (2) of the BTCRA states that the CBoB must be satisfied about the nature and sufficiency of the financial resources of the applicant (body corporate, annual statements plus most recent unaudited financial statements, for each applicant current statement of assets and liabilities certified by a public accountant) to provide continuing financial support to carry on banking business, before the granting of a license. Additionally, the Licence Regulations permit CBoB to vet the suitability of all shareholders proposing to hold 5 per cent or more of the shares, directly or indirectly, in the bank. |
| EC6 | A minimum initial capital amount is stipulated for all banks. |
| Description and findings re EC6 | Page 19 of the Licence Guidelines indicate that the CBoB has established the minimum paid up capital requirements at $5 million for commercial and public banks as reflected in the Licence Guideline. CBoB can stipulate a higher minimum figure based on a review of the proposed business activities of the applicant. |
| EC7 | The licensing authority, at authorization, evaluates the bank’s proposed Board members and senior management as to expertise and integrity (fit and proper test), and any potential for conflicts of interest. The fit and proper criteria include: (i) skills and experience in relevant financial operations commensurate with the intended activities of the bank; and (ii) no record of criminal activities or adverse regulatory judgments that make a person unfit to uphold important positions in a bank.16 The licensing authority determines whether the bank’s Board has collective sound knowledge of the material activities the bank intends to pursue, and the associated risks. |
| Description and findings re EC7 | S. 4 (2) of the BTCRA stipulates that the CBoB must be satisfied that those who will operate the bank (or trust company) will do so responsibly and that such persons have the character, competence and experience for operating a bank. This requirement is supplemented by the Licence Regulations which allow CBoB to analyze the proposed ownership and managerial structure and the background, integrity and suitability of proposed directors and managers using traditional fit and proper criteria. Tools such as World Check and regulatory contacts are used during the due diligence process in assessing the fitness and probity of the promoters, shareholders, directors, and senior management of applicants. Senior management are required to submit police certificates from their respective home jurisdictions and to declare, inter alia, information related to criminal records, or adverse regulatory judgments in a confidential statement. S. 3E and 4(2) of the BTCRA, states that the Board (and senior) management must satisfy the CBoB that they will manage the bank responsibly and that they have the proper character, competence and experience to operate a bank. CBoB also assesses the collective sound knowledge of material activities of the proposed licensee. |
| EC8 | The licensing authority reviews the proposed strategic and operating plans of the bank. This includes determining that an appropriate system of corporate governance, risk management and internal controls, including those related to the detection and prevention of criminal activities, as well as the oversight of proposed outsourced functions, will be in place. The operational structure is required to reflect the scope and degree of sophistication of the proposed activities of the bank.17 |
| Description and findings re EC8 | S. 4(2) of the BTCRA states that each applicant must submit for consideration by the CBoB such information as the CBoB deems necessary to undertake a full assessment of the application. CBoB relies upon a number of Regulations and Guidelines including Licence Regulations, Guidelines for Assessing the Fitness and Propriety of Applicants for Regulated Functions and General Information Guidelines for Licence Applications. The Licence Guidelines require the applicant to submit a strategic and operating plan and feasibility study, pro-forma financial statements covering a three to five-year timeframe, information on its internal organization, details on internal audit and compliance functions. These are supplemented by the CBoB’s Guidelines on corporate governance, internal controls, outsourcing, AML/CFT and risk management requirements. The submitted data is required to take into account the nature and complexity of the proposed activities of the applicant. CBoB’s authorization division is responsible for the processing of authorizations. Once an application has been approved a supervisor/analysist is assigned to the supervisory oversight of the new SFI. The SFI is monitored by the off-site supervision surveillance team and in general an on-site examination is conducted within 18 months of operation. At the time of licensing, CBoB’s authorization division examines the general outline of risk management policies and has discussions with the applicants regarding the corporate governance and internal control framework for the proposed SFI. |
| EC9 | The licensing authority reviews pro forma financial statements and projections of the proposed bank. This includes an assessment of the adequacy of the financial strength to support the proposed strategic plan as well as financial information on the principal shareholders of the bank. |
| Description and findings re EC9 | The Licence Regulations require applicants to provide pro forma financial statements covering a three year to five-year timeframe. Applicants must also submit a strategic and operating plan and feasibility study. Shareholders are required to submit net worth statements to enable CBoB to assess their financial strength. Where an application is made by a corporate entity or a bank, audited financial statements for the three years immediately preceding the application are required to assess the financial strength of the parent. S. 4 (2) of the BTCRA states that the CBoB must be satisfied about the nature and sufficiency of the financial resources of the applicant to provide continuing financial support for the bank. |
| EC10 | In the case of foreign banks establishing a branch or subsidiary, before issuing a license, the host supervisor establishes that no objection (or a statement of no objection) from the home supervisor has been received. For cross-border banking operations in its country, the host supervisor determines whether the home supervisor practices global consolidated supervision. |
| Description and findings re EC10 | S. 4(4) of the BTCRA stipulates that a license shall not be granted unless the CBoB is satisfied that the bank will be subject to adequate consolidated supervision by the home supervisor; that the latter makes no objection to the establishment of the branch or subsidiary in the Bahamas; and that there are no constraints on internal or external audits imposed by the home regulator. |
| EC11 | The licensing authority or supervisor has policies and processes to monitor the progress of new entrants in meeting their business and strategic goals, and to determine that supervisory requirements outlined in the license approval are being met. |
| Description and findings re EC11 | The CBoB’s off-site supervision surveillance monitor the progress of its new licensees in meeting their business and strategic goals through a quarterly review of financial statements (as well as audited statements when they become available), prudential discussions are held with banks on an annual basis or more frequently if the need arises. All banks are subject to periodic on-site inspection. |
| Assessment of Principle 5 | Compliant |
| Comments | CBoB has a thorough licensing framework and processes in place to assess licensing applications, CBoB follows criteria explicit criteria pertaining to financial strengthen of investors, fit and proper guidance for the appointment of senior management and Board members, analysis of proposed business strategy, and minimum capital adequacy requirements. To avoid problems at a later date, for new licensees who do not have a strong parent company to oversee the startup of operations, CBoB should conduct a more in-depth review of applicant’s risk management policies and conduct an on-site view prior to the 18 months of operation of the SFI. |
| Principle 6 | Transfer of significant ownership. The supervisor18 has the power to review, reject and impose prudential conditions on any proposals to transfer significant ownership or controlling interests held directly or indirectly in existing banks to other parties. |
| Essential criteria | |
| EC1 | Laws or regulations contain clear definitions of “significant ownership” and “controlling interest”. |
| Description and findings re EC1 | S. 2 of the BTCRA outlines the definition of “controller” which means a person who is able to exercise a significant influence over the management of a licensee by virtue of (i) a holding of shares or other securities in the licenses or such other company; (ii) an entitlement to exercise, or control the exercise of, the voting power at any general meeting of the licensee, or such other company. S. 6A of the BTCRA states that the CBoB may grant/refuse approval of an application by a person to become a controller of a licensee or to increase a controller’s shareholding in a licensee. S. 6 of the BTCRA states that in the case of publicly traded banks approval is required at the 5 percent level and notification at the 3 percent level (as stated in the Acquisition of Shares Regulations (ASR)). |
| EC2 | There are requirements to obtain supervisory approval or provide immediate notification of proposed changes that would result in a change in ownership, including beneficial ownership, or the exercise of voting rights over a particular threshold or change in controlling interest. |
| Description and findings re EC2 | S. 6 of BTCRA specifies that no shares in a bank or any other securities shall be issued and no issued shares shall be transferred or disposed of in any manner without the prior approval of the CBoB. S. 6A of the BTCRA also empowers the CBoB to approve the application of a person who wishes to become a controller of a licensee. This is also reflected in the ASR which requires that any person wishing to acquire shares in a bank (5 percent in the case of a publicly traded bank) must receive the prior approval of CBoB. Paragraph 2(a)(i) of the Schedule to the ASR—requires banks to provide a list of, and background information on, all direct or indirect shareholders who represent, either individually or as a group acting together, 10 percent or more of the voting rights, shares and/or other controlling interest of each applicant at the time of the application. Paragraph 2 (a)(iii) of the Schedule also requires the applicant to provide CBoB with an organization chart showing the structure of the direct and indirect shareholding of each applicant analyzed according to holdings of voting rights, shares and/or other controlling interests. The Registrar of Beneficial Ownership Bill, 2018, effective January 1, 2019 will provide the CBoB with an additional source of information to check prior to granting any approvals related to a controller pertaining to the prevention of criminals or associates from holding any interest, significant or otherwise in the any SFI. |
| EC3 | The supervisor has the power to reject any proposal for a change in significant ownership, including beneficial ownership, or controlling interest, or prevent the exercise of voting rights in respect of such investments to ensure that any change in significant ownership meets criteria comparable to those used for licensing banks. If the supervisor determines that the change in significant ownership was based on false information, the supervisor has the power to reject, modify or reverse the change in significant ownership. |
| Description and findings re EC3 | S. 6 of the BTCRA indicates that no shares can change hands without the consent of CBoB. The same criteria that apply upon authorization apply also, where relevant, upon change of ownership. Accordingly, the proposed new owners and controllers must meet the fitness and propriety criteria and the acquisition must not hinder effective supervision and must be in the best interests of the financial system of The Bahamas. |
| EC4 | The supervisor obtains from banks, through periodic reporting or on-site examinations, the names and holdings of all significant shareholders or those that exert controlling influence, including the identities of beneficial owners of shares being held by nominees, custodians and through vehicles that might be used to disguise ownership. |
| Description and findings re EC4 | Banks are required to submit an annual statement of shareholders, directors and senior officers to CBoB (as well as to the Registrar of Companies). As stipulated in the Licensing Guidelines and the Applications Manual, the Confidential Statement (which is completed by all shareholders, directors and senior officers seeking CBoB’s approval of their appointment) requires that each SFI should inform CBoB, within 21 days, if it becomes aware of any material information that may affect the completeness or accuracy of the information contained in the statement (as per s. 13B of the BTCRA). |
| EC5 | The supervisor has the power to take appropriate action to modify, reverse or otherwise address a change of control that has taken place without the necessary notification to or approval from the supervisor. |
| Description and findings re EC5 | S. 6 of BTCRA states that no acquisition is valid without the consent of CBoB and specifically 6B states that CBoB may object to an existing controller and may take steps to ensure that such a person ceases to be a controller. |
| EC6 | Laws or regulations or the supervisor require banks to notify the supervisor as soon as they become aware of any material information which may negatively affect the suitability of a major shareholder or a party that has a controlling interest. |
| Description and findings re EC6 | The Confidential Statement (which is completed by all shareholders, directors and senior officers seeking CBoB’s approval of their appointment) requires that each bank should inform the Inspector, within 21 days, if it becomes aware of any material information that may affect the completeness or accuracy of the information contained in the statement. |
| Assessment of principle 6 | Compliant |
| Comments | CBoB has the power to review, reject, and impose prudential conditions on proposals to transfer significant ownership or controlling interests in SFIs. |
| Principle 7 | Major acquisitions. The supervisor has the power to approve or reject (or recommend to the responsible authority the approval or rejection of), and impose prudential conditions on, major acquisitions or investments by a bank, against prescribed criteria, including the establishment of cross-border operations, and to determine that corporate affiliations or structures do not expose the bank to undue risks or hinder effective supervision. |
| Essential criteria | |
| EC1 | Laws or regulations clearly define:
|
| Description and findings re EC1 | The Banks and Trust Companies (Equity Investments) Regulations 2005 (Equity Regulations) stipulates that no bank, without the prior written approval of CBoB can acquire, either directly or indirectly, more than 5 percent of the shares, securities and/or any other interest in any other person (e.g., companies, partnerships, trusts, etc.) S. 5 of the BTCRA requires that written approval of CBoB be obtained for the establishment of foreign subsidiaries (as well as foreign branches and representative offices) by banks. Regulation 3 of the Equity Regulations specifies that no bank shall, without the prior written approval of the CBoB, acquire or hold the shares, securities or other interests in or of any person that is a related party to the bank. |
| EC2 | Laws or regulations provide criteria by which to judge individual proposals. |
| Description and findings re EC2 | In general, the CBoB seeks to ensure that any acquisition proposal made by a bank is sound and feasible and is in the best interests of depositors and the financial system in The Bahamas. If the proposed investment is in a bank (or trust company), the proposal is judged by the criteria outlined in S. 4(2) of the BTCRA. (i.e., authorization criteria). |
| EC3 | Consistent with the licensing requirements, among the objective criteria that the supervisor uses is that any new acquisitions and investments do not expose the bank to undue risks or hinder effective supervision. The supervisor also determines, where appropriate, that these new acquisitions and investments will not hinder effective implementation of corrective measures in the future.19 The supervisor can prohibit banks from making major acquisitions/investments (including the establishment of cross-border banking operations) in countries with laws or regulations prohibiting information flows deemed necessary for adequate consolidated supervision. The supervisor takes into consideration the effectiveness of supervision in the host country and its own ability to exercise supervision on a consolidated basis. |
| Description and findings re EC3 | In general, the CBoB seeks to ensure that any acquisition proposal made by a bank is sound and feasible and is in the best interests of depositors and the financial system in the Bahamas. S. 5 of the BTCRA states that a licensee incorporated or registered in The Bahamas shall not without the prior written approval of the Bank establish outside of The Bahamas, a subsidiary, branch, or representative office. S. 4 of the Guidelines for the Establishment or Acquisition of Overseas Branches, Subsidiaries and Representative Offices address the requirement for consolidated supervision and provides that for CBoB’s ability to successfully supervise entire banking groups on a consolidated basis, it must have an ability to review banking and nonbanking activities conducted by its licensees, either directly or indirectly (through branches, subsidiaries or representative offices) and activities conducted at both domestic and foreign offices. To facilitate CBoB’s ability to supervise on a consolidated basis, it has entered into several MoUs with host regulators. The Guidelines states this as a condition of final approval to the establishment of a branch or subsidiary. CBoB will only allow a bank to make significant investments in other countries where it is satisfied that the supervisors in those other countries implements adequate consolidated supervision and there are no constraints on internal and external audits imposed by those supervisory authorities. The CBoB will only allow an acquisition where it can effectively supervise the bank on a consolidated basis (S. 7 of the Licence Guidelines). |
| EC4 | The supervisor determines that the bank has, from the outset, adequate financial, managerial and organizational resources to handle the acquisition/investment. |
| Description and findings re EC4 | Section 4 (2) of BTCRA provides that CBoB must be satisfied about the nature and sufficiency of the financial resources of the acquiring bank to provide continuing financial support in respect of the proposed acquisition. It must also satisfy itself regarding the soundness and feasibility of the proposal. The Guidelines for the Establishment or Acquisition of Overseas Branches, Subsidiaries and Representative Offices set out the factors which the Bank will consider when determining whether or not to approve an application to establish a foreign subsidiary. Paragraph V(1)(b) and (e) of these Guidelines includes the amongst the various criteria to be considered by the Bank: “(b) the fitness, propriety and managerial capacity of the applicant to expand its banking and/or trust business overseas in a prudent and reputable manner; and (e) the nature and sufficiency of the financial resources of the applicant to provide continuing financial support to the branch, subsidiary or representative office overseas, should it be necessary. The financial condition and likely future requirements of the entity in terms of possible injections of capital and liquidity will also be considered to ensure that there will not be undue hardship on the financial resources of the licensee;” The Equity Regulations 2005 stipulates that no bank, may without the prior written approval of CBoB acquire, either directly or indirectly, more than 5 percent of the shares, securities and/or any other interest in any other person (e.g., companies, partnerships, trusts, etc.). The off-site supervision surveillance team, together with the authorization unit, engages in discussions with SFIs of potential major acquisitions to determine if the SFI has the organizational resources to handle the acquisition or investment. |
| EC5 | The supervisor is aware of the risks that non-banking activities can pose to a banking group and has the means to take action to mitigate those risks. The supervisor considers the ability of the bank to manage these risks prior to permitting investment in non-banking activities. |
| Description and findings re EC5 | CBoB will only permit an investment in a non-banking entity where it is sound and feasible and in the best interest of depositors and the financial system in The Bahamas. |
| AC1 | The supervisor reviews major acquisitions or investments by other entities in the banking group to determine that these do not expose the bank to any undue risks or hinder effective supervision. The supervisor also determines, where appropriate, that these new acquisitions and investments will not hinder effective implementation of corrective measures in the future.20 Where necessary, the supervisor is able to effectively address the risks to the bank arising from such acquisitions or investments. |
| Description and findings re AC1 | |
| Assessment of Principle 7 | Compliant |
| Comments | The BTCRA empowers CBoB to establishes clear provisions on acquisitions and investments that require prior supervisory approval or prior notification to CBoB. |
| Principle 8 | Supervisory approach. An effective system of banking supervision requires the supervisor to develop and maintain a forward-looking assessment of the risk profile of individual banks and banking groups, proportionate to their systemic importance; identify, assess and address risks emanating from banks and the banking system as a whole; have a framework in place for early intervention; and have plans in place, in partnership with other relevant authorities, to take action to resolve banks in an orderly manner if they become non-viable. |
| Essential criteria | |
| EC1 | The supervisor uses a methodology for determining and assessing on an ongoing basis the nature, impact and scope of the risks:
The methodology addresses, among other things, the business focus, group structure, risk profile, internal control environment and the resolvability of banks, and permits relevant comparisons between banks. The frequency and intensity of supervision of banks and banking groups reflect the outcome of this analysis. |
| Description and findings re EC1 | CBoB has identified six Domestic Systemically Important Banks (DSIB) which based on their nature, impact and scope of risks were determined to have the potential impact on the safety and soundness of The Bahamas banking system. These DSIBs are subject to more enhanced off-site supervision surveillance focus requiring a three-year cycle for a risk assessment versus the other SFI’s being subject to a 5-year risk assessment cycle. The off-site supervision surveillance teams meet more frequently (semi-annually) with the DSIB’s senior management to discuss prudential issues, and progress in addressing supervisory requirements. At times, the DSIBs are also subject to more regular on-site examinations than other SFIs, however the on-site examinations do not include a deep effectiveness review of corporate governance, internal audit function nor an examination of some of the material risks (e.g. credit) on a regular basis. The international SFIs (including branch operations) are subject to similar risk assessment processes, but less frequently (e.g. annually). |
| EC2 | The supervisor has processes to understand the risk profile of banks and banking groups and employs a well-defined methodology to establish a forward-looking view of the profile. The nature of the supervisory work on each bank is based on the results of this analysis. |
| Description and findings re EC2 | CBoB’s off-site supervision surveillance includes:
When an on-site examination takes place, CBoB evaluates banks’ policies, practices, and procedures relating to their loan and investment portfolios, and ensures that banks have in place internal controls adequate to the nature and scale of their operations. The off-site supervisors prepare risk assessments (on a cycle of 3 (DSIBs) and 5 years (all other SFIs), annual/semi-annual analysis as well as reports on examinations provide for a good understanding of the overall risk profile of the SFI. The ever-greening tool which has been developed and implemented (although a few remaining adjustments are required to make it fully operational) provides the off-site supervisors the ability to update the risk assessment matrix/profile frequently, which incorporates an impact assessment of the direction of risk. |
| EC3 | The supervisor assesses banks’ and banking groups’ compliance with prudential regulations and other legal requirements. |
| Description and findings re EC3 | CBoB requires the Board of Directors to provide an annual certification which is relied upon to ensure that SFIs are in compliance with prudential regulations and other legal requirements. Additionally, banks are expected to notify the CBoB of any breaches of prudential norms or prudential regulations. |
| EC4 | The supervisor takes the macroeconomic environment into account in its risk assessment of banks and banking groups. The supervisor also takes into account cross-sectoral developments, for example in non-bank financial institutions, through frequent contact with their regulators. |
| Description and findings re EC4 | As part of the risk based supervisory framework, CBoB assesses the effect of economic factors of licensees including trends in national and regional gross domestic products (GDP), trends in national inflation and foreign investments in The Bahamas to name a few. CBoB also assess the impact of changes in the competitive environment of licensees including the impact of changes in international rules for disclosure (exchanges of information between tax authorities), levels of new entrants/exits from the industry/sector, trends in margins and profitability for the industry/sector as well as the industry structure. CBoB also conducts aggregate stress testing to test SFI’s abilities to withstand certain shocks in the macroeconomic environment. Although CBoB is in the preliminary stages of developing these macro stress tests, the stress testing to date has assisted the BSD with assessing the impact on the risk profile of the DSIBs. |
| EC5 | The supervisor, in conjunction with other relevant authorities, identifies, monitors and assesses the build-up of risks, trends and concentrations within and across the banking system as a whole. This includes, among other things, banks’ problem assets and sources of liquidity (such as domestic and foreign currency funding conditions, and costs). The supervisor incorporates this analysis into its assessment of banks and banking groups and addresses proactively any serious threat to the stability of the banking system. The supervisor communicates any significant trends or emerging risks identified to banks and to other relevant authorities with responsibilities for financial system stability. |
| Description and findings re EC5 | CBoB conducts reviews of trends and concentrations within and across the banking system as a whole. CBoB’s Quarterly Economic Review, produced by CBoB’s Research Department, reviews key economic and financial developments, including an analysis of the developments in the financial services sector, performance of the domestic banks, credit quality, capital adequacy, and profitability. The report also speaks to capital markets developments as well as developments in the international environment. This analysis, together with the marcro stress testing conducted by CBoB is factored into the risk assessment of the SFIs. In addition, based on the current credit environment in The Bahamas, the off-site supervision surveillance team has made an effort over the past 18 months to communicate these findings with the DSIBs, along with CBoB’s expectation that these SFI work towards lowering the overall level of NPLs in the banking sector. The overall NPL levels have been gradually decreasing since that time, with the exception of one DSIB. |
| EC6 | Drawing on information provided by the bank and other national supervisors, the supervisor, in conjunction with the resolution authority, assesses the bank’s resolvability where appropriate, having regard to the bank’s risk profile and systemic importance. When bank-specific barriers to orderly resolution are identified, the supervisor requires, where necessary, banks to adopt appropriate measures, such as changes to business strategies, managerial, operational and ownership structures, and internal procedures. Any such measures take into account their effect on the soundness and stability of ongoing business. |
| Description and findings re EC6 | CBoB reviews and assesses all relevant information received by licensees, other regulators or obtained by other means which may have an impact on the soundness and stability of licensees’ business operations. CBoB has the power under the BTCRA to impose intervention measures on licensees should there be any supervisory concerns. CBoB’s Ladder of Supervisory Intervention Guidelines provide CBoB with the ability to take the necessary intervention measures in a timely manner. At this time, proposed amendments to the BTCRA will enhance the CBoB’s resolution framework as well as when enacted would allow the CBoB to require banks to make changes to remove barriers to orderly resolution. |
| EC7 | The supervisor has a clear framework or process for handling banks in times of stress, such that any decisions to require or undertake recovery or resolution actions are made in a timely manner. |
| Description and findings re EC7 | At this time, CBoB works informally with the Group of Financial Services Regulators (domestic agencies through an MoU) as well as with the MoF to deal with the handling of banks in stress. Amendments to the BTCRA have proposed an enhanced resolution framework that would empower the BTCRA to require SFIs to undertake recovery or resolution actions in a timely manner. It is essential for the CBoB to be formally recognized as the Resolution Authority as well as having the power to take the necessary steps to ensure any actions that are required to be taken are done so in a timely manner. |
| EC8 | Where the supervisor becomes aware of bank-like activities being performed fully or partially outside the regulatory perimeter, the supervisor takes appropriate steps to draw the matter to the attention of the responsible authority. Where the supervisor becomes aware of banks restructuring their activities to avoid the regulatory perimeter, the supervisor takes appropriate steps to address this. |
| Description and findings re EC8 | SFIs are required to seek formal approval of any restructuring activities and therefore it would not approve of any activities that an SFI conducts in order to avoid regulatory requirements. |
| Assessment of Principle 8 | Largely Compliant |
| Comments | CBoB has a strong off-site surveillance program that entails direct interaction with the DSIBs on a semi-annual basis, international firms annually, that entails discussions around periodic reporting, discussion of emerging prudential risks (credit) that could impact the firm. CBoB must ensure that its DSIBs have an adequate on-site examination program that includes an in-depth review (which can be conducted on a cycle basis) of corporate governance, internal controls and a deep assessment of the most prominent risks in the business model (e.g. credit risk for the domestic retail asset backed lending books). This enhanced risk assessment process should be conducted more frequently for DSIBs to minimize the potential negative impact on the financial stability of the banking system in The Bahamas. A supervisory regime for the assessment of resolvability is still a work in progress. |
| Principle 9 | Supervisory techniques and tools. The supervisor uses an appropriate range of techniques and tools to implement the supervisory approach and deploys supervisory resources on a proportionate basis, taking into account the risk profile and systemic importance of banks. |
| Essential criteria | |
| EC1 | The supervisor employs an appropriate mix of on-site21 and off-site22 supervision to evaluate the condition of banks and banking groups, their risk profile, internal control environment and the corrective measures necessary to address supervisory concerns. The specific mix between on-site and off-site supervision may be determined by the particular conditions and circumstances of the country and the bank. The supervisor regularly assesses the quality, effectiveness and integration of its on-site and off-site functions, and amends its approach, as needed. |
| Description and findings re EC1 | CBoB’s off-site supervision surveillance program uses a number of methods for assessing an SFI’s financial condition and compliance with prudential requirements and standards, including those related to corporate governance and risk management. Both the domestic and international SFIs are subject to the same risk based supervisory framework with more emphasis being placed on the largest SFIs in both categories. The on-site examination program does not include a deep effectiveness assessment of DSIB’s key corporate governance, risk management and internal controls practices, as well as in-depth reviews of material risks (e.g. credit risk) depending on the business model on a regular basis. |
| EC2 | The supervisor has a coherent process for planning and executing on-site and off-site activities. There are policies and processes to ensure that such activities are conducted on a thorough and consistent basis with clear responsibilities, objectives and outputs, and that there is effective coordination and information sharing between the on-site and off-site functions. |
| Description and findings re EC2 | Each year the BSD formulates a strategic plan that references the continuous off-site supervision surveillance requirements (including semi-annual/annual meetings with senior management of SFIs), planned on-site examination work required to be undertaken depending on the in-depth risk assessments conducted by the off-site supervision surveillance team’s requirements together with the requirement to address all regulatory guidance needs (e.g. implementing Basel II/III reform initiatives, etc.). |
| EC3 | The supervisor uses a variety of information to regularly review and assess the safety and soundness of banks, the evaluation of material risks, and the identification of necessary corrective actions and supervisory actions. This includes information, such as prudential reports, statistical returns, information on a bank’s related entities, and publicly available information. The supervisor determines that information provided by banks is reliable23 and obtains, as necessary, additional information on the banks and their related entities. |
| Description and findings re EC3 | In addition to the documentation used in a risk assessment, CBoB reviews information obtained from statutory filings (prudential returns), financial reporting requirements for capital liquidity and earnings performance (to name a few) on a weekly, quarterly and monthly basis, external audit reports, consolidated annual reports from the parent company), correspondences, service level agreements, newspaper articles and press releases, internal audit reports, ICAAP reports and management reporting to the Board of Directors (“the Board”) (including minutes of the Board and Board committee meetings) as well as reports emanating from Discovery Review meetings. |
| EC4 | The supervisor uses a variety of tools to regularly review and assess the safety and soundness of banks and the banking system, such as:
The supervisor communicates its findings to the bank as appropriate and requires the bank to take action to mitigate any particular vulnerabilities that have the potential to affect its safety and soundness. The supervisor uses its analysis to determine follow-up work required, if any. |
| Description and findings re EC4 | CBoB uses a variety of tools to regularly review and assess the safety and soundness of SFIs, including the review and analysis of financial statements and accounts, business model analysis (part of the analysis conducted annually as well as the in-depth risk assessments conducted every 3 years for DSIBs land 5 years for all other SFIs). Horizontal peer reviews are conducted in an informal manner, but it is conducted nonetheless. The outcome of SFI produced stress tests are reviewed and discussed with the institution when relevant. CBoB on-site examiners review corporate governance, including risk management and internal control systems when a specific risk is being reviewed as part of the examination. In general, CBoB does not conduct a deep dive review of corporate governance per se. |
| EC5 | The supervisor, in conjunction with other relevant authorities, seeks to identify, assess and mitigate any emerging risks across banks and to the banking system as a whole, potentially including conducting supervisory stress tests (on individual banks or system-wide). The supervisor communicates its findings as appropriate to either banks or the industry and requires banks to take action to mitigate any particular vulnerabilities that have the potential to affect the stability of the banking system, where appropriate. The supervisor uses its analysis to determine follow-up work required, if any. |
| Description and findings re EC5 | CBoB is in its early stages of developing appropriate models and detailed guidelines for supervisory stress testing, but these have not been issued as yet. Most licensees are subsidiaries or branches of international banking groups and have advanced models that are employed subject to home country supervision standards. For the local operation, the CBoB reviews the results of the models and stress testing and is initiating work with the local operation to adapt their models. |
| EC6 | The supervisor evaluates the work of the bank’s internal audit function, and determines whether, and to what extent, it may rely on the internal auditors’ work to identify areas of potential risk. |
| Description and findings re EC6 | The off-site supervision surveillance receives all internal audit reports throughout the year on all SFIs and the team meets face to face with the internal auditors to review the findings of such reports. In addition, the on-site examiners review the scope and work papers of the auditor during onsite examination visits. As part of a licensee’s risk assessment, examiners also assess the issues identified and recommendations made in internal and group internal audit reports. |
| EC7 | The supervisor maintains sufficiently frequent contacts as appropriate with the bank’s Board, non-executive Board members and senior and middle management (including heads of individual business units and control functions) to develop an understanding of and assess matters such as strategy, group structure, corporate governance, performance, capital adequacy, liquidity, asset quality, risk management systems and internal controls. Where necessary, the supervisor challenges the bank’s Board and senior management on the assumptions made in setting strategies and business models. |
| Description and findings re EC7 | It is CBoB’s policy, that all licensees meet at least annually with BSD. These meetings encompass all material issues arising from both off-site monitoring of prudential indicators and the CBoB’s on-site examinations. The frequency for onsite examinations is determined by the risk-rating of the bank. For example, a bank rated as high Risk (i.e., high probability of an event occurring and high systemic or jurisdictional impact if the event crystallizes) would be subject to at least annual reviews. Lower risk banks will be subject to less frequent reviews (based on the risk rating). Licensees are required to submit, in advance of the meetings, relevant recent internal risk reports for their operations in The Bahamas, as well as internal audit reviews and the external auditor’s management letter. More frequent meetings are held with higher risk entities. Licensees are required to notify the CBoB of any significant changes in their activities, as well as discuss activities and financial performance at the annual prudential meeting. The inclusion of external auditors, non-executive directors and middle management of licensees in prudential discussions is determined on a case-by-case basis (at the discretion of the Inspector). The risk–based assessment (profile) for licensees is used for determining the frequency of examinations. Meetings are routinely held and correspondence regularly exchanged with the external auditors of banks. In general, CBoB has focused mainly on SFI senior management executives, however, CBoB recently communicated its intent to engage boards directly on a go forward basis. The intent is to engage more closely with the boards of supervised financial institutions on matters of financial and AML risk. |
| EC8 | The supervisor communicates to the bank the findings of its on- and off-site supervisory analyses in a timely manner by means of written reports or through discussions or meetings with the bank’s management. The supervisor meets with the bank’s senior management and the Board to discuss the results of supervisory examinations and the external audits, as appropriate. The supervisor also meets separately with the bank’s independent Board members, as necessary. |
| Description and findings re EC8 | CBoB traditionally meets with SFI senior management either through regular prudential meetings (annual/semi-annual) or to discuss a Report of Examination which is provided to the licensee after the examination. In the past, CBoB has taken sometimes months to release its Report of Examination. However, in 2018 CBoB has narrowed the release of final Reports of Examination within 20 business days after the onsite visit. Licensees are expected to satisfactorily address all issues/deficiencies identified in the report in a timely manner. Validation of same is conducted during the next onsite examination visits. Since 2018 CBoB has conducted quarterly/semi-annual meetings with the DSIBs to discuss, among other things, progress in addressing the overall level of NPLs (specifically focusing on the top 20 large exposures as well as the top 20 NPLs) These meetings with the DSIBs have provided a perspective of the credit profile, lending initiatives and the licensees’ perspective on the marketplace trends, as well as delinquency management practices. |
| EC9 | The supervisor undertakes appropriate and timely follow-up to check that banks have addressed supervisory concerns or implemented requirements communicated to them. This includes early escalation to the appropriate level of the supervisory authority and to the bank’s Board if action points are not addressed in an adequate or timely manner. |
| Description and findings re EC9 | CBoB monitors the progress of licensees’ ability to satisfactorily address issues or deficiencies identified in the Report of Examination by way of letter. Licensees are required to provide status updates periodically to CBoB via “Response to Report of Examination” letters until all matters are fully addressed. CBoB advises the licensee of the next reporting date in each letter until all matters are resolved. Further enhancement was made to the monitoring process this year via the development of a “Register of Supervisory Issues”, which is a compilation of all outstanding supervisory matters for each licensee. Included in the register are all outstanding directives, requirements, expectations and requests made of a licensee by the CBoB. The register is provided to licensees each year and they are advised to share the document with external auditors and other persons listed in Section 16(1) of the BTCRA. In addition, CBoB has required the Internal audit function to provide an attestation that confirms the SFI has in fact addressed any outstanding supervisory requirement. |
| EC10 | The supervisor requires banks to notify it in advance of any substantive changes in their activities, structure and overall condition, or as soon as they become aware of any material adverse developments, including breach of legal or prudential requirements. |
| Description and findings re EC10 | The BTCRA indicates that licensees are expected to inform CBoB in advance of any significant change that may impact the operation of their business. For example, via Notice, licensees were directed by the CBoB to immediately notify the Inspector of Banks and Trust Companies, if they become aware that a material event could have a significant adverse impact on its safety and soundness or reputation. The matter is to be reported whether it had already occurred, or may occur in the foreseeable future. |
| EC11 | The supervisor may make use of independent third parties, such as auditors, provided there is a clear and detailed mandate for the work. However, the supervisor cannot outsource its prudential responsibilities to third parties. When using third parties, the supervisor assesses whether the output can be relied upon to the degree intended and takes into consideration the biases that may influence third parties. |
| Description and findings re EC11 | The BTCRA enables CBoB to use independent third parties. Section 13 (3) (c), (d) (e) and 4 of the BTCRA notes the following: “In the performance of his functions under this Act and subject to the provisions of section 19, the Inspector shall be entitled at all reasonable times — (c) to call upon the auditors of any licensee for such auditor’s reports, working papers, information or explanation; (d) to require that the auditor of a bank report to the Inspector on the extent of the procedures of the auditor in the examination of the annual financial statements and may require that the auditors enlarge the scope of that examination or direct that any other particular procedure be performed in any particular case; (e) to require that the auditor make a particular examination relating to the adequacy of the procedures adopted by the bank for the safety of its creditors and shareholders, or any other examination as considered necessary by the Inspector, as the Inspector may reasonably require for the purpose of enabling him to perform his functions under this Act. (4) The Inspector with the approval of the Governor may in writing authorise any other person to assist the Inspector in the performance of his functions under this Act.” |
| EC12 | The supervisor has an adequate information system which facilitates the processing, monitoring and analysis of prudential information. The system aids the identification of areas requiring follow-up action. |
| Description and findings re EC12 | In 2015, CBoB launched its Online Reporting Information System (ORIMS), an electronic portal for licensees to upload their regulatory returns and submit same to the Bank. The ORIMS is an enhancement to CBoB’s existing infrastructure for regulatory filings, analytics and reporting. ORIMS allows licensees and other respondents to securely submit data, filings and documents via online forms submissions and file uploads. The system includes a mechanism for the downloading and subsequent uploading of returns through a secure web-based platform and built-in validation and integrity checks at the form submission level. There have been several updates since the system was launched, all in an effort to streamline the information exchange and to provide an efficient reporting system for licensees. Updates and enhancements to the system will continue as necessary. The supervisory team is then able to access the returns in the portal and conduct their own financial analysis of licensees. Areas of concern are addressed with the licensee with follow-ups if necessary. |
| Additional criteria | |
| AC1 | The supervisor has a framework for periodic independent review, for example by an internal audit function or third party assessor, of the adequacy and effectiveness of the range of its available supervisory tools and their use, and makes changes as appropriate. |
| Description and findings re AC1 | CBoB’s internal audit periodically conducts a review of all of the Bank’s processes and procedures. Findings and recommendations are provided to the Bank via an internal audit report with timelines to address any matters of concern. The last CBoB internal audit of the BSD was in the process of being finalized in January 2019. |
| Assessment of Principle 9 | Largely Compliant |
| Comments | CBoB has a good set of supervisory tools to allow for effective execution of its supervisory activities. The mix of off-site surveillance and on-site examination work needs to be reassessed by BSD to ensure the right balance and adequate coverage of the assessment of risk. Staff are knowledgeable, and assessors observed the work done by both the off-site supervisors and the on-site examiners. Written communications clearly articulate issues and through frequent engagement CBoB provides clarity to the firms on the issues raised and the general high-level expectations for addressing them. That being said, it will be important for CBoB to directly engage SFI Boards of Directors, especially DSIBs on a regular basis. Although CBoB made a public announcement that it plans to engage Boards more directly, this has not been a regular past practice. |
| Principle 10 | Supervisory reporting. The supervisor collects, reviews and analyses prudential reports and statistical returns24 from banks on both a solo and a consolidated basis, and independently verifies these reports through either on-site examinations or use of external experts. |
| Essential criteria | |
| EC1 | The supervisor has the power25 to require banks to submit information, on both a solo and a consolidated basis, on their financial condition, performance, and risks, on demand and at regular intervals. These reports provide information such as on- and off-balance sheet assets and liabilities, profit and loss, capital adequacy, liquidity, large exposures, risk concentrations (including by economic sector, geography and currency), asset quality, loan loss provisioning, related party transactions, interest rate risk, and market risk. |
| Description and findings re EC1 | S. 35 (1) of the CBBA empowers CBoB to gather any information from licensee at regular intervals, e.g., weekly, monthly, quarterly, in order for it to carry out its statutory function. Information received includes detailed profit and loss accounts and balance sheets and information on capital adequacy, liquidity, large exposures, risk concentrations, asset quality/impairment data, aggregate loan loss data, exposures to related parties, interest rate risk and market risk. S. 35 of the CBBA provides that the CBoB may require a bank to supply it in such form and within such time as it may determine such information as CBoB considers necessary to enable it to carry out its functions under the Act. Further, CBoB may require a bank, a person connected to the bank, or a person reasonably believed to have information relevant to an enquiry by CBoB to provide any information which it reasonably requires in connection with the carrying out of its functions or for the purpose of assisting an overseas regulator. S 4(4)(b), 8(3), 9 and 14 of the BTCRA supports consolidated supervision and the gathering of applicable information by obtaining key information on licensees and their parent and/or subsidiaries through regular and frequent teleconferences with other relevant regulators as well as consistently attending supervisory colleges held by foreign regulatory authorities. |
| EC2 | The supervisor provides reporting instructions that clearly describe the accounting standards to be used in preparing supervisory reports. Such standards are based on accounting principles and rules that are widely accepted internationally. |
| Description and findings re EC2 | Section 35 of the CBBA provides that CBoB can direct the form and content of financial returns. These must be prepared in accordance with IAS as adopted by the Bahamas Institute of Chartered Accountants (BICA) which is the body in The Bahamas statutorily charged with overseeing the implementation of accounting and auditing standards (See Regulation 38 of The Bahamas Institute of Chartered Accountants (General) Regulations, 2016). Further, CBoB has instructed SFI’s to be IFRS 9 compliant beginning January 1, 2018. |
| EC3 | The supervisor requires banks to have sound governance structures and control processes for methodologies that produce valuations. The measurement of fair values maximizes the use of relevant and reliable inputs and is consistently applied for risk management and reporting purposes. The valuation framework and control procedures are subject to adequate independent validation and verification, either internally or by an external expert. The supervisor assesses whether the valuation used for regulatory purposes is reliable and prudent. Where the supervisor determines that valuations are not sufficiently prudent, the supervisor requires the bank to make adjustments to its reporting for capital adequacy or regulatory reporting purposes. |
| Description and findings re EC3 | SFIs must abide by the valuation rules consistent with IAS and IFRS 9 CBoB relies on views of the external auditors to attest to the valuation practices of SFI’s and where necessary, SFI’s have had to make adjustments to prudential reporting requirements. |
| EC4 | The supervisor collects and analyses information from banks at a frequency commensurate with the nature of the information requested, and the risk profile and systemic importance of the bank. |
| Description and findings re EC4 | S. 9 of BTCRA requires banks to furnish to CBoB a special return and any such information as it reasonably sees fit to call for. It is on this basis that CBoB has requested that it receive weekly, monthly, quarterly and annual returns, and any other returns it requires from the SFIs. The type of information received will depend on the nature and complexity of the business of the bank. For instance, the domestic banks are subject to a more demanding regime regarding information requirements than the international banks. |
| EC5 | In order to make meaningful comparisons between banks and banking groups, the supervisor collects data from all banks and all relevant entities covered by consolidated supervision on a comparable basis and related to the same dates (stock data) and periods (flow data). |
| Description and findings re EC5 | In general, supervisory returns are received on a weekly, monthly, quarterly and annual basis. The layout and content of these returns are the same and banks are required to submit them at the same dates. While the different categories of banks (i.e., domestic/international) may have varying requirements, within those categories the requirements are the same. This allows for meaningful comparisons for banks in the same categories. |
| EC6 | The supervisor has the power to request and receive any relevant information from banks, as well as any entities in the wider group, irrespective of their activities, where the supervisor believes that it is material to the condition of the bank or banking group, or to the assessment of the risks of the bank or banking group or is needed to support resolution planning. This includes internal management information. |
| Description and findings re EC6 | The CBoB has the ability to request and receive relevant information from banks, including information on any entities in the wider group, but this power to request this information in with the SFI it regulates. Section 35 of the CBBA provides that the CBoB may require a bank to supply it in such form and within such time as it may determine such information as CBoB considers necessary to enable it to carry out its functions under the Act. Further, CBoB may require a bank, a person connected to the bank, or a person reasonably believed to have information relevant to an enquiry by CBoB to provide any information which it reasonably requires in connection with the carrying out of its functions. S. 13(3) of the BTCRA the Inspector may call upon the manager or any officer designated by the manager of any licensee for such information or explanation as he may reasonably require for the purpose of enabling him to perform his functions under this Act. |
| EC7 | The supervisor has the power to access26 all bank records for the furtherance of supervisory work. The supervisor also has similar access to the bank’s Board, management and staff, when required. |
| Description and findings re EC7 | S. 13(3) of the BTCRA indicates that the Inspector is entitled at all reasonable times to have access to such books, records, vouchers, documents, cash and securities of the bank and to call upon the management or any officer designated by the manager of any bank for such information or explanation as Inspector may reasonably require for the purpose off enabling it to perform its functions. CBOB also sets limits within which licensees must operate for single, related party and large exposures vis its Large Exposure Regulations and Guidelines. CBoB conducts discussion with DSIB senior management on a semi-annual and annual basis. CBoB off-site supervision surveillance speaks to management and staff when required. CBoB released a press statement in 2018 to the financial sector that it intends to engage SFI Boards of Directors on an annual basis beginning 2019. Copies of Results of On-site examinations are provided to the Board of Directors. |
| EC8 | The supervisor has a means of enforcing compliance with the requirement that the information be submitted on a timely and accurate basis. The supervisor determines the appropriate level of the bank’s senior management is responsible for the accuracy of supervisory returns, imposes sanctions for misreporting and persistent errors, and requires that inaccurate information be amended. |
| Description and findings re EC8 | As part of CBoB’s supervisory intervention regime, a licensee can be staged for intervention, particularly at Stage 1 in accordance with the Ladder of Intervention Guideline where a licensee may experience the following issues:
SFIs provide a certification regarding the compliance and accuracy of the reporting of information. CBoB has a wide range of supervisory measures that it can impose on licensees including administrative fines and monetary penalties. The Bank’s monetary penalties regime was officially implemented on 5th September 2016 with the coming into force of the Banks and Trust Companies (Administrative Monetary Penalties) Regulations, 2016 and the Bank’s “Guidelines for the Administration of Monetary Penalties”, amended 31st August 2016 (“AMP guidelines”). The AMP guidelines outline the monetary sanctions that the Bank can impose, under statutory authority, for violations related to late or erroneous filing of returns, amongst others. S. 37 of the CBBA and S. 11 and 13 of the BTCRA impose criminal sanctions in relation to the provision of false or misleading information. Fines of up to $100,000 or five years imprisonment or both are specified in the law. |
| EC9 | The supervisor utilizes policies and procedures to determine the validity and integrity of supervisory information. This includes a program for the periodic verification of supervisory returns by means either of the supervisor’s own staff or of external experts.27 |
| Description and findings re EC9 | During on-site inspections, examiners review the integrity of supervisory information. In addition, the External Auditors Guidelines, issued by the CBoB, contain a requirement for external experts to bring material short comings to the attention of the supervisors. Additionally, CBoB has staff members designated to verify that financial returns submitted via its ORIMS Portal use the correct reporting format and to check for inconsistencies between report forms (this is in addition to inconsistencies between reports identified by the ORIMS software). If any of the aforementioned exist, it is flagged and the licensee(s) and/or registrant(s) along with the supervisory teams are informed and the licensees and/or registrants are required to re-submit the relevant return before they are analyzed. |
| EC10 | The supervisor clearly defines and documents the roles and responsibilities of external experts,28 including the scope of the work, when they are appointed to conduct supervisory tasks. The supervisor assesses the suitability of experts for the designated task(s) and the quality of the work and takes into consideration conflicts of interest that could influence the output/recommendations by external experts. External experts may be utilized for routine validation or to examine specific aspects of banks’ operations. |
| Description and findings re EC10 | CBoB has the power to appoint external experts to assist it in the performance of its duty (S. 13 (4) of BTCRA). It is not the policy of CBoB to utilize external experts to assist in carrying out supervisory functions, per se. However, it does use external experts when, for instance, introducing a new skill (e.g., the supervision of market risk) or for the purpose of conducting overseas reviews of banks that have extensive outsourcing of activities abroad. CBoB has also engaged external auditors to conduct in-depth credit reviews (e.g. forensic review on a stage 4 SFI). |
| EC11 | The supervisor requires that external experts bring to its attention promptly any material shortcomings identified during the course of any work undertaken by them for supervisory purposes. |
| Description and findings re EC11 | S. 12(4) of the BTCRA provides that the external auditor of a bank, and in some cases a former external auditor of a bank, is required to inform CBoB in writing of any fact or matter of which the auditor has or had become aware and which is, or is likely to be of material significance for the CBoB in relation to the discharge of its duties. “Facts and matters of material significance” are set out in the Banks and Trust Companies (Auditors) (Facts and Matters of Material Significance) Regulations and include a situation where the auditor identifies any evidence of deliberate attempts by a chief executive or other senior executive to mislead the Inspector through the provision of materially false or misleading information |
| EC12 | The supervisor has a process in place to periodically review the information collected to determine that it satisfies a supervisory need. |
| Description and findings re EC12 | CBoB periodically reviews the information collected from prudential returns to reassess the ongoing needs of its supervisors. This review process has taken place more regularly in recent years than in the past given the need necessity to rely on prudential return information as part of CBoB’s newly developed electronic ever-greening supervisory assessment tool. |
| Assessment re Principle 10 | Compliant |
| Comments | CBoB has appropriate authority to collect the data that it needs to carry out its supervisory responsibilities. Prudential and statistical reporting by the SFIs provide information on supervised firms’ risk exposures, operating performance and financial condition. CBoB is committed to refining its data gathering efforts as well as working towards full implementation of an electronic ever greening risk assessment tool. CBoB’s strategy includes continuing to increase the use of quantitative analyses (evidenced by the creation of an analytics unit). |
| Principle 11 | Corrective and sanctioning powers of supervisors. The supervisor acts at an early stage to address unsafe and unsound practices or activities that could pose risks to banks or to the banking system. The supervisor has at its disposal an adequate range of supervisory tools to bring about timely corrective actions. This includes the ability to revoke the banking license or to recommend its revocation. |
| Essential criteria | |
| EC1 | The supervisor raises supervisory concerns with the bank’s management or, where appropriate, the bank’s Board, at an early stage, and requires that these concerns be addressed in a timely manner. Where the supervisor requires the bank to take significant corrective actions, these are addressed in a written document to the bank’s Board. The supervisor requires the bank to submit regular written progress reports and checks that corrective actions are completed satisfactorily. The supervisor follows through conclusively and in a timely manner on matters that are identified. |
| Description and findings re EC1 | The BTCRA provides a wide range of discretionary enforcement powers to the CBoB to address situations that give the CBoB cause for concern. S. 18 of the BTCRA outlines the enforcement powers of the CBoB with respect to banks and other SFIs. This includes the power to ultimately revoke a licence. S. 24 of the BTCRA empowers the Governor to make regulations and to establish fines. The CBoB’s Ladder of Intervention Guidelines outlines procedures for addressing regulatory and supervisory breaches. The objective of the intervention process is to identify areas of concern early and to intervene early and effectively to minimize problems and losses to depositors and other creditors of licensees. Licensees whose overall risk assessment is deemed medium high or greater may also be placed on CBoB’s Watch List for enhanced monitoring until the relevant issues/concerns are satisfactorily addressed. Licensees’ progress with corrective action is closely monitored by the off-site supervision surveillances team. CBoB communicates findings and recommendations to licensees senior management and where appropriate Board representatives in a timely manner. With respect to onsite examinations, CBoB’s internal policy requires that the final examination report be provided to the bank within four weeks (20 business days) from the completion of the onsite examination. The CBoB notifies SFI’s in writing of any enforcement action that is being taken or will be taken. The BTCRA enables the CBoB to share information with other supervisory authorities. CBoB monitors SFI’s progress in remediating actions (progress against plan with a sign-off/attestation from internal audit at times), |
| EC2 | The supervisor has available29 an appropriate range of supervisory tools for use when, in the supervisor’s judgment, a bank is not complying with laws, regulations or supervisory actions, is engaged in unsafe or unsound practices or in activities that could pose risks to the bank or the banking system, or when the interests of depositors are otherwise threatened. |
| Description and findings re EC2 | Where a bank is found to be in breach of a prudential requirement or any other conditions set by the CBoB, the CBoB may agree or impose a plan of corrective action with the bank. In considering the appropriate supervisory intervention to take in the event of a concern arising or a supervisory breach by a bank, the CBoB will take into account, amongst other things, the following: the requirement for an SFI to increase provisioning for NPLs, increase in capital or liquidity, the removal of directors and management, requiring expanded external audits, the imposition of fines and restrictions on payment of dividends, lending or investment activities, accepting new deposits and other restrictions deemed appropriate. |
| EC3 | The supervisor has the power to act where a bank falls below established regulatory threshold requirements, including prescribed regulatory ratios or measurements. The supervisor also has the power to intervene at an early stage to require a bank to take action to prevent it from reaching its regulatory threshold requirements. The supervisor has a range of options to address such scenarios. |
| Description and findings re EC3 | The minimum capital prudential limit is 8 percent. However, commercial banks are required to maintain a target level of 17 percent and a trigger level of 14 percent. The Ladder of Intervention Guidelines refer to a 2 percent margin that can be used in determining when a licensee may be reaching its capital adequacy ratio (CAR) and/or liquidity ratio prudential limits. This trigger is introduced at Stage 2 “Heightened Risk to Financial Viability or Solvency” where a licensee is compliant with established prudential norms, but is approaching the limit. The range of intervention measures that can be used is outlined in the Ladder of Supervisory Intervention Guidelines. |
| EC4 | The supervisor has available a broad range of possible measures to address, at an early stage, such scenarios as described in essential criterion 2 above. These measures include the ability to require a bank to take timely corrective action or to impose sanctions expeditiously. In practice, the range of measures is applied in accordance with the gravity of a situation. The supervisor provides clear prudential objectives or sets out the actions to be taken, which may include restricting the current activities of the bank, imposing more stringent prudential limits and requirements, withholding approval of new activities or acquisitions, restricting or suspending payments to shareholders or share repurchases, restricting asset transfers, barring individuals from the banking sector, replacing or restricting the powers of managers, Board members or controlling owners, facilitating a takeover by or merger with a healthier institution, providing for the interim management of the bank, and revoking or recommending the revocation of the banking license. |
| Description and findings re EC4 | The Ladder Intervention Guidelines outlines the conditions to initiate the Bank’s intervention measures which include but are not limited to the following: (i) concerns about the licensee’s ability to meet capital and/or liquidity requirements on an ongoing basis; (ii) noticeable deterioration in the quality of loan and/or investment portfolio, which could negatively impact the licensee’s/registrant’s asset values; (iii) less than satisfactory management quality or deficiency in risk management procedures or controls (including material breaches of standards of sound business and financial practices/prudential violations); (iv) rapid asset and/or liability growth relative to the other institutions in the industry and (v) noncompliance with regulatory requirements. Supervisory intervention measures outlined in the Ladder of Intervention Guideline may include the requirement for an SFI to increase provisioning for NPLs, increase in capital or liquidity, the removal of directors and management, requiring expanded external audits, the imposition of fines and restrictions on payment of dividends, lending or investment activities, accepting new deposits and other restrictions deemed appropriate. |
| EC5 | The supervisor applies sanctions not only to the bank but, when and if necessary, also to management and/or the Board, or individuals therein. |
| Description and findings re EC5 | CBoB has imposed fines under the CBBA for non-compliance with liquidity requirements; additionally, amendments to the BTCRA and regulations have been made to enhance the CBoB’s ability to impose administrative monetary penalties for supervisory breaches by granting the authority to apply sanctions to individuals. S. 18E, 18F and 18G of the BTCRA empower the CBoB to issue prohibition orders against individuals who are not or have ceased to be fit and proper persons. S. 18 of the BTCRA empowers CBoB to remove a director or officer of a licensee and apply the administrative penalties regime to sanction management and the board when deemed necessary. |
| EC6 | The supervisor has the power to take corrective actions, including ring-fencing of the bank from the actions of parent companies, subsidiaries, parallel-owned banking structures and other related entities in matters that could impair the safety and soundness of the bank or the banking system. |
| Description and findings re EC6 | In general, the CBoB has broad authority to protect the licensee or branch from affiliate transactions. The CBoB may impose conditions or limitations on a bank’s licence and may also issue directives to require the bank to take such action as the CBoB requires in the interests of the bank’s safety and soundness (see BTCRA s.6(4) and 18(1)(h)). This would include the ability to ring fence assets of SFIs operating in The Bahamas. |
| EC7 | The supervisor cooperates and collaborates with relevant authorities in deciding when and how to effect the orderly resolution of a problem bank situation (which could include closure, or assisting in restructuring, or merger with a stronger institution). |
| Description and findings re EC7 | According to Section 4(4)(f) of the BTCRA, as a part of the licensing criteria, the home supervisory authority must agree to inform the Governor of problems that could affect the licensee. Section 38(3) of the CBBA gives the CBoB the authority to cooperate with overseas regulators for the purposes of cross-border supervision. The Ladder of Intervention Guidelines provides some guidance on the actions required to recover and resolve a problem SFI as part of the staging mechanisms. The Guideline advocates collaboration between home and host regulators when a licensee is having problems. The proposed amendments to the BTCRA will formalize CBoB’s resolution regime in the law. |
| Additional criteria | |
| AC1 | Laws or regulations guard against the supervisor unduly delaying appropriate corrective actions. |
| Description and findings re AC1 | There are no regulatory requirements specifying timeframes for taking corrective action. |
| AC2 | When taking formal corrective action in relation to a bank, the supervisor informs the supervisor of non-bank related financial entities of its actions and, where appropriate, coordinates its actions with them. |
| Description and findings re AC2 | The CBoB has regular meetings with the other regulators. The Ladder of Intervention Guidelines advocates that the CBoB inform/ discuss/collaborate with the MoF, the Deposit Insurance Corporation and other domestic regulators, as is necessary, where substantive actions are undertaken. |
| Assessment re principle 11 | Compliant |
| Comments | CBoB has a broad range of tools and authorities across the spectrum to address problems at SFIs ranging from the requirement to increase capital, liquidity and provisioning levels to the removal of board and senior management, restrictions on dividends, payment of bonus to revoking a banking license. These powers are not explicitly stated in the BTCRA, although the proposed draft amendments, which will not only introduce added powers to assist CBoB with the resolution of bank, but it will specifically state the regulatory tools described above. CBoB’s preferred approach is to identify potential concerns on an ongoing basis and work with SFIs to address them before a firm is in danger of breaching a prudential standard or requirement (e.g. encouraging Board to remove incompetent senior management), rather than taking formal action. The supervision process provides for early intervention in the form of staging requiring enhanced supervisory oversight. |
| Principle 12 | Consolidated supervision. An essential element of banking supervision is that the supervisor supervises the banking group on a consolidated basis, adequately monitoring and, as appropriate, applying prudential standards to all aspects of the business conducted by the banking group worldwide.30 |
| Essential criteria | |
| EC1 | The supervisor understands the overall structure of the banking group and is familiar with all the material activities (including non-banking activities) conducted by entities in the wider group, both domestic and cross-border. The supervisor understands and assesses how group-wide risks are managed and takes action when risks arising from the banking group and other entities in the wider group, in particular contagion and reputation risks, may jeopardize the safety and soundness of the bank and the banking system. |
| Description and findings re EC1 | Section 14 of the BTCRA provides for the cooperation with supervisors in other jurisdictions to the extent necessary for the purposes of cross-border consolidated supervision. Banks are required to get prior written approval from the CBoB to establish a subsidiary branch, agency or representative office outside The Bahamas. Under the BTCRA, a banking license shall not be granted to an entity having its head office outside The Bahamas, unless the entity is subject to adequate consolidated supervision. The CBoB maintains contact with the home country regulator of parent institutions of CBoB banks on at least an annual basis, typically through the ‘annual regulatory letter’. Home regulators are asked to inform the CBoB of any information which has come to their attention which should be highlighted to the CBoB supervisors. Banks are required to prepare financial reports on a consolidated basis. The CBoB also receives the financial statements of banks’ parent companies and significant financial subsidiaries. Further contact with the bank or the overseas regulator is made in the event a material matter/ concerns arise. This contact is permitted by the BTCRA and the CBBA. The CBoB can engage the external auditors of banks to conduct overseas reviews of banks that have extensive outsourcing of activities abroad. The CBoB maintains one Regulatory College to inform the oversight of the one financial conglomerate operating in The Bahamas. CBoB participates in regulatory colleges in the Caribbean and Canada for Bahamian domestic systemically important commercial banks. The CBoB/SCB/ICB have an MoU for information sharing that has been in place since 2011. Through coordination with nonbank financial supervisors the CBoB evaluates impacts from other companies and has conducted joint examinations with nonbank domestic supervisors. The CBoB collects financial information from nonbank affiliates. However, guidance for examiners in the incorporation of impacts from nonbank affiliates and unregulated companies is very limited. The CBoB supervision department is a member of the Caribbean Group of Banking Supervisors and the Group’s working group on consolidated supervision. Since the prior FSAP report, CBoB completed its benchmarking exercise on jurisdictions with consolidated supervision guidance and has drafted Guidelines for Consolidated Supervision, but they have yet to be put out for public comment. The CBoB has the appropriate authority and supervises banks on a consolidated basis, including any overseas activities. Licensing rules include requirements for verifying home country consolidated supervision and obtaining the agreement of the home country supervisor on the establishment of banks, branches and subsidiaries in the Bahamian jurisdiction. Where the CBoB becomes aware that the home country supervisor is making significant changes to its regulatory framework, an assessment of whether the home country supervisor will continue to practice effective consolidated supervision is conducted. Banks must seek prior approval before the establishing any subsidiary (either locally or overseas). Changes in the ownership or group structure of a bank are reviewed for their effects on consolidated supervision. |
| EC2 | The supervisor imposes prudential standards and collects and analyses financial and other information on a consolidated basis for the banking group, covering areas such as capital adequacy, liquidity, large exposures, and exposures to related parties, lending limits and group structure. |
| Description and findings re EC2 | As noted above, the CBoB has authority to conduct consolidated supervision. However, it is typically the host regulator. The CBoB has not issued guidance to specifically define consolidated supervision, how The Bahamas will apply it and how its enforcement powers will apply to entities that would be part of the consolidated supervision umbrella. The CBoB cooperates with its overseas bank regulatory partners to assist in ensuring that The Bahamas is not used to escape proper oversight and that institutions established and based in The Bahamas are in compliance with internationally accepted standards and norms. To promote comprehensive oversight of commercial banks with regional cross-border operations, the CBoB regularly participates in supervisory colleges for foreign-owned domestically systemically important banks (DSIBs), which are led and hosted by the home supervisor of these institutions. |
| EC3 | The supervisor reviews whether the oversight of a bank’s foreign operations by management (of the parent bank or head office and, where relevant, the holding company) is adequate having regard to their risk profile and systemic importance and there is no hindrance in host countries for the parent bank to have access to all the material information from their foreign branches and subsidiaries. The supervisor also determines that banks’ policies and processes require the local management of any cross-border operations to have the necessary expertise to manage those operations in a safe and sound manner, and in compliance with supervisory and regulatory requirements. The home supervisor takes into account the effectiveness of supervision conducted in the host countries in which its banks have material operations. |
| Description and findings re EC3 | Foreign operations of Bahamian banks are small and closely supervised. CBoB, along with the other domestic financial regulators, released an Information Sharing Handbook, which outlines the procedures for regulatory requests from overseas regulators. Cross-border activities by locally incorporated banks are limited and closely monitored. It is part of the approval process and ongoing as relations with home supervisors are maintained. Assessment of management oversight of foreign operations is reviewed through ongoing supervision and surveillance activities and may be addressed during onsite examinations, where viewed as necessary. |
| EC4 | The home supervisor visits the foreign offices periodically, the location and frequency being determined by the risk profile and systemic importance of the foreign operation. The supervisor meets the host supervisors during these visits. The supervisor has a policy for assessing whether it needs to conduct on-site examinations of a bank’s foreign operations, or require additional reporting, and has the power and resources to take those steps as and when appropriate. |
| Description and findings re EC4 | The CBoB does not make visits to foreign jurisdictions for the purposes of direct supervision of foreign offices given the immaterial size of locally incorporated banks’ operations outside the Bahamas. |
| EC5 | The supervisor reviews the main activities of parent companies, and of companies affiliated with the parent companies, that have a material impact on the safety and soundness of the bank and the banking group, and takes appropriate supervisory action. |
| Description and findings re EC5 | Where applicable, CBoB supervisors request information on the controlling company to assess financial support. They also receive information on parent entities through discussions with home country supervisors, participation in regulatory colleges and through publicly available sources in order to keep abreast of parent operations and condition. Under the BTCRA, the CBoB may not grant a license to a foreign-based bank unless the home supervisory authority has agreed to inform the CBoB as soon as reasonably possible of any circumstances that arise which may seriously jeopardize the interests of creditors of a supervised financial institution. |
| EC6 | The supervisor limits the range of activities the consolidated group may conduct and the locations in which activities can be conducted (including the closing of foreign offices) if it determines that:
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| Description and findings re EC6 | The BTCRA gives the CBoB the authority to impose, amend or vary any conditions upon the license of a SFI or require such action to be taken by the SFI that CBoB considers necessary. As outlined in the “Guidelines for the Establishment or Acquisition of Overseas Branches, Subsidiaries and Representative Offices”, CBoB may revoke approval of specific activities when it determines the operation may have an adverse impact on the SFI. The Ladder of Supervisory Intervention Guidelines allows the CBoB to restrict an increase in the number of branches of SFIs, close branches, downsize operations and restrict new business. |
| EC7 | In addition to supervising on a consolidated basis, the responsible supervisor supervises individual banks in the group. The responsible supervisor supervises each bank on a stand-alone basis and understands its relationship with other members of the group.31 |
| Description and findings re EC7 | CBoB supervisors at the bank level and the holding company level where a holding company assessment is warranted – i.e., there is activity at the holding company level. Financial strength is assessed at both banks and holding companies. As noted above in BCP 8, CBoB uses a combination of quantitative and qualitative methods in supervising SFIs. These methods include: the review of consolidated annual reports of the parent company as well as the production of consolidated prudential reports; risk-based supervisory reviews of SFIs; off-site surveillance and monitoring, on-site and joint examinations of licensees; exchange of information through home/host relationships; and Memoranda of Understanding (MOUs) with other domestic and foreign regulatory authorities including CARICOM member states. |
| Additional criteria | |
| AC1 | For countries which allow corporate ownership of banks, the supervisor has the power to establish and enforce fit and proper standards for owners and senior management of parent companies. |
| Description and findings re AC1 | The CBoB can request information on the controlling company to determine fit and proper qualifications. Current regulations do not provide the CBoB with the authority to take specific actions with respect to a non-financial parent of a SFI. There is only one such firm operating in the Bahamas at this time. |
| Assessment of Principle 12 | Largely Compliant |
| Comments | CBoB is currently working on drafting guidelines for consolidated supervision. On balance the supervisory approach is adequate for the consolidated supervision issues they face. However, they would benefit from the issuance of formal expectations articulated in guidelines. In addition, the creation of authorities that would allow CBoB to directly assess the strength of support provided by the parent entity and hold accountable the non-bank parent of a SFI if its actions and/or practices negatively affect bank soundness and prudential management. |
| Principle 13 | Home-host relationships. Home and host supervisors of cross-border banking groups share information and cooperate for effective supervision of the group and group entities, and effective handling of crisis situations. Supervisors require the local operations of foreign banks to be conducted to the same standards as those required of domestic banks. |
| Essential criteria | |
| EC1 | The home supervisor establishes bank-specific supervisory colleges for banking groups with material cross-border operations to enhance its effective oversight, taking into account the risk profile and systemic importance of the banking group and the corresponding needs of its supervisors. In its broadest sense, the host supervisor who has a relevant subsidiary or a significant branch in its jurisdiction and who, therefore, has a shared interest in the effective supervisory oversight of the banking group, is included in the college. The structure of the college reflects the nature of the banking group and the needs of its supervisors. |
| Description and findings re EC1 | The CBOB is a member of the Caribbean Group of Banking Supervisors (CGBS). The CGBS has its goal enhancing, and coordinating on the harmonization of, bank supervisory practices in the English-speaking Caribbean, with a view to bring them more in line with internationally accepted practices. CBoB supervisors participate in supervisory colleges hosted by home country supervisors of the parent entities of SFIs operating in its jurisdiction, particularly with respect to foreign-owned Bahamian DSIBs. CBoB will occasionally lead colleges and discussions on cross-border banking operations which are facilitated through the CGBS. The Bank is also a member of the CGBS Steering Committee, Association of Banks of the Americas (ASBA), Offshore Group of Banking Supervisors (OGBS), and the Caribbean Financial Action Task Force (CFATF). |
| EC2 | Home and host supervisors share appropriate information on a timely basis in line with their respective roles and responsibilities, both bilaterally and through colleges. This includes information both on the material risks and risk management practices of the banking group32 and on the supervisors’ assessments of the safety and soundness of the relevant entity under their jurisdiction. Informal or formal arrangements (such as memoranda of understanding) are in place to enable the exchange of confidential information. |
| Description and findings re EC2 | As noted above, the BTCRA requires that in licensing a bank with a head office outside The Bahamas, the CBoB must be satisfied that the bank is subject to adequate consolidated supervision by the home supervisory authority and that the supervisory authority has no objection to the establishment of the branch or subsidiary in The Bahamas. The CBoB can allow the head office of a SFI to be located outside of The Bahamas if the home supervisor agrees to inform the CBoB of adverse circumstances which may seriously jeopardize the interest of creditors of the SFI. Under the BTCRA, the CBoB must cooperate with inspectors and supervisors in other jurisdictions to the extent necessary for the purposes of cross-border supervision. Section 14 of the BTCRA provides that a home country supervisor of a parent entity (in the performance of consolidated supervision) can conduct examinations of the books and accounts of a Bahamian bank to determine if the group has adequate risk management and meets other relevant prudential standards. The CBoB has the authority to provide information on the beneficial owners, directors, officers and operations of a bank to the home country supervisor responsible. The CBBA gives the CBoB the authority to assist and cooperate with overseas regulatory authorities. The CBBA also permits the CBoB to share with overseas regulatory authorities information necessary to enable such authorities to exercise regulatory functions, including the conduct of civil or administrative investigations and proceedings to enforce laws, regulations and rules administered by that authority. In practice, home/host supervisory letters for consolidated supervision purposes are issued periodically. Additionally, as noted above, senior staff participate in regulatory colleges for domestically systemically important commercial banks in the Caribbean and Canada. There are no material operations of Bahamian banks in other jurisdictions. Nevertheless, the CBoB has established arrangements to obtain and share information as needed. |
| EC3 | Home and host supervisors coordinate and plan supervisory activities or undertake collaborative work if common areas of interest are identified in order to improve the effectiveness and efficiency of supervision of cross-border banking groups. |
| Description and findings re EC3 | As noted in EC2 above, the CBoB has information sharing arrangements and coordinates as necessary with other regulators. The CBoB sends an annual letter to banks’ home country supervisors highlighting areas of regulatory concern and requesting that the home supervisor inform CBoB of any concerns with the parent institution. The BTCRA and the CBBA permit the sharing of information between The Bahamas and SFIs other foreign supervisors. As noted above, the BTCRA permits the on-site examination of banks in the Bahamas by home supervisory authorities. The CBoB and the other domestic financial regulators have jointly published a handbook outlining the procedures to be followed for addressing foreign regulatory requests for information. The Bahamas has established a number of MoUs to allow for cooperation arrangements. CBoB maintains communications with significant home country supervisors and collects needed information. |
| EC4 | The home supervisor develops an agreed communication strategy with the relevant host supervisors. The scope and nature of the strategy reflects the risk profile and systemic importance of the cross-border operations of the bank or banking group. Home and host supervisors also agree on the communication of views and outcomes of joint activities and college meetings to banks, where appropriate, to ensure consistency of messages on group-wide issues. |
| Description and findings re EC4 | Such arrangements are not warranted given the small size of Bahamian operations in relation to the parent companies. Typically, the home/host letters and regulatory colleges are sufficient. |
| EC5 | Where appropriate, due to the bank’s risk profile and systemic importance, the home supervisor, working with its national resolution authorities, develops a framework for cross-border crisis cooperation and coordination among the relevant home and host authorities. The relevant authorities share information on crisis preparations from an early stage in a way that does not materially compromise the prospect of a successful resolution and subject to the application of rules on confidentiality. |
| Description and findings re EC5 | The CBoB is typically a host jurisdiction with only very modest operations of Bahamian SFIs abroad. Nonetheless, as outlined in the Ladder of Supervisory Intervention Guidelines, discussions are to be held with home regulators, especially where severe risk to financial viability or solvency exists, which if not remedied could lead to resolution. Proposed amendments to the BTCRA are expected to address resolution and recovery issues, if passed into law. The assessors observed no material current efforts in this area. |
| EC6 | Where appropriate, due to the bank’s risk profile and systemic importance, the home supervisor, working with its national resolution authorities and relevant host authorities, develops a group resolution plan. The relevant authorities share any information necessary for the development and maintenance of a credible resolution plan. Supervisors also alert and consult relevant authorities and supervisors (both home and host) promptly when taking any recovery and resolution measures. |
| Description and findings re EC6 | The CBoB is typically a host jurisdiction with only very modest operations of Bahamian SFIs abroad. Nonetheless, as outlined in the Ladder of Supervisory Intervention Guidelines, discussions are to be held with home regulators, especially where severe risk to financial viability or solvency exists, which if not remedied could lead to resolution. Proposed amendments to the BTCRA are expected to address resolution and recovery issues, if passed into law. The assessors observed no material current efforts in this area. |
| EC7 | The host supervisor’s national laws or regulations require that the cross-border operations of foreign banks are subject to prudential, inspection and regulatory reporting requirements similar to those for domestic banks. |
| Description and findings re EC7 | All banks in The Bahamas are subject to the same prudential standards. |
| EC8 | The home supervisor is given on-site access to local offices and subsidiaries of a banking group in order to facilitate their assessment of the group’s safety and soundness and compliance with customer due diligence requirements. The home supervisor informs host supervisors of intended visits to local offices and subsidiaries of banking groups. |
| Description and findings re EC8 | As noted in EC 2 above, The Bahamas allows home supervisors to conduct onsite examinations of Bahamian operations. |
| EC9 | The host supervisor supervises booking offices in a manner consistent with internationally agreed standards. The supervisor does not permit shell banks or the continued operation of shell banks. |
| Description and findings re EC9 | The Bahamas no longer permits shell banks to operate in its jurisdiction. All SFIs must have physical operations located in The Bahamas. |
| EC10 | A supervisor that takes consequential action on the basis of information received from another supervisor consults with that supervisor, to the extent possible, before taking such action. |
| Description and findings re EC10 | The standard MOU CBoB uses with foreign supervisors—in clauses 8 and 9—includes an agreement not to use information received from other supervisors for purposes not agreed upon between the two supervisors. |
| Assessment of Principle 13 | Largely Compliant |
| Comments | Current MoU’s in place are based on high level notification and sharing of information agreements. Although a formal legislative resolution framework will be put in place in the near future, the current lack of resolution plans or planning for the failure of SFI’s of systemic importance will be key for CBoB to address. |
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