Notes From a Native Son: Bank Regulation is Serious Business, Not Child’s Play

Hal Austin

Introduction:
At a time when banks in Europe, the US, Japan and Britain are imploding and every jurisdiction is enforcing legal requirements on financial institutions, the authorities in Barbados have come up with a wonderful idea of a voluntary code – see Feedback Invited On Draft Banking Code Of Conduct. It is interesting that many of the features of this draft code are similar to those of the now abandoned British banking code, which too was voluntary until November 2009.

Paragraph 2.4 of the draft is of no use for a large number of people in Barbados who do not have access to the internet.

Paragraph 3.2, on unfair contract terms should be a legal requirement, not a voluntary one. The second section of the above paragraph reads: “Financial institutions will also ensure that employees and agents who are authorised to give advice on the financial services offered are properly trained to competently, knowledgeably, efficiently and accurately render such service.” These basic requirements should be legally compulsory on every count. First, agents and employees are working on behalf of the financial institution, not of the customer, and in the case of the agent the form of remuneration is just as important. If s/he is being remunerated by commission, then the sale is more important than advising the customer on his or her consumer rights or even if the product is the right one for them.

All financial advisers should be required to undergo legally compulsory training on financial advice leading to a globally recognised qualification, and which they should be compelled to obtain continuing professional development (CPDs) annually before their practice certificates are renewed.

Paragraph 3.3 is hilarious: “Where necessary, financial institutions will also refer existing and potential customers to external sources of independent advice, such as any applicable governmental authorities or an attorney at law.” This paragraph is misleading. Financial institutions are in the business of selling products, be there annuities or life cover, and will find it rather difficult to refer a would-be customer to an ‘independent’ adviser who may advise them not to go ahead with the purchase. In any case, how do they intend to define ‘independent.’ I suggest the only way to do this is through an approved course and by examination.

Further, suggesting that people get ‘independent’ advice from government authorities is so ridiculous it should be dismissed. Which department, who in that department, would they be properly trained? The same goes for attorneys at law. A law is not a financial adviser, nor for that matter is an accountant, although members of both professions would pretend they do. It then goes on to list eight pieces of legislation which govern the giving of financial advice. It is not surprising that lawyers are writing themselves in to the picture. What is needed is a single piece of legislation covering retail financial products and advice.

Para 5.2.1 goes on to call for suitable seating arrangements for the elderly, pregnant and other special services customers. Of course, this is just good customer relations, but it really amounts to a bank giving you a nice cup of tea while charging you an arm and a leg for it. Customers want good, transparent service and not just soothing words and comfortable seats when dealing with banks. In any case, the provision of wheelchair facilities should be covered under the relevant disability legislation, not some bogus voluntary code.

Then there is a list of charges which should be questioned by every single account holder: photocopying, monthly service charge, cheques/debit card fees, withdrawals, deposits (paying to withdraw and deposit money on accounts), inactive account fees, ATM transaction fees, then it states: “Financial institutions will not impose any hidden charges on a customer in respect to the provision of financial services.” They do not have to when they have already listed charges for everything the customer does.

Paragraph 8.1.7 recommends a time frame for making complaints. Is this to be two weeks, two months, two years. This is a regulatory issue and depends on the nature of the product. If someone takes out a pensions scheme at age 25 with the intention of retiring at age 65, they are not going to go back to the documents and re-read them every month. What most people do is to put the documents safely aside until approaching retirement. If at that point they then find out that some of the details are incorrect, having been paying in to their pension for forty years, then what? Would they be told it is too late to complain?

Paragraph 8.5 is not only irresponsible, but dangerously so for the reasons stated. It is a get out clause for the banks. All notification must be in writing to the last known address. Customers must have a choice of communication method, electronic or hard mail. That is simple. Advertising cannot be part of any voluntary code, this is the responsibility of the advertising authorities.

Charges:
By far the biggest rip off by banks and other financial institutions is in charging, and here we have authorities in Barbados asking these very institutions to enter a voluntary code on charging. A meaningless phrase about Unfair Contract Terms will not stop banks from charging customers for using cheques to access their own money, nor the astronomical charges on credit cards. By far the biggest bank rip-off as far as charges go is the almost routine practice of Barbadian banks to pay interest rates below the rate of inflation for savings accounts. What this means in real terms is that inflation eats away at people’s savings and every day the purchasing power of their money is eroded by inflation. That means that although a saver may still have a nominal $100 in his or her account, what that money can purchases diminishes as the costs of food and other commodity inflation continue on their upward trajectory. That is where effective consumer protection comes in.

Banking and Regulation:
The big regulatory issue with retail banks is consumer protection, protecting the savings of ordinary account holders and household borrowers, basically the activities of these banks that pose systemic risks. It is for these savers and borrowers that the central banks, whether it is formally part of its remit or not, becomes the lender of last resort. In simple terms, if there is a run on a retail bank and it looks as if savers/household borrowers are at risk of losing their money, it is incumbent on the central bank to step in and guarantee these people their money, at least to a publicly known level.

If the central bank does not carry out this function then, at the very least, the ruling politicians can kiss the next general election goodbye. At best, such a failure would lead to the undermining of the banking system and the entire system would grind to a halt. However, there is a flip side to this. If the directors and executives of a retail bank know that the central banks i.e. the taxpayers, will step in to rescue them if they run in to trouble, then it creates a moral hazard in that there will be no ethical restrictions on them to compel them to behave prudently.

Therefore it is important that there are regulatory penalties to restrain bankers from behaving badly or simply recklessly with savers’ money. Nothing in this voluntary code addresses these risks nor even suggest that the authors of the code have given any serious consideration to the failure of risk perception or risk management on the part of the bankers. Apart from this, it is important that any stress test includes the long-term viability of the parent bank, if it is a branch, and of the provisions made by any stand-alone or branch of it has an unexpected liquidity crisis. This is where stress-testing will play a key role, and this is the responsibility of the central bank, the regulator of retail banks.

Apart from stress-testing the viability of these banks, it is also important to regulate their charging structures. As it is, savers with accounts have to pay to obtain cheque books and every time they use a cheque for payment or ATM; in other words, they have to pay the bank to access their own money. This is not only exorbitant, it borders on outright theft.

Penalties:
Para 16.1 states: “A financial institution who receives a complaint relating to a breach of any of the provisions of this code of conduct by that financial institution will promptly investigate the complaint in accordance with the internal dispute resolution process of paragraph 12 of this code of conduct and rectify the breach within seven (7) days. 16.2 adds: “Where the breach of the code of conduct is not rectified to the reasonable satisfaction of the customer, the customer may invoke the external dispute resolution procedures of paragraph 13 of this code of conduct.” Ultimately, the penalties that companies and individuals face if they break the rules will determine the effectiveness of the so-called voluntary banking code.

If businesses know that they face hefty fines, and even being banned from carrying out further business in the financial services sector, or individuals know they face having all their assets seized and a lifetime ban, they will not behave badly. One precautionary measure is to impose an industry-wide levy on all financial services firms, including brokers and advisers, which would form a compensatory pot for consumers who have been mis-sold products or in any other way been treated unfairly by providers and advisers. If the only penalty they face is a slap on the wrist they will make a conscious calculation – on the immoral basis that British tabloid newspapers do when publishing sleaze about individuals – that the benefits outstrip the likely costs. I will give a personal example here, as an illustration. A few years ago my wife and I were walking in Broad Street when we were approached by a woman selling timeshare for a South Coast firm. The attraction was, for a plate of rice and chicken (we clearly looked hungry) all we had to do was to drop in and the women would get her commission. To cut a long story short, my wife decided she liked the apartment we were shown and though it would be a good idea to buy a timeshare. The firm asked for an immediate down payment of about Bds$1000 in cash, which to my mind is always a sign of dubious business practice, but I made the deposit, with the intention of talking my wife out of the idea and getting my money back within the cooling off period. To my dismay, I discovered there was no cooling off period, or at least the hotel’s management denied me one and no return of the deposit. It had been sucked up in ‘administration’.

Analysis and Conclusion:
Britain abandoned its voluntary banking code in November 2009 after years of criticism. So, to now find that Barbados is about to launch a voluntary banking code is like going back in time. Do turkeys vote for Christmas. What makes all this even worse is that at a time when we have had enough banking scandals to sink a ship, the department of commerce and consumer affairs – not the central bank, which is the banking regulator – has taken this initiative. It is misguided, out of date, out of synch with global financial regulation and could lead to consumer detriment.

What Barbados really needs is a robust consumers’ association that is fully aware of its strength and is prepared to use it. They must be aware that they have all the aces in their hands when it comes to banks, from closing their accounts with the foreign-owned banks and other institutions, to refusing to do business with the motor insurance companies that are just a legal way of mugging people. They must get over their inertia and move their business to providers who provide a better customer service. Part of knowing our strengths is to recognise when we can take our destinies in our own hands.

In the final analysis, consumer protection is going to be more than just close scrutiny of the fine print in contracts. This can easily be dealt with. What will become more important, and is concentrating minds all over the world, is the ownership of banks, their capital and liquidity. It is prudential supervision and regulation, in the widest sense, that will determine the quality of the financial system in Barbados, not just wishful thinking. To do this competently, the regulator, the Financial Services Commission, must have the macro-prudential policy tools, and, with respect, this parliament is not equipped to shape and deliver these tools (judging from debates up until now) and the make-up of the regulatory authority.

Finally, the Barbados National Bank was told to the Trinidadians and staff first knew about it by CBC news, to this day Republic Bank has not written to account owners to notify them of the change of ownership, that is how much they take customer care seriously. It has now changed the name again, and once more it has not had the common courtesy to inform account owners. Do you seriously think such a bank, owned by foreigners, gives any serious consideration to what its local customer think and feel?

31 thoughts on “Notes From a Native Son: Bank Regulation is Serious Business, Not Child’s Play

  1. Pingback: Notes From a Native Son: Bank Regulation is Serious Business, Not ... | Online Study Zone & Job Search


  2. A very good post Hal, on a very” basic level” Banks in Barbados treat their customers with a discourtesy that reflects what they (the Banks) think of them. To have people standing in line for what seems hours in a capital city – Bridgetown – is unacceptable.

    The Bank is saying you are not important, your time matters not, so wait in line. Some people never have to wait in line, arrangements have been made often through the type of accounts they have to make sure they don’t.

    The kind of customer service offered by Banks in Barbados is a relic of the past.

    In a city in the UK – with a population equal to Barbados’ – I could leave my office walk across the Park – twenty minutes – go to the bank conduct business return to my office and still have twenty minutes free time before re-starting work.
    The Bank was prepared for being busy at lunch times and they made the necessary arrangements, that is what properly run businesses are expected to do.


    • @Hal

      The comment about deposit insurance was provoked by this comment:

      Banking and Regulation:
      The big regulatory issue with retail banks is consumer protection, protecting the savings of ordinary account holders and household borrowers, basically the activities of these banks that pose systemic risks. It is for these savers and borrowers that the central banks, whether it is formally part of its remit or not, becomes the lender of last resort. In simple terms, if there is a run on a retail bank and it looks as if savers/household borrowers are at risk of losing their money, it is incumbent on the central bank to step in and guarantee these people their money, at least to a publicly known level.


    • Agree with you comment in the paragraph because the question is raised who owns the liability? The bank can’t very well transfer liability for the transaction/service so why should they be encouraged to farm out solutions? Would like to read more on this point.

      Paragraph 3.3 is hilarious: “Where necessary, financial institutions will also refer existing and potential customers to external sources of independent advice, such as any applicable governmental authorities or an attorney at law.” This paragraph is misleading. Financial institutions are in the business of selling products, be there annuities or life cover, and will find it rather difficult to refer a would-be customer to an ‘independent’ adviser who may advise them not to go ahead with the purchase. In any case, how do they intend to define ‘independent.’ I suggest the only way to do this is through an approved course and by examination.


    • It is interesting Bajans usually have so much to say about banks as do citizens the world over and here is an opportunity to throw their feedback and join a movement for change and often times they remain silent. What does it mean? Do they understand, care or what?


  3. An excellent educational post which should be required reading.In recent times, service at all levels from banks in barbados has gone from bad to poor. when dealing with a bank you are pressured into feeling that they are doing you a favour. i am so disgusted with the behaviour that i have a safe on order because there is nothing to gain other than headaches in keeping your money in a bank. one more thing, these regulatory codes always seem to favour the business. my experience with making representations to the fair trading commission and the office of public counsel on issues with the telephone company made me feel that i was the accused instead of the accuser until i pulled rank.


  4. Deposit insurance does not cover bad advice or mis-sold products. That comes under compensation. Deposit insurance covers systemic risks.


  5. “It is interesting Bajans usually have so much to say about banks as do citizens the world over and here is an opportunity to throw their feedback and join a movement for change and often times they remain silent. What does it mean? Do they understand, care or what?”
    Do you not realize that we bajans are all bark and no bite. Try going into a bank and complaining about the lack of cashiers to service long lines and the same people in the lines with their faces juck up would look upon you with disdain.Some jackass in the line would try to chastise you for agitating for better service with the admonition ‘yuh can’t wait’. That is why Banking Institutions take the customers for granted and do as they like with impunity.


  6. David,
    Deposit insurance only guarantees a certain amount, say up to £85000, as it is in the UK. Anything over that the saver could lose. Or, more likely, the retail bank would turn to the central bank for a loan, if the inter-bank channel dries up, as lender of last resort in order to meet its obligations.
    An independent financial adviser works for his client, not the institution. What advice s/he gives has nothing to do with the referral institution. Financial institutions are not charities, they are there to make lots of money off ordinary people like you and me.
    Independent financial planners/advisers should be defined by law and have legal restrictions on them like doctors, lawyers. Afterall, they look after people’s financial health.
    On the other hand, insurance brokers are agents of the insurance company, not of the clients. They are usually remunerated by commission, so have a pecuniary interest in selling products. They too should be regulated by the Financial Services Commission and compelled to undergo a globally recognised course and exam..


  7. one day I made such a noise about the wait time that the manager came out to ask me if she could help me. I told her that all the people in line need helping and not just me. I asked her why is it that on Friday there are only 3 tellers on duty when they know that is their busiest days. I told her that is poor planning. She said that some are at lunch. I told her that is poor planning because they should know by now that extra staff is needed on days like these. I suggested that some of the managers and supervisors should take up teller positions whenever they see the long lines and customers should not have to be waiting this long. The customer is no longer important to these banks only our money.

    Another thing I am pissed off about is that they now charge the customer a fee for going under $2000.00 on their checking account and their savings account. This is robbery, imaging charging me for spending my own fcuking money. I think this is grossly unfair and I would like to see a class action suit brought against CIBC. If I have not overdrawn on my account I should never be charged a penalty fee. It is about time the customers join forces and start a law suit for unfair business practices.

    I agree with balance that Bajans are all talk , and I would add HOT air. That is why the BNB is no more!


  8. Barbadians must form a national consumer organisation with the collective clout to negotiate good terms with these foreign-owned banks. If they do not play ball then collectively close all acounts and transfer them to more friendly banks.
    But first Barbadians must get rid of the stubborn habit of “this is my money and you cannot tell me what to do with it.”
    That is the way of exploitation. Charging for a balance of $2000 is criminal. An overdraft, yes.


  9. Commercial banks in Barbados are there solely to facilitate the consumer imports business. Banks in the old days were geared to facilitating the plantation based trading system of the export of sugar-based products and the import of salt cured food for the workers and consumer items for the socially better off.
    Modern banks in Barbados are primarily disinterested in any facilitation of the economic development of the country. The banks’ motto is: “Let us lend for the purchase of imported consumer items and the food and drink business and the devil takes the hindmost with regard to economic development projects. We are only interested in our high management fees and profits for remittance to HQ”.
    The teller service might still leave a lot to be desired but the average Bajan seem to enjoy queuing to conduct the most simple of transactions that could be done at the ATM. Maybe it’s an ongoing cultural relic of our past habit of lining up at the plantation for a days work or at the vestry for handouts.
    Maybe the local banks need to simplify the ATM process, extend the numbers of transactions doable and offer incentives to customers to go more digital and automated in the banking requirements, as prevails in the UK.


  10. @ David.. We shout out for a vibrant consumer body but what makes such a body vibrant?Answer: Ask Malcomb Taitt.


  11. ‘Another thing I am pissed off about is that they now charge the customer a fee for going under $2000.00 on their checking account and their savings account.”

    MR island gal- one time RBTT was charging a$2.00 fee if the account was below $100.00 and i wrote them a letter but never received a response. Mentioned it to a highranking colleague at the Central Bank whose response was lacklustre to say the least and did not provide the comfort needed to give the impression that that something could be done. The Central Bank is another toothless tiger which would not be missed if closed down because in my view it does not operate in the interests of the people of the country and is an unnecessary burden on the taxpayers. Except for a number of reports by highly paid personnel which mean little to the average individual and quarterly press conference by the maguffy Governor with more often than not repetitive information garnished from other sources which if challenged leaves much to be desired.
    Hear the Right Honourable Errol Barrow and i quote from Hansard’ I was the Central bank of Barbados from 1966-1972. do you hear what i tell you ? i was the Exchange Control Authority. i had a staff of about five or six capable government Officers. Go over there now. They have over 230 people doing what i was doing with six people for six years, so i think i am qualified to speak on this’ end of quote.


  12. “Maybe the local banks need to simplify the ATM process, extend the numbers of transactions doable and offer incentives to customers to go more digital and automated in the banking requirements, as prevails in the UK.”

    Mr Miller i take your point but can assure you that my preference for teller service has nothing to do with plantation mentality but a preference for interacting with at times fine human female specimens. i have avoided the use of the ATM’s as a means of control. If i do not have then do without, so if i go out to party and run out of money that’s it; i can’t run to the ATM because i do not know how to use it. By the way, aren’t there some kind of charges attached to the use of ATM’s as well?.


  13. Balance you are a bit off today…please address me by my correct title. I ent nuh MR.

    MY HUMBLEST APOLOGIES, MY FAIR LADY


    • A Facebook post: 

      Stephanie Yates
      So RBTT & RBC merge so ignorant me would think the systems would have been integrated prior to the merge…..I went to RBC Hastings to use Western Union they told me they dont do that. So I said but aren’t the banks merged and offering the same services. The teller told me “No you need to go to an old RBTT bank” I said “ok no problem” So I hopped in the car and went up to Lanterns Mall where “an old RBTT” was located. I stood up in the line for 45 minutes – mind you there were only 3 people in front of me and one teller working at the Western Union Station. When I got to him, I jovially handed him my western union account card and the form which I had already filled out. You think I would have been out of there in no time BUT NOOOOOOOOOOOO it was not to be. When it was time to pay I took out my RBC debit card. The boy tell me “we dont tek dah in hey” I said “EXCUSE ME?” He said that even though the bank is now RBC Royal Bank they can not accept R
      BC cards. Ok so I took out my check book. He put up his two hands and said ” no no no no we cant take RBC checks either!!” I said, ” Hold up what madness are you telling me? Is this not RBC? Am I not an RBC CLient?” I was about to HIT THE ROOF…..He then said “mam to be honest I dont think they thought through this merger thing” which caused both of us to burst out laughing. I told him well I am going to use your ATM and withdraw the cash but I am not rejoining the line ok I think that’s fair” to which he agreed. He apologise for the inconvenience and I told him that to be honest people need to know the truth. I cant withdraw or use my account at any of the old RBTT branches and RBTT members cant access their accounts at RBC. Its not only inconvenient, it makes me wonder what was the sense merging in the first place.


    • If Malcom Gibbs-Taitt is correct T&T, Jamaica and Barbados were funded for this research job, about 500k.


  14. @Balance
    i can’t run to the ATM because i do not know how to use it.
    **************
    And I thought that Luddites had gone the way of the dinosaur but they walk amongst us


  15. “And I thought that Luddites had gone the way of the dinosaur but they walk amongst us”
    Good post Mr Sarge. ATTENTION


  16. The incident with Stephanie Yates (a former banker)- I wish I could say was the exception but it is not. It is my contention that the rush to amalgamate under one trademark name before aligning processes, platforms and procedures was to stem the collective bargaining that the old RBTT fought albeit stealthily from coming over to the RBC camp. With the legal amalgamation in place the 50% plus 1 needed would no longer be in place as the RBC side carried the larger staff complement and remained rigidly afraid of joining the union. The fallout has been the plummeting of customer service, as staff from both institutions are caught up in vortex of upheaval. Sad…..


  17. Written over five years ago and is still relevant. Read the part on taking financial advice from lawyers and accountants, neither of whom is qualified to give financial advice.


  18. After more than a decade of bad financial regulations, Barbados is now preparing for a new regulatory framework. What we must be careful of is that this government does not just forced through its blinkered views.
    What we want is a national discussion on financial regulation and then a Bill to reflect that discussion. And the final result must include a tighter control of banks and insurance companies, the legal aright to ban individuals from every being a corporate executive and tougher promotion of consumer rights.


  19. Straughn, who was speaking in place of Prime Minister Mottley who was at the function but not in a position to deliver the feature presentation, said the Government remained committed to continuing to provide an enabling environment aimed at supporting businesses and removing impediments that frustrate new and emerging firms….(Quote)

    Why not?

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