The Barbados global business sector has continuously demonstrated its resilience in combatting the headwinds of ever-shifting international regulatory standards and a panoply of exogenous shocks. Nowhere is this resilience more evident than in the work of anti-money laundering, countering the financing of terrorism and proliferation financing (AML/CFT/PF) and tax regulators who must constantly pivot to meet the challenge of protecting the integrity and reputation of ‘Brand Barbados’.
Financial regulation is important for ensuring the integrity of the financial system and the protection of consumers. In the case of the global business sector, an important role of regulation is to minimise reputational risk which could be caused by a major financial scandal, mainly of a money-laundering (ML) or tax nature. Barbados’ reputation as a compliant, well-regulated jurisdiction is a key plank of its value proposition for global investors demanding a safe domicile for their investments. In a world of growing uncertainty, investors seek the kind of low-risk domicile provided by Barbados - a mature jurisdiction known for its wide and growing treaty network, strong respect for the rule of law, competitive investment products, business-friendly laws and focus on attracting businesses of substance.
‘Brand Barbados’ is a reputation which is jealously guarded, protected and defended at any sign of threat on the horizon. After all, small island IFCs like Barbados are disproportionately scrutinised by international regulatory bodies. International media are swift to apply the tax haven trope to any small IFC. This is despite the fact that small island IFCs tend to be more compliant with international standards than many onshore jurisdictions. Moreover, it is usually financial institutions in large onshore jurisdictions, and not small IFCs, which are most often implicated in major financial scandals. Given the disparity in international scrutiny, small island IFC regulators work twice as hard to ensure their jurisdictions meet, or in some cases, exceed the minimum standards set by standard-setting bodies, and follow international best practices.
While regulators in the global business sector are used to navigating crises, tackling the novel coronavirus disease (COVID-19) pandemic was not a task that they could have foreseen or adequately prepared for beforehand. Indeed, besides its very serious public health impacts and economic disruption, the pandemic has also provided increased opportunities for criminals to engage in illegal activity and hide the proceeds from said activity. In its updated report on COVID-19, the Financial Action Task Force (FATF) noted that the pandemic provides many new opportunities for financial crime.[i] These include, for example, the counterfeiting of medical goods, cybercrime, investment scams and abuses of economic stimulus measures. FATF called on jurisdictions to not only actively identify, assess, and understand these new money laundering threats and vulnerabilities, but also how criminals and terrorists can exploit the COVID-19 pandemic. However, FATF reiterated to jurisdictions the need to apply a risk-based approach.
The COVID-19 pandemic, even more so than financial crises before, posed challenges to how regulators conducted their regulatory and supervisory functions and the ability of regulated entities to comply with guidelines. While the social distancing requirements, travel restrictions, lockdowns and other public health measures mandated by Governments were necessary to flatten the curve of infections and deaths, they also disrupted normal patterns of doing business. For example, it is impossible for a regulator to conduct an on-site inspection of a regulated entity if there is a lockdown in place, as was certainly the case earlier on in the pandemic.
Regulators were called on to respond in real time to the new challenges, while at the same time adjusting their traditional working arrangements and methods of overseeing their regulated entities. Regulators also had a delicate balancing act to play between ensuring that they were responsive to the unique challenges posed by the COVID-19 pandemic while maintaining a high standard of regulation that would not compromise Barbados’ efforts to improve its AML/CFT framework, and thereby subject the jurisdiction to reputational risk and its attendant consequences. They also had to ensure a regulatory environment which is conducive to and not constrictive to global business. Regulators were required to do this in a context where Barbados was facing severe economic challenges and where any lapse in regulation could have high reputational risks for the jurisdiction as it seeks to exit the FATF grey list.
First, regulators were required to follow the COVID-19 protocols in place in Barbados and to formulate their own in-office protocols. These included teleworking policies, as well as social distancing requirements in workspaces and common areas. As an example, the Central Bank of Barbados, according to its Annual Report, established a COVID-19 Task Force in early March 2020 that has developed and continually updated safety and security protocols for staff with the support of medical advice to ensure they meet best practices.[ii]
Second, regulatory agencies also invested in technology, both hardware and software, to facilitate their staff’s ability to efficiently communicate and share information confidentially while working from home and to enable the delivery of services to the public remotely. Third, in light of changes to working arrangements, regulators, therefore, sought to keep their stakeholders and the general public abreast with these modified arrangements.
Regulatory And Supervisory Methods And Responses
Regulators improved communication with stakeholders and fellow regulators. They also ensured to keep updated their AML guidelines in line with FATF guidance and economic substance and other tax guidelines in line with OECD guidance. In many cases, they modified the inspection process away from in-person on-site reviews to virtual inspections and allowed for the digital submission of files in accordance with international guidelines and best practices. They embraced the greater use of technology in reporting obligations such as the acceptance of online payments, online submission of reporting and other information.
Regulators were cognisant of the challenges regulated entities faced. They required continuous reporting by stakeholders of any challenges COVID-19 posed to their compliance. Importantly, they held on-going webinars and online training for stakeholders and provided frequent regulatory updates. There was some regulatory forbearance but little evidence of extensive regulatory suspension.
Lessons Learnt And Way Forward
Once again, the global business sector has risen to meet another challenge. Regulators acknowledged that, despite the challenges, many positives came out of this environment. These included the acceleration of technology adoption by regulators, the acceptance of submission of electronic data, and greater acceptance of remote working policies. As such, it also placed more emphasis on improving cyber security supervision to combat cyber security risk because of the increased use of electronic data. It also forced better and more systematic communication among regulators and even greater communication with regulated entities.
New COVID-19 variants remain a constant threat, accounting for new spikes in infections and deaths. However, it seems that we have passed the worst of the pandemic as there are now vaccines and better treatments available. Many countries, including Barbados, have lifted most, if not all, of their restrictions and in many cases, business has settled into a kind of ‘new normal’. That being said, as more frequent pandemics are predicted, these are important lessons that regulators, particularly those in small IFCs, can take on board in their resilience-building for pandemic-proofing their regulatory and supervisory practices.
Alicia D. Nicholls is an international trade consultant with over a decade of experience providing bespoke trade research and advisory services to a variety of clients. She is currently a research fellow and part-time lecturer with the University of the West Indies. Miss Nicholls is the founder of the Caribbean’s leading trade policy and development blog, www.caribbeantradelaw.com, since 2011. She also presents regularly at both regional and international academic and industry-related conferences and webinars. While she maintains an interest in all issues affecting Caribbean trade and trade policy, her specific research focuses primarily on global financial regulation and small States, foreign investment law and policy and international business.