Government seeking ‘alternative arrangements’ for money transfer companies
Clarifying comments made last week, Financial Services Minister Wayne Panton says that the Cayman Islands currency is not being devalued by the shortage of U.S. dollars. But, he said, banks are charging some people fees to exchange Cayman dollars for U.S. cash and reducing the buying power of the CI dollar for transactions like money transfers that have to be done with U.S. currency.
Last month, money transfer companies began accepting only U.S. cash to send money overseas through services like MoneyGram or JN Money Services. Cayman National Bank stopped offering services to the companies in August and now they have to ship the cash directly overseas to deposit it in a bank account. With the cash remittances being sent physically overseas instead of digitally as before, a shortage of U.S. dollars has led banks to restrict access to U.S. cash and charge fees for people who do not have bank accounts.
Mr. Panton told the Cayman Compass that the cash transfer companies had initially said they took in remittances in about half Cayman Islands dollars and half U.S. dollars, but he said new information he received recently showed that the companies were taking in 95 percent of remittances in Cayman dollars. The impact of going from almost all Cayman dollars to doing every transfer in U.S. cash meant the shortage was “almost immediate,” the minister said.
Last year, workers in Cayman sent about $180 million back to their home countries as remittances through money transfers.
In recent weeks, banks began restricting U.S. cash withdrawals to customers or charging fees to people who do not have accounts to exchange money. Mr. Panton said this has increased the average cost for the public to buy U.S. dollars from the fixed rate of 84 cents on the U.S. dollar to 86 cents or 88 cents.
Many banks, including RBC and Scotiabank, are only exchanging U.S. dollars for customers. Others like CIBC FirstCaribbean are charging people who do not have an account with the bank CI$50 to exchange Cayman cash for U.S. currency and restricting the exchange to US$500. Those added fees are increasing the costs for consumers.
One clerk at a Scotiabank this week, when asked about exchanging money, said only account holders can get U.S. cash and, she added, “We don’t have any anyhow.”
Mr. Panton said government is working to find alternative arrangements for the cash transfer companies and stressed that the shortage should only be temporary.
The currency shortage has forced some banks to ship U.S. dollars into Cayman, something the minister said is not common. Most U.S. currency comes to the islands with tourists, he said.
Mr. Panton said Wednesday that at least one money transfer company is close to a deal to have a correspondent bank handle its transactions in Cayman.
He would not name which company was working on arrangements to return to normal business, but he did say it was a global company with enough leverage to get a bank willing to do the work necessary to comply with the growing regulations over cash transfers.
In August, Cayman National Bank, the only remaining bank in Cayman that would help with these high-risk transactions, pulled out of the business, fearful that the bank itself could lose access to the U.S. banking system.
Fidelity Group stopped offering its Western Union services in Cayman, the Bahamas and Turks and Caicos over the summer. Western Union representatives earlier confirmed that they were working with the Cayman government to open up their cash transfer windows again, but it is unclear if Mr. Panton was speaking last week about Western Union or another big player in the cash transfer sector.
Many banks around the world are pulling out of the cash transfer system, citing increasing regulation, higher costs to handle the transactions and lower fees. Through this process of what bankers call “de-risking,” many banks refuse to work with money transfer companies. The transfer companies rely on correspondent banks to take the deposits so the cash can be moved through the global financial system.
The increased regulations in the U.S. and Europe are based on concerns about money laundering and terrorism financing through the cash-based system.