Kill your customers, problem solved

Kill your customers, problem solved

It may look like „the best Indian is a dead Indian.”

Exactly what risks a bank sees in its clients is obviously relative, with much depending on the bank’s management and now notorious compliance department. All of the „offshore” customers of Barclays Bank in the Seychelles, have been forced to leave the bank by October 31st 2015. The bank, which for decades, or maybe even centuries, has been earning a fortune through its offshore clients worldwide, is now unilaterally showing all those clients the door. There is no chance to appeal, and everyone can go where they want. Fantastic, if there are no customers, then there are no problems; the few local pensioners and civil servants who opened accounts there with there 300 euro salaries will keep the bank going. As for the couple of dozen unemployed, made redundant by the bank as a result of the loss of turnover, well, that’s the government’s problem. This is inevitable, and i would be extremely surprised, if everyone kept their jobs. And I’m not talking about the management, but, primarily, those bank clerks who were in daily contact with the clients. In all probability they will be the first to end up out of work.

Naturally, if there are no offshore clients, then the bank will not have to bother with the exchange of information. One less problem to deal with. This is not, of course, logical, as the parent bank will be developing the necessary system anyway. There is no way that such a huge multinational bank can close all the accounts opened for foreigners. This is unavidable for such a giant. So, what then is the problem and the risk for them? I don’t really understand it, but I probably just see the whole thing from a different perspective.

It’s like a sort of game with a 0 net gain. What one bank or country loses, another one will almost certainly gain. The steps taken by Barclays Bank in the Seychelles will cause several serious procedures to be instigated, or further developed. One of these is unemployment, which, even though the numbers may not be particularly significant, is a sensitive subject in such a small country. Another is the slow, but certain death of the local offshore system. In my opinion, the only offshore countries or jurisdictions that will survive will be those which develop the right long term strategy. An important part of this is that companies registered in a given jurisdiction must be able to open bank accounts in that country. The question of „substance” is also important. The days of the paper company are visibly coming to an end. Companies need some form of minimal local presence to maintain legitimacy. Unfortunately, this move by Barclays has placed the country, which otherwise is a country of unparalleled natural beauty, in a very difficult position. Every time my plane lands on the island, I feel like I am arriving in paradise.

One country’s loss is another country’s gain? Yes, very probably. Cyprus, which in 2013 went through one of the strangest crises in banking history, is only too familiar with this phenomenon. Even though the confidence in the local banks remains somewhat fragile to this day, they have no plans to take similar steps. On the contrary, the whole island’s financial infrasructure is geared up pto serving offshore clients. It is possible to set up companies, open bank accounts and even establish „mini” offices, to satisfy the „substance” requirement. And all this for a reasonable price, well within the budget of a medium-sized venture.

It’s as if the Cypriots know: the worst client is a deaad client….