BASSETERRE, St Kitts (CMC) — Commercial banks operating in St Kitts-Nevis have assets totalling six billion EC dollars (One EC dollar = US$0.37 cents) as of December last year, but the Government says it is moving to amend legislation to allow for a single financial space within the sub-region.

Prime Minister Dr Denzil Douglas, delivering the 2014-15 national budget to Parliament, told legislators that the commercial banks continue to be sound and well capitalised, securing their position as a major stakeholder in the national development agenda.

“As at December 2013, the assets held by the commercial banks totalled six billion, representing a 9.3 per cent increase when compared to the same period in 2012. During 2013, deposits grew by 12.1 per cent to EC$4.2 billion over the previous period,” said Dr Douglas, who is also the finance minister,

Dr Douglas said that the Eastern Caribbean Central Bank (ECCB), which serves as a central bank for the sub-region Organisation of Eastern Caribbean States (OECS), continues to execute its duty, which is to maintain the stability of the Eastern Caribbean Dollar and the integrity of the banking system in order to facilitate the balanced growth and development of member states.

“In context of the regional development agenda, a critical challenge is completing the task of creating a single financial space within the Currency Union,” he said. “The work must continue in respect of strengthening the financial sector, particularly as it relates to enhancing the regulatory framework and bank supervision.”

He said in this regard, the St Kitts-Nevis Government remains committed to the ECCB’s efforts to review and amend banking legislation with a view to achieving success in the stabilisation of the regional banking sector.

“In the interest of keeping the OECS region strong, we cannot afford to delay this process. We therefore use this opportunity to signal our intention to endorse the proposals by the ECCB for legislative changes.

“In the very near future, we will make amendments to the ECCB Agreement and the Banking Act, and table legislation establishing an Asset Management Corporation as well as regional legislation on foreclosure,” Dr Douglas told legislators.

He said that another challenging issue is the fact that in March 2010, the United States passed the Foreign Account Tax Compliance Act (FATCA) that has far-reaching effects, well beyond the shores of the USA.

He said FATCA was enacted by the USA as a means of combating tax evasion by ensuring that the US Internal Revenue Service (IRS) could obtain information on Americans who may be investing and earning income through non-US institutions. Such income is taxable by the USA.

FATCA requires financial institutions outside of the USA to report to the IRS any tax-relevant information on US citizens who have assets of US$50,000 or more in their institutions.

Prime Minister Douglas said that in the context of St Kitts and Nevis, such institutions would include entities that accept deposits in the ordinary course of banking or similar business such as commercial banks, credit unions and insurance companies.

“If these institutions do not submit the required information, a 30 per cent withholding tax may be levied on certain payments and, in the case of the banks, they run the risk of losing their correspondent banking relationships – a situation that would cripple the operations of our banks and quite possibly cripple our ability to freely conduct business with the rest of the world. Mr Speaker, these institutions really have no option but to comply,” Douglas said.

He said his Administration has recognised the challenges confronting the financial institutions as they would have had to revisit their customer acceptance, account openings and due diligence procedures and undoubtedly incur some expense to change their reporting and data management systems.

“Changes will also have to be made to the legal framework to allow the affected financial institutions to pass on the required information. It is for this reason, Mr Speaker, that my Government will bring to this Honourable House a Bill entitled Foreign Account Tax Compliance (United States of America) (Implementation and Enforcement of Inter-Governmental Agreement) for safe passage,” Douglas said.

The prime minister added that the Bill has been drafted by the Legal Sub-Committee of the ECCU Working Group on FATCA, a group that was initiated by the ECCB to treat with the compliance of financial institutions that are licensed in the ECCU territories.

“In the meantime, my Government took the opportunity to come to an agreement, in substance, with the USA on an Inter-Governmental Agreement.

“We expect to sign this agreement in the very near future,” he said. “The agreement will facilitate the transfer of the required information by the relevant financial institutions to the designated Government Competent Authority.

“The Competent Authority would then submit the information to the US IRS on behalf of the financial institutions. The introduction of FATCA means that the Government will therefore have to incur costs to develop the capacity to send this information in a manner that ensures confidentiality. This will include the acquisition and maintenance of software to facilitate the transfer of information in the specified format and the training of staff,” he told legislators.