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Lebanese Banks Open Windows to Allow Real Economy to Breathe
In a bid to strike a balance between compliance and client satisfaction, Lebanese banks have been working hard to adapt to the new regulatory landscape, allowing the real economy to breathe. Instead of imposing blanket restrictions, banks have been opting for a more nuanced approach, distinguishing between legitimate transactions and suspicious activities.
Compliance Challenges
One of the biggest challenges faced by Lebanese banks has been educating clients about the new regulatory requirements. In the early stages of implementation, some clients were initially resistant to the changes, viewing them as poor service or even attempting to circumvent the procedures. However, no significant flight of deposits was recorded, indicating that clients eventually adapted to the new norms.
FATCA and Tax Compliance
Another major compliance challenge has been implementing the Foreign Account Tax Compliance Act (FATCA), a US law requiring non-US financial institutions to report foreign assets held by US persons. This has required banks to identify not only holders of US passports or Green Cards but also individuals who meet the broader definition of a “US person,” including those with ties to the US through proxy accounts, postal codes, or regular remittances.
The Evolution of Banking Secrecy
As global tax cooperation gains momentum, banking secrecy is becoming increasingly less relevant. The OECD’s common reporting standards have been adopted by over 80 countries, including Lebanon, which will begin implementing the treaty in September 2018. This shift towards transparency has led to a redefinition of banking secrecy, with professionals now focusing on safeguarding client information rather than protecting those who break the law.
Benefits of Compliance
The costs of implementing FATCA have been significant, but the benefits are substantial. The US Treasury has reported that tax proceeds from foreign financial institutions have added $13.5 billion since 2010, equivalent to $843 million per year. Similarly, increased transparency in reporting and business disclosures is expected to bring back a significant amount of money currently being laundered.
The Future of Compliance
As the regulatory landscape continues to evolve, Lebanese banks will need to remain agile and adaptable to stay ahead of the curve. The role of legal compliance will only continue to grow, with investments in this area likely to increase as human needs multiply. The Association of Banks in Lebanon has been at the forefront of developing guidelines for regulations, ensuring that the sector remains flexible and dynamic.
Conclusion
In conclusion, Lebanese banks have been working hard to strike a balance between compliance and client satisfaction, allowing the real economy to breathe. By adapting to the new regulatory landscape and prioritizing transparency, Lebanese banks are poised to reap significant benefits in terms of tax proceeds and economic growth. As the global landscape continues to evolve, it is essential that regulators and financial institutions work together to promote a culture of compliance that benefits all stakeholders.
About the Author
This article was written by Maya Mantach, Research Department of Blominvest Bank. Contact: maya.mantach@blominvestbank.com