The Bangladesh Bank (BB) heist has shown how vulnerable our banking sector was to cyber security related threats. You were heading the committee which probed into the incident. What were your recommendations?
The recommendations the committee made were for the banking sector within the financial sector as a whole. One of these recommendations was to materialize the Acquisition and Merger Act of Bangladesh Bank proposed in the year 2000. This law will help merge the weak financial institutions with their much stronger counterparts. We have also made suggestions to strengthen Sonali Bank, the largest state-owned commercial Bank of the country which is also the treasury of the government. Our advice for the other state-owned commercial banks would be to go public through the stock market. This will ensure ownership of the people in these banks. An objective evaluation of the assets and liabilities would enable determination of the face value of shares which could be sold to the members of the public through the stock exchanges. Even if the prices of shares are a little less than the face value there would be no harm. But careful attention should prevent buying of the general people’s shares by the rich. Until that happens, the committee advised the government to make the Bangladesh Bank, the watchdog for all these banks as well. The current arrangement of the NCBs being supervised by the Finance Ministry is not ideal. A level playing field is required for monitoring the activities of private and public banks in one hand.
What major reforms were suggested for the Central Bank?
The committee suggested strengthening the capacity of Bangladesh Bank. The Governor of the Bangladesh Bank, as recommended in 2001, could be appointed for one term for a tenure of six years, without any extension. The position of Governor should be at least be on par with the Chief Election Commissioner and the Chairman of Anti-Corruption Commission in accordance with article 8 of the Warrant of Precedence.
The greater dependence on technology in all spheres of life has prompted the committee to suggest massive improvement in the use of technology but within a predetermined yet carefully thought out regulatory regime.
“What we need is national consensus while drafting policies to manage national economy, education or finance issues. These kinds of policies need long term visions to be implemented.”
Banks are now heavily dependent on technological aides. What are your thoughts regarding this?
There are many technological upheavals which have occurred over the last couple of years. One such innovation which comes to mind is mobile fund transfer which is being mistakenly called mobile banking. It has been lauded locally and internationally as a revolution in the banking sector, though it should not be classified as any sort of banking at all. It facilitates the transfer of money via mobile phone through a process where a sender gets in touch with an agent to send money to a recipient and the latter too has to go to an agent when he/she doesn’t have an account. This kind of convoluted method of transfer has given rise to irregularities and we have seen various scams being attempted with the existing monopoly. The charges are excessive and irrational as in economic or monopoly rent. Neither is there security for the depositors into these accounts. In addition, we can talk about banks offering 24/7 services via ATMs, many of which lack appropriate chips due to the absence of proper regulatory scrutiny resulting in manipulations causing financial disasters for some banks.
There is thus an urgent need for a regulatory regime in all these matters to ensure fair play and justice.
The role of international banks in the heist has raised eyebrows. What are your thoughts in this regard?
The committee has made specific recommendations about the management of our country’s foreign exchange reserve. There was a time when reserves were maintained in four different currencies, namely Dollar, Pound Sterling, Deutsche Mark and Yen. It was before the launching of the Euro. Now everything is maintained in US Dollars. In this mixed bag system, a balance could be struck when one particular currency was losing value and another was gaining; the net result was a balance and no exchange loss occurred. The committee has recommended bringing back the earlier system to minimize further risks.
We also pointed out that the linkage between SWIFT and RTGS, which has been deemed unnecessary and unwarranted, was at the root if the reserve heist. By now SWIFT has changed the system of fund transfer. A new protocol is underway to connect the SWIFT with cross verification of fund transfer instructions. We further suggested bringing RCBC Manila to book with the help of the Federal Reserve Bank of New York and the SWIFT.
Is RCBC Manila fully responsible for the mishap?
It absolutely is at the end user level. The bank has disbursed money even after getting a no-payment advice from FRB New York and BB Dhaka. The fund transfer has been made through accounts which were opened just six months before, without a proper KYC. Even though the payment was made to those doubtful accounts, the money was in the banking system for another ten days, when RCBC could have prevented the laundering. The bank’s CEO has resigned and the manager in charge of the Makati branch has also done the same. The Philippines Senate has found the bank guilty and the president of the Philippines has said that RCBC Manila will have to pay back all the money to Bangladesh. The central bank of the Philippines has fined RCBC an amount equivalent to $20 million for irregular and illegal handling of the heist money.
How can the Bangladesh Bank move forward now?
Firewalls have already been set up to protect the SWIFT fund transfer system. Additionally, I would like to mention that one of the GMs of Bangladesh Bank, who had a contractual appointment and had earlier been fired from his previous stint at AB Bank on charges of corruption, is now in jail for those charges. He should not have been appointed and put in charge of such a crucial section looking after the reserves, the property of the people of Bangladesh. These kinds of recruitments raise questions about the credibility of the human resources upon which huge responsibility of national finance is vested and the appropriate measures need to be taken and contractual appointments may be kept at a minimum if at all.
Bangladesh is passing through a critical juncture with its GDP growth. During a period like this, the heist is a big blow to the economy. How do we, as a nation, move forward and avoid such mishaps in the future?
What we need is national consensus while drafting policies to manage national economy, education or finance issues. These kinds of policies need long term visions to be implemented. For example, the kind of coal that we have are of good quality and if used to produce electricity in an open pit method can provide us with 30,000 MW of electricity for 50 years.
Please note that the Bangladesh people have great resilience. Its GDP growth rate has already risen to the magic level of 7%. The system at the Bangladesh Bank has been reviewed in respect of payment instructions and the APG has given us a good scorecard on money laundering efforts.
Given the dynamic, innovative and enlightened leadership we have now, it should be possible to reach a double-digit growth rate in near future.
