The OCIF Challenge: Puerto Rico’s Financial Regulator Needs More Resources Amid Budget Constraints

In August 2022 an explosive story of political manipulation and compliance breakdowns, Sarawak Report reveals how Venezuelan banker Julio Herrera-Velutini allegedly orchestrated a brazen bribery scheme aimed at influencing Puerto Rico's highest political office. Herrera, a known Conservative Party donor, is accused of paying for then-Governor Wanda Vázquez Garced’s election campaign in exchange for her replacing the head of Puerto Rico’s financial regulator, OCIF, which was investigating his bank, Bancredito, for serious anti-money laundering (AML) violations.

Herrera’s influence scheme hinged on removing OCIF Commissioner George Joyner, who was overseeing a critical compliance probe into Bancredito’s operations. In his place, Herrera allegedly pushed for the appointment of Victor Rodriguez Bonilla, a figure he could manipulate to suppress regulatory scrutiny. When Vázquez complied, Herrera funded her campaign through significant, though covert, financial contributions—a move that led to her own indictment.

Adding fuel to the controversy, OCIF lost its accreditation on December 1, 2022, after a Washington-based agency identified shortcomings in its oversight program. Established in 1994, OCIF’s regulatory role has recently been questioned, with the Conference of State Bank Supervisors citing deficiencies that reflect broader resource and technological gaps. According to El Nuevo Día, OCIF's recent accreditation loss comes amidst an unprecedented number of enforcement actions against international banks in Puerto Rico. The agency has intervened in at least seven banks and is currently managing three undergoing liquidation, including Herrera's Bancredito.

Herrera’s scandal, magnified by his involvement with UK political circles, casts a stark light on regulatory gaps that not only allow money laundering and financial crimes to fester but also raise critical questions on the resilience of Puerto Rico’s financial oversight. The case reveals both the limitations of OCIF and the vulnerabilities of political systems to financial influence, pushing an urgent call for reform in the face of mounting financial and political stakes.

The impact on Puerto Rico’s financial sector is profound. Over the past five years, a wave of scandals around corruption, money laundering, and tax evasion has swept through the island, with OCIF at the center. Limited resources—such as a mere eight regulatory experts overseeing 85 financial institutions—have hampered OCIF’s ability to regulate effectively. OCIF Commissioner Natalia Zequeira admitted to systemic constraints, noting that even their outdated technology and low staff salaries undermine proper enforcement.

A Trailblazing Commissioner

Natalia I. Zequeira Díaz is not just breaking glass ceilings; she's redefining the role of financial oversight in Puerto Rico. With a solid background in banking, corporate, and financial law, honed at institutions like Banco Santander and esteemed law firms, she possesses the acumen needed to navigate the complexities of modern finance. Her appointment marks a significant shift toward inclusivity and progressive governance in the island's financial sector.

Zequeira Díaz has openly acknowledged the challenges facing OCIF, notably the lack of necessary resources and budget to fully execute its regulatory responsibilities. Despite an official budget of approximately $15.4 million for the fiscal year 2024–2025—allocated for operational expenses and pension obligations—the agency grapples with understaffing and increasing demands from banks and International Financial Entities (IFEs). This transparency is a testament to her commitment to not just identifying problems but actively seeking collaborative solutions.

Turning Challenges into Opportunities: Revitalizing Puerto Rico's Financial Landscape

The Office of the Commissioner of Financial Institutions (OCIF) in Puerto Rico is a government agency responsible for regulating and overseeing the island's financial sector. According to the approved budget for fiscal year 2024–2025, OCIF has been allocated the following funds: Operational Expenses: $13,179,000; Pension Payments (Pay As You Go): $2,234,000; Total: $15,413,000. These figures reflect the agency's financial needs to perform its functions, including the regulation and supervision of financial institutions and educational initiatives.

OCIF Commissioner Natalia I. Zequeira Díaz has acknowledged that her office lacks the necessary resources and budget to carry out its responsibilities. Natalia I. Zequeira Díaz, an attorney and public official, was appointed as the Commissioner of Financial Institutions of Puerto Rico in January 2021. She holds a legal education and has experience in banking, corporate, and financial law, having worked at Banco Santander and other law firms. She is the first woman to hold this position. In February 2024, Puerto Rican financial institutions were removed from the list of high-risk money laundering organizations in a U.S. Treasury Department report, indicating improved regulatory oversight.

The current OCIF Head is Víctor Rodríguez Bonilla. He holds a bachelor's degree in marketing from the University of Sagrado Corazon and a master's degree in banking from the University of Oklahoma. Before his appointment as Commissioner, he worked as an anti-money laundering consultant and held senior positions in the financial sector. Under his leadership, OCIF has increased oversight of financial institutions to ensure compliance with laws and regulations. In 2020, OCIF lost its accreditation from the Conference of State Bank Supervisors (CSBS), raising concerns about regulatory effectiveness. Since then, OCIF has been working to restore trust and enhance regulatory effectiveness, which is essential for ensuring stability in the financial sector.

OCIF under his leadership actively collaborates with international regulators—though there’s still room for improvement in this area for the benefit of both the regulator and the sector as a whole.

Thus, Víctor Rodríguez Bonilla leads OCIF and oversees the activities of staff members, including Natalia I. Zequeira Díaz. Since their arrival, there have been notable improvements in compliance and sector transparency. Natalia has been particularly active, bringing fresh energy and dynamism to the industry with her proactive approach and charisma.

However, there are a few areas (not as criticism but as feedback for potentially better results in the future) that, in my humble opinion, could be improved. First - People and Expenses: Puerto Rico's economy has not been thriving over the past decade, and the local government objectively lacks the resources to extensively increase OCIF's funding, despite how deserving or necessary it may be.

It’s clear that despite good intentions and efforts, the regulator’s office is simply understaffed—and funding is needed for this (the desire and effort from the regulator are evident). The mentioned $15,413,000 official budget for OCIF is substantial for a government budget. But for industry players to add a subsidy through a nonprofit association of $5-10 million (or even more) is not about the cost, but about the fraction of foregone revenue.

And these revenues are real, as banks and especially IFEs flood OCIF with numerous requests, which the office simply cannot process promptly, even if working 24/7. More people are simply needed.

For instance, Singapore’s regulators, including MAS, have a “two-week rule”: if a market participant’s question is not answered substantively within two weeks, it is automatically approved by the regulator. The country’s government starts from the assumption that the state should be convenient for business—so companies come to Singapore, create new businesses, technologies, and jobs, and ultimately pay more taxes. So, how many additional OCIF employees are needed to ensure that all requests from banks and especially IFEs are processed within two weeks?

We should also mention that OCIF staff salaries are very low. Singapore, for example, leads globally in government official salaries—not as an end in itself, but because it allows the government to compete with businesses for the best minds and talents. But these aren’t expenses—they are investments in growth and development!

Imagine that I or you lose more money in business from a question not being resolved promptly than we would have spent on a voluntary contribution to an IFE association to help subsidize. An independent organization, perhaps led by someone like Marilu Jimenez, could coordinate these efforts. Meanwhile, banks, and especially IFEs, don't realize that they are all collectively losing to inefficiency—and try to compete among themselves, hoping to get ahead first. In reality, everyone loses.

Such an organization needs a Goal —not a reactive plan, but a long-term Vision: Who and what are Puerto Rican banks and IFEs competing for (not with each other, surely!), and how can the regulator help them with this? A larger game and collaboration—not only at the U.S. level but at the level of interaction with regulators from other countries (and representing the industry as a growing group of potential clients or partners).

Second - At the Compliance and Operational Level of Bank and Especially IFE Management: The main issues and complaints against Puerto Rican financial institutions have always revolved around compliance and AML. What if the goal were not just to meet standards but to become the best, implementing the most modern, technological, and comprehensive approaches?

Yes, this costs money, and not a small amount. But how much do banks and IFEs spend on compliance in Puerto Rico? Huge sums! Are they the best at it? No. Is it their business? No, it’s a cost and obligation. Why not create a “compliance framework” or platform at the Puerto Rico regulator level? In reality, doing something very well once is much cheaper than everyone spending a little constantly.

Such a project could be implemented alongside improvements in KYC, KYB, and EDD, as well as the active adoption of KYCC. Its implementation is architecturally linked to the adoption of digital identity. In other words, from a local solution for banks and IFEs, the government could gain a highly significant and useful product for the domestic market and local population—in the form of modern electronic public services!

For example, if you open an IFE in Puerto Rico, instead of reinventing the wheel for the hundredth time (which won’t be new but just a repetitive version of what’s been done many times before), the regulator could provide a ready-made compliance policy and process package. You could customize it, but at least you wouldn’t be below the standard level!

The same goes for core banking systems and APIs for accessing other financial services and banks—each player individually doesn’t have the money, focus, or strategy to “install a Ferrari engine.” But a unified BaaS (plus CaaS) solution would be an enormous boost for transparency and control!

Similarly, with a ‘bankers’ bank for IFEs’—each entity individually sets up relationships with other banks for regulatory paid-in capital and correspondent relationships (which mostly depend on compliance). Yes, if you focus on this, you can do better. But what if there were a ready-made package of integrations and partners from the state for a minimum level (and a driver for the entire market's growth)?

What if OCIF didn’t need to request bank reports on balance structure or compliance standards not only once a year or quarterly but monthly or even weekly: What if access to balances and customer databases were available online 24/7, with reports generated as frequently as needed? You, as a regulator, could set parameters anytime and generate the report yourself, ask questions in a chat, or forward a transaction link, client, or data to other regulators like FinCEN, Federal Reserve Bank, FDIC, OCC, Finra, SEC?

Look at India with Aadhaar and Ukraine with Diia—government services can be real services (that is, with clients who find them convenient!), and the state can operate like a startup—generating profit, not thinking in reverse and reactively!

A Collaborative Vision for the Future: Global Examples of Success

Let's not forget that the government lives on the taxes paid by companies and their employees, who are citizens the government is supposed to help create, grow, and thrive, ok??

In the United Kingdom, there are several organizations that provide recommendations to the government on stock exchange listings and the investment climate. One such organization is the Listing Review, established in 2018 to assess and improve listing practices on the London Stock Exchange.

Additionally, Innovate Finance is a fintech association representing the interests of fintech companies in the UK. It actively works to improve the investment climate and can offer advice to the government on listing and fintech sector regulation. Notably, in March 2023, Revolut CEO Francesca Carlesi became co-chair of the Unicorn Council, created by Innovate Finance. This council aims to enhance conditions for fintech companies in the UK, including issues related to listings and regulation. Thus, as a member of Innovate Finance, Revolut can provide feedback and recommendations to the government on IPOs and the investment climate through this organization.

Innovate Finance is an independent industry body representing the UK’s fintech community. Its mission is to accelerate the UK’s role in the financial sector by supporting tech-driven innovators and creating a more inclusive and efficient financial sector.

In March 2024, Innovate Finance launched the Unicorn Council for UK FinTech—a council bringing together founders of the largest UK fintech companies. The council's goal is to provide the government with key policy recommendations aimed at maintaining and strengthening the UK's leadership in the global fintech sector:

1. Direct Dialogue with the Government: The council provides a platform to discuss current issues and formulate recommendations, enabling a more responsive approach to the sector's needs.
2. Policy Development: The council’s recommendations can influence the creation and implementation of new policies that support the growth and development of fintech companies.
3. Strengthening International Positioning: Uniting industry leaders demonstrates the sector’s cohesion and strength, which is important for attracting investment and partnerships.

Thus, Innovate Finance and its initiatives, such as the Unicorn Council, play a key role in supporting and advancing the UK fintech sector, ensuring effective communication channels between the industry and government. There is also UK Finance—an organization uniting various financial companies, including banks and fintech firms. UK Finance works to represent its members’ interests before the government and regulators, including fintech-related issues.

There are similar organizations and initiatives in different countries that support the fintech sector and engage with the government:

• FinTech Australia: This association represents the interests of Australian fintech companies, promoting policy development and improved conditions for the sector. It actively engages with the government to address regulatory and innovation issues in financial technology.
• The Global FinTech Innovation Network (GFIN): This initiative, supported by international financial regulators, helps fintech companies test their innovations in various jurisdictions, facilitating interaction between startups and regulators.
• Singapore FinTech Association: This association supports fintech companies in Singapore, providing a platform for engagement with the government and other stakeholders, and promoting sector development. (I have been a member for several years.)
• FinTech Regulatory Sandbox (various countries): Many countries, including the UK, Singapore, and Australia, have created "sandboxes" for fintech companies, allowing them to test their products in a controlled environment with relaxed regulation, fostering innovation.
• National Fintech Association (USA): This association represents the interests of fintech companies in the USA, promoting regulatory improvements and policies that encourage sector development.
• Fintechs for Good: Initiatives that bring together fintech companies working on social, environmental, and ethical issues, aiming to make a positive impact on society and engage with governments to achieve these goals.

These organizations play an important role in supporting innovation, shaping policy, and creating a favorable environment for fintech companies to grow in various countries. The effectiveness of organizations like Innovate Finance varies based on factors such as their structure, funding, goals, and participant engagement:

• Many such organizations are actively involved in lobbying and represent fintech companies’ interests at the government level. For example, FinTech Australia and Singapore FinTech Association have official channels for communicating with the government and can influence regulation.
• They conduct research, develop recommendations, and participate in public consultations, allowing them to shape policy and regulation in their sector.
• Although some of these organizations may theoretically have lobbying functions, many focus more on networking events rather than real policy influence.

Many organizations achieve significant success in influencing policy and regulation. For example, UK Finance has impacted legislation related to fintech and financial services in the UK. The presence of regulatory sandboxes in countries like the UK and Singapore is a result of active work by such organizations. This facilitates the testing of new technologies and services, which is important for startups.

Their effectiveness depends on participant engagement and their ability to adapt to a changing market. Thus, they can be much more than just “talk shops.”

Discussion of Issues? But the real purpose of such organizations, and where they could be truly useful, is in actively raising important issues, identifying shortcomings, and offering feedback to financial regulators, which could lead to better regulation and overall sector development.

Resumen Ejecutivo del libro “Following the Money: Un Viaje a Través de la Banca en las Sombras y los Juegos de Poder [Compliance Cowboys: El Mundo de Alto Riesgo y Alta Recompensa de ‘Ozark’]”, disponible en inglés en Amazon

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