I have decided to include in my presentation, a short review of the state of the
financial system, as questions about its overall health have surfaced on various occasions
in recent months.
The three main bodies responsible for monitoring and regulating the financial
sector are the Central Bank (the B0J), the Financial Services Commission, and the JDIC.
The Central Bank’s area of authority relates to the deposit-taking institutions,
including the credit unions.
The JDIC’s role is providing insurance protection for depositors who are clients
of the institutions regulated by the BOJ. Overall, this sector is utilizing
international standards for regularly focusing on a range of indicators meeting the
standards demanded through the Basle convention.
At present, there are twenty deposit-taking institutions, down from thirty-five in
1998. These institutions have assets of over $340 billion, approximately 85% of GDP.
Further, we have sought international assessments of the regulatory capabilities, and
the IMF has indicated that in almost all areas, the standards are equal to those anywhere
in the world and we are working to bringing the rest up to required international
standards.
As regards the JDIC, as at February 28, it had balances of over $760 million, 39% over
the amount of a year ago. Its operations have also been assessed by external institutions
and judged to be equal to counterpart agencies anywhere else in the world. Naturally our
hope is that we will never need to find out how it operates in a time of actual crisis.
8. I now turn to the operations of the Financial Services Commission, which is charged
with regulating and supervising all the financial institutions, which are not involved in
deposit-talking. These include 60 securities dealers, 7 life insurance companies, 14
general insurance companies.
9. Let us speak frankly here, and indicate that it is about the securities dealers that
most questions have been posed in recent months.
The range of institutions which fall under the umbrella "Securities Dealers"
is large, as there is great latitude in terms of the instruments used in offering
investment options to the public. Hence, for example, a Securities Dealer can simply
facilitate the purchase of a government bond by a client for which he is paid a fee. On
the other hand, the client’s resources can be utilized to purchase a certificate of
participation in an instrument in which the dealer has invested.
The critical distinction between the "Securities Dealers" and deposit-taking
institutions, is that, on the one hand, deposit-taking institutions guarantee depositors a
specific level of interest on the principal placed with the institution, backed by the
JDIC, up to a maximum of $300,000. On the other hand, clients operating through a Security
Dealer may have the opportunity to make higher returns but have no such guarantee either
by the Government, through the JDIC, or by their dealer.
It is important that this distinction be made and this has been part of my charge to
the securities industry and the JDIC. It is imperative that their public education
programme should give priority to the establishment of this distinction in the minds of
the investing and saving public. Whilst there has been some improvement, it is still too
much of a common viewpoint held by members of the investing public that funds placed with
firms licensed as securities dealers are "on deposit".
Having made that distinction, let me provide some reassurance to clients of the
securities dealers and supervised by the FSC. The fact is that, on an average, in excess
of 80% of the investments made, using the resources under their control are in GOJ paper.
In other words, the investors who are clients of the securities dealers are creditors to
the GOJ and the people of Jamaica.
The fact is of critical importance and marks a significant distinction in terms of the
assets of the Securities Dealers, compared to those of the banks which failed during the
mid 1990s. In the latter cases, many of their assets were in terms of real estate or
investments in farms and hotels, the values of which were far below that of the associated
liabilities.
So in this present situation, whilst there are areas where there is need for
improvement in the regulations governing the activities of securities dealers, there is a
fundamental difference in the concerns which we may have at present, as opposed to those
which existed in relation to the banking sector in the mid 90’s.
It is also important for me to state that there is constant dialogue and communication
between the regulatory authorities and members of the trade. Hence I have insisted that
the relevant officials improve the information and data flow as these relate to the sector
in general, as well as each licensee, to ensure that we are never caught by surprise.
In addition, the areas where there is need for tightened regulation have been precisely
identified and the industry has been informed. The work programme on which the FSC has
embarked is to do a complete assessment of each firm and, on a case by case basis, work
out a programme of compliance within a specific time frame.
Finally, I wish to assure the public that whilst in certain instances there could be
liquidity pressure on a particular institution, this is a problem which can be easily
dealt with, and in the rare instances where this has occurred, it has been addressed by
the institutions.
Pension Reform –
There is one outstanding aspect of the responsibilities of the FSC which will be
addressed in the legislative year. It relates to the Pension Reform and the associated
legislation.
Very few persons are aware that there is no specific pension legislation in Jamaica.
Rather, pensions management is treated under the Income Tax Law.
There is general agreement on the way forward, including portability, registration of
pension fund managers, etc. However, whilst most parties have agreed to vesting, there is
still not unanimous endorsement from all trade unions.
We have expanded a great deal of time and effort attempting to achieve this unanimous
endorsement. To date, we have not been successful and so we have decided to proceed with
the legislation without "vesting", and then seek to bring all on board in as
short a timeframe as possible.
The "vesting" issue is an integral part of any fundamental pension reform. My
goal is that within the legislative year we will first pass the legislation without
vesting, then as soon as an accommodation has been reached on that issue, the appropriate
amendments be made.
