Financial sector reform in the limelight this year
McPherse Thompson, Assistant Editor - Business
The government said it plans to bring into effect the Banking Services Act by the end of September this year as part of the efforts to mitigate the risks inherent in Jamaica's highly interconnected financial system.
The act was adopted six months ago, in June 2014, but the supporting regulations require parliamentary approval and will be tabled by the end of July 2015, according to the December 2014 memorandum of economic and financial policies the Government submitted to the International Monetary Fund (IMF).
As part of the financial sector reforms being undertaken under the IMF economic support programme, the Government said it was preparing plans to strengthen the regulatory and supervisory framework for non-bank financial institutions with long-term IMF technical assistance.
"Concurrent with the ongoing and intensified measures to achieve financial-sector reform and in the context of Jamaica's highly interconnected financial sector, we are taking steps to strengthen the resolution framework and formally establish the national crisis-management plan, consistent with international best practices," the IMF report said.
It added that the Bank of Jamaica (BOJ) and the Financial Services Commission (FSC) have put in place contingency plans, including financial backstops, and agency-specific crisis management frameworks.
Plans to be implemented
Those steps will support a national plan and framework under the auspices of the Financial Regulatory Committee - established last year to police systemic risk in the financial sector - that was expected to be finalised by the end of December 2014. The report said the Ministry of Finance and Planning and the Jamaica Deposit Insurance Corporation will put in place complementary plans and frameworks by the end of this month.
To support those actions, the report said, the Government will table any necessary legislative provisions by the end of July 2015, for enactment by end-September 2015, building on anticipated IMF technical assistance in January or February 2015, with a stakeholder consultation process scheduled to start by the end of April 2015.
"By end-March 2015, we will also have ready for discussion a strategy paper to further strengthen depositor protection and investor compensation across financial institutions," the report said.
The Government said it was preparing amendments to the BOJ Act in order to vest the central bank with overall responsibility for financial stability.
"We will also prepare a comprehensive strategy paper to enhance BOJ governance and autonomy for discussion by end-February 2015," it said.
"We will assess the need and scope for priority revisions to the BOJ Act, especially in the context of the Safeguards Assessment," the report added.
The Government has also assured that it "will table any such priority legislative provisions by end-July 2015, together with the amendments concerning the BOJ's financial stability mandate, for enactment by end-September 2015."
According to a factsheet entitled Protecting IMF Resources, a safeguards assessment is a diagnostic review of a central bank's governance and control framework. Five key areas - external audit mechanism, legal structure and autonomy, financial reporting, internal audit mechanism and system of internal controls - are assessed to help safeguard IMF disbursements and minimise the risk of inaccurate reporting of key data to the Fund for as long as a country has IMF credit outstanding.
Less risky models
The Government has reiterated that it is also taking steps to make less risky business models available to securities dealers.
It raised the investment cap for collective investment schemes in foreign assets from five per cent of assets to 7.5 per cent effective July 1, 2014 as a first step towards raising the cap to at least 25 per cent by the end of 2015.
In the second step this month, it will raise the cap to 10 per cent. It said that this month it will also publish a timeline to migrate from 10 per cent to at least 25 per cent. The cap will be removed altogether by the end of 2016, unless extraordinary circumstances require a reassessment.
Furthermore, the Government said in the report to the IMF that consultations are ongoing between the BOJ, representatives of regulated entities in the insurance and pensions sectors, and the FSC, clarifying that current limits on permissible investments in foreign assets can be removed only at a later stage.
"The BOJ, in collaboration with the FSC, will prepare a paper for discussion with the industry by end-March 2015," it added.