No more Mr Nice Guy. FSC moving to full enforcement of financial laws
Published:Wednesday | May 20, 2015 | 7:01 PM
would be taking a firmer approach to supervision. The FSC itself is headed by Executive Director Janice Holness.
"Effective August 1, 2015, the FSC will implement a zero-tolerance approach to breaches of the legislation which it administers. This letter serves as notice to you of this revised approach," wrote Maknoon.
And so that there would be no misunderstandings, she added that penalties for breaches would also be enforced. It's that latter part that has chiefly set the regulated groups' nerves on edge.
Penalties for breaches may either be fines ranging from $25,000 up to $500,000, or imprisonment of up to 12 months, depending on the breach; and, due to adjustments to the regulations over time, both the institutions as well as persons with fiduciary or management roles may be subject to penalty.
more diligence required
Firms will have to be more diligent in their fit-and-proper assessment of directors and executives. For pension expert Rezworth Burchenson, 'zero tolerance' may end up being both a disincentive to the recruitment of talent and harmful to the professional reputation of those who serve their sectors.
Burchenson, managing director of pension fund manager Prime Asset Management Limited, says already his sector is faced with shortages of auditors and actuaries whose services are required to meet regulatory deadlines for 800-plus pension plans.
"While we understand the need to ensure that the interest of plan members are protected, we are concerned that measures such as these could provide an dis-incentive, negatively impacting the growth of the industry," he said.
The FSC regulates securities firms valued at $543 billion by assets and which otherwise have $797 billion of funds under management; pension funds that manage $331 billion of assets; and an insurance market valued at $318 billion by assets.
The agency was created back in 2001 to tighten regulation of the non-deposit-taking financial sector in the aftermath of the mid-1990s banking and financial sector crash. Its portfolio spans the realm of non-banking institutions.
Said Maknoon: "The effect of this revised approach is that once the FSC identifies a breach by one of its licensees/registrants, it will immediately take steps to enforce the same, which includes the issuance of a fixed penalty notices and/or referrals to the Office of the Director of Public Prosecutions."
President of the Pension Funds Association of Jamaica, Allan Lewis, said Wednesday that members will meet with the FSC in two weeks to explore the full meaning and implications of zero tolerance. The Insurance Association of Jamaica (IAJ) is still working on a date for its sit-down with the regulator.
President of the IAJ and president of Guardian General Insurance Jamaica Limited, Karen Bhoorasingh, said the letter caught the insurance sector off guard.
"Anything that comes across as a zero-tolerance approach is something that, obviously, is of concern to us. We have always embraced regulation. We have no problem with regulation, but we were a little taken aback by the letter and we have actually indicated to the FSC that we would like to meet with them to discuss it," said Bhoorasingh.
"We are hoping that when we sit down with the FSC and have dialogue, we will have a better understanding of their intended approach and we will be able to influence that rather tough approach."
General manager of the IAJ, Orville Johnson, says they are hoping that the meeting will happen within two weeks.
Pension association president Lewis says that until its meeting happens, he cannot speak definitively of the impact on pension fund managers.
"When licensees and pension funds were not able to meet deadlines for various reports or other arrangements, they or their investment managers or administrators would write to the FSC and, in most cases that I am aware of, if you ask for a three-month extension or one month, you receive it. I am not sure if the FSC is saying from now on there will be no more extensions," said Lewis.
Mair said JSDA members are still adjusting their business models as required under amended legislation, and are still in discussions on new policy directives, such as the stipulation that collective insurance schemes invest in only investment-grade US-dollar securities. The latter is getting pushback from securities dealers.
"It is a massive pillar of the capital market that would have to be removed. All of those assets would have to be dumped by the industries," he said.
It would affect USD bonds issued by Jamaica Public Service Company, Jamaica Energy Partners, Courts Jamaica, among others, Mair said.
The JSDA is also objecting to what he described as FSC's insistent policy direction regarding repo portfolio reductions, although the IMF has removed this requirement. The establishment of the repo trust, Mair said, is an adequate means of managing risk.
In November, the FSC is expected to begin participation in a new regulatory regime for the entire financial system as member of a Financial Stability Committee that will be led by the governor of the central bank.
Queries sent to Maknoon on whether the enforcement policy was meant to position for the advent of enhanced supervision of the financial system were not answered up to press time. Otherwise, her letter suggests that FSC-regulated firms have had enough time and sensitisation sessions to conform with laws under which they are policed.