Davies

Shadow finance minister Dr Omar Davies has called for a major review of the oversight mechanisms for Jamaica's financial system and has suggested that the two major regulatory agencies, the central bank and the Financial Services Commission (FSC) be asked to prepare wish lists for debate by Parliament and the wider public.

Davies' proposal, made in the House this week, has so far elicited little public comment.

But it came in the face of the collapse of the unregulated investment scheme, Cash Plus, the on-going controversy over the existence of other such institutions and Opposition claims that Finance Minister Audley Shaw may have given fillip to such entities when, before coming to office, he criticised regulators for their robust moves against them.

Assessment of steps

"I propose that the FSC and the BOJ (Bank of Jamaica) and the Ministry of Finance be asked to prepare in short order, a comprehensive assessment of steps which should be taken to improve regulatory efficiency," said Davies, who served for 14 years as the finance minister, until the People's National Party lost office last September.

"This position paper should be tabled either as a ministry paper or to a special committee of parliament for consideration and action," Davies said.

Cash Plus, which offered 'lenders' interest of 10 per cent per month, for a long time resisted policing by the FSC, claiming it was not in the securities business.

It only relented after a court ruling in favour of the FSC against foreign exchange trader, Olint.

But within weeks Cash Plus was indicating that it did not have the money on hand to pay its depositors an estimated $4 billion.

It was eventually placed in receivership, followed by the arrest a week ago of its founder and CEO, Carlos Hill, on charges of fraud and money laundering.

The FSC says that there are perhaps two dozen similar unregulated institutions in Jamaica and the independent think-tank, CaPRI estimates that they may hold upwards of $200 billion in investments.

The FSC had raised the prospect that some of the institutions could be Ponzi schemes.

While CaPRI and others have said that the collapse of these institutions would have minimal impact on the banking system or little long-term effect on the economy, others remain wary of other potential scars, including an erosion of confidence.

Such fears have deepened with the sub-prime housing crisis in the United States, which is projected to cost banks as much as US$1 trillion, and has spurred the US administration towards tightening regulations.

"For our part, it is imperative that our two major regulatory institutions for the financial sector not only be strengthened by legislative means but be given additional powers in terms of their investigative capacities," Davies said.

CONCERN

Last October, the BOJ governor, Derick Latibeaudiere, suggested that the central bank, which polices commercial and merchant banks as well as mortgage lenders, be given regulatory authority over all financial institutions. Presumably, the FSC, which came into operation in 2001, would fall under the BOJ.

Latibeaudiere was concerned that not having oversight over security dealers, superannuation funds or insurance companies, many of which are owners or subsidiaries of firms for which it has responsibility, the BOJ risks losing the big picture.

"... It (is) to quickly gather and evaluate the necessary information to facilitate sound policy responses or avert crises," Latibeaudiere said at the time.

The Government at the time suggested that it was looking at all the issues, but that, being only two months in office, it was still too early to arrive at a position.