Linda Hutchinson-Jafar, Business Writer

Trinidad and Tobago is lagging behind regional neighbours Jamaica and Barbados in its financial reforms, placing it at a disadvantage in its march toward the creation of an international financial centre (IFC) in Port-of-Spain.

All three countries have similar goals, but Trinidad's Finance Minister Karen Nunez-Tesheira admitted Wednesday that her country was not as advanced as its trading partners on the type of tax and financial laws required to give the project life.

"The point I'm making is this: Jamaica is posturing - I don't know if that's the right word - but certainly they are saying that they are going to be an international financial centre and Barbados is saying the same thing and they're not without reasons to say that, because of their tax structure," Nunez-Tesheira said Wednesday in Port-of-Spain.

"The point is ... we are really falling behind."

Central Bank Governor Ewart Williams also acknowledged that Kingston was ahead with its financial legislation. The laws were upgraded to international standards, he noted, following the financial sector meltdown in the mid-1990s, which cost Jamaica in excess of 10 per cent of GDP and about J$140 billion to correct.

Most updated

"As a result of the need to respond to this crisis, Jamaica now has the most updated financial legislation in the region," Williams said.

Both Nunez-Tesheira and Williams were speaking at a public consultation in Port-of-Spain on a new financial institutions bill which seeks to correct weaknesses identified in the current regulatory framework and produce legislation capable of supporting the country's long term plans for its financial system.

The current law is nearly 14 years old.

The finance minister said there is need for a more robust legislation and risk management practices to support the dynamism of the financial sector, while plugging any weaknesses to guard against the type of crises that have emerged in other parts of the world where bullish markets have bubbled over.

In developing the bill, Port-of-Spain examined the legislation of many other countries regionally and internationally, in the interest of regional harmonisation of laws in line with longer term plans to create a single Caribbean economy, and in order to converge to international best practice.

As a middle-income and gas-rich developing country, Nunez-Tesheira said Trinidad and Tobago has been enjoying an uninterrupted period of positive economic growth over the last decade.

But the country is heavily dependent on the energy sector - too dependent, the Patrick Manning administration has said - and is laying the ground work for diversification. The IFC falls within those plans.

Developed country status

Trinidad wants to attain developed country status by the year 2020 - Jamaica's target is year 2030 - which entails the development of a flexible, vibrant and diversified economy, supported by a stable and well regulated financial services sector that can respond adequately to changes in the international environment, officials say.

Nunez-Tesheira said advances in communications technology have broken down financial trade barriers between countries, but innovation has also blurred the lines in the financial services sector.

"This convergence has led to numerous mergers and acquisitions among financial institutions and the formation of financial conglomerates under one holding company. This is also happening in Trinidad and Tobago," said the finance minister.

"These forces of change create unprecedented opportunities for consumers and financial institutions, and major challenges for policymakers and regulators."

Governor Williams, referencing the take-over of local banking group RBTT Financial Holdings by the Royal Bank of Canada, said there was no financial law in place to adequately address the operations of large conglomerates.

"New legislation is needed for the central bank to adequately protect the interest of depositors and to reduce the risks for financial crisis," he said at the forum.

"There is another slight urgency and that is, with the consummation of the RBC transaction, likely to take place soon, we would find ourselves not having the type of legislation that is needed to deal with large conglomerate structures."

Unofficial arrangements

Added the central bank chief: "We have been able to survive so far by having unofficial arrangements with the conglomerates that we now have. It is not a situation that is tenable in upcoming circumstances," he said.

The RBTT/RBC deal is a US$2 billion transaction that is trumpeted as creating the largest banking operation in the Caribbean. The parties have been working with regulators to complete the deal, with expectations that the new RBC Caribbean will launch in June.

Williams said issues such as financial product innovations and the operations of banking and financial institutions across borders are forcing markets like Trinidad to evolve.

"Locally, financial legislation has had to play 'catch-up' and has not effectively allowed for sharing of information across borders, nor has it effectively protected the public," he said.

Inspector of Financial Institutions, Carl Hiralal said the new bill will improve oversight of the financial system and afford greater protection to depositors by promoting early detection of risks and facilitate prompt corrective action and better corporate governance.

It will also facilitate the supervision of mixed groups and companies with cross border operations, promote sharing of information with additional regulatory agencies, and provide for greater public disclosure, thereby promoting market discipline.

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