Avia Collinder, Business Reporter
The Bank of Jamaica (BOJ) wants to synchronise the rules relating to start-up capital for home-grown and foreign-owned banks under reforms that also aim to concretise the central bank's supremacy over its own jurisdiction.
Under current law, foreign banks hold minimum subscribed or issued capital of J$250 million, which is more than three times the J$80 million requirement for domestic banks. This will be eliminated for both groups.
Instead, the new minimum start-up capital will be set at the Jamaican dollar equivalent of US$2 million for both groups.
The central also wants to close the regulatory gap in which branch operations of foreign banks appear to be more answerable to their overseas bosses than the local monetary authority.
Local banks are fully answerable to the BOJ, but foreign-owned operations tend to conform to the guidelines of the parent.
BOJ now says foreign-owned banks with secrecy laws that block its access to information are unlikely to be licensed or have licences renewed. That position is to be codified into law.
The central bank also proposes in the new banking bill to be debated in Parliament for enactment by next March, that foreign-owned branches already operational in Jamaica should have the flexibility to address regulatory shortfalls without recourse to their parent operations overseas.
The term 'foreign branch' describes a banking operation not set up as a legal vehicle, such as a subsidiary.
Outgoing president of Scotia Group Jamaica and current holder of the Jamaica Bankers Association presidency, Bruce Bowen, said the central bank's position is not unusual.
"Based on my recollection of the new draft Omnibus Banking Law, the changes being proposed are very technical in nature but are consistent with banking regulations in many other jurisdictions," said Bowen, speaking as president of JBA.
BOJ says it currently lacks reach to foreign head office directors, or as the central bank puts it, the "mind and management" directing local operations.
"This poses particular difficulties for the supervisor in circumstances where key policy and management decisions are taken outside of the jurisdiction. This is a growing issue - both in branches and subsidiaries - as decision making becomes centralised across cross-border groups," the central bank said in a discussion paper on the omnibus bill.
There are seven commercial banks operating locally of which only one, First Global Bank owned by the GraceKennedy conglomerate, is of domestic origin, said the central bank.
The ultimate parents of the other six have headquarters in Barbados, United States and Canada. The six are National Commercial Bank Jamaica; Sagicor Bank Jamaica; Citibank NA; CIBC FirstCaribbean International Bank Jamaica; RBC Royal Bank Jamaica; and Scotiabank Jamaica.
Of the other deposit-taking institutions or DTIs, near banks JMMB Merchant Bank and MF&G Trust, as well as building societies Victoria Mutual and Jamaica National are all home-grown.
revision of criteria
The omnibus banking legislation will consolidate previous laws into one bill.
Bank of Jamaica now regulates deposit-takers under The Banking Act, Financial Institutions Act, Building Societies Act, and Bank of Jamaica (Building Societies) Regulations.
Regarding the local branches of foreign DTIs, the central bank wants to revise the prudential criteria for the setting up of a domestic branch, as well as the services that can be offered by such a branch.
It also recommends that the new banking regime to evolve under the omnibus law should ensure that where foreign banks are licensed in Jamaica, at a minimum their management must have the appropriate authority to address regulatory concerns.
The central bank said this requirement is for branches with no board of directors.
Additionally, the 'host regulator', which would be the BOJ, "will have the power to dictate when corrective action must be taken in relation to branch operations"; and the authority to ensure that the banks are "sufficiently ring-fenced to allow for resolution of obligations" in the event that the parent bank fails.
The new legislation will no longer refer to both a subscribed capital and minimum capital requirements for banks.
"The law will only refer to the minimum capital requirements to commence operations," the central bank said.
Its policy paper advises that assigned capital - that is, minimum start-up capital - for local operations of foreign banks must be held in Jamaica in the form of unencumbered assets. This requirement also applies to domestic banks.
Unencumbered assets refers to assets that are owned free and clear, that is, no creditors have claim to those holdings.
Bowen says the JBA has no objections to the new regime.
The harmonisation of start-up capital requirements, he said, "is to ensure that foreign banks operating in Jamaica as branches do so on a 'level playing field' with locally incorporated banks - including locally incorporated subsidiaries/ affiliates of foreign banks"; while the new rules for foreign banks aims to protect local depositors.
Both issues, he adds, align with international best practice.
"Overall, there is nothing in these specific technical changes that causes the JBA any concern," the JBA president told the Financial Gleaner.