Phillips, bankers clash over criminal negligence
Avia Collinder, Business Reporter
A Jamaica Bankers Association (JBA) proposal that the penal provision on criminal negligence be cut from the proposed Banking Services Act got immediate pushback from Minister of Finance Dr Peter Phillips on Wednesday, who said its insertion is in line with global standards.
Indeed, Phillips said at a sitting of the Joint Select Committee considering the bill, that without the provision, Jamaica would not satisfy its international obligations.
Phillips is chairman of the committee considering the banking bill, which is on a fast track to passage by early June. The committee is hearing submissions from stakeholders and the public.
Fines under the new act range from a low of $150,000 for various offences - including failure to make returns, and failure to exhibit or publish a balance sheet and profit and loss account - to a high of $5 million, which is the penalty for failing to report a new appointment.
Prison terms range from six months to a high of two years.
Among the infractions to which the two-year imprisonment applies is unreported firings or dismissals. The alternative is a fine of $3 million.
However, it was the issue of criminal negligence in Section 128 of the bill that stirred the ire of bankers, whose legal representative said at the committee meeting Wednesday that the offence was "too low a threshold" for imprisonment.
Phillips indicated, however, that to comply with JBA's request would leave Jamaica vulnerable.
"The international obligation is not satisfied unless we have this provision. I am suggesting that it [the JBA's position] does not find favour with me," he shot back. "We have just been admitted entry into the Egmont group and other groups representing people who have made a commitment to sharing information on anti-money laundering, etc," he said.
The minister added that he was satisfied that penalties presented in the law met the standards required, and applied elsewhere, and that the banks would have to play the game at that level.
"You have to exercise reasonable diligence. Just look at what is happening internationally - we will not be held to any less standards. There have been fines in the billions of dollars; they have locked up directors," he said, adding that, locally, there have been instances of gross dereliction of duty.
The JBA was represented at the meeting by attorney Rose Davis-Logan, but a phalanx of legal representatives from the banks, as well as JBA President Maureen Hayden Cater, were also present.
Davis-Logan argued on Wednesday that more clarification was needed on what constituted a criminal offence by the body corporate and that it was unreasonable for 'negligence' to be the only hallmark.
"The penalties already existed, but an amendment to the language was made," Davis-Logan clarified to the Financial Gleaner on Thursday. "It is the negligence being elevated to a criminal offence" to which the banks objected, she said.
"The significance is that it will be reflected on your record. We were speaking to the lack of intent, the absence of the mental state in terms of committing an offence."
The relevant section in the bill states that where an offence "has been committed with the consent and the connivance of, or to be attributable to any negligence on the part of any director, officer, substantial shareholder, or key employee to the company, the director, officer or key employee of the company as well as the company, shall be liable to be proceeded against and punished accordingly."
Davis-Logan says it is up to the judge to determine the appropriate punishment within the ambit of the law.
"It will be both the senior management of the entity as well as the responsible officer who will be penalised. The incarceration would apply to the individual and a fine against the entity," she said.
"In the United States, fines are applied and they are huge. Which is why the minister says everything that officers do, they should exercise due care."
The meeting on Wednesday was the first in a round of consultations on the banking services bill. The sittings continue today, Saturday, and Sunday at the Bank of Jamaica building. The building societies and Institute of Chartered Accountants of Jamaica will next present their positions.
The JBA said it was satisfied by the consolidation of various financial laws under the new bill - a process led by the BOJ, which takes on the role of super-regulator over the financial system under the reform - but the bankers said there were unsettled issues relating to governance, credit administration, the role of the supervisory committee, branches of foreign banks operations, and key definitions in the bill.
The banks, for example, want more clarity on the methodology for calculating counterparty exposure.
"This is on the assumption that the capital base of an entity is tier one capital. Nothing in the legislation gives information on how it [tier one capital] would be computed for a counterparty on a consolidated basis," the JBA rep argued.
The bankers added that they also had a challenge with the "wide definition of financial interdependence.
"When someone comes to the bank for money, it's going to take a lot for you to find out who are the persons who are connected to them by this terminology. It is recognised that the financial relationship they might share with another entity could impact the bank, but at what point do you stop? It is a risk, but how do you quantify and put parameters on that?" said Davis-Logan.
Phillips said definitions would be dealt with in accompanying regulations, which were yet to be drafted. He said that the drafting would be timed to coincide with the effective date of the Banking Services Act, which - although it should be passed in June - will not take effect until a date to be prescribed at the lawmakers vote on the bill.
The bankers also protested the fact that there are only four areas under which they can lodge appeals against BOJ decisions.
But, again, Phillips advised them: "There are a set of global standards under which Jamaica needs to conform. We can't create our own little set of rules."
The minister said the intent of the legislation "is not so much to pioneer new rules, but to consolidate existing legislation".
"We need to incline to our conservative instincts when it comes to financial system regulations generally. Let's not engage in wild swings. This is not a 20:20 match," he said.