Cedric Stephens | Running the risk of SSL infobesity

Information overload – also known as infobesity, infoxication, information anxiety, and information explosion, according to free online encyclopaedia Wikipedia – is the difficulty one has in understanding an issue and effectively making decisions when one has too much information about that issue. It is generally associated with the excessive quantities of daily information.

I am suffering from this condition. The cause: the news about Stock & Securities Limited, SSL, in print, electronic and social media, and by word-of-mouth

Other factors complicate the disorder. Family members have personal and business relationships with one of the main actors of the securities firm and SSL, respectively. Do these linkages, indirect or otherwise, conflict with my responsibilities to readers? Should I ignore the topic because of these connections, or should I try to navigate a path through the jungle?

My internet browser retrieved 8,100 results when I typed the name of this newspaper, my name, and the abbreviation for the Financial Services Commission, FSC, in its search box. The most recent item is last week’s column. The earliest was about an event in which I participated on September 13, 2011. It was the Fair Trading Commission’s Shirley Playfair Lecture. I spoke there along with an FSC representative and an insurance company executive.

This column began in July 1997 as Insurance Helpline. The FSC, in its role as the regulator of the insurance industry, was the subject of many of the 1,040 articles that I wrote and that were published over the last 25.5 years. The experience that I gained in researching to write those articles led me to examine insurance regulatory bodies in the United States, Canada, the United Kingdom, India, the Cayman Islands, South Africa, Trinidad & Tobago, and The Bahamas.

I have visited the website of the International Association of Insurance Supervisors of which Jamaica is a member, the global organisation of insurance regulators. My interactions with hundreds of local insurance consumers and FSC executives have provided me with valuable insights into how regulators are organised and the work that they do. I, therefore, have a knowledge base to offer objective comments about the policy changes that were announced by the Minister of Finance & the Public Service in the wake of recent disclosures about recurring ‘management problems’ and alleged employee fraud at SSL.

Today’s comments about the proposed policy changes with respect to the supervision or regulation of the deposit-taking institutions or DTIs, namely commercial banks, merchant banks, building societies and shortly, credit unions, and non-bank financial institutions or NBFIs, entities in the insurance, pensions, and securities industries, will begin with the concluding paragraph of an article that I wrote in this newspaper on September 7, 2022: ‘Is the FSC finally changing gear to focus more on consumers?’

Like John the Baptist, I have been the lone voice in the wilderness that has been crying out for years for the FSC to adopt a twin-peak regulatory structure. It should practise prudential and market conduct regulation.

Proposed policy changes

The functions of the Bank of Jamaica, BOJ, will be expanded to include the prudential supervision of NBFIs. It currently supervises DTIs. Prudential regulation requires financial firms to control risks and hold adequate capital as defined by capital requirements, liquidity requirements, by the imposition of concentration risk or large exposure limits, and by related reporting and public disclosure requirements and supervisory controls and processes.

The goal is to safeguard the financial system. This is the first of the twin-peak regulatory model.

The second peak will involve market-conduct regulation. Market conduct supervision focuses on promoting transparency and fair dealing by financial institutions and offerors in the conduct of their business with customers. This includes prescribing disclosure requirements, conducting fit and proper tests to promote honesty and integrity among financial institutions and their representatives, setting competency requirements for those providing financial services in the capital markets, and instilling fair business practices in the marketing and distribution of financial services and products. These functions will be undertaken by the Financial Services Commission.

Since its inception in August 2001, the FSC was mandated under Section 6(1) of the Financial Services Act to protect the customers of financial institutions to: supervise and regulate the prescribed institutions; promote the adoption of procedures to manage risk for use by management, boards of directors, and trustees; promote stability and public confidence in financial institutions; promote public understanding of financial institutions; and promote modernisation of financial services with a view to the adoption and maintenance of international standards of competence, efficiency, and competitiveness. These functions were interpreted over the years by successive FSC executives to mean that the commission was responsible for the prudential and market-conduct supervision of the insurance, pensions, and securities industries.

The FSC, I have long argued, has concentrated on prudential regulation and paid limited attention to market-conduct supervision.

It is envisioned that in 18 to 24 months when the new policies are implemented after legislative changes are made, the FSC’s functions will be limited to market-conduct supervision of DTIs and NBFIs. The BOJ, on the other hand, will focus on prudential regulation for the DTIs and NBFIs.

The Bank of England, BOE, which was established in 1694, is the central bank of the United Kingdom. Most modern central banks are said to be built on the BOE model. The The BOE regulates entities in the UK’s financial sector through the Prudential Regulatory Authority.

“We create policies for firms to follow as well as watch over aspects of the business – we call this supervision. We want to ensure that the financial services and products that we all rely on can be provided safely and soundly,” the Prudential Regulatory Authority says in a description of its function.

The BOJ will be carrying out similar functions for DTIs and NBFIs like the BOE.

Market-conduct regulation of financial service entities in the UK is provided by the Financial Conduct Authority. The new version of the FSC will focus on market-conduct supervision of Jamaica’s DTIs and NBFIs.

It seems fair to conclude, based on the recent disclosures about the happenings at SSL, that the FSC has failed to carry out its mission in respect of the local securities industry. Retail insurance consumers, particularly motor insurance buyers, have not benefited from the adoption of and maintenance of international standards of competence, efficiency and service delivery.

This is more evidence of failure on the part of the FSC’s top management and its board of commissioners. It is hoped that the changes that were announced to the regulatory structure will lead to better outcomes for all consumers of financial services in the long run.

Cedric E. Stephens provides independent information and advice about the management of risks and insurance. For free information or counsel, write to: aegis@flowja.com or business@gleanerjm.com