Cedric Stephens | Financial regulation at a crossroads

Jamaica’s financial services industry stands at a regulatory crossroads. The adoption of the twin peaks regulatory model – dividing prudential oversight and market conduct into two distinct regulatory peaks – should be more than a technical job.

The new template provides a chance to reimagine how the country’s history, shortcomings in the education system, trust deficit in institutions, lack of transparency, regulatory failures, and cultural traditions, among other things, can be used to reshape its financial future. According to a Jamaica Observer business report, the work plans of the Bank of Jamaica and Financial Services Commission do not appear to be grasping the opportunity, even with the pilot programme.

References about consumer studies, the island’s existential climate change threats, strategies to promote resilience, or BOJ/FSC engagement with citizens are absent from reporting. The twin peaks model was developed over 25 years ago. Yet neither of these institutions nor the Ministry of Finance and Public Service decided to introduce it until after the embarrassments caused by the SSL implosion.

Market conduct and consumer protection are at the heart of the non-prudential regulatory protocols. Preparation under the new regulatory regime, seem to be focused, according to press reports, on enhancing the capabilities of BOJ and FSC employees to discharge their duties.

Two years after the debacle, it is still a state secret why SSL was allowed by the regulator to operate with only US$1 million of employee dishonesty coverage. This amount was only 3.3 per cent of the reported US$30 million employee fraud the company suffered.

Should not the insurance coverage have borne a relationship to SSL’s total assets under management instead of an arbitrary amount decided by an incompetent FSC functionary? Is it not part of the regulator’s job to understand the threats posed by employee infidelity, among other risks, and help the entities that it supervises to manage them? Did SSL’s management consult its insurance brokers in relation to the amount of the limit for employee dishonesty? What was the nature of the advice? Was the subject discussed by the company’s board?

The twin peaks regulatory model and the pilot will not bring comfort to the elderly woman, one of many senior citizens, facing devastation, or rekindle trust in financial institutions. When she was interviewed by The Gleaner four months ago, she said investigators told her that the $60 million she gave SSL in 2019 was not invested.

Market conduct regulation is concerned with the protection of consumers, and the promotion of fair market behaviour. It also involves monitoring transparency, ethical practices, and the fair treatment of customers. Neither BOJ nor the FSC has developed enviable histories in these areas. Have the BOJ folks, who will be supervising the FSC under the new regime, forgotten the sustained efforts of Fitz Jackson who sought fair treatment for bank consumers?

The toll regulator, the Toll Authority, was set up one year after the FSC, under the Toll Roads Act 2002. It regulates the island’s toll roads. Jerome Powell, CEO of the Transport Authority, according to a recent Gleaner editorial, “has recently been effusive about the alacrity with which the operator of the north-south leg of Highway 2000 responded to the authority’s intervention to lift service standards”.

This newspaper, the editorial continued, “is happy about that and hopes that Mr Powell’s declaration marks a new era of transparency in the authority’s operation, including genuine dialogue with the public over rates and other matters. Perhaps then the authority and consumers will be on the same page on critical issues of service delivery”.

That commentary demonstrates that the author of the editorial understands the rationale behind the market conduct and consumer protection element of the twin peaks regulatory framework – something that the technocrats at Nethersole Place appear, thus far, not to have grasped.

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.