FSC report on SSL was never brought to my attention – Clarke
Finance Minister Dr Nigel Clarke has now acknowledged that his office received a report from the Financial Services Commission (FSC) on the fraud-hit Stocks & Securities Limited (SSL) in April 2020.
But he said it was never brought to his attention.
The report covered an examination of the private investment firm in June 2019, two years after the FSC threatened to suspend SSL’s licence after branding the company a “problem institution” that operated a “culture of non-compliance and mismanagement of client funds”.
Those conclusions were never made public until a Gleaner exposé on January 17.
SSL is reeling from an alleged $3 billion fraud uncovered this month. There are mounting questions about what Jamaican government authorities knew before the alleged theft and what actions were taken.
During a policy address last Monday, Clarke insisted that “... as minister of finance and the public service, neither the FSC board of commissioners nor the FSC executive director nor any person from the FSC has ever raised Stocks & Securities with me in any way”.
The FSC regulates investment houses.
Clarke also said Audley Shaw, his predecessor, indicated that he was not aware of any reports on SSL.
But it has now been confirmed that almost three years ago, the FSC did send a document directly to Clarke highlighting some of SSL financial troubles.
“I wish to make it clear, however, that the referenced report was never, ever, brought to my attention. Period. And I did not know of its existence,” he wrote in an opinion piece published in yesterday’s Gleaner.
On Thursday, The Sunday Gleaner submitted questions on the FSC’s 2020 letter to Financial Secretary Darlene Morrison, as well as the FSC. Morrison has not acknowledged those questions. The FSC said it “noted” the query.
The questions were based on the letter dated April 3, 2020 that The Sunday Gleaner obtained. It was written by outgoing FSC Executive Director Everton McFarlane, and addressed to Minister Clarke.
It advised Clarke of the submission of on-site examination reports up to March 2020.
SSL was one of six entities referenced in the letter.
McFarlane told Clarke that he should not hesitate to reach out “if you require further information or clarification”. The document was sent by email and in hard copy.
In his article, Clarke said hours after his address last Monday, an official in FSC’s management told him that the commission sent a copy of a report to his office.
Under the FSC’s law, the agency is required to examine the affairs of entities that it regulates at least once per year, and after that submit a report to the minister within 90 days.
‘BREACHES WORTHY OF THE RECOMMENDATION’
Clarke said on Tuesday, he asked his office to search for the document. That effort yielded nothing and he then dug in.
“I personally returned to the cabinets myself, searched approximately five years’ worth of records and eventually found one report regarding SSL, dated June 25, 2019, which was packaged among other reports, sent by the FSC on April 3, 2020 and stamped “received” by my office on April 15, 2020. This was not a report prepared for me specifically. Rather, it was a copy of an existing FSC report that the FSC uses to do its job,” he said.
According to the minister, the report did not contain a history of the FSC’s regulatory actions against SSL although it included “breaches worthy of the recommendation that the FSC meet with the board of SSL to address liquidity issues at SSL”.
The report also included a recommendation that SSL be “issued immediately with regulatory directions in order to have the issues resolved in a timely manner”.
Clarke further argued that the FSC law “does not contemplate the minister’s involvement in supervisory decisions and activities” and that his role is mainly on policy issues or engaging in coordinated supervisory response involving the central bank and the ministry in its policy role.
“My office staff members also take a reasonable and rational approach to bringing matters to me that involve a consideration as to whether any matter has been specifically flagged for ministerial action or intervention,” he said, noting that such an action is necessary to ensure the FSC’s operational independence.
Clarke said what followed the FSC’s June 2019 report “is worthy of note”:
• The FSC board implemented the report’s recommendations and approved directions, which were issued to SSL on October 25, 2019, almost six months prior to my office receiving a copy of said report.
• The FSC board implemented directions that were more extensive than the directions recommended in the report in both scope and detail.
• Later FSC status update confirmed that SSL was compliant or largely compliant with five of the six FSC board mandated directives by April 25, 2020, days after my office received the report.
“The FSC has brought matters of concern, or that require my input, directly to my attention many times in the past. SSL was never among them. Neither the FSC executive director, nor the FSC board of commissioners, nor anyone at the FSC has ever raised SSL with me,” Clarke insisted.
Meanwhile, the finance minister has argued that provisions in the FSC’s law which require yearly assessment of regulated entities, almost 500, “is as absurdly impractical as it is abundantly clear”. He said changes will have to be made.
“For better or worse, to the best of my knowledge, and after making a few calls to verify, the FSC over its 22 years never quite operated in that way. This should be patently obvious,” he said.
Minister Clarke has disclosed that he requested McFarlane’s resignation as FSC executive director. It was announced on January 19, a day after McFarlane evaded media questions on actions of the FSC, including whether any SSL-related matters were reported to finance ministers, since February 2017.
Clarke took over from Shaw in March 2018. Shaw held the portfolio from March 2016 after four years of control by Dr Peter Phillips under the Portia Simpson Miller administration.
At least 40 clients have been impacted by the alleged fraud that was reported to the authorities on January 10. Sports legend Usain Bolt has reportedly lost almost $2 billion.
An ex-employee has been implicated, though not charged.
The authorities have reported that “questionable transactions” stretch back at least a decade. The FSC now has temporary management of SSL and has obtained a court order blocking SSL directors from winding up the company.
“With external auditors, regulators, managers, bankers, and later internal auditors, how did this fraud go undetected for 13 years? ...it is a question this Government will ensure is answered,” Clarke said last Monday.
Five public bodies – the National Housing Trust, the National Insurance Fund, Jamaica Agricultural Society, the National Health Fund and the Jamaica Banana Catastrophe Fund – held investments in SSL.
Prime Minister Andrew Holness has disclosed that he gave instructions in September 2021 for an account he held at SSL since 2008 to be closed.