The Financial Services Commission (FSC) has launched a new supervisory framework described and named the Risk-Based Supervision (RBS) approach.

The commission, in announcing the new framework, said it will set out a revised approach for oversight and risk assessment of Jamaica’s non-deposit-taking financial institutions (NDTFIs).

The FSC is one side of the financial sector supervisory coin in Jamaica, the other being the Bank of Jamaica, which regulates deposit-taking institutions — banks, building societies and trust companies.

The commission is charged with supervising its licensees under the FSC, Insurance, Securities and Unit Trusts Acts. It is also the regulator of private pension plans through the Pensions (Superannuation Funds and Retirements Schemes) Act of 2004. The FSC is also charged with supervising registered trustees and licensed administrators and investment managers of private pension plans.

On April 7, the FSC said the new RBS approach will see enhanced technical capabilities and agility in regulating and supervising the insurance, securities and private pensions sectors.

The commission said that the new framework was developed in consultation with stakeholders including key local partners and licensees. The system was piloted locally and will now be implemented.

The FSC said that this will result in several significant changes in its modus operandi.

Identifying risks

FSC’s executive director Everton McFarlane said that RBS will allow the commission to shift its supervisory methodology to structure examinations of supervised entities to reveal whether or not there is effective risk management; and to identify areas of greatest risk and to assess whether or not those risks are being effectively mitigated.

Speaking at the recent virtual launch of the RBS, McFarlane said: “The RBS requires us to adopt the practice of continuously assessing the inherent risks associated with a company’s mode of business, to assess a company’s corporate governance and risk management protocols and controls, in order to determine an overall risk profile of the entity and to anticipate any possible future breaches.”

Chairman of the FSC’s board of commissioners and retired senior deputy governor of the Bank of Jamaica John Robinson described the RBS as “having far-reaching implications for the health of non-deposit-taking financial institutions as well as the stability of Jamaica’s financial markets and the wider economy.”

More flexible approach

Robinson said that a “more flexible approach espoused by RBS delivers other advantages by enabling proactive supervision, rather than reactive supervision; and rather than slavishly following a routine supervisory process, the RBS approach involves identifying the key risk issues and then applying targeted regulatory interventions around those issues.”

It was noted that FSC will communicate the minimum requirement to manage these risks appropriately.