CONSUMERS can breathe a sigh of relief as new regulations aimed at enhancing consumer protection are on the horizon for financial institutions. ATM repair response time, complaint handling, and fees are focal points of attention for how financial entities conduct themselves, as highlighted by Bank of Jamaica (BOJ) Governor Richard Byles during his presentation at Jamaica Stock Exchange’s (JSE) 19th Regional Investments and Capital Markets Conference on Thursday, focusing on the impending introduction of the twin peaks model.

The twin peaks model of financial system regulation employs two specialist peak regulators: one charged with the maintenance of financial system stability, and the other with market conduct and consumer protection. It is different from the sectoral regulation which now prevails in Jamaica, with the BOJ regulating one set of financial institutions, chiefly deposit-taking institutions such as banks and building societies (as well as credit unions in short order), and Financial Services Commission (FSC) regulating non-deposit-taking institutions such as insurance companies, securities dealers, and pension funds — with both regulators having some, though limited, consumer protection role.

“Twin peaks will deliver comprehensive consumer protection and market conduct regime legislation for financial services,” declared Byles, highlighting its groundbreaking nature as an unprecedented concept in Jamaica. “Currently, the Bank of Jamaica has very limited powers where consumer protection is concerned — strong powers on the prudential side [but] very little on the consumer protection side.” The prudential side refers to the mitigation of certain risks through regulation.

While the existing regulatory framework has proven effective — particularly on the prudential side — and has weathered challenges like the pandemic and rising interest rates, Byles revealed that consumers are turning to the BOJ to ensure the establishment of fair market conduct and a robust consumer protection refereeing system.

“The public has been crying out for more market conduct and consumer protection regulation, and we can’t ignore it,” emphasised Byles.

The basic concept of twin peaks is to separate prudential supervision from market conduct and customer protection, and allow each independent supervisor to develop strong specialist skills overlaid on responsibility for the entire financial sector. The concept will cover all deposit-taking institutions, securities dealers, pension funds, insurance companies, and the stock exchange. The BOJ, as the prudential regulator, will oversee these financial institutions while the FSC will supervise them from the perspective of customer and market conduct.

“These standards will address issues like the uptime availability of ATMs, the turnaround time for responding to complaints by customers, and the fairness of fees,” Byles announced.

The scope extends to the JSE for standardised market surveillance and improved disclosures by listed companies. Consultations between BOJ and FSC are in progress, encompassing rules and regulations that codify best-in-class service delivery and penalties. The twin peaks model is set to strengthen the micro-prudential framework and upgrade the capital and liquidity framework for securities dealers. It will also ensure consistent monitoring for corporate governance and risk management across all the financial institutions — with the board and senior management being held ultimately accountable for the management of firms — strengthening the regulatory toolkit to ensure that BOJ is equipped with the power to effectively act when concerns are identified, and leveraging technology in the supervisory world to drive efficiency in the regulatory processes.

In crafting the twin peaks and implementing them, BOJ and FSC are benefiting from technical assistance received from both IMF and World Bank. BOJ also had dialogue with several major financial sector regulators in countries that have already developed the twin peaks model of financial sector regulation.

“Currently, we are at the stage of proposing to the Cabinet what the new regulatory architecture should look like. The necessary decisions can be taken at that level, and we begin the process of drafting the legislation to go to Parliament, which we expect will be on the floor of Parliament maybe later this year, if not early next year,” Byles said regarding the timeline for regulation.

Acknowledging that legislation takes time, he assured that from consultation to implementation the process might take only another year to draft and debate the law before it is passed.

“We will roll out the standards with which we expect the industry to comply even before the legislation is passed,” he said in addressing questions from the audience about potential over-regulation.

He pointed out that everyone in the financial sector is currently regulated, so the shift merely involves transitioning from FSC to BOJ regulation, with no increase in regulatory burden.