As Jamaica gears up to implement the twin peaks model for regulatory oversight of the financial sector, Bank of Jamaica (BOJ) is seeking international advice to build a framework for consumer protection and market conduct.

Former Minister of Finance Dr Nigel Clarke announced in January 2023 the intention to move Jamaica from having regulation by sector in which the Financial Services Commission (FSC) regulates and supervises non-deposit-taking institutions, such as insurance companies, securities dealers, and pension funds, while the BOJ regulates and supervises deposit-taking institutions, such as commercial banks, merchant banks, and building societies, to one in which the central bank will take over the supervision of the entire financial sector, while the FSC would govern market conduct and consumer protection among financial institutions.

Since then, the BOJ has published a concept paper on the new regulatory framework and has begun consultations with the Insurance Association of Jamaica (IAJ), Jamaica Bankers Association (JBA), Jamaica Securities Dealer Association (JSDA), and Pension Association of Jamaica (PIAJ). However, the general public has been effectively left out of adding its voice to consumer protection, which BOJ Governor Richard Byles admitted has not been supported by different forms of legislation over the years.

“Well, I think that once we get the concept of market conduct and customer protection settled, by that I mean, it has to get to Cabinet and Cabinet approve it. That means that this is the concept that the country is about to legislate on. At that point I think that we can start to have the conversation with the public as to whether that legislation embraces all of your major concerns. Remember, we can’t start and fix every ill, but does the legislation address the most burning issues at this time. So we will have that conversation,” Byles said Wednesday at the Trinidad and Tobago Stock Exchange’s (TTSE) third Capital Markets Conference held at the Hyatt Regency Hotel, Port of Spain, Trinidad and Tobago.

The push to twin peaks came in light of fraud allegations at Stocks and Securities Limited, a securities dealer, in January 2023 when it was alleged that more than $4 billion in funds were defrauded from the entity. Apart from some of Jamaica’s politicians and shakers in construction, WellJen Limited, a holding company connected to Usain Bolt, was alleged to have been defrauded to the tune of US$6 million. This was effectively the straw that broke the camel’s back as rapid change started to take shape.

The twin peaks change was set to take at least two years to bring into force. However, Byles noted that this timeline is likely going to be by 2026 since the legislative process in Jamaica is described as quite onerous. The BOJ has proposed legislative changes to introduce Basel III, the special resolution regime and updates to different legislations to require more director independence on the boards of financial subsidiaries under financial holding companies.

“We have like a blank slate in respect of market conduct and consumer protection. We are seeking international advice to help us to structure the whole legislative package to do with those two aspects of supervision. We have seen a lot of complaints from customers, not just retail customers but investors, too, about market conduct. You don’t want to suffocate creativity, but at the same time, we don’t want to leave investors to be carried down the wrong path,” Byles added.

The BOJ currently has an office of consumer complaints to handle complaints related to entities under the Banking Services Act. However, there are some limitations on what the BOJ can do with most complaints sent to the regulator with account-related issues and fraud/impropriety being at the top of the list.

The FSC is currently seeking a technical expert to evaluate the efficacy of the regulatory arrangements of the stock market and what changes need to be made to maintain investor protection, market integrity, and efficiency of the capital markets.

The first phase of twin peaks will see legislative amendments and changes in regulatory and supervisory process to facilitate a seamless transition to the new regulatory model. Some of these changes would include amendments to the FSC Act to empower it to strengthen existing enforcement, investigative, and other supervisory powers for the FSC to undertake its new mandate, which includes conduct codes, informing the public of investigations, and enforcement actions. The second phase of twin peaks would be to add more legislative changes when necessary and considering the possible transfer of functions of financial consumer alternative dispute resolution to an independent ombudsman.

“In this practice, we’ll see what are the issues that you raised, that you have concerns about. We will see what issues we have concerns about, and we get that period of discussion to arrive at the best possible solution. It also gives us the opportunity to staff up because both regulators are going to have to be more professional, dedicated, modern in how they regulate. I don’t mean just in terms of what’s in the head, but I mean in terms of technology so that we can reduce the burden of regulation on financial institutions,” Byles explained about the current practice period.

According to government filings by the Government of Jamaica with the US Securities and Exchange Commission (SEC), the BOJ is currently piloting prudential regulation for Barita Investments Limited, JMMB Investments Limited, and Scotia Jamaica Life Insurance Company Limited. The FSC, in turn, is doing a market conduct examination with National Commercial Bank Jamaica Limited. The BOJ currently has some strengthened oversight powers due to the largest financial entities being under financial holding companies (FHC) which make up about 90 per cent of Jamaica’s financials sector assets.

Byles also added that he hoped inflation would go below five per cent with September’s point-to-point inflation coming in at 5.7 per cent. Jamaica’s next inflation rate will be published on November 15, with the BOJ to announce on its policy rate on November 21. Byles made reference to the US Federal Reserve for which the next fed rate meeting will take place between November 6 to 7, just days after the United States presidential election.

“As you listen to Bloomberg, if you’ve been listening recently, rates may not come down as fast as we thought. On the monetary side, we are concerned too about the impact of the geopolitical situation in terms of supply prices rising again. We would like to see interest rates come down. We have to watch the fed very carefully because money can move. If the fed offers a better rate, money will move. So we have to be very careful about watching that,” Byles closed.