Central banks across the Caribbean are continuing to push for the creation of financial holding companies (FHCs) to have better oversight over their domestic financial sectors.

Caribbean regulators have enacted different pieces of legislation over the last two decades to create better oversight of regulated financial institutions in the domestic and international markets. This has been facilitated by Banking Services Act (BSA) (Financial Holding Companies) (Licensing Application Form) Rules, 2019 in Jamaica and the Financial Institutions Act (FIA), 2008 in Trinidad & Tobago. Section 69 of the BSA covers FHCs while section 67 of the FIA covers FHCs in Trinidad.

Jamaica has had a surge in the number of licensed FHCs in the last three years. There were only two licensed FHCs at the start of 2023 before an additional three were approved in that same year. Scotia Group Jamaica Limited and GraceKennedy Financial Group Limited were approved as licensed FHCs during 2024.

Barita Financial Group Limited (BFG) became the direct parent company of Barita Investments Limited (BIL) during the second quarter (April to June) and owns 71.8045 per cent of the listed company. BFG’s formation comes after shareholders of Barita and Cornerstone United Holdings Jamaica Limited (CUHJ) approved the scheme of arrangement in January 2025. CUHJ previously held 100 per cent of Cornerstone Trust & Merchant Bank Limited (CTMB) which will now be held under BFG. BFG had already applied to be a licensed FHC since 2024 as per the Bank of Jamaica’s (BOJ) 2023 annual report.

The move to fast track licensed FHCs in Jamaica comes against the backdrop of the BOJ working on consolidated supervision of the financial system. This approach is meant to enhance the BOJ’s ability to assess and mitigate risks within FHCs. More than 90 per cent of financial sector assets are currently held under FHCs.

“Systemically important financial institutions and financial holding companies continue to be significant in the Jamaican financial system. Against this background, Bank of Jamaica, in collaboration with other financial system regulatory agencies, has already began the work to mitigate risks and vulnerabilities thereby boosting the resilience of the system,” stated the BOJ’s 2024 financial stability report.

The BOJ has been working to build out the regulatory framework for FHCs which includes reforms to the corporate governance framework of deposit taking institutions (DTIs) and FHCs. The BOJ published a consultation paper for Effective Corporate Governance of DTIs and FHCs in December 2024. Some of the proposed items include the formal definition of an independent director and outlining the minimum roles and responsibilities of those independent directors, strengthening the risk governance and oversight mechanisms framework and introducing corporate governance expectations.

Some of these proposed changes also impact how many independent directors of FHCs can sit on the respective subsidiary boards. This move is meant to minimize conflicts of interest and ensure that FHCs and their subsidiaries operate with greater transparency and accountability. Different FHCs have reshaped their board make up for their FHC board and main subsidiary boards to be in line with these standards.

“Given that the ultimate responsibility for the affairs of a financial institution falls on the board of directors, it is essential that the Board is composed of the right mix of competent individuals who have the necessary experience to provide effective leadership and oversight,” the financial stability report stated.

Some of the other items in the work for FHCs include capital and liquidity requirements which are meant to address prudent capital allocation and addressing risks like regulatory arbitrage and double gearing/double leverage. Additional standards to be developed includes prudential standards for solvency, liquidity and large exposures and related parties.

Greater regulatory oversight

The Financial Services Commission (FSC) Act was amended during 2024 to give the non-banking regulator the authority to regulate and supervise the non-bank financial groups on a consolidated basis. Prior to this amendment, the BOJ required the restructuring of companies to have a FHC once there were two or more financial institutions that operated in Jamaica and had a DTI subsidiary.

The FSC Amendment Act, 2024 made provisions for the licensing and supervision of non-bank holding companies, supervise and regulate these non-bank financial groups on a consolidated basis and empower the FSC to request information from any company in the non-bank financial group.

“The FSC Amendment Act, 2024, along with the BOJ’s continued efforts toward consolidated capital adequacy, marks another step in a series of reforms aimed at maintaining financial stability, reducing contagion risks and strengthening the resilience of Jamaica’s financial system,” the BOJ added.

The consolidated supervisory framework comes at a time when Jamaica is gearing up for the twin peaks regulatory framework where the BOJ’s regulatory scope will be expanded to cover the prudential regulation of the entire financial sector while the FSC will oversee market conduct and consumer protection of financial institutions. The pilot phase (phase two) for both regulators has been extended into 2025 as they carry out joint prudential examinations and market conduct studies of regulated financial institutions. The preparation phase (phase one) continues between both regulatory agencies.

The third phase of the twin peaks regulatory model will involve the secondment of BOJ and FSC employees between both regulators to provide on-the-job training and expand cross-agency understanding of the different supervisory practices. Phase four is the period when the new regulatory model becomes operational and the operational structures and detailed work processes are adopted.

The legislation for the twin peaks regulatory framework has yet to be brought to parliament as both regulators work on getting the concept settled. The BOJ is currently awaiting feedback from the Ministry of Finance & Public Service on the latest draft cabinet submission prepared for twin peaks. The legislative agenda can be fast tracked following Jamaica’s 2025 General Election.

CBTT moving ahead

The Central Bank of Trinidad and Tobago (CBTT) has moved ahead in pushing for some domestic regulated entities to restructure their group and form an FHC. Ansa McAl Limited was informed by the CBTT on March 7 that it was being directed to complete a legal entity restructure for its 82.48 per cent controlled subsidiary ANSA Merchant Bank Limited (AMBL). AMBL is the parent company of nine other regulated companies involved in insurance and banking. An FHC will be created because of this restructuring for AMBL.

The FIA Act stipulates that this restructuring should be carried out within twelve months subject to a two-year extension as per the CBTT’s discretion.

There are currently four regulated FHCs in Trinidad & Tobago with First Citizens Group Financial Holdings Limited (FCGFH) completing its restructuring in October 2024. Jamaica Money Market Brokers (Trinidad and Tobago) Limited is a subsidiary of JMMB Financial Holdings Limited, a Jamaican FHC.

Guardian Holdings Limited (GHL) might have to undertake a similar restructuring despite being a 61.77 per cent subsidiary of NCB Financial Group Limited (NCBFG), a Jamaican FHC. However, with more than 60 subsidiaries across more than 20 jurisdictions, GHL Chief Executive Officer Ian Chinapoo noted that this would be a massive endeavour and would involve discussions with regulators in those different jurisdictions to ensure everyone is satisfied.

Section 68 of the FIA allows the CBTT to not require a restructuring where a foreign financial institution or holding company is subject to regulation and supervision acceptable to the Trinidadian regulator.