THE Bank of Jamaica (BOJ) has sought to clarify that it issuing a no objection to any financial entity seeking to reorganise itself into a financial holding company (FHC) does not mean it will automatically issue a FHC licence to the entity.

The clarification comes one week after executives of the Cornerstone Group, had statements in the media talking up a no objection from the central bank for its reorganisation.

The Cornerstone Group includes Barita Investments, Cornerstone Trust and Merchant Bank, Cornerstone Financial Holding Company, Cornerstone United Holding Jamaica and its managed special purpose vehicle (SPV) MJR Real Estate Holdings.

JMMB Group and Victoria Mutual Group have also received no objection from the BOJ for reorganising. To date only two financial conglomerates have received a licence to operate an FHC: NCB Financial Group and JN Financial Group.

However in its release on licensing FHCs, the BOJ noted in its release that “the issuing by [its] Supervisory Committee of a non-objection to a proposed group reorganisation means that the entity has put forward a group structure that will facilitate effective consolidated supervision of the group consistent with the banking laws.”

Under the Banking Services Act (BSA) 2014, financial conglomerates owning deposit-taking institutions — either a commercial bank, building society, or merchant bank — must reorganise their group structure for effective supervision from the BOJ.

The Cornerstone Group itself has started that process, outlining to the BOJ that it will create the Cornerstone Financial Group to own 100 per cent of Barita Investments and Cornerstone Trust and Merchant Bank. This will only come after a FHC licence is issued and is subject to a court sanctioned scheme of arrangement.

However, the central bank said the proposed reorganisation, while required, is only assessed to ensure that all financial companies within the group and all entities facilitating financial services, including special purpose vehicles that are related to or controlled by a financial group are included in the consolidated financial statements of that financial group.

“The evaluation of a group structure does not involve a review of a group’s financial condition and risk governance framework,” the central bank said, adding, “In considering the group’s reorganisation proposal, the (BOJ) also does not conduct a review of the soundness or the prudence of the group’s management team.”

It continued, “The (BOJ) wishes to make clear, therefore, that a non-objection from the Supervisory Committee in relation to an application for group reorganisation should not be considered as an endorsement by the central bank of a group’s financial condition and/or the quality of its senior management. As part of its general practice, the bank does not endorse the senior management of any licensee/applicant.”

The central bank said no assessment of an FHC licensing application takes place before a financial conglomerate demonstrates that its group structure is consistent with banking laws.

It added that when it gets to assessing the FHC application licence, “This evaluation involves a due diligence on a FHC’s corporate governance and internal control arrangements, financial strength, and resources (liquidity, capital adequacy, earnings etc), and information technology risk management.”