THE Jamaica Securities Dealers Association (JSDA) is expressing fears that conservativeness, which is normally seen among central banks, will result in the Bank of Jamaica (BOJ) stifling innovation among securities dealers as the regulator enters a new phase in which it is effectively in charge of the entire financial sector.
"There is a global market view that bank regulators are typically overly conservative, which is not necessarily supportive of the entrepreneurial underpinnings of the securities market which thrives on innovation, necessarily set within the context of prudent risk management," Steven Gooden, president of the JSDA and CEO of NCB Capital Markets, outlined in his speech at the Jamaica Stock Exchange 18th Regional Investments and Capital Market Conference at the Jamaica Pegasus hotel in St Andrew on Tuesday.
"This is unlike a securities regulator that tends to facilitates market deepening and innovation within the context of prudent risk management," he continued.
"Our fears exist in this regard."
Gooden was speaking against the backdrop of the announcement from the Finance Minister Dr Nigel Clarke that the eight-member board of the Financial Services Commission is now stacked with central bankers, while the new operational head Keron Burrell is himself a central banker.
Clarke announced on Monday that chairman and governor of the Bank of Jamaica Richard Byles will now chair the beleaguered FSC as part of changes to improve oversight of securities dealers. Byles replaces a former central banker, retired senior deputy governor at the Bank of Jamaica John Robinson.
He is joined on the board by his current senior deputy governor, Dr Wayne Robinson, and deputy governors Jide Lewis and George Roper. Roper is a former deputy executive director of the FSC and acted as executive director of the entity after his former boss Brian Wynter departed the role before eventually ending up as Bank of Jamaica governor.
However, while Gooden expressed fears that the FSC board and management being stacked with central bankers could lead to the stifling of innovation in the sector, he was quick to point out that the securities dealers are "supportive of actions geared towards restoring confidence in the sector".
He further clarified: "However, I can say the fear now is less than say a decade ago as we are seeing a central bank that is much more market-friendly. As such, I am cautiously optimistic that once we get past the teething pains, we establish a framework that consists of a robust regulatory oversight that restores confidence in the sector, but also one that facilitates us achieving our aspiration of being the global niche player in financial services that we have the potential to become."
Gooden earlier told the Jamaica Observer that the focus will now be on the consultation process over the next few months.
"We must ensure there is balance between prudential oversight and that of market growth and deepening."
His colleague securities dealers were also cautiously examining the change.
"This is the most significant regulatory shift in the history of our financial system. Was it needed? Truth is, I am not sure that it was, but it does bring with it a very real potential to have a more effective and efficient regulatory environment for all players, including securities dealers and banks," Julian Mair, chief investment strategist at the JMMB Group and chairman of the Jamaica Stock Exchange, told the Business Observer.
"The regulatory scopes of both the BOJ and the FSC had many overlaps, and BOJ policy has always impacted the securities industry," Mair, who is a past president of the JSDA, continued.
He added: "While there will be significant learning required by all parties to ensure that this works seamlessly, it is the nature of change that it brings with it both risks and opportunities."
Dane Brodber, interim chief executive officer at Barita Investments Limited, said while his company is "generally supportive" of the objective the minister is trying to achieve, outlined, "We are eager to participate in the consultative process associated with the new regulatory regime with the objective of taking into account the nuances of the discrete role of the sector, which requires fit-for-purpose regulations in order to enable continued growth and deepening of the capital markets within the context of prudent risk management."
In the meantime, the Private Sector Organisation of Jamaica (PSOJ) has thrown its full support behind the changes being made at the FSC.
"We recognise that this initial step serves to restore a great deal of confidence and calm within the sector," the PSOJ said in a release Tuesday evening.
"While we accept that there can be challenges with this model, as seen in other jurisdictions, we believe the advantages outweigh the potential risks it may pose on the financial system if implemented in consultation with all stakeholders in the industry," it added.
The private sector lobby also said it is hoping to see "greater penalties for white-collar crimes, which are eroding the financial sector's foundation".
It notes the minister's announcement to move the financial sector's supervision to the Twin Peaks model to implement a more efficient and applicable structure to the Jamaican landscape.
"Nevertheless, we would want to have an appreciation of the long-term repercussions and considerations that would be taken into account when implementing the new Twin Peaks regulatory model."
The twin peaks model combines the objectives of systemic supervision and prudential supervision, leaving conduct-of-business supervision as a separate function.
"It is imperative that we remain strident in addressing all instances of crime and corruption to guard against its impact in undermining the social fabric of Jamaica," the PSOJ concluded.