Understanding the Financial Services Commission

The Financial Services Commission (FSC), which was formed in the aftermath of the financial sector crisis of the late 1990s, is strengthening its ability to manage risk.

Executive director of the FSC Everton McFarlane said, “We're actually strengthening our capability to undertake risk-based supervision and as we continue to improve that capability and focus we would be in a much better place to ensure that the limited resource that we do have are being utilised in the most effective way.”

He explained that like many other agencies of government, resources are low but he stressed that the FSC's regulatory approach and focus on risk have been crucial to the institutions success so far.

The FSC is the regulator for the non-deposit taking financial sector in Jamaica. These institutions include the securities sector, private pensions sector and the insurance sector. In short the FSC is charged with regulating financial activity that takes place outside of the banking sector.

“We regulate who comes into the industry and once you're in we have to monitor and assess on a regular basis how you are performing. And whether a licensee is conducting themselves appropriately,” said McFarlane.

But the FSC's mandate goes beyond institutional regulation, the commission is also tasked with monitoring and regulating agents and authorised representatives who interface with the public. These agents referred to as financial advisors, brokers and dealer representatives — all have to be registered with the FSC.

“There is a requirement and a need for us to assess the capability, the financial capacity, the governance processes that a particular institution has before we can register or licence that entity as having the right to sell certain services to the public and it includes looking at significant shareholders who own more than 10 percent of a particular entity. We have to look and asses what is called their fitness and propriety. We also have to assess the fitness and propriety of all directors of the company as well as that of certain senior management, persons who are called responsible officers who have certain duties to report and to ensure compliance within the entity and report that to the FSC,” he continued.

The FSC was established to prevent the conditions of the financial sector crisis from occurring again, “policymakers took a very in-depth look at the causes of the crisis and what was realised, among other things, was that the crisis reflected in part a failure of governance within the financial institutions broadly speaking. It was also recognised that the regulatory framework was not strong enough to enable regulators to quickly identify and to curtail certain kinds of behaviours that had emerged,” McFarlane explained.

Since the entity was formed in 2001, there has been relative success with only a few cases where the FSC has had to take extreme actions.

“There have been instances where one or other of our licensees have had to exit the market but we have sought to manage that exit in an orderly way and, of course, you will recall some of the turbulent times in the early 2000's with the unregistered financial organisations. There may have been public reports about one or two small entities that we had under liquidation but by and large we have managed working together with our stakeholders including the Bank of Jamaica, the public and the policymakers to avoid the kind of disruptive circumstances that existed in the mid to late 1990s.”

Currently, there are about 1,980 licensees under FSC supervision but the executive director pointed out that, “not all of those licensees or registrants would carry the same level of risk. By and large with the limited resources that we do have we focus our attention on where the risk is largest and that is in regards to the actual institutions who take funds from the public.”

He said the FSC's aim is to engage and intervene before an entity reaches the stage of failure.

“The measures that we have available to us are not just in relation to a failure, they actually speak to an assessment that we make on an ongoing basis as to the financial health and viability of the institutions that we regulate and based on that assessment we are empowered to take corrective actions which may include the FSC giving directions which are essentially orders for the entity to take specific actions within a specific time to correct a deficiency,” said McFarlane.

“We may also issue a cease and desist order or take temporary management of a company depending on the circumstances. We may also take steps to suspend or cancel a licence or a registration and in all of those we are also empowered to enlist the assistance of the courts where necessary to have those orders and directives complied with,” he continued.

The FSC works closely with the Bank of Jamaica and shares information on a routine basis including supervisory information and information on specific entities that may be of concern, “we collaborate with regards to the strengthening of financial sector legislation and we also participate very actively on certain statutory committees that have been formed by the policymakers to enable the regulators to have a full overview of the financial stability of the sector,” McFarlane highlighted.

BY ANDREW LAIDLEY Senior business reporter laidleya@jamaicaobserver.com

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