FINANCE Minister Dr Nigel Clarke said Wednesday that securities dealers have nothing to fear from the Bank of Jamaica (BOJ) assuming regulatory oversight of the capital markets.

Clarke, who was responding to securities dealers saying they were "fearful" that their ability to create innovative products for the capital markets will be stifled by an overly conservative central bank, downplayed the concern as he addressed the Jamaica Stock Exchange 18th Regional Investments and Capital Market Conference at the Jamaica Pegasus hotel in St Andrew.

"Now, there is good fear and bad fear, and I think a healthy amount of fear for your regulator is not a bad idea," Clarke opined as he posited, "We need seamless, real-time consolidated supervision; not the supervision where you get together in three weeks and you find out" something is wrong.

He continued: "If the [members of the US financial sector] were here today, they would certainly tell you that the regulators in America are not 'chummy chummy'. There is a healthy degree of fear for the SEC [Securities and Exchange Commission] because if you mess around on the market conduct side, for example, there will be stiff repercussion."

"So when I see stuff about fear appearing in the public domain, that's kind of good news. A healthy amount of fear is good, and we welcome them. But the bad kind of fear, there is no need to worry about."

The minister reiterated his promise to engage securities dealers as part of the consultation process in designing "the finer details of the structure" under which the central bank will become a permanent super regulator for the entire financial sector, instead of the fragmented approach which exists with the Financial Services Commission (FSC) regulating non-deposit-taking institutions such as securities dealers, insurers and pension managers; while the BOJ regulates deposit-taking such as commercial banks, merchant banks and building societies.

The move to create a single super regulator was accelerated by revelations of a 13-year fraud at Stocks and Securities Limited (SSL), a securities dealer, after its regulator, the FSC, faced public backlash for extreme leniency towards the entity, though cited as a problem institution in the past.

And, in an apparent attempt to deflect further concerns about the prudence of having a single regulator for the entire financial sector, Clarke said the move is to "ensure that our regulatory environment is fit for purpose" for Jamaica.

"With respect to financial sector regulation, our regulatory environment has got to reflect the financial structure of the Jamaican financial sector. And our financial sector has a structure that is different from another country X or country Y. So generic comparison's doesn't work; we have to go from first principles as to what makes sense for us."

"And in an environment where 90 per cent of resources in the financial system are under the control and ownership of financial conglomerates, our regulatory environment has got to reflect that, or else what happens is that we are left with regulatory gaps that expose you [in the financial sector] and it exposes the investing public."

"The point I am making is that when you have a financial structure environment where you have financial groups that dominate the landscape, we cannot allow for regulatory gaps to occur and we need a single financial services regulator that has a seamless ability to see the entire system and that is a regulatory environment that protects us all," he added.

The regulation of financial conglomerates was an issue raised by the International Monetary Fund (IMF) in its Article IV Consultation on Jamaica that was released in February 2022.

"The financial sector is dominated by complex financial conglomerates that operate in multiple jurisdictions that have different oversight practices, and cross-border and financial subsectors linkages are concentrated in a few entities," the IMF wrote in its report, which was covered by the Jamaica Observer in March last year.

"Risks arise from concentrated ownership, related party and large group exposures, and off-balance sheet positions. Even with proper separation between bank and non-bank group members, direct and indirect exposures could be a source of contagion," it pointed out.

At the time, the IMF said the FSC was drafting an amendment to facilitate the consolidated supervision of non-deposit-taking institutions groups and has established a joint working group with the BOJ working group on consolidated supervision.

"Strong efforts are needed to finalise adoption of the remaining legislative framework for group-wide supervision and continue advancement with data gathering and analytics, particularly of inter-institution linkages and cross-border exposures," the IMF said.

With the creation of a super regulator, Clarke said the FSC's mandate will be changed to overseeing market regulation and consumer protection, while the BOJ will manage the prudential regulation of financial companies.

He said the change being made is to facilitate further growth in the securities dealers sector.

"So, though it is $1.45 trillion today [in] the securities dealers sector, it is likely to be significantly more than that in a decade. And we have to ensure that along that path of growth we have a regulatory environment that is consistent with the size and the structure of our financial services industry," he observed.

"I put it to you that it is in your interest...that there is a credible, visible institution that is responsible for market conduct and consumer protection activity in Jamaica across the financial services sector. And so the model that we are moving is one that reflects the conditions, the realities, the historical legacy and the structure of our own financial sector. And one where we have a prudential regulator that regulates prudentially across the financial services sector, that has visibility, that has economies of scale and that offers better service as the possibility of conflicting regulation and conflicting instructions disappears."