The financial sector needs to shift its focus away from the confines of a unit trust model if it hopes to diversify and stay relevant to investors’ demands, according to Financial Services Commission (FSC) executive director Rohan Barnet.

“We cannot afford to be complacent in the types of products we offer our customers,” Barnet said at the FSC’s financial forum held at the Jamaica Pegasus on Wednesday. “The investors may not always be willing to take the more conservative position.”

He believes diversification involves the introduction of “more esoteric products”.

“Let’s look at equity… something that doesn’t necessarily amount to a repo type where there is no intermediation,” he posited.

“To me, diversification is more than saying that we are going to be diversifying out of GOJ (Government of Jamaica) repos and do Chinese repos,” Barnet told Caribbean Business Report. “They are not saying we are going to do equities, we are going to do derivatives, we are going to introduce different types of products; they are saying we want to introduce different types of repos and we are going to do it in the context of the unit trust. Yes, that is a diversification, but I don’t think it’s the optimal level of diversification.”

At a presentation earlier this month, President of the Jamaica Securities Dealers Association (JSDA) and CEO of Scotia DBG Investments Limited Anya Schnoor criticised local regulators for not creating a framework within which the securities dealers could benefit from risk diversification. She argued that having lifted the moratorium on unit trusts there were still limitations that prevented the local dealers from offering foreign instruments.

Currently, section 22 of the Bank of Jamaica Act prohibits securities dealers from issuing foreign currency denominated unit trust products but Barnet said the BOJ and the FSC were already working on remedying the problem.

“We have to fix Section 22, there is no doubt about that; it’s a necessary step,” said Barnet. “But while we are doing that, you need investor education, you need more creativity in your product offering and true diversification — not just looking at unit trusts.”

Barnet’s take is that the FSC’s aim is to “enable the securities industry to accommodate hedge funds, private equity funds and other innovative products for more sophisticated investors”, alongside unit trust products that already exist.

Even while the regulator moves to close gaps in legislation that governs the administration of unit trusts, innovation has to originate from the financial sector, by Barnet’s reckoning.

“I can’t regulate that. I can’t legislate that. That has to happen within the financial sector, ” he said.