Gov’t Pursuing Twin Peaks Regulatory Model for Financial Sector

The Government is pursuing the creation of a “twin peaks model” of financial sector supervision and regulation, which is being programmed for implementation within 18 to 24 months.

Minister of Finance and the Public Service, Dr. the Hon. Nigel Clarke, who made the disclosure, said that the model is intended to modify the existing sector-by-sector-based regulatory approach, which sees the Bank of Jamaica (BOJ) supervising deposit-taking institutions (DTIs), with the Financial Services Commission (FSC) having oversight for non-bank financial institutions.

Dr. Clarke explained that the new dispensation will see DTIs, inclusive of commercial banks, building societies, merchant banks and credit unions, along with non-bank financial institutions, comprising securities dealers, insurance companies and pension funds, being consolidated into one institution, the BOJ.

A separate regulator, the FSC in this regard, will be designated to oversee market conduct and consumer protection for the full spectrum of financial services.

Market conduct and consumer protection regulation refers to the oversight of financial institutions to ensure that they are engaging in fair and ethical business practices and are treating customers fairly.

Under the twin peaks regulatory model, the prudential mandate of the FSC, with respect to the non-deposit taking financial sector, will be fully taken over by the BOJ. “The new FSC would become highly visible [in] market conduct and consumer protection supervision for all financial service providers [i.e., DTIs, non-bank financial institutions, cambios, and remittance companies],” Dr. Clarke outlined.

He was delivering a Financial Sector Regulation Policy Address at the Ministry of Foreign Affairs and Foreign Trade in downtown Kingston, on Monday (January 23).

Dr. Clarke explained that the proposed integration of the FSC’s prudential activities into the BOJ involves three components – Interim Management, Legal and Governance Reform, and Institutional Restructuring.

He outlined that under the interim management component, the regulatory responsibilities of the BOJ and FSC will continue to run parallel, initially, while the framework for the merger of the responsibilities (legal and governance reform and institutional restructuring) is developed.

“The compositions of the new Board and management are designed to facilitate the integration process,” the Minister added.

Dr. Clarke, who said Jamaica is about to access approximately US$1.7 billion under the International Monetary Fund (IMF) Precautionary and Liquidity Line (PLL) and the Resilience and Sustainability Facility (RSF), noted that during the 18-month duration of these programmes, the BOJ and FSC will continue to operate separately with integrated management.

The Government will, under the legal and governance reform component, seek to access technical assistance from multilateral partners and international consultants and determine and draft the requisite amendments to the relevant pieces of legislation, including the Financial Services Commission Act and Bank of Jamaica Act, and the institutional governance reforms.

Dr. Clarke said the institutional restructuring component will entail an organisational review of the FSC and the BOJ’s Financial Institutions Supervisory Division (FISD), to inform the new structure and staffing arrangements.

He indicated that work under way on the draft Bill for Financial Service Consumer Protection continues, “incorporating the new direction with regard to consumer protection, with the view that a reformed FSC could take on this role”.

The Minister advised that prior to the 18 to 24-month implementation timeline, “we will need technical advice and time to consult with industry participants on the details”.

Dr. Clarke pointed out that, even with an upgrade of the regulatory structure to reflect the industry, Jamaica needs to “continuously and sustainably strengthen and renew its regulatory and supervisory capacity”.

To this end, he indicated that the BOJ currently has a range of international partnerships to provide training, which could be expanded and formalised.

“The economies of scale of a consolidated supervisor would allow the BOJ the opportunity to create its own [virtual] staff training college for supervisory and prudential regulators,” Dr. Clarke added.