House passes law to strengthen financial system

The House of Representatives has passed legislation to effect reforms, which will protect the country’s clearing and settlement systems from disruptions that could lead to instability in the financial sector, causing loss of confidence in the public payment regime.
These reforms are being carried out with the internationally accepted standards and practices to ensure its safety and efficiency.
Piloting the Payment Clearing and Settlement Act (2010) in the House on (October 26), Minister of Finance and the Public Service, Hon. Audley Shaw explained that the Bank of Jamaica (BoJ) has been engaged in a payment system modernisation project since 2008, and that the Act would provide the legal framework for these operations.
He explained that the need for the reforms arose from an assessment of the national payment system by an International Monetary Fund/World Bank team.
“The assessment found that some key infrastructure weaknesses required prompt attention and that there was a need for the implementation of a Real Time Gross Settlement System (RTGS), or a Central Securities Depository (CSD) for fixed-income securities, especially given the large volume of government paper, and to have an appropriate legal framework to accommodate these,” Mr. Shaw told the House.
Two of the three recommendations made by the multilaterals have been implemented. The JamClear RTGS was commissioned into service on February 27, 2009, and JamClear CSD, on May 15, 2009.
“Both systems have been operating smoothly. With the introduction of JamClear RTGS, the financial system is now served by a new electronic Real Time Gross Settlement system that allows commercial banks, primary dealers, and other financial institutions to transfer funds between themselves, for their own accounts, or on behalf of clients in real time, on a safe and secure basis,” the Finance Minister stated.
He noted that with the introduction of JamClear CSD all new issues of BoJ and Government of Jamaica securities are now being issued electronically in the depository.
“Of significance is the fact that more than 90 per cent of the Jamaica Debt Exchange issues have been dematerialised in JamClear CSD it is anticipated that JamClear CSD will bring increased efficiency to the processes for issuing, managing, and redeeming fixed income securities. It is also anticipated that the strict rules, procedures and guidelines that have been built into the operations of the system will not only support its safety and efficiency, but will also bolster public confidence,” Mr. Shaw said.
He asserted that “JamClear RTGS and JamClear CSD now form the backbone of the local payments clearing and settlement infrastructure,” and have brought Jamaica’s financial system infrastructure in line with international best practices for safety, efficiency and reliability.
“Together, these systems will afford rapid settlement, payment finality and irrevocability. Of great importance as well is that all securities transactions will be settled on a delivery versus payment basis, effectively reducing risks to negligible levels payments and transfers will be effected in real time on a transaction by transaction basis throughout the business day,” the Minister said.
The Bill also makes provision for the establishment of an advisory body – the National Payments Systems Council – which is already in place and comprises representatives of the Ministry of Finance, the Financial Services Commission, the Jamaica Stock Exchange, and other entities in the financial system.