Central bank Governor and Chairman Richard Byles wants financial firms to give greater care to the people selected to govern their companies at the board level and to seek out directors who are better informed on financial matters.
Corporate governance, risk management and strengthening of operational systems are big areas of concern within the sector, and while Jamaica’s securities industry has managed to capture the talent necessary for driving revenue, it must pay equal attention to investment in the systems and people that help to safeguard investor trust and confidence, he said at a forum convened by the UWI Mona School of Business and Management.
The financial sector is at the beginning of a two-year transition towards oversight by the Bank of Jamaica, BOJ, and Byles has been talking up the need for better internal controls at regulated firms.
He continued along that same theme at Wednesday’s forum, saying the alleged fraud at Stocks & Securities Limited and the sharp rise in international interest rates are teachable moments, bringing into sharp focus the importance of trust and market confidence.
The BOJ governor repeated his recent call for a strengthening of operational systems in the financial sector, saying such systems to do with risk management, internal controls, the strength of the internal audit function and adherence to international accounting standards are non-negotiable.
As to the scope of the reforms and investments it will require of securities firm, that is yet to be determined.
There are about 37 regulated securities dealers that manage funds estimated at $1.5 trillion. The figure flies close to the $1.67 trillion of deposits that 11 banking institutions hold on behalf of account holders.
Byles also went further on Wednesday to say that company boards – which he described as the last defence against any kind of malpractice – must be effectively strengthened to enable them to understand and make use of the information generated by internal systems.
“To do that, they must have on board people who can understand and appreciate the reports that come to them,” he said.
Byles says too often boards that evolve from the time when a company is small, comprised of relatives and their friends or associates, generally retain their composition despite company growth, change in management or position in the market.
Boards, he added, should be carefully crafted to include persons who represent investors, but also persons who can ask “the odd question”, or persons who may carry a healthy dose of doubt and are not afraid to challenge either management or the chair about those issues.
He is urging investment firms to seek out persons of independent thought and skill, saying it is one way for companies to shore up their defences against illicit activity. Not only is Jamaica under the spotlight internationally due to the SSL case, in which sport celebrity Usain Bolt is reported to be one of the victims, but Jamaicans at home and in the diaspora have been following the cases of bank fraud that are being tried in court and questioning the safety of their financial holdings.
“Those boards have a responsibility and they must meet that with the necessary skills that can understand risk reports; skills that can appreciate the role and reports of the internal auditor; skills that make them understand that internal controls are vitally important,” said the central bank chief.
Reporting on the performance in the securities sector, the central bank governor said that as at November 2022, on-balance sheet assets and funds under management aggregate to approximately 90 per cent of GDP, that is, the total goods and services produced in the economy.
The continued success of the financial sector relies on balancing the equation between skill and innovation on one hand, and trust and confidence on the other, he reaffirmed.
Of the proposed ‘twin peaks’ arrangement for the regulation and supervision of the financial sector, which will see BOJ regulating both banks and non-banking firms and the Financial Services Commission, FSC, monitoring how the firms behave in the marketplace, Byles is asserting that the eventual outcome will be two watchdogs that are more professional, more focused and more skilled in their particular aspect of regulation and oversight.
“You’ll get an FSC that knows about market conduct and will roll out market-conduct regulations that are far more profound than what we have today,” Byles said.
The Bank of Jamaica, with its oversight of the whole financial system, will for the first time have a real, in-depth understanding of the sector, he added.
“I think you will end up, in another two years or so, with two good, professional (and) modern set of regulators that can only help to build the trust and confidence that you need for success in your business,” the BOJ governor said.
In the wake of the fraud allegations at Stocks & Securities Limited, Finance Minister Nigel Clarke announced that Jamaica would be adopting the ‘twin peaks’ financial regulatory model to improve oversight of the sector. He listed a raft of changes, some to take immediate effect, which will see the BOJ assuming total regulatory control and oversight of both deposit-taking and non-deposit-taking institutions.
Major Keron Burrell has been seconded from the BOJ to lead the FSC, in the interim, while Byles has assumed the position of FSC chairman.
Byles, a product of the private sector, has been central bank governor since the summer of 2019. Prior to that he chaired Jamaica’s largest and most profitable insurance group, Sagicor Group Jamaica Limited, a role he assumed after retiring as the chief executive.