IMF to provide technical support for twin-peaks, says SSL impact limited
The International Monetary Fund, IMF, sees no systemic impact arising from the alleged fraud at Stocks & Securities Limited.
“The fraud highlighted weak risk management practices in the company – SSL – which holds assets of about US$120 million, or 0.8 per cent of the assets of the non-bank financial system. The alleged fraud reportedly amounts to US$6 million to US$19 million. It has had no systemic impact,” according to the statement on subsequent events on Jamaica in the IMF Staff Report for 2022 –Article IV Consultation on Jamaica.
The fund also noted that securities dealers are, as a whole, financially sound with a capital adequacy of about 22 per cent, which is above the 14 per cent minimum.
The nearly 100-page IMF Article IV consultation concluded that Jamaica will grow despite global shocks and challenges, and that the SSL events did not change the positive “thrust” of the staff appraisal.
“The economy is expected to continue its post-COVID recovery, with inflation returning to the central bank’s target range by end-2023. The outlook is subject to downside risks from potential new COVID waves, higher commodity prices, a global slowdown, and tighter-than-expected global financial conditions,” the IMF said.
The Jamaican economy is projected to grow by 3.5 per cent in fiscal year 2023, then decelerate to 2.0 per cent in the FY2024.
Annual inflation fell to 8.1 per cent in January but is still more than two points outside the top end of the 4.0 per cent to 6.0 per cent target range.
On January 10, brokerage house Stocks & Securities Limited reported the alleged $3-billion fraud to the Financial Services Commission, FSC, after taking a statement from an implicated ex-employee. Investigations continue.
The IMF said the Jamaican authorities reacted “promptly” after the fraud allegations emerged in the public, noting the appointment of a special auditor at SSL by the Financial Services Commission; the Government obtaining a court order blocking SSL’s directors from winding down the company; the resignation of the head of the FSC and his replacement by the central bank’s chief prudential officer; and that senior Bank of Jamaica, BOJ, executives replaced most of the FSC board.
The IMF indicated that the SSL matter had also fast-tracked changes in sector regulation, which will see the BOJ assuming oversight of the entire the financial system. It also indicated it would be providing technical support for the development of the new twin-peaks model of supervision to be adopted going forward, under which banks and non-banking financial firms will fall under the regulatory umbrella of the central bank.
“Since the financial system is dominated by financial conglomerates, a unified supervision model under the BOJ would be consistent with efforts already under way to ensure consolidated supervision for financial intermediaries. The authorities have requested Fund CD [capacity development] support to design such a system,” the IMF said.
The Washington-based financial watchdog provides technical assistance and training, otherwise known as capacity development, as one of its core functions. It is available to all members upon request.
In November 2019, Jamaica graduated from six and a half years of IMF-supported programmes over two successive arrangements to reform its economy.
Capacity development from the IMF was “extensive over this period” and supported the achievement of the programme’s objectives, according to the report.
“Capacity development will continue to play a key role, with the authorities to advance implementation of key reforms,” the IMF stated.
Such assistance is classified as grants that are largely supported financially by the top two backers, Japan and the European Union.