Why We Regulate and Supervise

The FSC began operations in August 2001 as an integrated financial sector regulator with the mission to protect users of financial services in the areas of insurance, securities, and pensions by fostering the integrity, stability and health of the financial sector. The FSC regulates and supervises the financial sector because of five statutes and associated regulations. The five statutes are

1.  The Financial Services Commission Act, which outlines the responsibilities of the FSC as they pertain to all prescribed financial institutions;
2.  The Insurance Act, which prescribes provisions for the regulation of insurance business in Jamaica;
3. The Securities Act, which provides requirements for the licensing, operation and supervision of entities dealing in securities;
4. The Pensions (Superannuation Funds and Retirement Schemes) Act, which provides requirements for the licensing, operation and supervision of private pension funds; and
5. The Unit Trust Act, which provides requirements for the licensing, operation and supervision of unit trust schemes.

The duties of the FSC are mandated by the FSC Act, which states:

“For the purpose of protecting customers of financial services, the Commission shall-

(a)     supervise and regulate prescribed financial institutions;

(b)     promote the adoption of procedures designed to control and manage risk, for use by the management, boards of directors and trustees of such institutions;

(c)     promote stability and public confidence in the operations of such institutions;

(d)     promote public understanding of the operation of prescribed financial institutions;

(e)     promote the modernization of financial services with a view to the adoption and maintenance of international standards of competence, efficiency and competitiveness.”

The FSC is guided by statues and regulations. The objectives of these laws are to protect investors from securities fraud and other abuses and thereby ensure that there is investor confidence in the market. Jamaica is a member of the International Organization of Securities Commissions “(IOSCO)” which is the international standard-setting body for securities regulators. The three core objectives of securities regulation according to IOSCO are:

• The protection of investors;
• Ensuring that markets are fair, efficient and transparent;
• The reduction of systemic risk.

Therefore the purpose and intent of the FSC’s action is to protect the customers who have limited information or knowledge of (i) the products, services, operations, of financial institutions and (ii) the integrity, experience and skill of those who manage these institutions. Financial regulation seeks to ensure that the owners and managers of financial service institutions are honest persons with the appropriate skills to carry out their responsibilities in an ethical, prudent, and lawful manner.

The FSC must examine licensees’ records at least once per year to satisfy itself that each is in a sound financial position and is operating according to the legislation and regulations governing it. Additionally, the FSC can conduct special audits and hire independent auditors as it sees fit. The FSC is also empowered to summon auditors, actuaries, directors, officers or employees – past or present – of its licensee to gather information during special audits. At all times, the books and records of the company must be made available to the FSC.

There are several red flags which special audits or examinations may uncover and multiple corrective actions available to the FSC. The main warning signals are:

• Unsafe or unsound business practices
• Director or manager ceasing to be a fit and proper person
• Contravention of the FSC licence or registration, the laws or regulations under which the licensee operates or its Memorandum and Articles of Associations.

Remedial actions available to the FSC include:

• Requiring the institution to give an undertaking signed by Board Members to take corrective actions agreed on by the FSC
• Issuing a Cease and Desist Order.
• Directing the Institution to undertake any action necessary to protect customers, potential customers and creditors, and to safeguard its assets, including:
• Halting a course of action or restricting the scope of the licensee’s business
• Limiting new business, credit, investments, dealing in securities or restricting any other activity in which the licensee may be involved in.
• Prohibiting the institution from soliciting business or entering into any other transactions
• Removing any director or manager

Stronger remedies are Temporary Management by the FSC, suspension, cancellation or revocation of its licence with the ultimate being the winding up of the company. The factors leading to these include:

• The value of the institution’s assets is substantially less than the value of its liabilities – insolvency.
• The institution has contravened a cease and desist order or any directions issued by the FSC.
• The institution has given false or misleading information in its application for a licence or registration or false statements about its affairs.
• A final judgment has been obtained against the institution and has remained unsatisfied for at least one month.
• A receiver has been appointed
• The institution has notified the FSC that it proposes to surrender its licence or registration.

PENALTIES The FSC has penalties ranging from J$25,000 to J$2 million depending on the severity of the infringement – which can be levied against offending licensees directly or by taking action in the courts. Licensees have the right to appeal the decisions of the FSC through the FSC Appeals Tribunal.