The state entity charged with supervising and regulating non-bank financial institutions has vowed that there will never be another CLICO-type collapse here under its watch.
Chairman of the Financial Services Commission (FSC) Sir Frank Alleyne made this bold assertion during a hurriedly-arranged press conference this afternoon at which he sought to discredit the lead story published in Barbados TODAY yesterday that quoted a new report by the International Monetary Fund (IMF) which painted a frightening picture of the impact “the failure or near failure” of Sagicor could have on Barbados and the Caribbean.
The draft IMF report said that as the most dominant insurance company here a Sagicor failure could be worse than the CLICO collapse, noting that the FSC was not in a position to conduct group-wide supervision of the company and “solo supervision is weak”.
But a highly emotional Sir Frank told reporters at Accra Beach Hotel in Rockley, Christ Church that the days of the CLICO-type collapses were over because the regulatory body functions on a strong, proactive basis.
“We don’t wait for it to happen,” he said.
“As long as the Financial Services Commission has staff and leadership at the senior level, which it has now, and a board of commissioners which is as qualified . . . Barbados will be secure. There will be no more collapses of entities in Barbados,” the FSC head said.
Sir Frank made a point of stressing that he had lived through an extended report of the collapse in 1987 of the financial company, Trade Confirmers, and that he was on the oversight committee for CLICO.
“I make bold to say, given my knowledge of this Financial Services Commission, the days of the CLICO, the days of the Trade Confirmers, those days are over. And they are over because the staff of the Financial Services Commission have developed a risk-based method of ranking institutions, whether it is in insurance, whether it is in pensions, whether it is credit unions
. . . the staff do the research,” he emphasized, adding that the risk-based system categorizes institutions into high-risk, medium-risk and
“And trust me, if you as an entity are categorized as high-risk, we are on you every day and night.”
The FSC boss said the relocation of Sagicor’s holding company to Bermuda had not changed its responsibility as the lead regulator of the company, whose assets of $13.1 billion, according to the IMF report, was equivalent to half of Barbados’ gross domestic product (GDP).
Sir Frank added that a college of Caribbean regulators meet and share information on what is happening in their countries, “so this notion that Sagicor goes unregulated is a lie”.
“I am saying it is untruth the things you all are saying,” he said of the story, adding in response to whether he was questioning the source: “I am not dealing with the source. I read the paper. I downloaded it. I am saying it is lies and damn lies. That’s what it is.”
In a statement issued late this evening, Sagicor sought to reassure policyholders and the public “of our financial strength”.
It said the company was “one of the most highly and actively regulated” financial institutions in the region, and challenged the veracity of the report.
“We, therefore, find it grossly inaccurate and indeed recklessly careless that an article or a report can be published to suggest that Sagicor is an under-regulated financial institution. This assertion is not supported by the facts as all can see from our frequent and various public disclosures. We are a large company by Caribbean standards, but we are a well governed, successful, solid institution,” the statement said.
In the draft report, which clearly indicated that it was “for official use only”, the IMF said while a brief review of Sagicor’s financial statements and actuarial reports “did not reveal any untoward or serious financial or risk-related issues,” the Sagicor group “poses systemic risk” for Barbados and the Caribbean region.
“The size and complexity of the SG operating in 21 countries throughout the Caribbean, and holding assets equivalent to about 50 per cent of the GDP of Barbados, is larger than CLICO before it collapsed,” it said in the 16-page report from an October 9 -13 mission here by its monetary and capital markets department.
Worryingly, the Washington, DC-
headquartered international organization, which was invited here by the FSC to review its current supervisory framework for Sagicor Life Inc, found that the FSC was not in a position to conduct group-wide supervision.
“The group structure, business philosophy and operations are in many ways similar to those of the CLICO Group, another Caribbean financial conglomerate which failed ten years ago, and resulted in substantial losses,” it said in the executive summary of the report.
“The Sagicor group poses systemic risk for the Caribbean region, which should be monitored on an ongoing basis,” the draft report stated.
The three-member IMF team of Ralph Lewars, Lawrie Savage and Rodolfo Wehrhahn also found that the FSC “is exposed to significant reputational risk”, with the organizational structure of the resource teams responsible for regulation and supervision resulting in “operational silos”.
“The current structure, coupled with limited resources available to fulfill its mandate create vulnerabilities, and significant reputational risk for the agency,” they said in the report, a copy of which was obtained by Barbados TODAY.
“The FSC supervisors are burdened with myriad administrative procedures with the result that very limited time is allocated for supervision.”
The team recommended that the authorities address the regulatory agency’s resources gap and deficiency in expertise, and called for an assessment of the adequacy of its resources, “and based on the results adequate staffing should follow”.
“The FSC should have authority to pay market rates, otherwise it will not be possible to attract and retain qualified staff,” the report recommended.
It listed as high priority, the need to address the FSC’s resource gap, deficiency in specialized expertise, “and weaknesses in the organizational structure and allocation of supervisory resources to undertake consolidated supervision of Sagicor”, as well as a reexamination of the current methodology for funding the FSC “to ensure that it fullfils its mandate”.
“Once agreement is reached on revised fee structure or levy on companies under its purview, the funding process, including annual budget, and performance against strategic plan should be made fully transparent,” the team recommended.