#BTEditorial – FSC enhanced surveillance justified

The world of financial services is constantly evolving. The intersection of technology and finance has resulted in phenomenal advances in how financial services are delivered to consumers.

For average consumers of financial services, these advances have improved the convenience and speed of doing business with banks, credit unions, insurance companies, and investment firms, for example.

Even with all the advancements that have taken place, consumers still need to know that the people working in financial institutions are making ethical decisions, that they are knowledgeable, and that they are not making decisions that put people’s savings and investments at risk.

In the United States, observers are keenly following the rising number of bank failures. The collapse of Silicon Valley Bank in March reportedly panicked financial markets. It was the first major bank failure in the US since the global financial crisis of 2007.

Soon after Silicon Valley Bank’s demise, Signature Bank, an American regional bank folded. If this was not enough to spook depositors in financial institutions, First Republic Bank also ran into trouble.

First Republic Bank catered to high-net-worth individuals, operated 93 offices in the US, with total assets of US$212.6 billion in 2022. It too began teetering on the brink of collapse as worried depositors began pulling their money from the bank.

It was eventually taken over by UBS, in a move that prevented the institution from imploding.

Why does all this matter to us in Barbados? Our financial system has been described by regulators as strong and well capitalized. However, there is no doubt that local depositors are keeping a very close eye on their nest eggs.

Today, our Financial Services Commission (FSC), which along with the Central Bank of Barbados, is responsible for ensuring the stability of the local financial sector, disclosed it was preparing to overhaul some aspects of its supervision of non-bank financial institutions.

The FSC supervises the operations of insurance companies and insurance intermediaries, mutual funds, pension funds, credit unions, and securities. It is currently inviting industry stakeholders to provide feedback on two Regulatory Guidelines it says are designed to strengthen the stability and soundness of the non-bank sector.

The extremely low interest rate environment has meant that people are constantly searching for secure avenues where their savings can safely grow.

Earlier this year, we witnessed the spectacular collapse of Stocks and Securities Limited (SSL) in Jamaica where eight-time Olympic gold medalist Usain Bolt said his more than US$12.8 million invested had been stolen.

Expectedly, the Jamaica Financial Services Commission was lambasted for the fiasco that occurred on its watch and right under the noses of its regulators.  It was a stunning failure of governance at several levels.

The local FSC leadership is seeking to ensure that there is a tighter governance structure in place in Barbados-based institutions, which collectively are managing billions of dollars in assets on behalf of institutions and individual Barbadians.

The FSC’s Chairman Mr Oliver Jordan and Chief Executive Officer Mr Warrick Ward outlined in a public notice that it intends to address the  Fit & Proper Guidelines to ensure that the people who are being elected or hired in leadership positions at financial institutions are actually fit and proper to hold such offices.

In addition, there will be enhanced guidelines for entities that have been designated by the FSC as Domestic Non-Bank Systemically Important Financial Institutions (DNB-SIFIs).

Messrs. Jordan and Ward explained DNB-SIFIs are non-bank financial institutions whose “distress or disorderly failure would cause significant disruption to the wider financial system and economic activity because of their size, substitutability, and systemic interconnectedness”.

Put in plain language for Miss Brathwaite from Eagle Hall, the FSC will be applying stronger rules for financial institutions which could possibly threaten the entire financial system if there was a messy collapse of their operations.

Dr Ashish Srivastava earlier this year made this important statement: “Governance remains the cornerstone of any organisation and financial institutions are no exception. However, in an increasingly integrated financial system, risks quickly spill over across different verticals of financial institutions, exacerbate through the financial system, and have a contagion effect on the real sector.

“Therefore, it is obvious that financial institutions must have robust governance standards and failsafe systems and controls. Any weakness in the governance edifice exposes the financial institutions to operational risk”. ]]>