Co-ordinating Financial Services Across the Region (Part 2) May 25th 2011
The co-ordination of financial services throughout the Caribbean has been a matter engaging the attention of the Chamber as the region makes strides to full integration under the CSME. This two part series (part I appeared last week), which was produced in collaboration with the Bankers Association of Trinidad and Tobago, explores the challenges faced in reaching this goal.
Co-ordinating financial services across the region (Part 2)
The difficulties financial groups experience in operating throughout CARICOM are many. This is a direct consequence of each jurisdiction having its own legislation, regulations and supervisory infrastructure in spite of the on-going efforts by CARICOM to institute financial harmonization of legislation.
For the Commercial Banks this is experienced every time a Bank applies to do business in a new CARICOM region. Operating throughout CARICOM is a tedious and sometimes costly concern which is mainly as a consequence of the individual laws and regulations, sometimes at complete variance with each other. For example, some jurisdictions operate under the English common law and others under the French civil law system which makes it is difficult to establish standard processes and procedures, standardize documentation or operate on the same platform. There are also different supervising agencies, central/reserve banks, securities commissions, stock exchanges and other regulatory bodies that a financial group has to report to.
The reporting requirements also have different timelines, prescribed formats and required information depending on the jurisdiction. There are different tax regimes and auditing requirements, and sometimes a financial group has to incorporate subsidiaries or affiliates to comply with the corporate and regulatory structural requirements of the particular jurisdiction.
Even in terms of brand, the financial group has to register its brand in each jurisdiction’s intellectual property office to gain formal recognition and protect its brand. Further, jurisdiction laws may prevent or restrict the free flow of information between subsidiaries and affiliates of a financial group operating in various jurisdictions which makes decision-making for the financial group difficult. The land and personal property systems in each jurisdiction also differ to the extent that it is very difficult to standardize lending and financing processes and documentation.
Every jurisdiction carries different licensing requirements which in turn create costly delays and may even influence a decision as to which country to establish business in. This not only impacts the development of the sector but also denies that country of positive contributions to their local economy through attraction of foreign direct investment (FDI) increased employment and contribution to GDP. There have been several versions and on the draft financial services legislation which has been on CARICOM’s drawing board for years. By 2009 there were already twelve versions in circulation, which aimed to address, inter alia, market access for financial institutions, new financial services, data processing, credit information exchange, credit rating systems, portability of pension rights, payment and clearing systems, anti-money laundering (AML), intra-regional trade in financial services, intra-regional supervision of transnational financial corporations and conglomerates and issuers of securities, regionalization of local asset ratio, savings tax, depositors’ protection, collateral in the intra regional market, mergers and acquisition and transparency and accountability. This list gives a clear idea of the various matters that would need to be standardized throughout various jurisdictions if there is to be real harmonization of the financial services industry. This agreement is criticized as being too general and as establishing working principles rather than specific enforceable procedures and obligations. Nevertheless, the proper implementation of CARICOM financial services legislation would greatly improve regional operations as all countries would be on the same page.
For financial groups to be able to operate in a truly regional industry, this calls for a harmonious legal system which would require the enactment of new legislation and amendment to existing legislation for full effect and for regulatory frameworks to be made uniform. The practicality of this is questionable though. As a first measure, the aforementioned Agreement could be revisited and amended and put into effect with realistic and workable timelines and obligations to have a real impact on standardizing the provision of financial services regionally. Political will is fundamental to moving the regional financial services sector forward, especially since in most territories, the Governor of the central bank is politically nominated. Given the fallout from the CLICO and Stanford collapses, politically this would be an opportune time to push ahead.
There is absolutely no reason to re-invent the wheel. The Caribbean Centre for Money and Finance (CCMF) should be one of the agents at the centre of the harmonization movement since all central banks in the region already send data to the CCMF and meet regularly to discuss financial sector developments. An initial step could be to standardize most of the reporting forms across territories utilizing forms and regulations already developed by some of the more prominent jurisdictions in the regions and which conform to best practice (e.g. any country-specific information could be requested as an attachment), as this would help reduce expenses. Once the regulator in one country grants permission to offer a particular product in one jurisdiction, all other regulators should not have to go through the entire due diligence process when the product is rolled out to all territories.
The future of CARICOM’s regional financial regulation and supervision will require new thinking and creative policy-making. It is also critical to ensure that the investment regime in the evolving CARICOM Single Market and Economy results in a modern business climate that is attractive to all investors.
Perhaps the Government of Trinidad and Tobago should take the lead as many of the financial institutions which operate in T&T also operate throughout the region and both the country and institutions will have a lot to gain.
