Time for single regulatory authority

It cannot be said that Trinidad and Tobago’s financial system has been dormant or for that matter unresponsive to the changing landscape over that period. That fact was not lost on the committee charged with the responsibility of preparing a White Paper on the country’s financial system. This is how the committee put it in its draft White Paper, issued two weeks ago. “For the past 40 years, the local financial system has been responding to a constantly changing macro-economic environment and has made some significant strides. Beginning with an underdeveloped structure that consisted of a limited range of institutions and financial instruments in the 1960s, the system has emerged as a relatively sound and well-developed financial system when compared to most countries in Latin America and the Caribbean.”

The White Paper cites several factors as facilitating the evolution of the sector:
•The increase in oil prices in the ’70s that boosted economic growth and led to an increase in the number of financial service providers (banks and non-banks);
•The financial sector development plan implemented by government beginning in the ’70s with the localisation of the banking and insurance sectors and continuing into the ’90s with the formalisation of the capital markets and the establishment of supporting institutions like the Deposit Insurance Corporation (DIC,) the Home Mortgage Bank (HMB,) the Trinidad and Tobago Stock Exchange (TTSE) and the TT Unit Trust Corporation (UTC);
•Merger of three indigenous banks – National Commercial Bank, Workers Bank and the Trinidad and Tobago Cooperative Bank (Penny Bank) with majority government ownership;
•Widening of capital market activity to include retirement plans denominated in US currency, individual deferred annuity plans and mutual funds, including offshore equity funds;
•Alliances between the insurance and banking sectors;
•Enhanced regulation and supervision of the financial system with the passage of  the Financial Institutions Act 1993 and the move to risk-based supervision by the Central Bank;
•The move towards a more open economic system and the concomitant dismantling of overt barriers to trade and financial flows, reflected in the liberalisation of the foreign exchange market and cross-border capital flows; and
•Globalisation and regionalisation of markets, including financial markets.

But having noted the significant strides made over the period by the financial system, the draft hastened to point out some existing weaknesses “in the legislative, regulatory and supervisory frameworks,” and further pointed out the need for “consistent application of financial standards. These weaknesses must be addressed if the goal of becoming a Pan-Caribbean Financial Centre is to be realised.” The White Paper goes on: “While institutional changes and legislative reforms have been implemented and updated for the banking sector, the legislative framework for the rest of the industry needs to be modernised. “The existing legislation does not provide the regulatory authorities with adequate powers to regulate and supervise the financial sector in accordance with internationally accepted standards.”

The White Paper describes the existing regulatory and supervisory framework as fragmented. It states, “The system is now subjected to three different regulatory authorities – namely, the Financial Institutions Supervision Department, which falls under the umbrella of the Central Bank; the Commissioner of Cooperative Societies and the Securities and Exchange Commission – some more effective in their supervision than others. “There is therefore a critical need to upgrade the regulatory framework to provide for a single Regulatory Authority.” As it stands today not all financial institutions are subjected to financial reporting standards that conform to the International Financial Reporting Standards (IFRS) and the White Paper believes that the implementation of international standards for information disclosure and reporting must be undertaken.

When such action is taken, it will “promote market transparency, improve the standards of corporate governance and allow for the effective sharing of information among local, regional and international regulatory authorities as well as provide information to consumers.” The White Paper also pointed out other weaknesses impacting the system and this includes “an uncompetitive taxation regime, absence of a competition policy, a monopolistic telecommunications infrastructure and the lack of internationally recognised certification and accreditation requirements for persons providing financial services of an advisory, investment, consultancy or related nature.”