WE HAVE ANALYSED the results of the most recent update to the financial stability report with our colleagues from the Central Bank, and we are generally pleased with the performance of the stability indicators in Barbados.
Barbados’ financial system continues to show firm resilience even in the face of a prolonged and harsh global economic crisis and it is more than noteworthy that the domestic financial system and the institutions in the system have not suffered major catastrophe from the recession, while more developed countries sought well publicised bailouts to prevent material disruption.
This is a testament to the best practices utilised by our domestic financial institutions and also to the high standard of the regulatory framework being applied in Barbados.
Speaking specifically to the regulatory framework for the non bank sub sector of the domestic financial system, the Financial Services Commission (FSC) became an integrated regulator with responsibility for the non bank financial sector in 2011, supervising the credit union, insurance, securities, and occupational pension sectors. Since its inception, FSC has sought to raise the regulatory standards for the non bank sector to a level that is globally recognised as being among the best used.
The banking system in Barbados has long had a well defined regulatory framework and it became imperative that the FSC create a similarly well defined regulatory framework for the non bank sector. In terms of the definite actions taken to date to raise the regulatory standards, the FSC would have implemented the following:
A new risk based supervisory framework for our regulated sectors that allows better utilisation of regulatory resources and more real time analysis to inform the remedial actions which the regulator must take to protect investors.
The issuance of eight guidelines to the insurance sector, 15 to the credit union sector, and five to the securities sector which can all take the force of law and which were aimed at addressing gaps identified in the underlying legislation for these sectors to bring us in line with international standards.
We also issued a number of circulars to provide further explanation on the guidelines issued.
We developed and released new reporting forms and quarterly reporting forms to ensure that industry data is more complete and is received on a more frequent basis for analysis. We have conducted over 30 on site examinations of regulated entities and issued them their reports.
We continue to follow up on the action plans coming out of these examinations. We have now implemented a top down, stress testing framework for the insurance sector and will shortly be looking a similar stress testing framework for the credit union sector as we seek to add forward looking elements to our growing robust regulatory framework.
These actions all sought to raise the standard of regulation in the non bank financial sector in order to reduce the probability of entities going into default and also to give a methodology for swifter remedial actions to be implemented as needed.
This has been an aggressive and intensive overhaul of the regulatory framework by the FSC, but we believe the overhaul was needed and the new regulatory system is already seeing benefits.
While we agree that the FSC has been aggressive in developing a more robust regulatory framework I am of the firm belief that the successful implementation of this new regulatory framework must also be attributed to the support we have received from the financial institutions themselves who operate in Barbados.
At most points along the FSC’s development path, we engaged these entities to explain what we were trying to achieve in the area of regulation and they have supported our plans even where there were associated regulatory costs.
As regulators, we would be encouraged to see growth and we will do our part to ensure that the high regulatory standards which we have set for ourselves create a positive environment that would facilitate growth. We have therefore identified strategic actions to be explored to support this growth.
In the area of securities, we will soon begin consultation with key stakeholders to define the strategic niche Barbados wants to play. We cannot be all to everyone in this regard so we need to collectively determine our niche and focus our resources in developing this specific area.
In the area of credit unions, we continue to place emphasis on getting the deposit insurance scheme functioning and on expanding the products on offer from credit unions, which will allow the movement to diversify its income streams.
In the area of insurance, we will see to work with the representative bodies to improve the information made available to the public such that individuals fully understand the benefits of property, life and medical insurance in particular, to their personal financial planning. It is my belief that with a better understanding of the use of these products, we will remove the inertia regarding them, and see an expanded up take of the products.
As it relates to insurance, in 2016 we also expect to begin consultation to introduce risk based capital to the insurance sector which many believe our sector is now ripe to receive.
Finally in the area of pensions, we will be increasing the amount of public education relating to pensions so that citizens have a better understanding of the need for them to be more financially aware and knowledgeable about planning for their retirement years.
Randy Graham is chief executive officer of the Financial Services Commission. He gave this update recently at the Domestic Financial Institutions Conference at Hilton Barbados Resort.
