The International Monetary Fund (IMF) thinks the Central Bank of Barbados (CBB) is too soft on local financial institutions and lacks full “independence”.
“Exact conditions” under which its governor can be given his marching orders need to be “clearly specified” in the CBB Act, it advised, and existing powers which now permit the Minister of Finance to “overrule” actions the bank takes “should be removed”.
The IMF has also told the Financial Services Commission (FSC) that it “needs further improvement”, including boosting its overall supervision of the non-bank sector.
The advice is part of a list of detailed observations and recommendations contained in the IMF’s latest Barbados Financial System Stability Assessment completed on January 27 and released last week.
It was presented within the context of the IMF’s opinion that “while the [Barbados] financial system does not appear to be a source of immediate risk, its position appears to be deteriorating, with implications for systemic stability”.
The international institution based in Washington DC praised both the Central Bank and FSC for the steps they had taken, and other initiatives they were contemplating, to keep the financial sector stable – but thinks much more can be done.
In the case of the Central Bank, the IMF concluded: despite significant progress, more work needs to be done to strengthen the CBB’s regulatory power; the CBB should take more forceful actions towards financial institutions in cases of serious deficiencies or breaches of regulatory norms, beyond moral suasion; supervision of [anti-money laundering/combating the financing of terrorism] compliance in banks should be strengthened, CBB’s loan provisioning guidelines should be reviewed and a real estate price index should be developed.
As for the FSC, the IMF said the regulator also needed to take action including: the onsite supervisory function needs strengthening and specialisation; as a relatively new agency, the FSC’s supervisory effectiveness remains largely untested and further capacity building is necessary; the FSC should expand the information that it provides to the public; despite progress, the FSC needs further improvement; there is a need to introduce robust prudential standards, including valuation, capital adequacy, and enterprise
risk management; given the presence of regionally active and systemically relevant groups, there is also an important need to implement group supervision and crisis management.
The IMF said the Central Bank responded to its various statements and recommendations, including the suggestions related to taking more forceful action, and increasing its onsite examinations of all banks operating in Barbados.
“The CBB had already started the process of enhancing this area. This includes the rollout of a risk-based [anti-money laundering] tool to accelerate a comprehensive assessment of [money laundering/financing of terrorism] risks in all licensees.
This spans processes at licensing through to examinations, corrective action and enforcement,” was the bank’s reported response.
In terms of the FSC, the IMF said “the authorities agree with the recommendations as detailed and the recommendations are in line with the existing development priorities of the FSC”.
