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New framework sets out the FSC’s approach for the supervision of these institutions

Jamaica’s financial regulator, the Financial Services Commission (FSC) has formally launched a new supervisory framework called Risk Based Supervision (RBS) to guide their policing of non-deposit taking financial institutions.

The RBS framework marks the culmination of a collaboration and partnership between the FSC and its stakeholders and has enhanced the regulator’s technical capabilities and agility in regulating and supervising the insurance, securities and private pensions sectors.

The new framework sets out the FSC’s approach for the supervision and risk assessment of Jamaica’s non-deposit taking financial institutions (NDTFIs).

The transition to the RBS represents a game-changing project, which started three years ago in partnership with the Toronto Centre and several key local partners and licensees. Having piloted and perfected this RBS methodology locally, the FSC will use an integrated RBS Framework to achieve several significant changes in its modus operandi.

Both regulated entities participated in the RBS pilot exercise and fully endorse the RBS methodology as an effective regulatory tool that is in keeping with international best practice.

In his remarks during a virtual launch programme aired on Television Jamaica, FSC Executive Director Everton McFarlane shared that “RBS will allow us to inter alia, shift our supervisory methodology to structure examinations of supervised entities to reveal whether or not there is effective risk management; to identify areas of greatest risk and to assess whether or not those risks are being effectively mitigated”.

High expectation for RBS

In discussing the FSC’s expectations for the implementation of this new supervisory model, McFarlane added that “the RBS requires us to adopt the practice of continuously assessing the inherent risks associated with a company’s mode of business, to assess a company’s corporate governance and risk management protocols and controls, in order to determine an overall risk profile of the entity and to anticipate any possible future breaches”.

John Robinson, FSC chairman and retired senior deputy governor of the Bank of Jamaica, described the launch as a momentous occasion that will have far-reaching implications for the health of non-deposit taking financial institutions as well as the stability of Jamaica’s financial markets and the wider economy.

In his remarks, Robinson emphasised the advantages of the RBS Framework and its impact on the local financial sector.

‘SUPERVISORY RESOURCES ALLOCATED WHERE THEY ARE NEEDED MOST‘

According to him, “RBS allows for more supervisory efficiency and effectiveness as supervisory resources are allocated where they are needed most, based on the regulator’s assessment of risk within the entity, as well as within the industry”.

He added: “This more flexible approach espoused by RBS delivers other advantages by enabling proactive supervision, rather than reactive supervision; and rather than slavishly following a routine supervisory process, the RBS approach involves identifying the key risk issues and then applying targeted regulatory interventions around those issues.”

Robinson explained that the FSC will then communicate the minimum requirement to manage these risks appropriately. Importantly, this will also reduce the regulatory burden on well-managed institutions. RBS has received support from stakeholders in the financial services sector, including Dr Marlene Street Forrest, managing director at the Jamaica Stock Exchange, as well as Christopher Zacca, president and chief executive officer of Sagicor Group Jamaica Limited.