Melhado, Jefferson and WynterTOUGH new guidelines aimed at probing the integrity of executives in the financial sector will give sweeping new powers of investigation and possible penalties to a powerful new Financial Services Commission (FSC).
Securities Commission executive director Earl Melhado said yesterday he will detail new amendments to the Securities Act to the industry next Friday, which will change the benchmark for a "fit and proper" executive and put a new level of demands on top executives running local companies.
The vague area of offshore investment accounts, or investments made by local dealers outside Jamaica, also comes under the enlarged regulators microscope. Securities dealers using offshore accounts will have just seven days to inform clients of the terms and conditions of the transaction and the funds invested. And all records relating to offshore investment accounts "shall have cause to be made available to the Commission".
Offences in the act will be subject to fines ranging from $100,000 to nine months imprisonment.
The new moves come just a week after Finance Minister Dr. Omar Davies admitted that sanctions against directors involved in the collapse of the financial sector had been slow. Speaking to journalists at a press conference to confirm the US$225 million bond issue, Dr. Davies said he had to work within the law but he could understand the frustration many people felt and was also disappointed that action had not proceeded more quickly.
Securities Commission chairman Dr. Owen Jefferson is heading a task force to lay the foundation for the setting up of the new FSC, which was announced by Finance Minister Dr. Omar Davies during his April Budget speech.
The organisation will incorporate the Securities Commission, the Office of the Superintendent of Insurance and the proposed Pensions Commission. Already Mr. Melhado and former Bank of Jamaica deputy governor Brian Wynter, who is helping set up the FSC and is also technical adviser to Dr. Davies, have been tipped as early favourites to head the new Commission.
Mr. Melhado and a team from the Securities Commission will detail the new Act next Friday at a seminar at the Hilton Hotel in Kingston. He said yesterday that the changes are intended to strengthen the requirements for a fit and proper person to run a local financial services firm, bring new responsibilities to board directors and introduce a new fee structure for the industry, which will have to fund the powerful new FSC.
A copy of the Securities (Amendment) 2000 Act obtained by the Financial Gleaner also shows that fees for the industry will also rise dramatically.
The new fit and proper persons definition states that a person must satisfy "such solvency and liquidity requirements as the Authority may specify (and such other criteria as may be prescribed);
"He is not connected with a company which is engaged in or has conducted securities business without a license granted under the act.
Each company licensed by the new Commission will have to designate an officer "answerable for doing all such acts, matters and things as are required to ensure compliance with the provisions of this Act and regulations made hereafter.
This appears close to the US style of compliance officers, which are given an internal enforcer's role and are called to book by regulators first if anything goes wrong at a company. The compliance officer will have to report regularly to the new Commission and ensure that companies pay fees to the Commission on time.
If companies fail to designate a compliance officer the boss of or managing director of the licensee will be held accountable and will be liable to make the payments to the new Commission.
Officers, primarily managing directors and general managers of companies and directors, will also have a wide range of new criteria to meet.
"The officers or members are persons who, in the opinion of the Commission, are persons of sound probity, are able to exercise competence, diligence and sound judgment in fulfilling their responsibilities in relation to the licensee and whose relationship with the licensee will not threaten the interest of investors"
The new Act says the Commission will have regard for evidence given to it that indicates an officer or member has been "engaged in any business practice appearing to the Commission to be deceitful or oppressive or otherwise improper which reflects discredit to his method of conducting business".
It adds that an officer will be in trouble if he or she has "contravened any provision of any enactment designed for the protection of the public against financial loss due to dishonesty, incompetence or malpractice by persons concerned in dealing in securities or due to bankruptcy".
And any company that "intends to deal in securities" must provide a prospectus to the FSC and any other documents it requires.
The FSC task force will be required to conclude its work in time for the entity to become operational by April 1, 2001. Dr. Davies told the International Monetary Fund recently that he expected to table legislation in Parliament by March 31 establishing the new Commission and its powers.
