By McPherse Thompson, Assistant Financial News EditorTHE FINANCIAL Services Commission (FSC) uncovered 65 violations of the Securities Act and Regulations while conducting routine examinations as part of its responsibility to supervise prescribed financial institutions, during its first eight months of operation.
During the period, it also conducted five investigations into suspected breaches of the securities and insurance acts, and received 73 complaints from the public against general and life insurance companies as well as securities dealers.
And while the FSC took action to correct the violations uncovered during the on-site examinations, at the end of its financial year it was still investigating most of the suspected breaches and complaints from the public.
Noting that it had only resolved 20 of the 73 public complaints or about 27 per cent of the number, the FSC's executive director, Brian Wynter, said "the low rate of closure reflects the fact that the majority of the complaints were from the insurance sector, for which the data covers a period of less than four months." However, he said the Commission was using data gained from "this early experience to establish benchmarks for the average time taken for cases to be investigated and closed."
EXAMINATIONS
In the FSC's annual report for the eight months to the end of March 2002, Mr. Wynter said its supervisors conducted 19 on-site securities examinations and found, in the main, violations pertaining to marketing circulars, contract notes, clients statements and request for proposal forms.
He explained that in a number of instances, it was observed that dealers were issuing marketing circulars and brochures, which did not comply with the requirement of the Securities Act for dealers to disclose their interest in the acquisition or disposal of any securities which they recommend by way of that written communication.
Violations relating to the issue of contract notes included the provision mandating dealers, when dealing as a principal in a transaction with a non-licensee, to disclose that they are so acting, as well as the provision establishing that the note issued must contain the number, amount and a description of the securities.
The most common breach - 47 of the 65 - was the conduct of business regulation, which stipulates that dealers must provide their clients with periodic statements of account. In addition, several licensees, in opening client accounts, were found to have used request for proposal forms which did not comply with the conduct of business regulations. The regulations require that the forms, signed by clients at the opening of accounts with dealers, must state the kind of authority, that is, full, partial or no discretion given to the portfolio manager; as well as the risk appetite of the client, that is, whether the client is aggressive, medium or conservative.
VIOLATORS
The FSC did not name the violators, but Mr. Wynter said they took a number of actions, including issuing deficiency letters to licensees who committed violations. The issuing of deficiency letters are formal means of bringing to the licensees' attention the details of violations and other concerns observed by the FSC. Those licensees were required to inform the FSC, in writing, about the action they took or plan to take to address the violations.
Arising from the concerns, the FSC said, it also required a specific licensee to adjust its financial statements to reflect disclosures required by local accounting standards and to include on its balance sheet proprietary assets and liabilities "which had been erroneously included in its managed funds portfolio." The licensee has since complied.
The FSC said another licensee, based on its inability to file financial statements for a protracted period due to operational issues, was put on a programme of rigorous monitoring while also being required to put in place professional indemnity insurance cover.
Of the five cases the FSC investigated for suspected breach, one related to an unregistered person performing the functions of a dealer's representative for a licensed securities dealer. The dealer, who was formally warned, has since ceased using the unregistered person, the FSC said.
INVITATIONS
It also investigated an unlicensed person who issued invitations to the public to invest in a financial product offering fixed returns. The FSC said the product has features consistent with those associated with securities, while connected with insurance services. Having completed preliminary investigations, the Commission said the matter was being researched with a view to determining whether to regulate the product as a security or an insurance product.
The FSC said a preliminary investigation into the sale of insurance contracts of North American insurers unregistered in Jamaica has been completed, and that the matter was under legal review.
It also investigated a suspected breach of an unregistered person performing the function of an insurance intermediary, as well as the case of registered insurers paying compensation to an unregistered insurance intermediary for negotiating the renewal of insurance business. Those investigations were in progress, the FSC said.
