Wilberne Persaud, Financial Gleaner Columnist

Persaud

I REMEMBER being so amused by the power and subtle unsubtlety of British humour when Margaret Thatcher made her push against monopoly power in the United Kingdom.

One huge and prominent London billboard read something like this: 'Maggie why ONE Monopolies' Commission?'

I don't recall other elements of the billboard, its pictures and juxtaposed images, but the play upon creating a monopoly to regulate monopolies was powerfully funny, even if without substance.

But here, there is substance: Bank of Jamaica (BoJ) remains committed to 'de-couple' or 'un-merge' banks and investment houses but advocates merging their regulation. What an irony!

Creating a monopoly to regulate Jamaica's financial services sector seems to me an unfiltered bad idea from too many perspectives.

The October 26 issue of the Financial Gleaner quotes the Governor, Derick Latibeaudiere, as saying: "My preference is for an integrated and autonomous supervisory authority within the central bank."

But why have an autonomous supervisory authority within the central bank? Whose autonomy would it exercise? What true benefit would this produce apart from expanding the reach and power of BoJ while making it perhaps less efficient and substantially more difficult to manage effectively?

A huge task

The same article tells us of the current Financial Services Commis-sion (FSC), that it came into existence in 2001 "to strengthen oversight of the investment community" and currently has responsibility for regulating "48 licensees, including 34 securities firms, as well as some 14 life and general insurance companies, and most recently the pensions industry under which some 800 schemes and superannuation funds operate."

This is indeed a huge task which Jamaica badly needs accomplished. But there are several others that the FSC could and perhaps should be charged with accomplishing.

The present model and the requisite expansion of activities necessary would seem to make it a totally inappropriate fit "within the central bank".

The Governor argues that "The Bank of Jamaica has no regulatory authority over these other institutions, which makes it difficult to quickly gather and evaluate the necessary information to facilitate sound policy responses or avert crises."

What policy responses? Is the central bank to move beyond its current remit incorporating oversight of investment and other financial sector intermediary and allocation activities? Is its already complex portfolio of regulation not tough enough? And what kind of information is it that it will be unable to gather quickly unless the FSC or some variant sits under its wing, within its nest?

Today's shared database resources and instantaneous cyberspace communication make the information lag complaint rather quaint, if not absurd.

The Bank of England, U.S. Federal Reserve, Deutsch Bundesbank both before and after the euro - none of these universally admired institutions have the regulatory monopoly power BoJ would seek to exercise.

As far as I am aware, none of them would even wish to have such additional burden thrust upon them.

The United States has the Securities and Exchange Commission among other agencies; the U.K. uses the Financial Services Authority (FSA), a non-governmental organisation funded by the industry itself.

Governor Latibeaudiere must continue to seek independence for the central bank strongly, relentlessly. To argue simultaneously for absorption of the FSC is a mistake.

FSC autonomous

The FSC should indeed be an autonomous entity while its chief should be of high stature with independence if not the same as, at least akin to that enjoyed by the Director of Public Prosecutions (DPP). The latter would in fact create absolute independence within the financial system. The institution would not only be responsible for regulation but it would be charged with looking after the financial services consumer to the extent that it educates the public while actively working to develop the capital market and capital market institutions and activities.

In early 2007, the United Kingdom (U.K.) government set these desiderata for its long term financial capability objective.

All adults in the U.K. have access to high-quality generic financial advice to help them engage with their financial affairs and make effective decisions about their money;

All children and young people have access to a planned and coherent programme of personal finance education, so that they leave school with the skills and confidence to manage their money well; and

A range of Government programmes is focused on improving financial capability, particularly to help those who are most vulnerable to the consequences of poor financial decisions.

The U.K. Financial Services Authority (FSA) is the major institution that will deliver on these objectives. I am certain that perusal of the Jamaica legislation setting up our Financial Services Commission will reveal broad points of similarity to the U.K. FSA. What it seems to me we ought to be doing is finding a way to give the Commission the wherewithal to do the job it was originally established to do and to provide for an increased national financial capability while facilitating an orderly and sound development of our capital markets.

None of this would seem to require acquisition of the FSC by the Bank of Jamaica.

The Financial Gleaner's view that the "BoJ's concerns were mirrored this year by the International Monetary Fund (IMF) which argues that securities dealers needed tighter reins, saying the introduction of more risk-sensitive capital requirements would make them more resilient to interest rate risk" is wrong.

That IMF conclusion is valid but does not hinge on the BoJ having monopoly control over financial services and controller of the currency.

So BoJ goes well beyond the IMF in its concerns and their resolution.

There are very good reasons to believe making the FSC a subsidiary, while enlarging if not by that act strengthening the BoJ, would significantly weaken the FSC and render it incapable of achieving the expanded objectives it ought to be pursuing.

In today's Jamaica, perhaps more than ever before, we need a FSC that is legally equipped, vibrant and most of all, innovative in its outreach.

wilbe65@yahoo.com