House passes Bill to set up Financial Services Authority

A Bill for an Act to set up the Financial Services Authority (FSA) was passed in the House of last Tuesday, November 22.{{more}}

The FSA was established to regulate all non-banking financial institutions here, including credit unions, insurance companies, the international financial services sector and building societies.

The FSA replaces a multiplicity of regulatory institutions, including the Cooperative Division, previously responsible for credit unions, and the Ministry of Finance, where the Director of Finance regulated the insurance sector.

“But after the Bill becomes law, there would be one comprehensive regulatory body,” Prime Minister Dr Ralph Gonsalves explained.

The idea of introducing the FSA comes in the wake of the recent melt-down of financial institutions, regionally and internationally.

“We saw the problems in the region involving CLICO and British American,” Gonsalves explained.

He further contended that organizations such as the cooperative division, while they were useful for training of personnel for certain administrative work, did not have the capacity to properly regulate the credit unions in the country, which according to the prime minister had become multi-million dollar institutions.

“So that is why we are having an entity that would be properly staffed with the regulatory powers.”

“Persons would wonder why we want to regulate the credit unions in this way, but credit unions are no longer penny organizations. There are hundreds of millions of dollars in deposits by depositors and we need to have clear guidelines for the regulation,” Gonsalves explained.

Having such a regulatory body would prevent non-banking financial institutions from taking risks with their investors’ money, because if this were to happen, according to the prime minister, people will have a difficult time to get their money.

“We have similar regulations to banks, so why not in relation to multi-million dollar institutions to have them properly regulated,” Gonsalves said.

This country, according to the prime minister, was slightly behind in the setting up of the governing body, because he had his reservations about putting all non-banking institutions under one regulatory body.

But he said he was later convinced that this was a good decision.

However, Leader of the Opposition, Arnhim Eustace, said that he was not fully convinced that it was a good decision to have so many financial institutions being governed by one authority.

While he supports the idea that all financial institutions needed to be supervised, based on what happened with CL Financial, Eustace said he questioned the FSA’s effectiveness.

“I am not questioning in any way the need for strong regulatory frameworks, and, therefore, I support a lot of what is said in the Bill, but I still question whether one institution in St Vincent can effectively regulate all of the institutions that we hope to cover,” Eustace said.

He further contended that the Eastern Caribbean Central Bank supervises 47 commercial banks throughout the Organization of Eastern Caribbean States (OECS), but this one regulatory body will be responsible for hundreds, as micro-finance institutions are being formed which will be subject to the authority.

While the prime minister said that he is convinced, Eustace said he is not, as there has been an issue of finding qualified persons in the labour force to carry out the required functions.

According to Eustace, the offshore regulatory body has been operating here for some time now, but in his opinion, it does not have its act together.

“The prime minister said that he took some time to be convinced that this could be done under one body, but I am not convinced,” he said, adding that he would have let the commercial banking and offshore institutions remain under the existing regulatory body and let everything else go under the proposed FSA.

“The Central Bank has 200 employees to regulate 47 banks and they have their hands full trying to carry out the supervision,” Eustace stated. (DD)