THE Banking Services Act specifically allows deposit-taking institutions (banks, merchant banks and building societies), with the prior approval of the Supervisory Committee, to appoint a person to act as agent to offer banking services such as deposits and withdrawals, bill and loan payments/ repayments, account balance enquiries and collection of KYC and due diligence information. The intention here seems to be to encourage efficiency through authorised agency relationships.
Supervision of financial groups and financial holding companies
The Act reinforces the existing requirements for consolidated supervision. It also introduces provisions expanding the supervisory realm to incorporate conglomerate supervision.
The Act defines “consolidated supervision” in relation to a financial group as meaning: (a) the supervision of the financial group on a consolidated basis; (b) the effective supervision of every licensee within a financial group, and (c) where the financial group is a part of a mixed conglomerate, the comprehensive review of the activities within the financial group.
Under the Act, a financial holding company shall be established and consolidated supervision shall apply where:
a) two or more financial institutions operating in Jamaica are members of the financial group and one of them is a deposit-taking institution; and
b) a deposit-taking institution operating in Jamaica is a member of a financial group and has branches or subsidiaries or control of companies outside of Jamaica.
The Act then outlines structures that will afford the supervisor the ability to better regulate and supervise financial groups. It will also allow the supervisor to obtain a perspective of the financial condition of the wider group within which the deposit-taking institution exists, in order to assess the risk that may be present to the deposit-taking institution.
The Act also prohibits ownership structures of and within a financial group which, in the opinion of the supervisory committee, may impede consolidated supervision or effective supervision of a licensee. Notably, these ownership structures include structures that are established in jurisdictions with laws that hinder consolidated or effective supervision.
We have already begun to see entities within the financial services sector taking steps to restructure so as to facilitate effective supervision.
New offences
The Act creates and incorporates new offences making the legislation more relevant to the current market and international trends. These offences include fraudulently misrepresenting that an entity is licensed under the Act, undertaking dealings with shell banks and breaches of the financial holding company provisions.
Enhanced enforcement framework
The Act also provides for an enhanced enforcement framework under Part XXII, such as written warnings and mandatory measures where, for instance, there is a breach of the Proceeds of Crime Act or a licensee’s capital falls below the minimum prescribed level. The functions and investigative powers of the supervisor have also been enhanced under Part XIII.
There are many benefits to be gained from streamlining the laws governing our deposit-taking institutions. It is also clear that the Act contains provisions that more adequately address issues facing the financial services sector. However, time will tell whether the Act proves to be a thorn or a rose for the licensees under the Act.
Simone Bowie Jones is an associate at Myers, Fletcher & Gordon Attorneys-at-Law
and is a member of the firm’s Commercial Department. Simone may be contacted at simone.bowie@mfg.com.jm or www.myersfletcher.com. This article is for general information purposes only and does not constitute legal aid.
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The Banking Services Act and the anticipated
impact on the financial services sector (Part 2)
