The Banking Services Act and the anticipated impact on the financial services sector (Part 1)

With SIMONE BOWIE JONES

Wednesday, January 21, 2015    

THE aim of the recently passed, but not yet in force, Banking Services Act (the “Act”) is to aid in the creation of a more efficient banking system by seeking to bring the legislative regime in accordance with international standards and by consolidating the different pieces of legislation that govern entities within the financial services sector. The Act repeals the Banking Act and the Financial Institutions Act and amends sections of the Building Societies Act and the Bank of Jamaica Act.

Members of the financial sector have for some time been waiting with wary anticipation for the passing of the Act, first known simply as the banking “omnibus legislation”. Highlighted in this article are some of the changes that will be introduced by the Act.

The Administration of the Act & Transparency

The Banking Services Act, like the previous pieces of legislation governing the financial services sector, is administered by the Bank of Jamaica (the “BOJ”) and the “Supervisor”, that is, the Supervisor of Banks and Specified Financial Institutions appointed under the Bank of Jamaica Act. The Act introduces the “Supervisory Committee”, which is to advise and make recommendations to the Supervisor on matters such as the grant and revocation of licences; the determination as to whether a person is fit and proper; applications regarding corporate and group restructuring, new products and services; development and enforcement of the Code of Conduct; and change in the ownership of licences.

The constitution and procedures of the Supervisory Committee are set out in the Second Schedule to the Act. Notably, two of the five members of the Supervisory Committee must be persons not employed by the BOJ and have experience and knowledge in banking business, commercial law, administration, finance or the regulation of financial services. Public officers, members of the House of Representatives or the Senate and persons with a proprietary interest in a licensee are not eligible for appointment. Measures such as this clearly evidence an intention to improve governance and transparency.

Boards & Management Committees

The Act requires all licensees to establish appropriate board and management committees to oversee key aspects of the operations, and establish due diligence processes (including background checks) for directors, officers and key employees. It also maintains the requirement that the officers advise the Supervisor on a proactive basis of any facts evidencing potential or actual challenges to the ability of a licensee to meet its obligations.

Every licensee must have a board of directors consisting of not less than five members, and not less than one-third of the board membership must be made up of independent directors.

The Act also stipulates that the board of directors is to be comprised of suitably qualified and competent directors that possess the knowledge and expertise required to have oversight of the operations, effective leadership and can ensure that the licensee operates in a prudent manner.

The Act specifically prohibits the chairman of the board from being an employee of the licensee. Further, the same person cannot be both chairman of the board and chief executive officer of a licensee at the same time. However, these restrictions do not, however, apply where the chairman of the board or board of management is established in relation to the branch operations in Jamaica of a foreign bank.

Every licensee is to ensure that:

* the policies of the licensee are updated at regular intervals;

* policies and procedures (including rules and procedures governing due diligence and promoting ethical and professional standards) are established and meet the standards required by applicable laws;

* appropriate and adequate record keeping systems are in place;

* a person does not undertake activities or hold dual or multiple roles within a financial group that may create an actual or potential conflict of interest except where approved by the Supervisor; and

* any transaction between a licensee and a connected person is at commercial arms length pricing and terms.

These provisions should result in better accountability and governance and allow the public to have a greater level of confidence that the institutions in which they deposit their hard-earned money, are being operated by qualified persons with a greater level of transparency.

Additional Reporting Requirements

The Act now incorporates an express obligation for licensees to immediately report to the Supervisor matters that could materially affect the financial viability or reputation of the licensee, as well as fraud or criminal activity committed by or against the licensee. The licensee is also to advise the Supervisor of any emerging factors that may render a director, officer, substantial shareholder or key employee unfit to hold office or no longer fit and proper, as well as of the resignation or dismissal of any such person and the reason for same.

Licensees must also give prior notice to the Supervisor of transactions involving the sale or purchase of loans for a price exceeding (individually or in aggregate) 5 per cent of its capital base. They must also give notice of intent to appoint an external auditor and any major changes to existing operations.

Simone Bowie Jones is an Associate at Myers, Fletcher and Gordon

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The Banking Services Act and the anticipated impact on the financial services sector (Part 1)

Union boss wants workforce impact of Chikungunya assessed

Senator Kavan Gayle, President-General of the Bustamante Industrial Trade Union 9BITU) wants a study to be done to determine the full impact of  the Chikungunya outbreak on the productive sector.
Reporting that some of his union’s members have complained about impact the high number of colleagues who have had to take sick leave, Senator Gayle, told RJR News that “it has put a burden on those who remain.”

He added that, in some instances, some affected workers have not been able to receive the required medical attention, “have not been able to gain the medical attention because of the (huge) influx of persons…” putting an added strain on the resources of the medical services.

This unsatisfactory situation was “creating havoc amongst the workforce,” he said.

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Union boss wants workforce impact of Chikungunya assessed

Union boss wants workforce impact of Chikungunya assessed

Senator Kavan Gayle, President-General of the Bustamante Industrial Trade Union 9BITU) wants a study to be done to determine the full impact of  the Chikungunya outbreak on the productive sector.
Reporting that some of his union’s members have complained about impact the high number of colleagues who have had to take sick leave, Senator Gayle, told RJR News that “it has put a burden on those who remain.”

He added that, in some instances, some affected workers have not been able to receive the required medical attention, “have not been able to gain the medical attention because of the (huge) influx of persons…” putting an added strain on the resources of the medical services.

This unsatisfactory situation was “creating havoc amongst the workforce,” he said.

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Union boss wants workforce impact of Chikungunya assessed

Mystery surrounds “meteorite” impact near Nicaraguan capital

File photo

MANAGUA, Nicaragua, Friday September 12, 2014 – Just before midnight local time on Saturday, residents of Nicaragua’s capital Managua reported hearing a loud explosion and feeling a shockwave accompanied by a burning smell.

A crater 12 metres wide and more than 5 metres deep was subsequently discovered near Managua’s international airport, and the area was cordoned off by soldiers.

Wilfried Strauch, an adviser to Nicaragua’s Institute of Earth Studies (Ineter), later said he was convinced that the crater was caused by a meteorite.

This view was supported by Ineter scientist Jose Millan, who insisted that “all the evidence that we’ve confirmed at the site corresponds exactly with a meteorite and not with any other type of event.

“We have the seismic register which coincides with the time of impact, and the typical characteristic that it produces a cone in the place of impact,” he added.

Government spokeswoman and First Lady Rosario Murillo expanded on the theory, saying that the crater was caused by a “relatively small meteorite that appears to have come off an asteroid that was passing close to Earth”.

NASA asteroid expert Don Yeomans nevertheless shot this explanation down in flames, saying that the impact felt in Managua “was separated by 13 hours from the close Earth approach of [asteroid] 2014 RC, so the explosion and the asteroid are unrelated.”

Also casting doubt on the meteorite theory was head of NASA’s Meteoroid Environment Office Bill Cooke, who insisted that “for something to produce a hole in the ground that big, it would have generated a very bright fireball, and nothing was reported”.

In his blog on the NASA website, Cooke estimated that the crater would have been created by a blast of “roughly the energy equivalent of 1 tonne of TNT” and that a meteor capable of such force would have created a fireball visible over a wide area.

Jaime Incer, a scientist who advises the Nicaraguan presidency on environmental matters, countered that it was possible nobody was looking up at the sky when the event took place close to midnight.

Lending weight to the NASA scientists’ doubts is the absence of meteorite fragments in or near the crater.

NASA’s Cooke said there could be any number of explanations, ranging from ordinance to “someone out blowing things up.”

Nicaraguan officials indicated that they would invite international experts to investigate further.

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Mystery surrounds “meteorite” impact near Nicaraguan capital

Barbados voices concern over impact of climate change in the Caribbean

Mudslide clean up from Hurricane Tomas in Soufriere, St. Lucia.

BRIDGETOWN, Barbados, Tuesday July 8, 2014, CMC – Prime Minister Freundel Stuart says Caribbean countries and other small island developing states (SIDS) are becoming increasingly susceptible to climate change and steps have to be taken to reduce this vulnerability.

Stuart noted that as a result of climate change, unprecedented flooding was taking place in several parts of the world, including the Caribbean, with neighbouring territories experiencing unseasonal hurricane type behaviour.

“St. Vincent and the Grenadines, for example, around Christmas last year and St. Lucia and Dominica experienced systems that were unprecedented for that time of the year. Seventeen per cent of the gross domestic product of St. Vincent and the Grenadines was destroyed by that system last December.

“We were fortunately spared (that system but) about two or three years before, (Hurricane) Tomas passed by at a very awkward time for us as well and I am not aware that we have fully come out of the damage done by Tomas,” he said.

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Prime Minister Stuart said that Barbados would be articulating its position on the effects of climate change on SIDS at the Third International Conference on Small Island Developing States, which will be held in Samoa in September.

“We’ll be accentuating a lot of those issues that have to do with the threats posed to small island developing states by climate change and making sure that we can access a lot of the funding that is being put in place to effect adaptation and mitigation measures so that we can minimise our risks.

“So, for us, this is not an academic issue. This is an issue that affects people in their everyday lives, and therefore, we have to continue our leadership on the issue of the environment and on issues related to climate change as these two affect small island developing states, of which Barbados is one,” he said.

The United Nations Conference on Small Island Developing States will be held in Apia, Samoa, from September 1 to 4.

Barbados and other CARICOM countries will be hoping to develop and secure partnerships in areas such as climate change and disaster risk management, oceans and biodiversity, water and sanitation, food security and waste management, sustainable economic development, sustainable energy and social development, health and non-communicable diseases, and youth and women.

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Barbados voices concern over impact of climate change in the Caribbean

Impact of drought on agriculture not yet known

The Jamaica Agricultural Society (JAS) says it’s too early to determine what impact the worsening dry spell will have on the price of  ground produce.

JAS President, Senator Norman Grant, told RJR News that the Rural Agricultural Development Authority and JAS Branch Societies are carrying out assessments.

Each parish Branch Society will be asked to give a report on Wednesday during the JAS annual general meeting.

According to Grant proposals for assistance will be submitted to the Ministry of  Agriculture.

“There was a growth rate of 18% in the first quarter, we have to look at the second quarter numbers andwe can access the impact. We are saying that to mitigate against any fall off in production for the third quarter there has to be some intervention, I believe, from government,” he said.

He noted that the agricultural sector is not yet in panic mode, despite the severe decline in rainfall and the increased number of  fires affecting farms in St. Elizabeth.

The JAS President said an education campaign is needed and the age old method of  clearing land using fire will be addressed at Wednesday’s annual general meeting.

Fire personnel have attributed the fires which have razed sections of southern St. Elizabeth to the slash and burn method.

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Impact of drought on agriculture not yet known

FATCA unlikely to impact persistent tax evasion in Latin America

Capital flight from developing countries of the South. (Credit: Tax Justice Network)

Emilio Godoy MEXICO CITY, Mexico, Friday July 4, 2014, IPS - The U.S. Foreign Account Tax Compliance Act is unlikely to contribute much to combating persistent tax evasion in Latin America, which will require more national and multilateral instruments, experts say. FATCA, as it is better known, was approved in March 2010 and finally came into force on Jul. 1 after a number of delays. It is a reciprocal agreement, which means that other countries may learn which of their citizens have accounts in the United States. The law requires governments and financial institutions worldwide to report to the Internal Revenue Service (IRS) financial information about U.S. citizens who are resident or have assets abroad. “The limiting factor for developing countries is that it is bilateral. Mexico, for example, would benefit from receiving information about its residents who have accounts in the United States, but these residents may also have accounts in other jurisdictions,” analyst Andrés Knobel of the London-based Tax Justice Network told IPS.

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Knobel and other experts consulted by IPS say that tax evasion and avoidance have reached such proportions that firm national policies and multilateral instruments will be needed to combat them. FATCA could coexist with and support these. Knobel also complained that, although there is reciprocity between the U.S and its partners, the exchange is unequal. The U.S. “demands more information from its partners but gives less. The information is supposed to be for tax purposes, but the authorities decide what they use it for,” he said. Under FATCA, banks, investments funds and other financial institutions must identify U.S. citizens’ accounts abroad and notify the IRS of their account numbers, balances, names, addresses and U.S. identification numbers. The law covers investments greater than 50,000 dollars. Institutions that fail to comply risk the withholding of 30 percent of any payments originating in or passing through U.S. territory. The IRS has registered over 77,000 institutions worldwide out of a total of between 200,000 and 400,000 that should adhere to FATCA. In Latin America 3,800 institutions have come to an agreement with the IRS so far, while 800 have not. The U.S. has signed bilateral agreements with over 70 countries, in two categories. The first requires financial institutions to report information about U.S. citizens to their national tax authority, which is to advise the IRS. The second calls for the financial agency to report the information directly to the IRS. “FATCA has potential for preventing tax evasion, but better mechanisms are needed to process the information quickly and take action as a result,” academic Benito Rivera, of the Faculty of Higher Studies at the National Autonomous University of Mexico, told IPS. “Agreements have been signed, but fiscal paradises have not been touched, although some transactions have been identified,” he said. In its report on Tax Administration 2013, the Organisation for Economic Cooperation and Development (OECD) said that in Chile, taxpayers’ fiscal debt had increased continuously between 2005 and 2011. Average growth during this period was 13 percent. The country has a tax burden of nearly 20 percent of GDP. Mexico, with a tax burden of 18 percent, had similar growth figures, although data since 2010 are lacking. This is also the case with Brazil, which has a tax burden of 32 percent, and Colombia, with 17 percent. In Argentina the tax burden has fallen by 48 percent, although the level of tax debt is still high. Its present tax burden is 33 percent. The OECD estimates that at least 500,000 individuals in Latin America have a combined fortune of seven trillion dollars, with no certainty that they are paying appropriate taxes. The Economic Commission for Latin American and the Caribbean (ECLAC) puts income tax evasion at nearly 50 percent in Argentina, 47 percent in Chile, 64 percent in Ecuador and 42 percent in Mexico. The International Monetary Fund (IMF) has also warned of tax avoidance and evasion by means of “financial engineering.” In the document “Spillovers in International Corporate Taxation,” published in May, the IMF indicates that foreign direct investment (FDI) that leaves Brazil turns up in known fiscal paradises like the Cayman Islands, the British Virgin Islands, the Bahamas, the Netherlands and Luxemburg. In another example, it says that FDI arriving in El Salvador comes from countries like Panama and the Cayman Islands. “With FATCA, more information will be available, but there will be loopholes for rich companies and individuals to avoid the exchange of their information,” Knobel said. He recalled that “for a long time, organisations have been asking for automatic information exchange. We asked for public registers of final beneficiaries, the real owners of any financial activity that takes place.” The U.S.-Mexico FATCA agreement, signed in November 2012, shows the disparity in the information provided. Mexico is required to report the total amount of interest, dividends and other income generated and paid by the account assets, as well as total income from sales of possessions that are recorded in the account. But the U.S. will only inform Mexico of the total amount of interest paid on a deposit account, dividends or any other source of income. In the case of Chile, the national tax authority must ask U.S. account holders for their tax identification number and written consent. It must report annually to the IRS the number and balance of non-consenting accounts. Under the agreement, the U.S. “shall cooperate with Chile to respond to requests to collect and exchange information on accounts held in U.S. financial institutions by residents of Chile.” There are at least 60 tax havens in the world, including U.S. territories like the northeastern state of Delaware, which has big tax discounts. For this reason, Washington has negotiated favourable bilateral agreements. The Tax Justice Network’s 2013 Financial Secrecy Index ranks the U.S. in sixth position, behind Switzerland, Luxemburg and Hong Kong, among others. In Latin America, only Panama is placed among the top 20. In February, the U.S. Senate’s Committee on Homeland Security and Government Affairs criticised the FATCA in its report “Offshore Tax Evasion: The Effort to Collect Unpaid Taxes on Billions in Hidden Offshore Accounts.” The report criticised the thresholds for reporting accounts, the failure to aggregate data from different institutions and potential tax evasion through offshore shell companies. The law will not solve the problem of reporting information; its regulations have created a number of loopholes, the report says. “It will take a few years for it to meet its goals. It would be desirable for the competent authorities to meet regularly to analyse procedures and speed of action,” Rivera said.

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FATCA unlikely to impact persistent tax evasion in Latin America