Draft legislation for the establishment and management of the proposed Financial Services Commission is currently in circulation for review by stakeholders in the financial services sector, including providers of professional services.
The Commission is intended to regulate the non-banking financial services sector from mid 2010, and will merge the functions of the Securities Commission, the Department of Cooperatives and Friendly Societies, the Office of the Supervisor of Insurance and Pensions and the regulatory and supervisory functions of the International Business Unit in the Ministry of International Business.
Below is a summary of key highlights from the draft Financial Services Commission Bill dated November 2009.
The functions of the Commission are:
- to be responsible for the administration of the “relevant Acts”, including the licensing or registration of financial institutions;
[The “relevant Acts” are the following 11 statutes, and any regulations made under them, which are presently administered by various regulatory and supervisory bodies: Barbados Foreign Sales Corporation Act, Co-operative Societies Act, Exempt Insurance Act, Friendly Societies Act, Insurance Act, International Business Companies Act, International Trusts Act, Occupational Pension Benefits Act, Societies with Restricted Liabilities Act, Securities Act, and Mutual Funds Act.]
- to supervise and regulate the operation of financial institutions;
- to establish standards for institutional strengthening, for the control and management of risk in the financial services sector and for the protection of customers of financial institutions as well as creditors and the public;
- to issue guidelines, with the approval of the Minister and after consultation with financial institutions in order to:
- establish codes of conduct;
- modernise the financial services sector;
- promote international standards and best practices;
- detect, prevent and deter money laundering; and
- detect funds allocated or used for the financing of terrorism;
- to promote stability, public awareness and public confidence in the operations of financial institutions;
- to increase the competitiveness of the financial services sector;
- to advise the Minister in respect of matters relating to the Financial Services Commission Act; and
- to do such other things as are necessary to effectively carry out the purposes of the Financial Services Commission Act.
Members of the FSC
The Minister of Finance will appoint seven members to the Commission (including a Chairman and Deputy Chairman) based on their qualifications and experience in matters relating to commerce, insurance, pensions, securities, credit union, law, accounting or such other areas that, in the Minister’s opinion, are required for the management of the Commission.
To prevent conflicts of interest, any member of the Commission “in any way, whether directly or indirectly, interested in a matter before the Commission” must declare this interest to the Commission, which will decide in the member’s absence, whether the interest is “sufficiently material as to constitute a conflict of interest”. Where there is a conflict of interest the member concerned will not be allowed to be present or to take part in any deliberations on that matter. There are penalties for breaching these requirements.
Regulatory and Supervisory Powers
The following regulatory powers are proposed for the FSC in respect of financial institutions:
- issuing directives to ensure compliance with laws and regulations, or to ensure that a financial institution is being properly managed and remains financially sound;
- investigating the affairs of a financial institution to ensure that it is being properly managed and remains financially sound, and that it is complying with the Money Laundering and Financing of Terrorism (Prevention and Control) Act and the accompanying guidelines;
- suspending or cancelling the registration, or revoking the licence, of a financial institution;
- seizing the management and control of a financial institution, or appointing an administrator or a controller to protect the interest of its customers, creditors and the public;
- re-organising or winding up a financial institution; and
- exempting a financial institution from any statutory requirement or guideline where the Commission deems it necessary.
There are also catch-all provisions for the FSC to exercise any of the powers presently exercisable by the regulatory authorities it is replacing, as well as such powers as are generally necessary to effectively discharge its functions under the new legislation.
When the new legislation comes into force, all existing licences and certificates of registration issued for non-banking financial institutions will remain valid until their given expiry date. The financial institution will then have to be re-registered or re-licensed with the FSC from the expiration date in order to legally continue conducting financial services business in Barbados. Failing this, it will breach the requirement to first apply to the FSC to be registered or to obtain a licence under the new statute before operating the business of a non-banking financial institution.
The Financial Services Appeals Tribunal
There will be a Financial Services Appeals Tribunal chaired by an attorney-at-law, to hear appeals against decisions of the Commission. An appeal against a decision must be filed with the Tribunal within 30 days of the financial institution receiving written notification of the FSC’s decision. The Tribunal will have the powers of a magistrate’s court, and in some instances its decisions may be appealed to the Court of Appeal.
Under the transitional provisions, any appeal which is awaiting hearing under the present appeals system at the time the new regime commences will then transfer to the jurisdiction of the new Financial Services Appeal Tribunal. However, any appeal which is already in the process of being heard by “the Minister, or other authority or body” at the time the new legislation comes into force will continue to be heard and ultimately determined by the Minister or other authority or body hearing the appeal.
The Financial Services Commission Fund
The Commission’s functions will be financed through a Financial Services Commission Fund resourced by:
- sums voted by Parliament;
- amounts borrowed by the Commission;
- proceeds from investments by the Commission;
- amounts accruing from fees or the operation of the Fund; and
- amounts available to the Commission from other sources approved by the Minister of Finance.
The Commission will develop a policy for investment in low-risk securities, and, with the approval of the Minister of Finance, may also borrow money required for it to perform any of its functions or meet any of its obligations.
It is proposed that the Commission may, without the consent of a financial institution, disclose information it has received:
- to the Commissioner of Inland Revenue;
- to the Financial Intelligence Unit of the Anti-Money Laundering Authority;
- to any other local supervisory or regulatory authority of financial institutions; or
- where there is a branch, holding company or affiliate of the financial institution operating in a country outside Barbados, to the appropriate supervisory authority of financial institutions in that country on request, provided that there is a memorandum of understanding in place and that the requesting authority has also given appropriate undertakings for the protection of confidentiality and controlled use of the information.
Members and employees of the Commission will be prohibited from using any confidential information for their own advantage, or disclose such information. Breach of confidentiality will be punishable by a fine, imprisonment or both.
Publication of Information
The Commission may publish any information which it considers to be of public interest, and may also require financial institutions to publish any information which the Commission deems to be of interest to the public. Where the Commission publishes information, this will not include information concerning the affairs or individual transactions of a particular customer of a financial institution.
Proceedings for an offence under the Financial Services Commission Act can only be instituted by, or with the consent of, the FSC.
Analysis of the proposals contained in the draft FSC Bill will follow in a subsequent update from Chancery Chambers.