Transitional demands on regulatory resources and focus the trinidad and tobago experience
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Transitional Demands on Regulatory Resources and Focus The Trinidad and Tobago experience. A Presentation at the World Bank Conference on Aligning Supervisory Structures with Country Needs by: Ms. Catherine Kumar – Inspector of Financial Institutions Central Bank of Trinidad and Tobago

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Transitional demands on regulatory resources and focus the trinidad and tobago experience

Transitional Demands on Regulatory Resources and Focus The Trinidad and Tobago experience

A Presentation at the World Bank Conferenceon

Aligning Supervisory Structures with Country Needs by:

Ms. Catherine Kumar –

Inspector of Financial Institutions

Central Bank of Trinidad and Tobago

June 6, 2006


Outline of presentation
Outline of Presentation

  • Background of Trinidad & Tobago – Economic and Financial Landscape

  • Factors that led to new regulatory structure

  • Challenges of Reforming the regulatory and supervisory process

  • Lessons Learnt and the Way Forward



Economic background trinidad and tobago
Economic Background Trinidad and Tobago

  • Developing country

  • Population – 1.3 million

  • Positive growth over last decade

  • Energy-based economy

  • GDP growth projected to reach 10% in 2006


The financial landscape in trinidad and tobago
The Financial Landscape in Trinidad and Tobago

“The local financial system has been responding to a constantly changing macro-environment and has made significant strides….”

White Paper on the Reform of the Financial System of Trinidad and Tobago (2004)


The financial landscape in trinidad and tobago1
The Financial Landscape in Trinidad and Tobago

Factors which have contributed to the complexity of the financial landscape in Trinidad and Tobago:

  • Buoyancy of the economy

  • Liberalization

  • Globalization

  • Technological changes


Operating environment
Operating Environment

  • Intense competition

  • Convergence of financial products and services offered by:

    • Banks

    • Trust Companies

    • Securities firms

    • Insurance companies


Globalization of financial markets
Globalization of financial markets

Implications:

  • Establishment of large and complex financial conglomerates

  • Regulatory challenges due to increased potential for systemic risk and contagion risk


Critical components of the supervisory response
Critical Components ofthe Supervisory Response

  • Regulatory and supervisory reform

  • Organizational restructuring

  • Effective management of staff resources



Structure of the regulatory system prior to 2004
Structure of the Regulatory Systemprior to 2004

Central Bank of Trinidad and Tobago:

  • Bank Supervision

    Ministry of Finance (Supervisor of Insurance):

  • Insurance and Pension Supervision


Structure of the regulatory system prior to 20041
Structure of the Regulatory Systemprior to 2004

Ministry of Labor & Cooperative:

  • Credit Unions

    Securities & Exchange Commission (S.E.C.):

  • Securities market


Regulatory supervisory reform integrated supervision
Regulatory & Supervisory Reform – Integrated Supervision

Phase I

  • Transfer of Insurance and Pension Supervision to Central Bank (May 2004)

    Phase II

  • Establishment of supervisory cooperation with the S.E.C. and other regulators

  • Regulator for other financial institutions e.g. Credit Unions, Home Mortgage Bank


Regulatory supervisory reform integrated supervision1
Regulatory & Supervisory Reform – Integrated Supervision

  • Phase III – Consideration for a fully integrated supervisor under the Central Bank or some other autonomous body (Long Term)


Phase 1
Phase 1

  • Amendment of Insurance Act – transfer of supervisory and regulatory authority from Supervisor of Insurance to Central Bank

  • Oversight of:

    • 6 commercial banks

    • 17 ‘non-banks’

    • 45 insurance companies

    • 2500 insurance intermediaries

    • 208 registered pension plans


Legislative changes
Legislative changes

Amendments to:

  • Insurance Act, 1980

  • Financial Institutions Act, 1993

  • Cooperatives Society Act

    to address current fragmented regulatory and supervisory framework


Essential substantive amendments
Essential substantive amendments

  • Consolidated supervision

  • Sharing of information

  • Large exposures

  • Civil money penalties


Supervisory architecture
Supervisory Architecture

  • Issuance of Guidelines:

    • Anti-Money Laundering

    • Fit and Proper

    • Prudent person approach to investment and lending

    • Corporate Governance

    • Security of customer information


Supervisory oversight
Supervisory Oversight

  • Goal:

    Single team of supervisors to monitor the adherence of major groups to regulatory requirements

  • Challenge:

    Ideal organizational structure


Restructuring the supervision department
Restructuring the Supervision Department

Prompted by:

  • Integration of banking and insurance sectors

  • Ability to achieve economies of scale and scope

    => More efficient allocation of scarce resources


Organizational restructure
Organizational Restructure

Technical assistance (IADB):

  • Upgrading skills and capacities of Staff

  • Creating integrated supervisory authority for:

    • Banking

    • Insurance

    • Private pension funds


Challenges of integrated supervision

Challenges of Integrated Supervision


Human resources challenges
Human Resources Challenges

  • Recruitmentof specialized staff

    • Actuary, life and property and casualty operations experts

  • Rigorous training

  • Organizational restructuring


Cultural challenges
Cultural Challenges

  • Personnel transferred from Supervisor of Insurance felt alienated

  • Bank Supervision staff traumatized when staff from Office of Supervisor of Insurance recruited into higher positions


Move to fuller integration
Move to Fuller Integration

  • Restructure of department to allow for fully integrated supervision of banking and insurance

  • Establishment of Market Conduct Unit

  • Retraining of staff

  • Physical movement

  • New institution portfolio allocation


Areas of emphasis
Areas of emphasis

  • Communication with the insurance industry

  • Consultative approach:

    • Formulation of guidelines

    • Formulation of new reporting schedules

    • Establishment of Office of the Financial Services Ombudsman


Lessons learnt the way forward

Lessons Learnt & The Way Forward


Major challenges
Major Challenges

  • Harmonization of the information technology system for the banking, insurance and pension sectors

  • Consolidated supervision of large, complex conglomerates


Lessons learnt
Lessons Learnt

  • Technical assistance may be necessary

  • Dealing with the cultural aspect of integration is critical

  • Training is necessary

  • Ensure competent personnel retained

  • Theharmonization processmust bemanaged effectively



Benefits of integrated supervision
Benefits of Integrated Supervision

Regulation by sector is not viable due to:

  • the increase in the number of financial conglomerates and

  • the blurring of boundaries between products

    =>The unification of the supervisory process will reduce regulatory gaps


Role of the central bank as integrated supervisor
Role of the Central Bank as Integrated Supervisor

  • Chosen due to track record & strong credibility in the financial environment

  • Continue to ensure compliance with international standards:

    • Basel Core Principles (BCPs)

    • Insurance Core Principles (ICPs)


Concluding remarks
Concluding remarks

  • The integrated supervisory process continues to be a challenge

  • The need to address recruitment and training policies is critical

  • As the financial landscape changes, there may be need to restructure again to respond to challenges


The end thank you

The EndThank you!

Questions?Comments?


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