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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 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

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  1. 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

  2. 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

  3. Location – Trinidad and Tobago

  4. 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

  5. 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)

  6. 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

  7. Operating Environment • Intense competition • Convergence of financial products and services offered by: • Banks • Trust Companies • Securities firms • Insurance companies

  8. Globalization of financial markets Implications: • Establishment of large and complex financial conglomerates • Regulatory challenges due to increased potential for systemic risk and contagion risk

  9. Critical Components ofthe Supervisory Response • Regulatory and supervisory reform • Organizational restructuring • Effective management of staff resources

  10. Regulatory and Supervisory Reform

  11. 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

  12. Structure of the Regulatory Systemprior to 2004 Ministry of Labor & Cooperative: • Credit Unions Securities & Exchange Commission (S.E.C.): • Securities market

  13. 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

  14. Regulatory & Supervisory Reform – Integrated Supervision • Phase III – Consideration for a fully integrated supervisor under the Central Bank or some other autonomous body (Long Term)

  15. 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

  16. Legislative changes Amendments to: • Insurance Act, 1980 • Financial Institutions Act, 1993 • Cooperatives Society Act to address current fragmented regulatory and supervisory framework

  17. Essential substantive amendments • Consolidated supervision • Sharing of information • Large exposures • Civil money penalties

  18. Supervisory Architecture • Issuance of Guidelines: • Anti-Money Laundering • Fit and Proper • Prudent person approach to investment and lending • Corporate Governance • Security of customer information

  19. Supervisory Oversight • Goal: Single team of supervisors to monitor the adherence of major groups to regulatory requirements • Challenge: Ideal organizational structure

  20. 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

  21. Organizational Restructure Technical assistance (IADB): • Upgrading skills and capacities of Staff • Creating integrated supervisory authority for: • Banking • Insurance • Private pension funds

  22. Challenges of Integrated Supervision

  23. Human Resources Challenges • Recruitmentof specialized staff • Actuary, life and property and casualty operations experts • Rigorous training • Organizational restructuring

  24. 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

  25. 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

  26. 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

  27. Lessons Learnt & The Way Forward

  28. Major Challenges • Harmonization of the information technology system for the banking, insurance and pension sectors • Consolidated supervision of large, complex conglomerates

  29. 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

  30. Conclusion

  31. 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

  32. 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)

  33. 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

  34. The EndThank you! Questions?Comments?

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