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

1
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
• 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
• gt 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

• Recruitment of 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
• The harmonization process must be managed
  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
• gtThe 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 End Thank you!

• Questions? Comments?