Bank of Jamaica (the Bank), as part of its commitment to strengthening the regulatory framework for financial institutions, has embarked on the licensing of Financial Holding Companies (FHCs) under the Banking Services Act (BSA) 2014 to improve consolidated supervision of financial groups. This is in light of the growth of financial conglomerates in Jamaica. To date the Bank has licensed two FHCs – NCB Financial Group Limited and JN Financial Group Limited.
International experiences highlight the importance of Jamaica having an effective consolidated supervisory framework to bolster the safety and soundness of the financial system.
The Bank’s Supervisory Committee, in keeping with its authority to make Supervisory Rules to guide the operations of licensees and FHCs, has already issued Supervisory Rules for the licensing of FHCs.
Every company intending to function as an FHC for a financial group which includes a Deposit Taking Institution (DTI) – a commercial bank, merchant bank or building society, is required to apply to the Supervisory Committee for a licence.
Bank of Jamaica (BOJ) takes this opportunity to advise the public of the key principles guiding the licensing of FHCs.
Reorganisation is often a necessary first step to facilitate the submission of a credible application which would meet the criteria for a Financial Holding Company licence. In those circumstances, a proposal for reorganisation is required to be submitted seeking the BOJ’s non-objection. The Bank’s consolidated supervisory framework pays keen attention to ensuring that all financial companies within the group and all entities facilitating financial services, including Special Purpose Vehicles that are related to, or controlled by a financial group, are included in the consolidated financial statements of that financial group.
The Bank does not automatically issue a Financial Holding Company licence following the issuance of the non-objection to group reorganisation.
The issuing by the Supervisory Committee of a non-objection to a proposed group reorganisation means that the entity has put forward a group structure that will facilitate effective consolidated supervision of the group consistent with the banking laws.
The evaluation of a group structure does not involve a review of a group’s financial condition and risk governance framework. In considering the group’s reorganisation proposal, the Bank also does not conduct a review of the soundness or the prudence of the group’s management team. The Bank wishes to make clear, therefore, that a non-objection from the Supervisory Committee in relation to an application for group reorganisation should not be considered as an endorsement by the Bank of a group’s financial condition and/or the quality of its senior management. As part of its general practice, the Bank does not endorse the senior management of any licensee/applicant.
Once a group presents to the Bank a group structure that is consistent with the banking laws, Bank of Jamaica then commences its assessment of the FHC licensing application. This evaluation involves a due diligence on a FHC’s corporate governance and internal control arrangements, financial strength and resources (liquidity, capital adequacy, earnings etc), and information technology risk management.
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