Transitional Demands on Regulatory Resources and Focus The Trinidad and Tobago experience A Presentation at the World Bank Conference on Aligning Supervisory

Transitional Demands on Transitional Demands on Regulatory Resources and Regulatory Resources and

Focus Focus The Trinidad and Tobago The Trinidad and Tobago

experienceexperience A Presentation at the A Presentation at the World Bank ConferenceWorld Bank Conference on on Aligning Supervisory Structures with Country Aligning Supervisory Structures with Country NeedsNeeds by: by:

Ms. Catherine Kumar – Ms. Catherine Kumar – Inspector of Financial InstitutionsInspector of Financial InstitutionsCentral Bank of Trinidad and Tobago Central Bank of Trinidad and Tobago

June 6, 2006June 6, 2006

Catherine Kumar, Inspector of Financial Institutions, Catherine Kumar, Inspector of Financial Institutions, June 6, June 6, 2006 2006 22

Outline of PresentationOutline of Presentation

Background of Trinidad & Tobago – Background of Trinidad & Tobago – Economic and Financial Landscape Economic and Financial Landscape

Factors that led to new regulatory Factors that led to new regulatory structure structure

Challenges of Reforming the Challenges of Reforming the regulatory and supervisory processregulatory and supervisory process

Lessons Learnt and the Way ForwardLessons Learnt and the Way Forward

Location – Trinidad and Location – Trinidad and TobagoTobago


Economic Background Economic Background Trinidad and Tobago Trinidad and Tobago

Developing country Developing country

Population – 1.3 millionPopulation – 1.3 million

Positive growth over last decadePositive growth over last decade

Energy-based economy Energy-based economy

GDP growth projected to reach 10% GDP growth projected to reach 10% in 2006in 2006


The Financial Landscape in The Financial Landscape in Trinidad and TobagoTrinidad and Tobago

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

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


The Financial Landscape The Financial Landscape in Trinidad and Tobagoin Trinidad and Tobago

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

Buoyancy of the economy Buoyancy of the economy LiberalizationLiberalization GlobalizationGlobalization Technological changesTechnological changes


Operating EnvironmentOperating Environment

Intense competitionIntense competition Convergence of financial products Convergence of financial products

and services offered by:and services offered by: BanksBanks Trust CompaniesTrust Companies Securities firmsSecurities firms Insurance companies Insurance companies


Globalization of financial Globalization of financial marketsmarkets

Implications:Implications:

Establishment of large and complex Establishment of large and complex financial conglomeratesfinancial conglomerates

Regulatory challenges due to Regulatory challenges due to increased potential for increased potential for systemic risksystemic risk and and contagion riskcontagion risk


Critical Components ofCritical Components ofthe Supervisory Responsethe Supervisory Response

Regulatory and supervisory reformRegulatory and supervisory reform

Organizational restructuringOrganizational restructuring

Effective management of staff Effective management of staff

resources resources

Regulatory and Regulatory and Supervisory ReformSupervisory Reform


Structure of the Regulatory Structure of the Regulatory SystemSystem

prior to 2004prior to 2004

Central Bank of Trinidad and Tobago:Central Bank of Trinidad and Tobago: Bank SupervisionBank Supervision

Ministry of Finance Ministry of Finance (Supervisor of (Supervisor of Insurance):Insurance):

Insurance and Pension Insurance and Pension SupervisionSupervision


Structure of the Regulatory Structure of the Regulatory SystemSystem

prior to 2004prior to 2004Ministry of Labor & Cooperative:Ministry of Labor & Cooperative: Credit UnionsCredit Unions

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

Securities marketSecurities market


Phase IPhase I

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

Phase IIPhase II Establishment of supervisory cooperation Establishment of supervisory cooperation

with the S.E.C. and other regulatorswith the S.E.C. and other regulators Regulator for other financial institutions Regulator for other financial institutions

e.g. Credit Unions, Home Mortgage Banke.g. Credit Unions, Home Mortgage Bank

Regulatory & Supervisory Regulatory & Supervisory Reform – Reform –

Integrated SupervisionIntegrated Supervision


Regulatory & Supervisory Regulatory & Supervisory Reform – Reform –

Integrated SupervisionIntegrated Supervision

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


Phase 1Phase 1 Amendment of Insurance ActAmendment of Insurance Act – –

transfer of supervisory and transfer of supervisory and regulatory authority from Supervisor regulatory authority from Supervisor of Insurance to Central Bankof Insurance to Central Bank

Oversight of:Oversight of: 6 commercial banks6 commercial banks 17 ‘non-banks’17 ‘non-banks’ 45 insurance companies45 insurance companies 2500 insurance intermediaries2500 insurance intermediaries 208 registered pension plans 208 registered pension plans


Legislative changes Legislative changes

Amendments to:Amendments to:

Insurance Act, 1980Insurance Act, 1980

Financial Institutions Act, 1993Financial Institutions Act, 1993

Cooperatives Society ActCooperatives Society Act

to address current to address current fragmented fragmented regulatory and supervisory regulatory and supervisory framework framework


Essential substantive Essential substantive amendments amendments

Consolidated supervisionConsolidated supervision

Sharing of information Sharing of information

Large exposuresLarge exposures

Civil money penalties Civil money penalties


Supervisory Architecture Supervisory Architecture

• Issuance of Guidelines:Issuance of Guidelines:

• Anti-Money LaunderingAnti-Money Laundering

• Fit and Proper Fit and Proper

• Prudent person approach to investment Prudent person approach to investment and lendingand lending

• Corporate Governance Corporate Governance

• Security of customer information Security of customer information


Supervisory OversightSupervisory Oversight

Goal:Goal:

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

Challenge:Challenge:

Ideal organizational structureIdeal organizational structure


Restructuring the Restructuring the Supervision DepartmentSupervision Department

Prompted by:Prompted by: Integration of banking and insurance Integration of banking and insurance

sectors sectors Ability to achieve economies of scale Ability to achieve economies of scale

and scope and scope

=> => More efficient allocation of scarce More efficient allocation of scarce resourcesresources


Organizational Restructure Organizational Restructure

Technical assistance (IADB):Technical assistance (IADB): Upgrading skills and capacities of Upgrading skills and capacities of

StaffStaff Creating integrated supervisory Creating integrated supervisory

authority for:authority for: BankingBanking InsuranceInsurance Private pension fundsPrivate pension funds

Challenges of Challenges of Integrated SupervisionIntegrated Supervision


Human Resources Human Resources ChallengesChallenges

RecruitmentRecruitment of specialized staffof specialized staff Actuary, life and property and Actuary, life and property and

casualty operations expertscasualty operations experts

Rigorous Rigorous trainingtraining

Organizational Organizational restructuring restructuring


Cultural Challenges Cultural Challenges

Personnel transferred from Personnel transferred from Supervisor of Insurance felt alienatedSupervisor of Insurance felt alienated

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


Move to Fuller IntegrationMove to Fuller Integration

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

Establishment of Market Conduct UnitEstablishment of Market Conduct Unit Retraining of staffRetraining of staff Physical movement Physical movement New institution portfolio allocation New institution portfolio allocation


Areas of emphasis Areas of emphasis

Communication with the insurance Communication with the insurance industry industry

Consultative approach:Consultative approach: Formulation of guidelines Formulation of guidelines Formulation of new reporting schedulesFormulation of new reporting schedules Establishment of Office of the Financial Establishment of Office of the Financial

Services OmbudsmanServices Ombudsman

Lessons Learnt & Lessons Learnt & The Way ForwardThe Way Forward


Major ChallengesMajor Challenges

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

Consolidated supervision Consolidated supervision of large, complex of large, complex conglomeratesconglomerates


Lessons Learnt Lessons Learnt Technical assistanceTechnical assistance may be necessary may be necessary

Dealing with the Dealing with the cultural aspectcultural aspect of of integration is critical integration is critical

TrainingTraining is necessary is necessary

Ensure Ensure competent personnel retainedcompetent personnel retained

TheThe harmonization processharmonization process must bemust be managed effectively managed effectively

Conclusion Conclusion


Benefits of Integrated Benefits of Integrated SupervisionSupervision

Regulation by sector is not viable due to: Regulation by sector is not viable due to: the increase in the number of financial the increase in the number of financial

conglomerates and conglomerates and the blurring of boundaries between productsthe blurring of boundaries between products

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


Role of the Central Bank as Role of the Central Bank as Integrated Supervisor Integrated Supervisor

Chosen due to Chosen due to track recordtrack record & & strong strong credibilitycredibility in the financial in the financial environmentenvironment

Continue to ensure compliance with Continue to ensure compliance with international standards:international standards: Basel Core Principles (BCPs)Basel Core Principles (BCPs) Insurance Core Principles (ICPs)Insurance Core Principles (ICPs)


Concluding remarksConcluding remarks

The integrated supervisory process The integrated supervisory process continues to be a challengecontinues to be a challenge

The need to address recruitment and The need to address recruitment and training policies is criticaltraining policies is critical

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

The EndThe End

Thank you!Thank you!

Questions?Questions? Comments? Comments?

Documents

Transitional Demands on Regulatory Resources and Focus The Trinidad and Tobago experience A Presentation at the World Bank Conference on Aligning Supervisory