JAMAICA: FSC Publish Consultation Paper on Proposals for a Special Resolution Regime for Financial Institutions in Jamaica

Monday March 6 2017

On 2nd March 2017, the FSC published a Consultation paper entitled “proposals for a special resolution regime for financial institutions in Jamaica: financial holding companies, deposit-taking institutions, securities dealers and insurance companies (life and general).”

The Paper was jointly published by Members of the Financial Regulatory Committee comprising the Ministry of Finance and the Public Service, Bank of Jamaica, Financial Services Commission and Jamaica Deposit Insurance Corporation.

Part 1 provides a background to the proposals and includes an overview of the existing financial system in Jamaica, existing legal framework and the gaps identified in the framework. This part underscores the rationale for the proposed framework for a Special Resolution Regime (SRR) for Financial Institutions (FIs).

Part 2 sets out the proposals for establishing the SRR. This begins with outlining the main objectives of the SRR (section 2) which identifies its public policy purpose for maintaining financial stability and essential financial services and critical functions. This part goes on to examine the scope of the framework (section 3), that is the FIs and institutions which will be subject to the framework. This is followed by the proposed legal structure to support the new regime (section 4) which is a hybrid model consisting of primarily administrative processes for resolving SIFIs along with modified insolvency rules. These proposals will be reflected in legislation to facilitate resolution actions in a conglomerated and highly interconnected financial system.

The proposed institutional arrangements are explained in section 5 and recognize the roles and responsibilities of the existing authorities to support the implementation of the proposed framework. The conditions which would need to be met for placing an FI into the resolution regime are specified in section 6. These include both qualitative and quantitative conditions and mark the beginning of the resolution process.

Section 7 considers the menu of resolution powers and tools that are expected to be available to the resolution authority (RA) consistent with international standards. These include the assumption of management and the override of shareholder rights for effective resolution. The safeguards which are an inherent part of any resolution regime and which are proposed to be available in Jamaica are outlined in section 8. These include the preservation of the constitutional rights of shareholders that might be impacted by resolution action and recognize the principles on which any constitutional compensation would be determined and the requirement for due process. Given that the resolution of cross-border FIs will depend on effective cooperation between home and host RAs, section 9 considers how the proposed SRR could support this, whilst also protecting the maintenance of financial stability and the rights of affected parties in Jamaica. An integral aspect of the framework is the development and maintenance of resolution plans which is addressed in section 10.

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