FSC needs full review

Thevolume of information and misinformation being circulated on the multi-billion-dollar fraud at Stocks and Securities Ltd (SSL) is typical of public reaction to events that monumentally affect people’s lives.

In light of the ongoing investigations, we make no judgements regarding guilt or innocence, notwithstanding circulation of a document purporting to be a statement from the main suspect in the saga who, we are told, has been cashiered by SSL.

What begs comment though is the role of the Financial Services Commission (FSC) in this débâcle.

Undoubtedly the FSC, the regulator for non-deposit-taking financial institutions in the island, failed in its duty to not only monitor the operations at SSL over the past five years at least, but to provide the public with information that could influence investment decisions.

It emerged last week that the FSC, in its own review of SSL, had raised issues about the company’s management in a 2017 report in which it flagged the company as a “problem institution” with “a culture of non-compliance in management of clients’ funds”.

Despite that, the FSC, based on the information available, appeared to have taken little action or gave the company too much leeway to correct the problems it was having.

Under Section 6 of the FSC Act, the regulator is empowered to inter alia “supervise and regulate prescribed financial institutions; promote the adoption of procedures designed to control and manage risk, for use by the management, boards of directors and trustees of such financial institutions; promote stability and public confidence in the operations of financial institutions… and promote the modernisation of financial services with a view to the adoption and maintenance of international standards of competence, efficiency and competitiveness”.

We have no doubt that Mr Everton McFarlane, who resigned on Thursday as executive director of the FSC, is fully aware of that mandate. We also understand his telling journalists at a news conference last Wednesday that his “ability to answer certain questions” on the SSL matter “at this point in time is constrained”.

However, given that it was the FSC that called the press conference, we had expected that Mr McFarlane and his team would have provided the kind of information that would calm fear among the public about the safety of their investments. Instead, his continued ducking of questions had the opposite effect.

As it now stands, there is growing nervousness among Jamaicans about the integrity of the brokerage and securities arm of the financial sector. Hopefully, that anxiety will not mushroom to encompass the entire financial sector, as it took the country a long time to repair the damage inflicted on the economy by the recklessness that obtained in the 1990s that led to the meltdown in that sector.

Coming out of this SSL mess, which has affected a lot of people, some of them retirees, the FSC has a lot of questions to answer. There also needs to be a review of its operating systems with the aim of ensuring effectiveness and accountability.

As to SSL, we await the completion of the investigation and, where criminal action can be proven, we urge the authorities to enforce the law to include incarceration and forfeiture of assets in an effort to at least offer some compensation to victims.

Most importantly, the opportunity should be used to do an audit of the securities sector, if only t0 assure the public that all is well.