LAST FRIDAY, Government and Opposition MPs in the House of Representatives sent a strong signal when they united to approve the most comprehensive reform of the insurance industry since 1980. The unanimous vote in support of the Insurance Bill 2016 hopefully heralds a new era of fiscal and regulatory maturity that is long overdue.
The collapse of the CL Financial (CLF) Group in 2009 exposed considerable deficiencies in risk management, monitoring and supervising strategies on the part of State regulatory bodies. Lax regulatory oversight combined with the considerable size of CLF to create the perfect storm.
The Trinidad and Tobago economy was placed in considerable peril. Yet, bafflingly, it has taken the State almost a decade to pass legislation to address the many problems revealed by the CLF scandal, many of which were glaringly brought to light at the commission of inquiry into the collapse of Clico and the Hindu Credit Union.
The passage of the new legislation is certainly an achievement for Finance Minister Colm Imbert. Several previous attempts to get this legislation off the ground failed. Earlier bills lapsed in 2012, 2013, 2014 and 2015. The current bill almost met a similar fate: it had to be specially carried over from the second session of the 11th Parliament.
The legislation, which is likely to be approved soon by the Senate, introduces the notion of financial groups into the regulatory framework and gives the Central Bank powers to ensure consolidated supervision over them. This alone is a tremendous shift given the way the proliferation of complex structures involving subsidiary and holding companies have in the past raised difficulties.
The legislation also tightens the definition of connected parties, bolsters expected standards of corporate governance, gives explicit powers to officials of the Central Bank and ushers in an updated regime of penalties and administrative fines, all of which are considerable given the importance of the industry. The sector’s assets totalled $49.4 billion, as at September 30, 2017, or about 33 per cent of gross domestic product.
While we welcome the legislation and its aim of tightening prudential requirements, including the introduction of risk-based capital and financial standards, the fact remains that any regulatory system is only as good as the people and agencies that administer it.
Many of the problems of the past extended beyond questions of law and related to the close nexus between regulation, business interests and State power. So that without fully-staffed, independent agencies capable of bringing effective actions punishing complex fiduciary breaches, then regulatory legislation becomes nothing but paperwork.
Thus, if we are to really prevent another CLF, agencies must be empowered and resourced in a way in which they can protect the interest of consumers and, ultimately, taxpayers. New law is important, but it is not the final piece of the puzzle.