The Financial Services Commission's office on Barbados Avenue, New Kingston. - Ricardo Makyn/Staff Photographer

Losses sustained by the Financial Services Commission (FSC) were the fault of a tardy legislature and had nothing to do with the agency's cost efficiencies, Finance Minister Dr. Omar Davies has said in defence of the regulator.

In fact, Davies described some of the losses as 'inevitable', saying the Commission - which finances its operations from fees paid by the companies it regulates - has to be fronting the cost of regularising the pensions sector.

The FSC, meantime, is projecting that it would have completed registration of only one-half or 50 per cent of the pension plans seeking legitimacy under the new laws it polices, but pension fund managers say more entities are coming forward to be licensed, and that the regulator may be underestimating the job it has to do.

The FSC itself was a little more optimistic about its 'fit and proper' review of trustees - each pension plan may have an average of three to four - saying its year-end target is 60 per cent of applicants, as noted in the most recent Jamaica Public Bodies report issued annually by the Ministry of Finance.

Nevertheless, Davies told Parliament in April during his presentation of the budget that the "process of registration was far advanced."

The pensions sector, however, was not as sanguine this week.

No timelines

"We have asked but have not been given any timelines by the FSC, but know that they have commenced the review of some of the pension plans that we manage," said Rezworth Burchenson, manager director of Prime Asset Management.

"This may be because we completed and submitted the registration for all our pension plans by the stipulated date."

Prime, he said, has its licence as an investment manager and administrator.

The commission, led by Brian Wynter, had accumulated losses of $120 million over three years, but Davies said the outcome resulted from the job it was assigned in 2005 to get the pensions sector regularised, but for which lawmakers had not finalised laws that would give the self-financed regulator the legal basis on which to collect fees to cover the cost of the job.

The FSC's losses last year were estimated at $76 million.

With the passage of the pensions regulations in March 2006, to complement the Pensions Act of 2004, the FSC took on what the Finance Minister described as 'new and expanded roles which will prove challenging', given its other oversight responsibilities for insurance and securities/investment sectors, and its constrained resources.

"The cost related to activities such as recruitment and training of staff, public education and other necessary steps leading to the establishment of a regulatory regime," said Davies, referring to the commission's new job to streamline the pensions sector.

"As the corresponding legislation was not passed in Parliament until late 2005, the FSC did not have the legal basis to collect fees from the industry until March 2006."

Still reviewing

But even beyond that explanation proffered by the Finance Minister,the FSC is still reviewing registration documentation from pension funds and schemes, having closed off applications at the end of September 2006.

Those applications have given the Government a more precise reading of the private pensions landscape - there were 520 applications with a combined worth of $132 billion. Before then, the sector was estimated at 800 operational funds with assets of $100 billion.

If the 50 per cent target for approvals hold, some 260 of those schemes would still be without a licence at year-end.

Additionally, it seems more pension funds are coming forward. Prime, for example, "has had engagements from pension plans to take them through the process," said Burchenson.

Continue to operate

Funds that have applied to the commission may continue to operate, pending approval of their licence, but must meet the reporting requirements of the FSC.

The longer the approval process, the more likely the FSC will fall deeper into the red, according to the rationale posited by the Finance Minister.

"The licence fees are paid by investment managers only upon approval," said Davies as he updated the 60-member legislature. "Therefore, the losses by the FSC in the initial stages were inevitable."

Davies had felt constrained to defend the regulator, which ultimately answers to him, after Opposition finance spokesman Audley Shaw derided the regulator's performance, labelling the situation as 'ironic', perhaps in reference to the FSC's job of policing the investment sector to ensure its sustained financial health.

The minister said the fees collected last year were in line with projections, but that the flow of revenues came at the tailend of fiscal 2006/07 and were not booked in that period.

"Those fees were treated on an accrual basis as deferred income, which will be accounted for this fiscal year."

It's estimated that the FSC will remain in the red this year, but its losses are projected at $16 million, a significantly better outcome that the $76 million loss for the year just ended.

Its revenues are expected to climb 42 per cent, or $133.6 million to $448.7 million, with the new income from fees to flow mainly from the pensions sector.

lavern.clarke@gleanerjm.com