Peta-Gaye Clachar/Staff Photographer
Starting this week, Sunday Business brings you a new feature, 'Patto's People', where questions are posed to newsmakers on matters important to you. We ask the delicate questions to which you want enlightening answers. We start with George Roper of the Financial Services Commission (FSC).
What are Cash Plus' options, that is, can they give back people their money? What should they do to be FSC compliant?
The FSC's cease-and-desist order on Cash Plus was reinstated by Justice Brooks on January 23, 2008, when he ordered the discharge of the stay of execution that had been granted on January 16, 2008.
The cease-and-desist order stops Cash Plus from making payouts to investors as well as other activities that should only be carried out on a day-to-day basis by a licensed dealer.
Cash Plus is not a licensed securities dealer.
In order to regularise their operations in relation to the Securities Act, Cash Plus would have to:
1. Apply to the FSC to register the securities they offer to the public;
2. Provide to investors their annual audited financial statements and quarterly unaudited financial statements;
3. Arrange for a licensed dealer to execute transactions in their securities with the public or seek to do so themselves, but only after obtaining a dealer's licence from the FSC.
While Cash Plus takes steps to regularise their securities, dealing activities, they may seek the FSC's approval to make payouts to their investors.
Explain how the FSC came to be the main player in the legal action brought against Olint.
The commission's involvement came about because Olint's underlying activity led them to be issuing contracts that by law were defined as securities and they were doing so without being registered with us.
While their underlying activity, foreign-currency trading, is not within our domain of concern, the FSC regulates and monitors the issuing of securities and security dealers, and they were found to be in breach of these specific laws.
What are "these specific laws"?
The Securities Act defines what a 'security' is in Section 2 of the act. The instruments which are classified by the act as being securities can be slotted into one of four broad categories, namely:
(a) Equity securities, which provide evidence that you own an interest in a business, example, ordinary shares issued by a listed company;
(b) Debt securities, which provide evidence that you are owed money, e.g., debentures, bonds or promissory notes;
(c) Derivatives, which are securities that derive their value from some other security, e.g., rights and options to shares in a listed company;
(d) Investment contracts, which is a residual category that captures all other financial arrangements whereby there is an investment of principal by an investor in a common enterprise and the investor is led to believe that there is the prospect for him to earn a profit solely or primarily through the efforts of someone else.
Section 7 of the act stipulates that in order to carry on the business of dealing in any of these versions of securities, an entity must be licensed with the FSC. Section 26 provides that the issuer or originator of a security must also first apply to the FSC to be registered in respect to that security before offering it to the public.
No matter what the label on an arrangement is, if its attributes fall within the definition of 'security' contained in the act, and the entity issuing or dealing with the security is not registered or licensed with us, then they are in breach of the Securities Act.
What do you have to say about the perceptions and impressions your crackdown stance has brought you?
The FSC's job is not really about scoring popularity points. Some of our actions unfortunately, will not win us friends and may make some people hate us. That is part and parcel of being involved in law enforcement, which is a part of our mandate - to enforce the law in order to protect the public.
For that reason, we make no apology for going about upholding the law, and warning/educating the investing public.
Lack of enforcement can lead to widespread disregard of our laws which in turn will lead to chaos, anarchy and a breakdown of social order. No society can prosper or even survive in a state of anarchy and persistent disorder.
We, therefore, see getting tough on those breaking the law as being important to protect not only investors, but the entire financial system. Regulators worldwide face this same issue of being unpopular, but persist in doing their jobs. To do otherwise would be a contravention of the regulator's purpose of being.
Yes, all well and good, but regulated entities have been known to fail, to crumble and take people's money with them too.
Indeed. The FSC cannot prevent an institution from failure though it is under regulation. By virtue of its powers, however, the commission monitors their activities and services and recommends/puts safety nets in place as appropriate.
The dissolution of a business is governed by the Companies Act, but as its regulator, the FSC can assist with the orderly exit of an institution.
But again, the order of payouts to creditors is dictated by the Companies Act and not the FSC.
How could it be that there are so many of these schemes around, an institution must have been authorising their existence initially?
The Bank of Jamaica (BoJ) also regulates - so there may be some entities holding, for example, a cambio licence as issued by the BoJ, but for other services being offered, such as dealing in securities, a licence would have to be granted by the FSC as well.
This was the case with Money Express Financial Services Limited. It held a cambio licence from the BoJ and also held one for dealing in securities issued from the FSC. When complaints about the relevant arm of their operations come to us, we investigated towards reviewing their fit and proper status for holding our securities licence.
Do you see a third regulation entity emerging in Jamaica?
The current situation needs to be researched thoroughly before such a conclusion can be made.
What are your last words on the matter?
The FSC is not against foreign-currency trading or anyone profiting from it. If and when arrangements are put in place for doing such trading with other people's money, which is now dealing in securities, and there is no registration and licence present, the commission will as a matter of course, take action.
beckipatterson@hotmail.com
