Antoinette McKain, chief executive officer of the Jamaica Deposit Insurance Corporation. - Contributed Jamaica Deposit Insurance Corporation (JDIC), the agency that offers backing to savers, and the Financial Services Commission (FSC), watchdog over the securities industry, are consulting on whether coverage could be expanded to the investment community.
JDIC chief executive officer, Antoinette McKain, said her agency was offering technical advice to the financial regulator.
Exploratory discussions are ongoing with the FSC to provide technical advice on the best way to carry out the setting up of compensation schemes for the investments, pension funds, McKain advised Sunday Business.
The talks now centre on the best structure that can be used, she said.
Those discussions were sparked by the uncertainties among investors who are concerned about the safety of their funds held by various financial institutions as the credit crisis that began in the United States spills over into countries that do business with its financial powerhouses.
McKain says there is no certainty that an insurance scheme for investors will emerge from the talks, and the FSC says if one did, there would be limits on the level of protection it could offer investors.
Insurance would be limited, said FSC spokeswoman Nadene Newsome. Compensation is not intended to cover for the financial risks embedded in the investment.
What the scheme would or could cover is among the focus of the talks.
Depository schemes serve a fundamental purpose: To instil confidence and reduce the likelihood of systemic runs from the financial distress or collapse of any individual bank in Jamaica.
But with confidence shaken in the past few weeks, the JDIC has announced that it is in the process of adjusting its own policy to widen coverage to the beneficiaries of trust accounts.
Currently, for accounts held in trust, the JDIC only recognises the trustee, who is provided with coverage of up to $600,000, the maximum the JDIC covers per-savings account. That sum would be shared among all beneficiaries of the trust in the event of a payout.
But under the revision, all beneficiaries would be treated as if they were individual holders of an account and therefore entitled to maximum coverage from the JIDC. So, for example, if the trust account has three beneficiaries, then the maximum payout would be $1.8 million.
The adjustment will require an amendment to the law governing the JIDC, now being drafted by the parliamentary counsel.
“The legislation will see each beneficiary in the trust account being recognised instead of just the trustee,” said McKain.
The plan is to have the legislation in place by the end of the parliamentary year, March 2009.
But even as the JIDC addresses savers, McKain and Newsome say a different kind of scheme is also in place that cushions stock market investors from the actions of irresponsible and fraudulent brokers – a little-known facility administered by the Jamaica Stock Exchange (JSE), which offers protection, in prescribed circumstances, to equity investors.
compensation programme
The FSC has already indicated that it would follow that model in the compensation programme it is contemplating now, but expanding beyond stock market investors to cover the entire securities industry.
At present, more than $1.4 trillion of value resides in the two sectors – JSE market capitalisation is at $706 billion; the securities sector is worth $720 billion.
The JSE compensation fund is a legal requirement as stipulated under the Securities Act, requiring brokerages to contribute to a special facility from which investors – who suffer loss due to misuse of funds, described in the law as ‘defalcation’, or fraud on the part of the securities firm or its brokers – can be compensated investors
The fund’s existence was confirmed by general manager of the Jamaica Stock Exchange, Marlene Street-Forrest. Each listed broker contributes based on volume of transactions.
The law requires the fund, now valued at about $500 million, to be administered by the JSE board. It is considered the property of the exchange, but held separately in trust.
The fund has not made a payout since 1996-1999 when some brokers had failed. No claims have been made on it since.
adequate coverage
The JDIC offers insurance coverage to depositors who hold single, corporate and trustee accounts.
At the end of September, funds in the facility totalled $4.3 billion, which covers approximately 97.6 per cent of deposits in commercial banks, merchant banks and building societies.
The Bank of Jamaica’s estimate of deposits in the system was $425.8 billion at the end of June.
McKain said the level of coverage was adequate but given the rapid changes taking place in the financial markets, the insurance facility is constantly being reviewed and adjusted as required.
Comparing the JDIC’s $600,000 coverage – which converts to about US$8,000 – to Trinidad and Tobago’s US$11,000, and Singapore and Malaysia’s US$13,500-US$15,000, McKain argues that “Jamaica is not far off in terms of its relative position in how much it covers”.
The limit was last adjusted in July 2007, doubling from $300,000.
sabrina.gordon@gleanerjm.com.
