Johnson

In a move being spearheaded by their regulator, the Financial Services Commission (FSC), Jamaica's securities industry has begun talks on establishing compensatory funds - roughly analogous to the one in place for banks - to help cushion consumers against the collapse of firms, fraud or similar problems.

"We are in discussion to create some level of support and protection to consumers without it being too onerous to the sector, particularly in the present environment," said Orville Johnson, general manager of the Insurance Association of Jamaica, which is part of the talks.

The FSC has already circulated a discussion paper on the issue and has asked the sector for feedback.

Deposit insurance scheme

The Government set up the deposit insurance scheme for banks after it was forced to bail out depositors and pension contributors when banks and insurance companies tumbled during the financial sector collapse in the second half of the 1990s.

That scheme, operated by the Jamaica Deposit Insurance Corporation (JDIC) currently insures bank deposits - as opposed to investment instruments - up to maximum $600,000.

The JDIC has been offering technical advice on a possible compensation mechanism to the FSC, which has warned that if a scheme does materialise there would be limits to the level of protection it could offer investors.

Among the proposal in the FSC's discussion document is for a solvency compensation fund for life insurance and general insurance companies as well as defined benefit pension fund plans.

Securities dealers

With regard to securities dealers, initial suggestion is for the FSC to work with the Jamaica Securities Dealers Association - whose members have nearly $800 billion under management - to develop regulatory rules to ensure that all securities dealers have acceptable levels of private sector, third party liability insurance coverage to protect themselves and their customers against the misappropriation of securities.

Failing this, the FSC suggested, the compensatory fund currently operated by the Jamaica Stock Exchange (JSE) might be modified to provide protection to customers of all securities dealers.

Under existing securities laws, the JSE has to maintain this fund to which brokerage houses have to contribute. That fund, with assets of over $500 million and no call on it since 1999, covers losses to investors in the event of misuse of their money or fraud on the part of securities firms and their employees.

sabrina.gordon@gleanerjm.com