Draft CARICOM Financial Services Agreement (and Quest for a Seamless Financial Landscape)

1. Draft CARICOM Financial Services Agreement (and Quest for a Seamless Financial Landscape) Economic Intelligence and Policy Unit CARICOM Secretariat eipu@caricom.org

2. Outline of Presentation • Background • Critical Issues to be Considered • Articles • The Way Forward

3. Relationship Between Revised Treaty and the Agreement • Revised Treaty Sets the Broad Policy Framework • The Agreement Expands on Treaty Provisions

4. Chapter Three–The Provisions Article 32 Prohibition of New Restrictions on the Right of Establishment Article 33 Removal of Restrictions on the Right of Establishment Article 36 Prohibition on New Restrictions on the Provision of Services Article 38 Removal of Restrictions on Banking, Insurance and Other Financial Services

5. Chapter Three Cont’d Article 39 Prohibition of New Restrictions on Movement of Capital and Current Transactions Article 40 Removal of Restrictions on Movement of Capital and Current Transactions Article 41 Authorisation to Facilitate Movement of Capital Article 44 Measures to Facilitate Establishment Provision of Services and Movement of Capital

6. How to Conduct Business in the Community Cross Border Supply Mode 1 Consumption Abroad Mode 2 Commercial Presence Mode 3 Movement of Natural Persons Mode 4

7. Cross-Border Supply Mode 1 • Correspondent relationships • Direct trade between institutions from one country and consumers in another

8. Commercial Presence Mode 3 • Agencies • Branches • Joint Ventures • Representative Offices • Strategic Alliances • M&A

9. OECS

10. Who to do business with in the Community

11. 14 Insurance regulators Collective investment schemes 14 Ministries of Finance 7Stock exchanges 6 SECs 8 Central Bank 3 depositor’s insurance schemes Corporate Reporting issuers 5 CSDs Foreign Banks 83 Domestic banks Domestic debt Regional Two exchange rate regimes Committee of Central Bank Governors Debt 2 CARICOM Banks sovereign Fixed Floating Domestic companies CASR Corporate Currency Union Irrevocably Fixed sovereign cross listed Free float Managed float Investment advisors Different settlement cycles Domestic companies Caribbean Group of Bank Supervisors Foreign companies Traders 1 Credit rating agency T+1, T+3, T+5 Market actors Brokers / dealers Once weekly, every day , three days , twice per month Regional

12. Doing Business in the Community cont’d • Brokers Acting as Principals and Agents • Housing Finance Institutions • Investment Firms • Other Market Participants

13. The Reality

14. Sample of a Financial Institution with Cross-Border Operations Commercial Bank HQ in a Member State • Merchant Bank • Trust Company • Commercial bank in Antigua and Barbuda, Barbados, Grenada , Jamaica , St Kitts and Nevis ,St. Lucia, St. Vincent & the Grenadines , Suriname

15. Intra regional activities Cont’d • Commercial Bank and Financial Services in Non CARICOM Countries • Insurance • Stock Brokerage Operation • Asset Management • Training • Conduct business in multiple currencies

16. Intra regional activities Cont’d • Development Finance Company • Information Technology • Personal and Property Security • Regulated by 5 central banks in CARICOM • Listed on three stock exchanges • Faces 4 different exchange rate regimes

17. Non Financial Parent Company in a Member State • Operation in 9 CARICOM CountriesSubsidiary companies • Airline Catering • Industrial and restaurant catering • General Trading • Automotive • Baking • Investments • Meat Processing

18. Non Financial Firm’s operations cont’d • Listed on two CARICOM stock exchanges • Subsidiary listed on 1 stock exchange • 45% of a General Insurance Company that is cross listed • Real estate • Finance company

19. Non financial company operations cont’d • Operates in non CARICOM countries • Conduct business in multiple currencies • Multiple languages different exchange rate regimes

20. Non financial company operations cont’d • Associated companies in • General Trading • Waste disposal • 49% in a finance company • General Insurance

21. Market Participants in one member state • 11 Brokers • 2 Dealers • 28 Investment Advisers • 78 Reporting Issuers • 8 Underwriters • 2 SROs • 13 Traders

22. What is the CFSA ? Framework to operationalise Intra-regional regime for the unrestricted movement of capital and financial resources

23. The Articles • General Parameters = 4 articles • Institutional Support and Trade Facilitation=7 Articles • Regulation , Regionalisation and Factor Cooperation =13 Articles • Transparency and Accountability = 4 Articles • Dispute Settlement • Miscellaneous

24. General Parameters Article 1 Definitions Article 2 Scope and Coverage Article 3 Market Access for Financial Institutions Article 4 New Financial Services

25. Institutional Support and Trade Facilitation Article 5 Data Processing in the Financial Services Sector Article 6 Credit Information Facility Article 7 Credit Rating Agency Article 8 Portability of Pension

26. Institutional Support and Trade Facilitation Cont’d Article 9 Education and Training Article 10 Payment and Clearing Systems Article 11 Anti-Money Laundering

27. Regulation, Regionalisation and Factor Cooperation Article 12 Intra-Regional Trade in Financial Services Article 13 Cross Border Supervision of TCCs and Conglomerates. Article 14 National Treatment

28. Regulation, Regionalisation and Factor Cooperation cont’d Article 15 Most Favoured Nation Treatment Article 16 Prudential (Carve-Out) Requirements Article 17 Regionalisation of Local Asset Ratio

29. Regulation, Regionalisation and Factor Cooperation Article 18 Depositors Protection Article 19 Collateral in the Cross Border Market Article 20 Self-Regulatory Organisations Article 21 General Exceptions

30. Regulation, Regionalisation and Factor Cooperation Cont’d Article 22 Reservations/Safeguards Article 23 Senior Management and Board of Directors Article 24 Mergers and Acquisitions

31. Transparency and Accountability Article 25 Transparency Article 26 Corporate Governance Article 27 Confidential Information Article 28 Prospectus

32. How will the CARICOM Financial Services Agreement Operate Alongside and complementary to other sector-specific pieces of Legislation such as the Draft Financial Institutions Bill

33. Guiding Principles • IOSCO Core Principles=Securities Industry Guidelines • Basle=Banking Industry Guidelines • IAIS =Insurance Industry Guidelines • FATF=Anti Money Laundering Guidelines

34. Why the Agreement • To Establish a Seamless Financial Services Market within the Community • To Set Identical Requirements for Financial Institutions Operating Intra-Regionally • To Create Equal Opportunities in the Community for all

35. The Benefits

36. The Financial Institutions • Greater Opportunity for Product Innovation • Lower Transactions Costs • Base for Greater Global Competitiveness

37. Benefits for Institutions cont’d • Lower liquidity risk • Larger market for high risk capital such as venture capital • Increased market depth • Increased competition • Access to a larger pool of potential investors

38. The Consumer • Wider range of financial products • Lower transactions costs • Increased choice • Overall improvement in service quality

39. Business Organizations • Easier access to financing capital • Increased investment opportunities • Lower cost of capital

40. The Economy • Larger more efficient financial institutions • Increased investment and production • Increase in employment • Positive impact on the level of GDP and also on GDP growth

41. Overall Benefits Predictable environment for financial markets which is: • Fair • Efficient • Transparent • pooling liquidity, and allowing supply and demand for financial instruments to interact on a CARICOM –wide basis

42. OBSTACLES, CONSTRAINTS and CHALLENGES • Internal pressures • Limited economic growth • National mindset • Lack of preparedness to compete • Lack of depth of prevailing market structures

43. What does the Agreement mean for the financial services industry ? • Greater role for regulators and supervisors • More sharing of information • Greater cooperation to ensure safety and soundness of the sector One failure can send shock waves throughout the entire Region Greater exposure