Bank of Jamaica 's Supervisory Responsibility
The Bank of Jamaica undertakes the supervision of deposit-taking financial institutions in Jamaica, as required by Section 34A of the Bank of Jamaica Act.  The supervised population comprises:

	Commercial banks licensed under The Banking Act
	Merchant banks licensed under The Financial Institutions Act
	Building societies licensed under The Building Societies Act

The abovementioned statutes and related Regulations provide a standardized legal framework for the operations of the licensed deposit-taking intermediaries and provide the statutory principles on which supervision is conducted.  The legal framework is further complemented by supervisory notes  and Standards of Best Practice issued by the Bank of Jamaica to ensure that licensees are not only aware of the risks inherent in banking activities, but that these risks are managed prudently and in accordance with their fiduciary responsibilities to depositors.

Additionally, credit unions operating under the Co-operatives Society Act have been designated as ‘specified financial institutions’ under the Bank of Jamaica Act by the Minister of Finance, which brings them within the supervisory ambit of the Central Bank and currently allows the Bank to access information on the sector.  Draft Regulations to establish a formal supervisory framework for these entities inclusive of a licensing regime and other prescriptions regarding prudential criteria and minimum solvency standards, have been drafted after extensive discussions with sector representatives and are to be presented to Parliament.  Since 2003, Bank of Jamaica has conducted on-site examinations and collected prudential return data from these entities in anticipation of the new Regulations.

Operationally, the Central Bank’s supervisory responsibility is discharged through the ‘Financial Institutions Supervisory Division’ (FISD) of the Bank which is headed by a Deputy Governor and falls within the purview of the Senior Deputy Governor who holds the statutory title of ‘Deputy Supervisor of Banks and Financial Institutions’.  The ultimate responsibility for the supervisory function is however vested in the Governor of the Bank who is the ‘Supervisor of Banks and Financial Institutions’.

Supervisory Methodology

The supervisory methodology employed by FISD combines annual on-site examinations of each licensee with   on-going off-site monitoring facilitated primarily by prudential reporting requirements, which allow for continuous and timely review of developments in the financial condition of supervised entities both at the micro institutional level as well as at the macro systemic level.  Focus is placed on the quality and adequacy of licensees’ operations including their corporate governance and risk management frameworks, capital adequacy, and the overall financial condition. Specific aspects of the supervisory approach include:

Non-Deposit Taking Financial Institutions
The non-deposit taking financial sector is supervised by The Financial Services Commission. This supervisory authority has oversight responsibility for:

	Insurance
	Securities Firms/Dealers
	Unit Trusts
	Private Pension Funds
	Mutual Funds

Collaboration between the two regulatory authorities, the Bank of Jamaica and the Financial Services Commission, is facilitated through the Financial Regulatory Council which was established in 2000 with the mandate to develop policies and strategies to facilitate co-ordination and information sharing between the various supervisory and related agencies operating in the Jamaican financial sector.  Membership of the Council includes the Governor of the Bank of Jamaica, Chairman; the Financial Secretary; the Solicitor-General; the CEO, Financial Services Commission and the CEO, The Jamaica Deposit Insurance Corporation.

Recent Supervisory Developments

Basel II

The Bank of Jamaica has scheduled adoption of Basel II under a four phased approach leading to full implementation by 2012.  The first phase involves implementation of preconditions for Basel II, including full compliance with the Basel Core Principles and fullest possible implementation of consolidated supervision; the second phase will focus on implementation of Pillar II (supervisory review principles); the third phase, implementation of Pillar III (market discipline requirements); and the final phase full adoption of Pillar I (quantitative assessments).  With regard to Pillar I, the Bank intends to proceed with the Standardised Approach for credit risk and the Basic Indicator Approach for operational risk in the initial stages until system prerequisites for adoption of advanced methodologies are satisfactorily in place.

AML/CFT

Jamaica underwent an evaluation of its anti-money laundering and combating of terrorism financing (AML/CFT) framework by the Caribbean Financial Action Task Force during 2005.  The results of this assessment showed Jamaica’s framework satisfying 23 out of the 40 Recommendations of the FATF on Money Laundering and 5 of the 8 Special Recommendations of the FATF on Terrorism Financing. The majority of areas of non-compliance have been/are expected to be addressed with the passage of the Terrorism Prevention Act (2005); Proceeds of Crimes Act (2007); and the Financial Investigations Division Bill which was tabled before Parliament (2008), as well as the draft Terrorism Prevention Regulations which is slated for passage during 2009.

Consistent with on-going efforts aimed at strengthening the overall AML/CFT framework, Jamaica has issued to the supervised deposit-taking community since the 1990s, ‘Anti-Money Laundering Guidance Notes’ which have undergone repeated revisions to reflect current developments.  Essentially, the Guidance Notes provide specific guidance to all supervised licensees on the detection and prevention of Money Laundering and the Financing of Terrorism.  The Guidance Notes were upgraded in 2004 to include, inter alia, provisions consistent with the referenced FATF 40 Recommendations and the Eight Special Recommendations for Terrorist Financing.  Subsequently, revisions to the Guidance Notes were issued in 2005 and 2007 to incorporate, among other things, the Ninth Recommendation of the FATF on combating of terrorism financing and enhanced guidance on customer due diligence verification.  During 2009, the Bank undertook another round of revisions with a view to incorporating the provisions of the Proceeds of Crime Act (POCA) and the POCA (Money Laundering Prevention) Regulations which were promulgated in 2007.  The revisions took into account industry feedback, and the completed Guidance Notes have been submitted to the Ministry of National Security for approval and gazetting.

Basel Core Principles Review

Jamaica underwent an IMF/World Bank Financial Sector Assessment Programme during 2005 which report is available on the IMF and BOJ websites. With specific regard to the Basel Core Principles review, the report indicated an overall improvement in ratings as against an earlier 2002 assessment conducted by the IMF.   In the 2005 assessment, Jamaica was adjudged ‘compliant’ or ‘largely compliant’ with 90% of the core principles which compares with the 80% average achieved in 2002.  It is the Bank of Jamaica’s goal to achieve fullest possible compliance with the Basel Core Principles by end 2009 which will be a critical component in the roadmap for transition to Basel II.

International Accounting Standards

The Institute of Chartered Accountants of Jamaica (ICAJ) adopted the International Financial Reporting Standards (IFRS) as Jamaica's national accounting standards with effect from 1 July 2002.

The additional disclosures required of licensed financial institutions under the new standards are seen as complementary to supervisory objectives.  There are however a number of issues and implications flowing from the implementation of IFRS on which the BOJ has been in dialogue with the ICAJ.  One such issue relates to differences between regulatory provisioning requirements and IFRS. In instances where application of IFRS would likely result in a lower level of provisioning than is prudentially required, it has been agreed by BOJ with ICAJ, that any shortfall in regulatory provisioning be taken as an appropriation of retained earnings and carried in a non-distributable capital reserve created specifically for the purpose. The Bank of Jamaica has also stipulated that gains/losses on “available-for-sale” assets be carried in a special revaluation reserve account and not be recognized in the profit and loss account. 

Conglomerate/Consolidated Supervision

Although the Bank of Jamaica has already introduced aspects of conglomerate supervision (e.g. fit and proper assessments of principals of the parent company of licensed entities and requirement for the submission of annual audited financial statements of all members of the conglomerate group of which the licensee is a part), the Bank has identified a need to widen its supervisory scope consistent with international standards.  Further to legislative amendments in 2002, the Bank has been involved in the monitoring of the reorganization/restructuring of financial groups of which contain a deposit-taking entity.  The statutes require groups to which deposit-taking licensees belong to reorganize such that the licensee is directly owned by a financial holding company, which does not own other companies within the group unless those companies are regulated or supervised by financial institutions.  This provision is aimed at ensuring that groups are established as supervise-able financial groups.

¹ This statute will seek to consolidate the existing pieces of legislation governing the operations of deposit-taking entities (i.e. the Banking Act, the Financial Institutions Act and the Building Societies Act) into one consolidated legislation in order to achieve, inter alia,the elimination of existing inconsistencies between the referenced governing statutes as well as a more synchronized progression of updates to the laws governing the deposit-taking industry.

Conducting Business with Financial Institutions Regulated by Bank of Jamaica
	What you need to know (Q1 2006 )