Home' Trinidad and Tobago Guardian : November 21st 2013 Contents BG6 | NEWS
BUSINESS GUARDIAN www.guardian.co.tt NOVEMBER 2013 • WEEK THREE
"Who will guard the guards?"
This is the question risk management consultant Ken Hackshaw
is raising now that the Central Bank is seeking to exercise greater
regulatory control over five of T&T s major financial entities.
"Risk management is about the people, process and systems.
So at the Central Bank, how effective are the people, process and
systems to oversee other financial entities? Now it is the Central
Bank taking on additional risks and exposure to manage these
shadow banking entities. Who will guard the guards?" he asked.
Hackshaw, who has been involved in risk management training
with different state and private sector entities, describes risk as
the uncertainties in achieving objectives. He said companies must
know what these uncertainties are in their industries.
"What has the Central Bank done in the past that they can
be looked at so people will gauge to know what will happen in
future? How comfortable can the public be or should feel that
the Central Bank was in a much better potential than in the past
to manage the risks of these additional entities?"
He said the Central Bank must fill all the necessary gaps to
ensure it is ready for the challenge.
"The Central Bank probably needs to look internally first and
address whatever resource constraint they may have by proper
risk management for their trainees. Further, the shadow banking
entities themselves, do they have risk management training. Most
of them do not. Proper risk management is not about the frame-
work or methodology; it is about the people," he told the Business
Guardian in an interview held last Friday at the Guardian office,
St Vincent Street, Port-of-Spain.
According to Finance Minster Larry Howai, five financial insti-
tutions are to be brought under the Central Bank s supervision:
the Unit Trust Corporation, Home Mortgage Bank (HMB), National
Insurance Board (NIB), T&T Mortgage Finance Company Ltd
(TTMF) and the Agricultural Development Bank (ADB).
Hackshaw, who spent years as a risk management consultant
in the United States, used the US Federal Reserves as an example
from which the Central Bank can learn a few lessons.
"The chairman of the US Federal Reserves, ever so often, goes
before a congressional committee to give an account of the Federal
Reserves. Does that happen with the local Central Bank with a
parliamentary committee? In other words, proper oversight."
He said most local corporate bodies do not have strong risk
"I can safely say that there is no state entity that has a formal
developed risk management department or framework in place.
Many of the larger institutions have a risk management department,
like the RBC and other banks. There was a case of fraud in RBC
a while ago and I had a conversation with a senior official who
said their systems come from Canada and Canada has a strong
risk management practices," he said.
Hackshaw said T&T s culture and work culture are different
from more developed countries, so the standard of risk management
may not be so high.
"The risk culture of the person in Canada is different from
the risk culture in T&T," he said.
He referred to the United Kingdom s leading audit regulator,
the Financial Reporting Council (FRC), UK Consultation Council,
"UK Company Law requires boards to describe the principle
risks and uncertainties facing the business in its strategic report.
The UK corporate governance code stress that when disclosing
these risks the board should confirm that it has carried out a
robust assessment of the risk facing the company, including those
that would threaten the insolvency and liquidity of the company,
explain how they are being managed and mitigated. That is the
kind of language I would like to see in the governance structure
Hackshaw referred to the Clico/HCU Enquiry, questioning
what lessons were learnt from that experience.
"The loss of money is a always an end result, it is not what
actually caused it. The financial entities coming under the Central
Bank should have a formal risk management committee," he said.
He said institutions must be held accountable to prevent failed
"Let us not get too complacent because something like this
can happen again. It may not be on the magnitude of the CL
Financial crisis, but there could be others. The present Central
Bank governor said they would be more intrusive and that would
be a good thing," he said. (See Page 11)
The Central Bank's position
Central Bank Governor Jwala Rambarran outlined the bank s
position on November 6 at the T&T Coalition of Service Industries
(TTCSI) National Services Week.
Rambarran reminded the audience of T&T s own "Lehman"
meltdown, referring to United States financial services firm
Lehman Brothers filing for Chapter 11 bankruptcy protection on
September 15, 2008, which remains the largest bankruptcy filing
in US history. Lehman held more than US$600 billion in assets.
"The finance industry, of course, is part of the services sector.
In the finance profession, most people remember September 15,
2008. On that day, the venerable US investment bank Lehman
Brothers considered too big to fail collapsed and ignited the
worse financial crisis in generations, a crisis whose reverberations
are still being felt in different forms and with varying impacts
on people s lives.
"I am sure many of you remember Friday, January 30, 2009.
On that day, the Central Bank announced that it was assuming
control of Clico, the largest insurance company, and of Clico
Investment Bank (CIB), the largest investment bank. Both financial
institutions were subsidiaries of the CL Financial Group, the
largest conglomerate in the Caribbean. Large scale public support
would eventually be needed to prevent widespread disruption
and loss of economic confidence."
He said: "The global economic crisis and T&T s own Clico
crisis demonstrated that failure of Systemically Important Financial
Institutions (SIFIs) had the potential to disrupt the smooth func-
tioning of markets and the economy."
He said the regulation of SIFIs---UTC, HMB, NIB, TTMF and
ADB---has been placed at the top of the Central Bank s regulatory
He gave the example of UTC, saying its asset size of $23 billion
is about one-tenth of T&T s financial system.
"This is twice as much as the total assets of all institutions
licensed to conduct the business of a financial nature under the
FIA. The UTC is the country s largest mutual funds provider. A
collapse of UTC would threaten the smooth functioning of both
the financial market and the local economy."
Rambarran referred to state-owned NIB, which is responsible
for the administration of the country s National Insurance System
and commands around one-tenth of the local financial system.
"The last actuarial review of the National Insurance System
revealed a substantial shortfall in accumulated assets at the end
of June 2010, essentially due to lower-than-expected investment
returns. Since then, interest rates have fallen even lower and this
is expected to further widen the deficit of the NIS fund."
Rambarran said there are international cases of central banks
bringing other financial institutions under close watch.
"A few countries have made the transition to a single regulatory
financial authority using their central banks. These are Ireland,
Russia and Singapore. Other countries have established a single
regulator to co-exist alongside their central banks. These include
Barbados, Canada, Colombia, Germany, Japan, Qatar and South
Korea. Some countries have opted for the twin-peaks model,
which relies on two separate regulators: prudential regulation
and consumer protection. These include Australia, the Netherlands,
South Africa and the United Kingdom."
Agriculture Development Bank
Yasid Gilbert, chairman of the ADB, one of the five financial
institutions to move to being under the Central Bank s supervision
said this will bring greater accountability to the bank s opera-
"In a practical way, it means a greater degree of accountability
and corporate governance. With regulatory oversight, the bank
now has to conform to rules and guidelines prescribed by the
Central Bank of T&T (CBTT). It creates a level playing field for
all banks and financial institutions and forces those institutions
not yet under the CBTT to operate in a more cohesive way so
as to bring about operational efficiency and profitability. It is
great news, especially for the agri-sector, particularly the farmers,
as such a move will give a greater sense of security and confidence
that may not have been there before," he told the Business Guardian
by phone on Tuesday.
Gilbert said the move to Central Bank supervision will now
give the ADB the ability and a framework to operate in so as to
offer the services to farmers they may have accessed from com-
"It will now position the ADB in line with commercial banks
with farmers having that confidence to access services and
products that they would have accessed from say a Scotiabank
or Republic Bank. ADB also intends in the very near future to
approach the Deposit Insurance Corporation (DIC) for coverage
for farmers deposits. Therefore, news of the minister s comments
about regulatory oversight from CBTT for the ADB would marry
well with the initiative for DIC coverage. We are looking to have
that just as the traditional banks have similar systems in place,"
Gilbert said the financial institutions, including the ADB,
moving under the Central Bank s supervision will not be an
"A lot has to be done from a possible review of the ADB Act,
to IT and accounting systems and reports. Therefore, by no means
it is going to be an overnight process. We envisage the ADB will
work with the CBTT to facilitate the transition over a period of
time once the move is rolled out fully," he said.
Gilbert said he has been advocating Central Bank supervision
with his line minister Devant Maharaj for the ADB since he
assumed chairmanship in May.
"This is something I have been advocating since I came on
board the first day. I indicated to the board the ADB should have
been under the Central Bank s regulatory oversight and supervision.
So when the Finance Minister made the comment at a post-
Cabinet meeting, this was something the new ADB board had
been looking forward to."
He said the Finance Minster s announcement of bringing the
ADB and other financial institutions under the Central Bank s
regulatory system could not have come at a better time as the
ADB will be celebrating its 45th anniversary in January.
"It is good news that we will now be under the Central Bank
supervision. This should have happened many years ago," he
Who will regulate
the Central Bank?
Risk management consultant Ken Hackshaw.
PHOTO: MARYANN AUGUSTE
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