Oct 2009 Financial News

Clico flouted rules

Oct 23, 2009

FORMER Securities and Exchange Commission (SEC) chairman Osborne Nurse yesterday revealed that Colonial Life Insurance Company (Clico) flouted regulatory procedures because it was easier to pay the stipulated fine than submit its accounts to Central Bank.

At the time, the fine for not submitting accounts was $50,000 but with the new Financial Institutions Act this is now $500,000. In Clico’s case, Nurse who is now a securities consultant, recalled that the cheque for the fine would come in the mail, but the accounts came much later.

He also warned that firms like CL Financial needed to be vigorously regulated because of their diverse business mix and said such conglomerates relied on sluggish enforcement, social power and “take me to court if you want” attitude, knowing that such an option was costly.

“It was a huge conglomerate that was stingy with its information,” he said during his address at the sixth annual Conference of the Caribbean Group of Securities Regulators (CGSR) at the Hyatt Regency, Port-of-Spain. He said had CL Financial been listed, the conglomerate would have had to undergo strenuous checks and balances.

Clico chairman Dr Euric Bobb also spoke on dealing with Clico and the regulatory problems the insurance company posed and cited an executive annuity with high interest rates but which was clearly a banking product.

Attempts to rein in Clico were met by a letter from a senior counsel stating the Central Bank did not have the regulatory clout to stop the product. Nurse told fellow regulators that in 2007, CL Financial was worth $100 billion but $92 billion was in liabilities with funds being generated by only three business units: Clico Investment Bank (CIB), Clico and Caribbean Money Market Brokers (CMMB). “Such a structure carried operational risks,” he said.

In an interview after the conference, Bobb said while $5 billion has been allocated by Government to the insurance company to help deal with its liquidity, only $1.9 billion has been given so far.

The remaining $3.1 billion will be issued in bonds and Government securities, Bobb said.

In this way, Bobb said, Clico will be able earn money from the interest charged on these financial instruments. Asked when these bonds are expected to be on the market, Bobb, a former Central Bank Governor who now sits on the CL Financial board, said the instruments are expected to come out by the end of this month.


Source:
Rory Rostant
Trinidad Newsday
Friday, October 23 2009

http://www.newsday.co.tt/business/0,109669.html