Mar 2007 Financial News

Break the back of speculative investment schemes, IMF warns Jamaica

Mar 09, 2007

International Monetary Fund officials have suggested that Caribbean countries collaborate more on financial sector regulation to detect cross-border evasions and head off potential financial contagion in a region where financial conglomerates are increasingly operating across markets.

The Fund officials raised the issue against the backdrop of a move toward sharper regulation in Jamaica of financial services firms here, including plans by the central bank to have multi-sector conglomerates unbundle their financial subsidiaries and placing them in a distinct holding group.

"The dominance of regional financial conglomerates coupled with segmented regulatory oversight could provide ample room for regulatory arbitrage and cross-market spill-over of shocks within the Caribbean," they warned.

At the same time, IMF experts who reviewed the Jamaican economy last month endorsed the government's aggressive scrutiny of unregulated financial schemes, which could be vulnerable to interest rate risks.

While the IMF technocrats did not call names, their reference to unregulated schemes was most likely to be David Smith's currency trading club, Olint, as well as the opaque group Cash Plus International.

But it is Smith's Olint, which reportedly returns up to 10 per cent a month to its investors that has stirred most controversy. Last year the Financial Investigation Division (FID) raided its offices and Financial Service Commission (FSC) sought an injunction against Smith and his operation, arguing that it was operating without the appropriate registration and licence.

The Olint case is to be argued in the Supreme Court starting March 26.

Speculative scheme

With the spectacular returns he has on offer - an investor could at current rates double his/her investment in under a year - there have been suggestions that Smith, who has taken his base to the Turks and Caicos Islands, could be running a speculative scheme.

The debate has been sharp for and against Smith, and the regulators who want him to open his operation to their scrutiny.

The IMF team was clear in its backing for the efforts of the FSC.

"The mission welcomes the authorities' efforts to enforce financial sector regulations and encourage continued enhanced supervision of activities vulnerable to interest rate risk," they said in a draft report to the Government.

Noting that some prosecutions were pending, the officials said: "Continued vigilance against pyramid schemes and more high level warnings about the dangers of speculative investments schemes are however warranted and there may be need to strengthen the technical capacity to conduct forensic investigations and prosecute if evidence of fraud does emerge."

The IMF officials did not highlight any specific likelihood of regional financial contagion, but Trinidadian and Barbadian firms gobbled up banks and insurance companies in Jamaica during the financial sector melt-down of the late 1990s. The Barbadian insurance group, Sagicor, and Trinidad and Tobago's Guardian Holdings and RBTT Ltd. are some of the big Caribbean companies that own banks and insurance companies. More recently, Jamaican money management houses have expanded to the Eastern Caribbean.

"The authorities should therefore explore with their counterparts in other Caribbean countries options for strengthening regional supervision," the Fund officials said.

Source:
The Jamaica Gleaner
Friday 9th March, 2007

http://www.jamaica-gleaner.com/gleaner/20070309/business/business2.html