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BOJ hires outside tech services to assist with bank monitoring

Published:Friday | March 12, 2021 | 12:15 AMHuntley Medley - Associate Business Editor
Bank of Jamaica on the Kingston waterfront.
Bank of Jamaica on the Kingston waterfront.

It’s been three years since the International Monetary Fund, IMF, recommended that Jamaica devise a more thorough risk-based method of supervising the banking system for a better picture of its financial health, detection of potential or...

It’s been three years since the International Monetary Fund, IMF, recommended that Jamaica devise a more thorough risk-based method of supervising the banking system for a better picture of its financial health, detection of potential or developing solvency issues, and to flag dirty money.

But bank regulator, the Bank of Jamaica, BOJ, is reporting that the pandemic has impeded the programme, with monitoring work on location at the financial institutions on hold since last year. The result is that only four of the 11 banking or deposit-taking institutions, DTIs, have been assessed so far under the new, more stringent regime.

“With the prolonged negative effects and uncertainty surrounding the duration of the COVID-19 pandemic, the bank continues to experience delays in the full roll-out of the risk-based supervisory methodology,” the central bank said in prepared responses to Financial Gleaner queries about bank monitoring.

The names of the four institutions already getting deeper scrutiny were not disclosed.

The pandemic’s disruption of on-site monitoring, according to the central bank, led to greater “use of supervisory technology” to ensure that there was no lag or lapse in the supervision of the country’s eight commercial banks, lone merchant bank and two building societies.

The BOJ disclosed that it has conducted two thematic reviews utilising the services of third-party technology service providers, which it did not name.

The reviews were on an analysis of wire transfers by banks over a period, which was not specified by the BOJ, and an assessment of the efficacy of the regulated institutions’ sanctions-screening systems designed to prevent transactions with prohibited persons, as defined under the Anti-Money Laundering/Counter Financing of Terrorism, or AML/CFT, regime; for example, terrorists and narcotics traffickers.

The thematic reviews done with the assistance of the tech service providers also included the incidence of fraud across the banking system, the BOJ said, without stating the review period or the results.

It notes that the review outcomes have been shared with stakeholders to help inform their views on emerging risks and to help identify areas of vulnerability to ML within the system. The results are also expected to informed policy recommendations for supervision.

The intervention of the pandemic has not meant an abandonment of the move to roll out the tighter, more robust methodology for supervision to the other seven banking institutions as this initiative, along with regular bank supervision activities, continues in remote mode, the central bank said.

“Supervisory efforts have been diverted to more intense off-site monitoring of the deposit-taking system, with assessments focused on whether the risks associated with the pandemic are being prudently managed across the system,” the BOJ noted.

The ongoing, remote monitoring activity involves stress tests conducted by the BOJ and the institutions themselves, along with deeper consultations and collaboration with financial regulator, the Financial Services Commission, FSC, regarding large financial groups.

Pilot test under way

The BOJ-FSC collaborative oversight programme has begun with the pilot test of one entity, which is unnamed but was described as “a systemically important group in the financial industry”. That exercise is said to be ongoing.

Jamaica’s banking system is valued at just over $2 trillion by assets, according to BOJ industry data to December. Of the 11 licensed institutions – all of which are members of, or are held by, local or foreign groups – the largest is National Commercial Bank Jamaica with assets of $715 billion, followed by Scotiabank Jamaica with $436 billion, and JN Bank with $211 billion.

The top three also manage two-thirds, or $903 billion, of the $1.37 billion of deposits currently entrusted to banks by Jamaican savers.

The Banking Services (Financial Holding Companies) (Licensing Application Form) Supervisory Rules 2019 is said to be in full effect for the financial sector, and the phased licensing of all financial holding companies is under way, starting with the pilot entity that’s under BOJ-FSC collaborative supervision.

The BOJ says it has begun to utilise information provided by banking groups to monitor key indicators on a quarterly basis to determine the extent of group-wide risk exposures.

At the same time, the central bank is reporting that it has been partnering with the IMF, even outside of the borrowing relationship between the fund and Jamaica, on an anti-money laundering supervisory framework for banks and cambios, utilising the IMF’s capacity development programme.

“The work on this initiative is far advanced. The major output from the programme is the development of a risk classification system facilitated by information provided by licensees on a semi-annual basis and analysed using the IMF-provided risk assessment tool,” BOJ said.

The exercise provides a mechanism for prioritising, scoping and setting the frequency of targeted AML/CFT examination exercises on-site, and lends itself to more informative off-site reviews as an important part of policy development, it added.

“Given the ongoing challenges being faced by regulators, and the increasing use of technology in the delivery of financial services, going forward, the bank will increasingly use supervisory technology to enhance its toolkit for the oversight of licensees’ AML/CFT risks,” the central bank said.

Banking system at December 2020

8 Commercial Banks: Assets Deposits

NCB $714.7B $412.4B

Scotiabank $436.2B $333.6B

JN Bank $211.4B $157.1B

Sagicor Bank $161.3B $121.7B

FCIB Ja $130.4B $82.7B

JMMB Bank $103.2B $80.5B

First Global $65.7B $46.9B

Citibank Ja $29.2B $20.4B

2 Building Societies: Assets Deposits

VMBS $139.6B $98.0B

Scotia Ja $25.9B $11.0B

1 Merchant Bank: Assets Deposits

Cornerstone $6.13B $2.03B


Total Assets: $2.02 trillion

Total Deposits: $1.37 trillion