fp Turks and Caicos

Within just days of TCI Bank going into provisional liquidation, the Financial Services Commission presented the association with a first draft of the proposed ordinance, a timeline the association believes should be cause for concern.

In a letter sent to the governor responding to the proposed legislation, the association stated, “There is an overwhelming amount of research that deposit protection schemes created in haste and post a failure are particularly dangerous.”

While the Bankers Association says it supports policies that genuinely strengthen and ensure stability of the banking sector, it remains convinced that the proposed Depositor Protection Ordinance as drafted will not serve to strengthen the industry. In fact, the ordinance could have serious and damaging repercussions for the confidence that investors will have in the territory, without any benefit of equal measure in shoring up deposits or increasing trust in deposit-takers.

On May 21, the association says it wrote to the governor and outlined three possible alternatives that the association believes would be better suited to the TCI. To date there has been no response.

“Judging from the contents of his Third Quarterly statement, the governor seems to be ignoring our reasoned arguments against the proposed Ordinance and our proposed alternatives and seeks to justify the rush to enact the legislation by stating that such schemes are mandatory in the European Union,” they said in a statement to the fp.

The Association says the governor’s statement doesn’t mention that EU experts strongly caution against the hasty introduction of such schemes and without a lender of last resort, such as a central bank.

According to the association, the EU’s Basle Committee on Banking Supervision and the International Association of Deposit Insurers issued a document a year ago entitled “Core Principles for Effective Deposit Insurance Schemes.” It lists four key pre-conditions that need to be in place before an effective deposit insurance system can be brought into being. It is the view of the association that these pre-conditions do not exist in the TCI at this time.

The governor says the introduction of the ordinance in the TCI will be seen by the international community as a further sign of the government’s full commitment to taking the steps that are necessary to continue to enhance regulation of our financial services industry and to meeting international standards. However, the asssociation says it has concerns “rushing into this matter and passing an ill-conceived piece of legislation will have quite the opposite effect.”

One considerable factor for all sides in the discussion will be the costs of introducing such legislation. The governor stated that the scheme will be funded by the banking industry. The association says this is misleading because, in the end, the banks will not absorb the costs but rather pass the costs on to an already burdened public.

“The question that has to be asked is, ‘Are the depositors of the surviving banks in the TCI willing to pay millions of dollars to the depositors of TCI Bank?’” the association says.

“We have been promised substantial consultation on this significant matter but to date our requests for meetings with the governor, the FSC, the Advisory Council and the Consultative Forum have received no responses,” the association said. “We stand ready to meet and engage in a broad consultation on the other suitable approaches to enhancing depositor protection.”

Click HERE to read the full statement.