BRIDGETOWN (CMC):

A regional economics professor believes the current debacle facing Colonial Life Insurance Company (CLICO) highlights the need for greater regulation of the financial services sector and has sought to warn Caribbean Community (CARICOM) governments that they should not wait to "close the gate after the horse has bolted".

Under a Memorandum of Understanding (MOU) signed with CLICO's parent company, CL Financial, the Trinidad and Tobago Government on Friday announced that it would provide funding to the company, which also has significant interests in other parts of the Caribbean, in exchange for collateral and an equity interest in the CLICO.

The move to avert a possible collapse of CLICO and its investment bank has sent shock waves throughout the region and has served to undermine public confidence in financial institutions operating within CARICOM.

In light of the bail out announcement, Professor Norman Girvan of the University of the West Indies, St. Augustine, believes it is now necessary for regional governments to equip themselves "in a timely manner" with the necessary legal tools and supervisory instruments to effect adequate regulation of financial entities in the public interest and "not seek to close the gate after the horse has bolted".

Oversight important

"In the CLICO case, it is clear that the authorities cannot claim that 'we did not know'. Hence, no entity, no matter how large its weight in the economy, can be safely regarded as being above proper oversight and regulation. Indeed, the larger it is, the more important adequate regulation becomes and the greater the consequences of its absence," Girvan said.

The development with CLICO, whose parent company boasts of over US$100 billion of assets in at least 28 companies throughout the world, will cost the Trinidad and Tobago taxpayer "an as yet undetermined amount of money".

In view of the consequences, the professor is also calling on the region to finalise and adopt, as a matter of urgency, the CARICOM Financial Services Agreement (FSA), which prevents financial entities from engaging in regulatory arbitrage (escape regulations in one regional jurisdiction by exploiting legal loopholes in another).

"A seamless regulatory environment for investment and financial services across the regional space will strengthen the effectiveness of regulations aimed at averting another CLICO debacle, and heighten the attractiveness of the region as an investment destination by reducing the transactions costs of doing business in several regional countries."