Aleem Khan

When the fi­nan­cial his­to­ry of T&T is writ­ten, 2012 will stand out as a year the sec­tor surged in the head­lines for some com­pelling, but not all no­ble, rea­sons. It was the year the new 2012 Se­cu­ri­ties Bill was passed, unan­i­mous­ly by the Gov­ern­ment and Op­po­si­tion Mem­bers of Par­lia­ment, large­ly to keep T&T off the In­ter­na­tion­al Or­gan­i­sa­tion of Se­cu­ri­ties Com­mis­sions' (IOSCO) black­list. Though less than 20 years old and anom­al­is­tic to be re­placed so ex­pe­di­tious­ly, the Se­cu­ri­ties In­dus­try Act of 1995 fell short.

Min­is­ter of Fi­nance and the Econ­o­my Lar­ry Howai said the new bill "seeks to ad­dress de­fi­cien­cies in the pre­vi­ous bill re­lat­ing to reg­u­la­tor ac­cess to records of mar­ket par­tic­i­pants, shar­ing in­for­ma­tion with oth­er reg­u­la­tors, record-keep­ing and con­fi­den­tial­i­ty pro­vi­sions.

"Fail­ure to en­act this bill in­to law this year will re­sult in T&T be­ing black­list­ed by IOSCO. We can­not af­ford to find our­selves in such a sit­u­a­tion in which we are un­able to com­ply with these in­ter­na­tion­al stan­dards, as the con­se­quence for our se­cu­ri­ties mar­ket in such an event would, in­deed, be dire."

The min­is­ter said with the pas­sage of the new bill came an in­crease in cus­to­di­al sen­tenc­ing, in­clud­ing hik­ing the penal­ty for in­sid­er trad­ing from five to sev­en years; for mar­ket ma­nip­u­la­tion from two years to five years; and for var­i­ous fraud­u­lent ac­tiv­i­ties, al­so from two years to five years. Fi­nan­cial penal­ties al­so in­creased.

Since 2010, the coun­try al­so no­to­ri­ous­ly fig­ured on a "list of coun­tries with strate­gic an­ti-mon­ey laun­der­ing and com­bat­ing the fi­nanc­ing of ter­ror­ism (AML/CFT) de­fi­cien­cies. 2012 was the year T&T came off that last.

In a state­ment in Par­lia­ment, Prime Min­is­ter Kam­la Per­sad-Bisses­sar proud­ly an­nounced on Oc­to­ber 19, that "the Fi­nan­cial Ac­tion Task Force (FATF) Ple­nary in Paris agreed that T&T should be re­moved from the list of coun­tries with strate­gic AML/CFT de­fi­cien­cies. T&T has there­fore ex­it­ed the FATF process. This means we have been re­moved from the grey list. It means we are not go­ing to be put on any black­list."

In Feb­ru­ary 2010, T&T was pub­licly iden­ti­fied as a coun­try with strate­gic AML/CFT de­fi­cien­cies in the FATF Pub­lic State­ment en­ti­tled, Im­prov­ing Glob­al AML/CFT Com­pli­ance: On-go­ing Process. This pub­lic iden­ti­fi­ca­tion was the re­sult of a Mu­tu­al Eval­u­a­tion where­in T&T was rat­ed as par­tial­ly com­pli­ant or non-com­pli­ant with 15 of the 16 key and core rec­om­men­da­tions of the FATF.

Blam­ing the pre­vi­ous Ad­min­is­tra­tion, Per­sad-Bisses­sar said: "What we in­her­it­ed was em­bar­rass­ing. The FIU was not op­er­a­tional and had no staff. An at­tor­ney from pri­vate prac­tice, who was a pri­vate con­sul­tant to the Of­fice of the AG, had been ap­point­ed to "act" as the in­ter­im di­rec­tor. When we speak of con­flict of in­ter­est, that is some­thing we have to look at. There was lit­tle or no staff and the leg­isla­tive frame­work was de­fec­tive. T&T, at that junc­ture, stood on the brink of be­ing 'black­list­ed' by the FATF."

Sub­se­quent­ly, she said, amend­ments to leg­is­la­tion were made. The amend­ed pieces of leg­is­la­tion were:

�2 The Fi­nan­cial In­tel­li­gence Unit of T&T (Amend­ment) Act 2011;

�2 The An­ti-Ter­ror­ism (Amend­ment) Act 2011;

�2 Traf­fick­ing in Per­sons Act, 2011;

�2 The Fi­nan­cial Oblig­a­tion (Fi­nanc­ing of Ter­ror­ism) Reg­u­la­tions, 2011;

�2 The Fi­nan­cial In­tel­li­gence Unit of T&T Reg­u­la­tions, 2011; and

�2 The Mis­cel­la­neous Pro­vi­sions (Fi­nan­cial In­tel­li­gence Unit of T&T and An­ti-Ter­ror­ism) Act, 2012.

From CoE to CIF

CL Fi­nan­cial, es­pe­cial­ly its in­sur­ance sub­sidiary Cli­co, and the Hin­du Cred­it Union (HCU), al­so made fi­nan­cial his­to­ry this year. From the on­go­ing com­mis­sion of en­quiry (CoE)–now in its sec­ond year–in­to the fail­ure of CL Fi­nan­cial and the HCU to the launch of the Cli­co In­vest­ment Fund, it was a busy year for the in­sur­ance com­pa­ny's and the cred­it union's at­tor­neys. The CoE con­tin­ues in 2013.

The CoE heard that ex­ec­u­tives of both of the failed fi­nan­cial in­sti­tu­tions gave them­selves lav­ish pay­outs and priv­i­leges. Dur­ing his tes­ti­mo­ny, for­mer Cen­tral Bank Gov­er­nor Ewart Williams con­firmed to the com­mis­sion that: "Cli­co has a doc­u­ment­ed his­to­ry of not re­spect­ing the oblig­a­tions im­posed on in­sur­ance com­pa­nies by the In­sur­ance Act. The com­pa­ny has, over the years, that's since 2006, com­mit­ted sev­er­al breach­es of the In­sur­ance Act."

Still, Fi­nance Min­is­ter Howai hopes the launch of CIF rep­re­sents the fix that would bring clo­sure to this painful chap­ter in T&T's fi­nan­cial his­to­ry. On No­vem­ber 1, 2012, the min­is­ter launched CIF, say­ing in a state­ment: "This rep­re­sents a key and fi­nal mile­stone in the Gov­ern­ment's com­mit­ment to set­tle the bal­ances due to the 15,794 hold­ers of short-term in­vest­ment prod­ucts sold by Cli­co and British Amer­i­can In­sur­ance Com­pa­ny (Trinidad) Ltd."

The CIF is a closed-end mu­tu­al fund, which will be cap­i­talised with an as­set val­ue of $5.1 bil­lion. The ini­tial in­vest­ments in the fund were 40,072,299 Re­pub­lic Bank Ltd shares, which were val­ued at $4.397 bil­lion as at No­vem­ber 1, and gov­ern­ment bonds val­ued at $703 mil­lion.

How­ev­er, on­ly about 50 per cent of the hold­ers of short-term in­vest­ment prod­ucts is­sued by Cli­co and British Amer­i­can (Trinidad) who were el­i­gi­ble to con­vert their 11- to 20-year ze­ro-coupon bonds in­to units in the CIF did so by the De­cem­ber 14 dead­line, Karen Yip Chuck, the gen­er­al man­ag­er of Re­pub­lic Bank's Trust and As­set Man­age­ment di­vi­sion, told the Busi­ness Guardian in an in­ter­view on De­cem­ber 20.

Oth­er in­sur­ance com­pa­nies and banks did not share the same fate in 2012, though. Re­pub­lic Bank's prof­it rose from $1.121 bil­lion at the end of the third quar­ter of 2011 to $1.158 bil­lion at the end of the third quar­ter of 2012. Sco­tia­bank's net in­come rose from $396 mil­lion to $405 mil­lion for the nine months end­ed Ju­ly 31, 2012 in com­par­i­son with the same pe­ri­od last year.

Guardian Hold­ings' prof­it rose from $243 mil­lion at the end of the third quar­ter of 2011 to $292 mil­lion at the end of the third quar­ter of 2012. Over the same pe­ri­od, Sagi­cor Fi­nan­cial Cor­po­ra­tion's net in­come rose from $20 mil­lion to $38 mil­lion.

Mu­tu­al funds show ro­bust growth

This year was al­so good for mu­tu­al funds. "Fol­low­ing a mod­est in­crease dur­ing the first half of 2012, mu­tu­al funds un­der man­age­ment ex­pe­ri­enced rel­a­tive­ly ro­bust growth in the third quar­ter. On a quar­ter-on-quar­ter ba­sis, funds un­der man­age­ment rose by 3.9 per cent in the quar­ter end­ing Sep­tem­ber 2012, af­ter reg­is­ter­ing in­creas­es of 1.8 per cent and 0.9 per cent in the sec­ond and first quar­ters, re­spec­tive­ly," the Cen­tral Bank said in its Oc­to­ber 2012 Mon­e­tary Pol­i­cy Re­port.

Dur­ing the third quar­ter, the in­dus­try at­tract­ed net sales (net in­flows/in­vest­ments in­to the in­dus­try) of $901.1 mil­lion, some 14 per cent high­er than net sales in the first and sec­ond quar­ters com­bined. In the third quar­ter, three new mu­tu­al funds were in­tro­duced by fund providers who re­port to the Cen­tral Bank.

Of these three funds, two were US dol­lar de­nom­i­nat­ed–one be­ing a fixed in­come fund and the oth­er a mon­ey mar­ket fund–the Cen­tral Bank said.

The third fund in­tro­duced was a TT-dol­lar de­nom­i­nat­ed mon­ey mar­ket fund. Un­like fixed in­come funds, which in­vest pri­mar­i­ly in longer-term in­stru­ments, such as bonds and oth­er struc­tured prod­ucts, mon­ey mar­ket funds typ­i­cal­ly in­vest in short-term se­cu­ri­ties, such as trea­sury bills, com­mer­cial pa­per, short-term re­pos and fixed de­posits.

How­ev­er, the in­clu­sion of these funds had lim­it­ed im­pact on over­all in­dus­try growth as they col­lec­tive­ly amount­ed to just $27.2 mil­lion at the end of the third quar­ter of 2012. On a year-to-date ba­sis, mu­tu­al funds un­der man­age­ment ex­pand­ed by 6.7 per cent to reach $39,268.9 mil­lion at the end of Sep­tem­ber 2012, the Cen­tral Bank said.

In terms of cur­ren­cy pro­file, the Cen­tral Bank said, the growth in for­eign cur­ren­cy funds con­tin­ued to out­pace that of TT dol­lar funds in the first nine months of the year. In the nine months to Sep­tem­ber 2012, for­eign cur­ren­cy mu­tu­al funds rose by 10.3 per cent, while TT dol­lar funds grew by 5.8 per cent.

Gold­en news

In the low in­ter­est rate en­vi­ron­ment and fac­ing a stag­nant econ­o­my, fi­nan­cial in­sti­tu­tions have al­so had to in­no­vate. Sco­tia­bank be­came the first fi­nan­cial in­sti­tu­tion in the coun­try to sell gold bul­lion cer­tifi­cates backed by as­sets in Cana­da. Gold has been in­creas­ing in val­ue con­sis­tent­ly for the past 10 years, de­fy­ing low in­ter­est rates on cash de­posits.

Stan­dard and Poor's (S&P) cred­it rat­ing agency al­so re­leased some good news for T&T. "We are af­firm­ing our 'A/A-1' for­eign and lo­cal cur­ren­cy sov­er­eign cred­it rat­ings on T&T," the agency said in a state­ment on De­cem­ber 21. "The sta­ble out­look bal­ances the coun­try's strong fis­cal and ex­ter­nal stock po­si­tions with its high eco­nom­ic de­pen­dence on gas and oil rev­enues. S&P's as­sess­ment of T&T, there­fore, re­mains un­changed."

How­ev­er, S&P said: "T&T's high de­pen­dence on the en­er­gy sec­tor, which ac­count­ed for 45 per cent of gross do­mes­tic prod­uct and 82 per cent of mer­chan­dise ex­ports in 2011, con­strains the rat­ings."

The New York-based rat­ing agency said the pace of di­ver­si­fi­ca­tion of the T&T econ­o­my is not mov­ing fast enough. "Oth­er sec­tors of the econ­o­my–whose ex­pan­sion could grad­u­al­ly di­ver­si­fy its pro­file and re­duce its vul­ner­a­bil­i­ty to a sharp drop in the price of oil and nat­ur­al gas–are de­vel­op­ing slow­ly."

The agency agrees with most lo­cal econ­o­mists' fore­cast that GDP growth is like­ly to ex­ceed two per cent in 2013 af­ter sev­er­al years of con­trac­tion and near ze­ro growth.