Much can go wrong with Sagicor, lawyer says

An attorney-at-law who was connected to the commission of inquiry into the failed CL Financial and its affiliated companies has said that the complexity and structure of financial services giant, the Sagicor Group, present “so much possibilities which can go wrong”.

Similar concerns were raised by the International Monetary Fund (IMF)in a recent explosive report on supervision of the Sagicor conglomerate by the Financial Services Commission (FSC).

The IMF warned in the report that because the group is large and complex, “it is quite possible that emerging risks or potential vulnerabilities exist or have not been detected”.

The report exposed a number of shortcomings at the FSC and raised questions about its ability to regulate the Sagicor Group, while suggesting that “failure or near failure” of the company could be worse than the CLICO collapse.

“The group structure, business philosophy and operations are in many ways similar to those of CLICO Group, another Caribbean financial conglomerate which failed ten years ago, and resulted in substantial losses. Notwithstanding the acknowledgement of systemic relevance of the group
resulting from its size and interconnectedness, no formal college of supervisor exists, nor is the group subject to basic group-wide supervision,” the report said in its executive summary.

It said engagement in non-insurance activities, in particular the real estate investments, posed challenges for risk management oversight, while pointing out that “the complexity of the group could potentially mask significant risks, critical correlations, and assessment of contagion risk arising from the interconnectedness”.

Focusing on that particular segment of the report, the Trinidad-based counsel, who requested anonymity, said there were openings for things to go wrong.

“Well, essentially non-insurance activities would have been carried out either by a special purpose subsidiary company or companies in which Sagicor Inc would have had a controlling interest by way of shareholding. This company would not fall under the jurisdiction of the Financial Services Commission. Acquisitions of the real estate investments and non-insurance activities would not obviously be backed by statutory fund to protect policyholders as required by the FSC and the Financial Services Commission Act, Co-Operative Societies Act, Insurance Act etc.

“These acquisitions would not have been backed by any actuarial and risk assessment that would have been overseen by the FSC,” he said.

The candid 16-page IMF report, which came out of an October 9-13 mission here at the invitation of the FSC, raised strong concern that the regulator, which was established in 2011, was “equipped with very limited resources” and “struggles to discharge its mandate with respect to the insurance sector supervision”.

In this context, the attorney-at-law wondered whether the FSC  had the legal teeth and the necessary resources to “adequately” conduct supervision and regulation of companies such as Sagicor.

“Questions ought to be asked [about] whether the FSC had the statutory backing to adequately supervise and regulate; whether it had the resources; whether the auditors were doing its job. Also whether the group was the auditor’s main/major client, which makes it difficult to independently regulate and or assess,” he said.

“Of crucial importance is how auditors, financial institutions, co-operative societies and FSC interpret the regulations in deciding the limit of investments; how to treat with group accounts; whether intercompany debts are realizable and can be properly considered assets; proper supervision of the statutory fund and limits on what can be pledged; and whether the auditor has a duty to the FSC or to the financial institution,” he further explained.

Based on this, the legal expert said, it was “completely crucial to regulate financial institutions to prevent systemic risks and eventual collapse of the financial market and also to promote investor confidence and protect policyholders and depositors”.

FSC Chairman Sir Frank Alleyne on Tuesday sought to discredit Barbados TODAY, which broke the story on Monday, by dismissing the report as “lies and damn lies”.

Sir Frank, who in April had admitted that the FSC was operating “on a shoe-string budget . . . [but] our medium-term goal, in another seven years or so, is to have a regulator which has attained financial independence”, also insisted on Tuesday at a hastily arranged news conference called to respond to the story, that the regulatory body was strong and proactive.

Barbados Investors and Policyholders Alliance (BIPA) chairperson June Fowler has also given the FSC a vote of confidence, saying yesterday that  “right now BIPA doesn’t have a concern about the level of efficiency at the FSC”. 

6 Responses to Much can go wrong with Sagicor, lawyer says

  1. John Everatt December 22, 2017 at 12:35 am

    So who are you going to believe, the political appointees at the FSC or the IMF and those trained persons? The problem with all these regulatory boards is that they are not trained persons. They are persons who have friends in high places who have appointed them to these highly paid positions.

    Reply
  2. Greengiant December 22, 2017 at 6:50 am

    Who is this lawyer, and why is he so timid to go public after experiencing the clico fiasco?

    These attorneys need to remove their cloak of secrecy, and their political blinkers and remember there’s a bigger picture. In this case like the clico situation, that picture has expanded to include the entire Caribbean region, not just the eastern Caribbean.

    Reply
  3. James December 22, 2017 at 9:00 am

    Marlon Madden why would you attach your name to this article? a true journalist would check facts before writing fiction like this. Your source is anonymous? Does he truly exist? And if he does, why would he not be willing to provide his name? And how about some facts backing up these claims? Nothing? Clearly, you and Mr. Anonymous did not read Sagicor’s press release countering this non-sense, but if you would like to, it is posted on their website. I would encourage you and anyone else believing this fake news to do so. If you have any facts to support your claims, raise them, otherwise stop this smear campaign against Sagicor. I also would like to thank Sagicor of all the good they do in our communities. Sagicor has always been there in for us!

    Reply
    • Leroy December 22, 2017 at 2:39 pm

      Just accept facts and stop the PR.

      Reply
    • VoR December 25, 2017 at 8:41 pm

      Yes we should dismiss this because Sagicor posted on their website. (sarcasm)

      The fact that Sagicor themselves posted it and not an external body which has done due dilligence suggests that it should be taken with a grain of salt.

      No one likes to hear of possible future bad consequences if nothing is done but it is necessary so that disaster if possible can be averted.

      Look at CLICO. Some months before everything came to ahead and questions were raised, they were saying that everything was good. I’m not saying that Sagicor has problems but it would be wise to consider the IMF report and move accordingly.

      Reply
  4. milli watt December 22, 2017 at 10:41 am

    can’t wait for this one to collapse………this one going hurt for sure tick tick tick tick tick

    Reply

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