Member Article

The Financial Services Commission (“FSC”) which was established on April 1, 2011 under the Financial Services Commission Act, 2010-21 (the “Act”) has been mandated to, amongst other things, supervise and regulate the operations of the financial services sector other than the banking services. This sector includes: (a) exempt insurance companies; (b) insurance companies; (c) pension plans; (d) securities and capital markets; (e) mutual funds; and (f) credit unions (these regulated entities together referred to as the “entities”). This article seeks to briefly examine the general powers of the FSC under the Act and in particular, its powers in relation to the appointment of auditors and the conduct of examinations and investigations into the affairs of an entity. The FSC has been given wide powers under the Act. It may: (a) give directives to ensure compliance with the Act, the regulations or guidelines and with any of the legislation under which the entities operate and to ensure that the entity is being properly managed and remains financially sound; (b) investigate the affairs of an entity; (c) suspend or cancel the registration or revoke the licence of an entity; (d) seize the management and control of an entity, appoint a manager or take any other necessary action for the purpose of protecting the interest of the customers of an entity as well as creditors and the public and ensuring that the entity remains financially sound; and (e) reorganise or wind up an entity. The CEO of the FSC may request certain information relating to a regulated entity’s business operations such as information relating to its financial statements or its financial returns or information which the FSC considers necessary in respect of any holding company, subsidiary, or affiliate of the entity. The extensive powers provided to the FSC as noted above, coupled with the power of the CEO to request information allow for the FSC to closely supervise and review the financial records, management and control of an entity. An entity must therefore ensure that it is managed in a financial sound manner and that its filings with the FSC are timely. It must also be mindful of the cost implications that arise from the frequency of the filings and from any frequent request for information by the CEO of the FSC. Auditors An entity is required to appoint an auditor to conduct its annual audit however the auditor must be approved by the FSC as having the capacity and resources to satisfactorily audit that particular entity. If an entity fails to appoint an auditor or terminates the appointment of its auditor, the FSC may appoint an auditor and fix the remuneration to be paid to the auditor by the entity. In addition, if the FSC is not satisfied with the annual financial statement or report of the auditor, it may appoint another auditor to conduct an independent audit and fix the remuneration to be paid to the auditor by the entity. An entity should therefore ensure that its auditor is carefully selected, it is satisfied that the auditor has the capacity and resources to satisfactorily conduct the audit and that the auditor is approved by the FSC prior to undertaking any annual audit. This would avoid the additional expense and the delay which would result if the entity is compelled to remunerate an auditor appointed by the FSC, if either the chosen auditor is rejected by the FSC or the FSC is dissatisfied with the audit as carried out by the chosen auditor and directs that an independent audit be conducted. Examinations The FSC may cause an examination to be made into the affairs of an entity to determine, amongst other things, whether the provisions of the Act are being complied with. The FSC also has the power in respect of any holding company, parent company or any other company that holds shares in an entity to inspect the books of the company or request any information from the appropriate authorities in any country where the company is located. With respect to foreign offices, where the FSC is of the opinion that the operation of a foreign office of an entity presents a threat to the financial soundness of that entity, the FSC may require the entity to make such changes in the operations of the office as are considered necessary or require the entity to close the office. The power of the FSC to require an entity to close a foreign office illustrates a strong regulatory environment. Investigations The FSC may, where it considers it necessary, authorise a suitably qualified person to conduct an investigation into the affairs of an entity. The investigator under the Act has wide powers as it relates to the collection of information. An investigator is not merely limited to collecting information from the entity and its present auditors, officers or employees, but may also summon persons such as former auditors, former officers or former employees, who no longer have a fiduciary relationship with the entity and request information from them. This may ostensibly include retirees and persons who have terminated their contract of employment or contract for service with the entity. It would also appear from the Act that an investigator may even make enquiries from a person who is not an employee or agent of the entity but merely someone with whom the entity conducts business. The FSC, as seen above, has considerable powers under the Act and a wide regulatory reach to ensure that entities maintain high standards of financial probity and sound business practices. Entities should therefore ensure that they are compliant with the Act at all times. Nicola Berry