BARBADOS’ BILLION dollar credit union movement needs to learn some key lessons from CLICO’s collapse, the severe financial pain it inflicted on those who invested in it, and also from the revelations of the forensic audit.
Those lessons, advises Winston Cox, a former Central Bank Governor, range from the importance of transparency and prudence to the continued need for personal and professional integrity as well as a warning against self-dealing.
Careful to indicate the credit unions hadn’t fallen prey to any of the troubles associated with CLICO, Cox, a former executive director of the Inter-American Development Bank (IDB) in Washington DC, told the BARBADOS BUSINESS?AUTHORITY it was vital the credit unions, which collectively have more than $1 billion in assets, be mindful of what went wrong with CLICO and avoid the pitfalls.
“Oh yes, there are lessons which the credit union can learn from the CLICO story,” said Cox, from his home in Quebec. “Good governance, prudence and personal and professional integrity are some of them.
“Good governance means they have to set up systems of checks and balances and a lot of transparency to let members of the credit unions know what’s going on.
Integrity
“As for prudence, if you think that some offers are too good to be true, then, that’s a good rule to decide that, yes, it is too good to be true and therefore should be avoided. It would be a case of ‘buyer beware’.
“You have to take risk but don’t go to the limit. Personal and professional integrity underscores the point against serving two masters at the same time. You can’t be an officer of the credit union and running your business on the side. You can only have one master.
“One of the problems discovered in the failure of an indigenous bank was that there was a lot of self-dealing. That problem should not hold true for credit unions in Barbados and the rest of the Caribbean. It is a lesson to be learnt. That brings in the issue of personal and professional integrity.”
Cox, who declined to comment on any of the specific revelations contained in the report of the forensic auditors, emphasized that as a member of the global financial system, Barbados and its financial institutions “must adhere to global standards”.
“We are part of that global system and must therefore act in accordance with its standards,” he said. “In some ways, we are right there ahead but in many ways we lag behind. An important thing is that in small communities, domestic financial institutions do hold a major supervisory challenge because the relations and the policy makers may not be as deep and strong as those between the owners and the policy makers.
Cox said the CLICO debacle and the problems in Barbados and Eastern Caribbean underscored the need for better relations between insurance firms with head offices in one country and subsidiaries in another, as in the case of CLICO in Trinidad and Tobago, the head office and CLICO in Barbados, a subsidiary.
Upholding regulations
“It means there has to be a lot more sharing of information and the lead supervisor, the supervisor in the country where the head office is located would also be able to see if the supervisors of the subsidiaries are upholding the regulations and standards,” he added. “The collegial relationship between them must be strong.
“The second lesson I draw from this is that the supervision of domestically owned financial institutions is much more difficult than the supervision of internationally owned financial institutions. That’s because the relations between the supervisors and the policy makers may not be as strong as the relationship between the owners of the institutions and the policy makers.
“I believe this was evident in the case of CLICO, both in Trinidad and Tobago and Barbados. A third lesson is the importance of strategic partnership in supervision of financial institutions and also in ownership of financial institutions. If CLICO had a major international insurance company as a partner I think that the supervisor of the partner would have had a much more important role to play.
“It would be a situation in which the corporate rules and policies are clearer and the separation of powers and functions are much better defined,” Cox said.