Wednesday, January 17, 2018

Scrutinise Securities Bill


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In November 2008 then minister of finance, Karen Nunez-Tesheira, led the second reading of the Financial Institutions Bill. For over one hour Ms Nunez-Tesheira spoke of the inadequacy of financial industry legislation, lumping financial institutions with credit unions, and the insurance and securities industries. Despite several references to credit unions, she never considered it appropriate to declare a potential conflict of interest, the Hindu Credit Union (HCU) having financed her election campaign, a fact we now know.

It's an example of the outrageous state of personal responsibility and accountability which plagues every aspect of governance and oversight in the country. Our unwitting assumption is that Parliament is above challenge, its approval magically transforming our lack of prudence and poor governance history. Section 34 must have displaced that assumption.

Since there's no magic, the challenges of consistently providing assurance and oversight must be met by having fit and proper persons leading and gate-keeping. Each piece of legislation, like the Securities Bill, must be placed under a microscope, especially after CLICO, HCU and Section 34. After all, several State-owned enterprises and authorities, like WASA and the Airports Authority, are reporting issuers falling under the watch of the Securities and Exchange Commission (SEC).

Stikeman Elliott LLP, the consultants whose 2005 report explains the once-proposed 2005 Securities Act legislation, made it clear that, "corporate governance matters, such as the composition, functioning and responsibility of boards of directors and audit and compensation committees, did not constitute one of the core areas of our mandate". This was before the global collapse of 2008 and the local inferno involving HCU and CL Financial.

The consultants explained that, "The depth and breadth of changes will stretch reporting issuer, market actor and TTSEC resources, as all modify their practices to adjust. The consultants are concerned that imposing additional corporate governance standards as part of this review may impose a burden on the marketplace in Trinidad and Tobago. That being said, the development of more fulsome standards for corporate governance should be a priority for the TTSEC as international standards continue to evolve and develop in this area."

In other words, in 2005 the consultants whose recent work has not been made public, did not have corporate governance standards at the core of their mandate and did not believe that corporate governance could be addressed in the absence of further development of the country's capital market. But, the consultants also cautioned that corporate governance should be a priority since international standards continued to evolve. What the consultants did not specify was that if the legislation provided the SEC with deeper responsibility for the composition of boards and the quality of senior officers, the Government's free hand in packing state boards and entities with political friends would be severely restricted.

In the absence of more information it is difficult to assess the standards prescribed in the current Securities Bill in the context of the capital market as it is now.

Last week, when Minister of Finance Larry Howai laid the Securities Bill in Parliament he referred to industry-wide consultation and support for the Bill as proposed. The problem is that those views and contributions are not available to the public, and possibly all legislators. As valid and urgent as the new legislation may be, Parliament is not a closed shop, and the Minister has a responsibility to explain to and inform the public whose interests the legislation sets out to protect. The Minister should also speak to the consequential changes required to the Companies Act and other legislation, and the timeframe for those to be brought to Parliament.

In fairness to the SEC, the securities industry and the drafters of this Bill, the danger is not in the quality of the technical and administrative aspects of the Bill. The Bill is technically sound and though in several parts it mirrors Barbados' 11-year-old Securities Act, this Bill also covers new ground and broadens existing areas, in line with the requirements of the local industry.

These questions are therefore not related to the technical aspects of the Bill. The legislation must represent a careful balancing of corporate governance standards which represents international best practices appropriate to the local context and an incremental movement towards international best practices, considering the development of the industry and the resources available.

Comprehensive disclosure to Parliament should be a critical element of the Securities Bill. Armed with time and a stack of up-to-date research and information, each legislator should have the best chance to properly consider the legislation and its full context. Each legislator should also be in a position to account to the public for its contents and impact.

The Securities Bill should require the SEC to provide assurance about the quality of oversight at entity level. Before being in a position to do so, the legislation should be concerned about the quality of appointments to the SEC itself by the Government. The legislation must define the expertise and experience of SEC appointees, considering the gaps in some previous appointments. The legislation should also insulate the SEC from political control having regard to the Financial Intelligence Unit (FIU) experience, which immediately questioned independence and loyalty.

The issue is whether the seven years of further evolution since the consultants barely advised on corporate governance standards in 2005, is adequately represented in this 2012 Bill, or whether the rush to avoid blacklisting will still cost the country, given the history.

Inevitably, that history includes the HCU, CLICO, Section 34 and the outrageous lack of prudence amongst our leaders.

Clarence Rambharat is a lawyer and a university lecturer