Cedric Stephens | FSC’s board charter

December 29 will mark eight months since the island’s non-bank financial services regulator, the Financial Services Commission, FSC, introduced its 20-page board charter without fanfare. A copy of that document, signed by the chair, is posted on the commission’s website.

A charter is a document that was issued originally by a sovereign – a king or queen – or a state, or, in the case of the FSC, an institution. It outlines the conditions under which the entity is organised, its mission or purpose, how it will execute its functions, defines its rights and privileges, and details how its board members should behave. An example of an institution formed and governed by a charter is The University of the West Indies. The FSC, on the other hand, was incorporated by an act of Parliament. It oversees the securities, private pension and insurance sectors.

With the agreement of the Opposition, the Government passed a series of regulations governing the nomination, selection, and appointment of persons to the boards of public institutions earlier this month. These measures were enacted in the wake of sustained criticisms about governance in public bodies and, some persons would say, questionable actions by some boards.

The FSC’s board and its executives should be heartily congratulated. Its board charter is a comprehensive manual that can be used as a model to institutionalise a culture of governance to replace the ones that now exist in the public and private sectors. I sat on the boards of several private sector companies, five of them in the insurance industry. None had a board charter. Not once during my periods of service did my fellow and more experienced directors discuss any of the 22 items incorporated in the FSC document. The emphasis was exclusively on the bottom line.

In the case of appointments to public sector boards, word-of-mouth information suggests that the main consideration, pre-December 10, 2021, was: ‘Is he (or she), one of us?’

By posting its board charter on its website, the FSC appears to be suggesting to insurers and intermediaries that Sections 3 and 11(e) of The Insurance Act – which says “each of the persons managing or controlling the company is a fit and proper person to manage or control such a company” – is inadequate for the 21st century. These institutions should be led and directed by persons on the companies’ boards and management with the required competencies and in the context of written charters.

The FSC board charter incorporates provisions of the Financial Services Commission Act, the Public Bodies Management and Accountability Act and the Corporate Governance Framework for Public Bodies.

The regulator’s February 2019 Market Conduct Guidelines appear to have mistakenly assumed that insurers and intermediaries subscribe to the idea of charters and that their boards have followed the regulator’s example.

While photographs of directors were posted on insurers’ websites, nothing was matching the FSC’s board charter or explaining what principles guided the operations of those boards. Also, the regulator enacted a rule that “insurers and intermediaries should develop charters, setting out standards of service that is to be delivered to their policyholders and that a system should be implemented to regularly monitor the quality of service being delivered by their staff members”.

From my information, nothing remotely resembling this has been done.

Registered insurance entities are also mandated to maintain appropriate and up-to-date employee training policies, procedures, and training manuals that are approved by the board of directors. I saw nothing to suggest that three years after this rule was introduced that insurers and intermediaries were complying with it.

The FSC has set an excellent example in the dissemination of its board charter that insurance and other entities should emulate. The charter speaks to governance, strategic direction, and accountability. Governance is the framework of rules, relationships, systems, and processes within the commission that guide how decisions are made.

Accountability is the result, positive or negative, of the commission’s actions. The clarity with which the institution’s board articulated its mission eight months ago augurs well for the institution’s future and consumers.

Perhaps the regulator’s future actions will contribute to a reduction of the stress-inducing service culture that I wrote about two weeks ago.

Cedric E. Stephens provides independent information and advice about the management of risks and insurance. For free information or counsel, write to: aegis@flowja.com or business@gleanerjm.com.