The Role of Bank Regulation
The secondary objective of the Central Bank of Barbados, after maintaining the value of the currency, is the promotion of financial stability in Barbados. Pursuant to this objective, one function of the Bank is to act as a prudential regulator in accordance with the Financial Institutions Act, Cap. 324A.
The Bank has regulatory responsibility for:
- commercial banks
- merchant banks, trust and finance companies
- money or value transmission service providers
- foreign currency-earning banks
- credit bureaus
These institutions provide financing for commercial entities, basic financial services for the general population, access to the payments system, and credit reports. Because the failure of a financial institution or payment service can undermine the stability and integrity of the financial system, these entities are highly regulated.
As regulator, the Bank’s functions include:
- Administering the laws and regulations related to financial institutions to determine whether there are any violations
- Determining the financial condition of licensed financial institutions, whether banking practices are sound, and whether all risks in the entity are being effectively managed
- Verifying the accuracy of statutory and prudential returns from licensed financial institutions
- Recommending improvement where deficiencies have been identified
- Licensing new applicants and processing non-licensing applications under the Financial Institutions Act, Cap. 324A and the Fair Credit Reporting Act, 2021
- Researching and developing policies on emerging regulatory and supervisory issues
- Assisting with drafting legislation relating to regulatory/supervisory issues, e.g. money laundering, Fintech
- Maintaining cooperation with other local, regional, and international supervisory agencies to assist in the effort of global consolidated supervision
The Bank monitors the operations and activities of licensed institutions on a continuous basis by reviewing and analysing offsite (i.e. not at the licensee’s premises) weekly, monthly, quarterly, and annually as well as statutory, prudential and qualitative information that is submitted. The quality of risk management of the operations is also assessed as well as capital adequacy and other measures. This monitoring work aids in identifying the critical activities and risk areas that necessitate onsite evaluation.
Onsite reviews (at licensee’s premises) are conducted as necessary to facilitate a review of the risks as indicated from the risk-based monitoring. This may include certain “light touch” or “in-depth” assessments of the soundness of the institution’s practices and procedures as these relate to significant risk areas and includes the entity’s compliance with laws and regulations. Some institutions may require more frequent visits due to their size and complexity.