Strengthening Financial Regulation in Cook Islands

The Ministry of Finance (MOF) in the Cook Islands has taken steps to enhance financial integrity and stability by introducing amendments to existing legislation and new laws aimed at regulating licensed financial institutions.

Challenges Facing Financial Supervisory Commission (FSC)

In recent years, the FSC has faced challenges due to inadequate expertise and resources. The agency’s budget for the fiscal year ending June 30, 2004 indicates that fees levied on the financial sector will generate positive earnings, with an estimated 50% contributed to the Government’s general fund.

However, critics argue that the FSC’s recruitment policies raise concerns about succession and sustainability. The agency has been forced to hire expatriates to fill senior positions due to a lack of qualified local candidates, raising questions about management continuity and the capacity of local residents to assume greater roles of responsibility.

Proposed Amendments

To address these issues, the MOF is proposing amendments to the Financial Supervisory Commission Act (FSCA) to empower the Prime Minister to provide general policy direction to the FSC, ensuring that the agency operates independently and without external influence in its day-to-day activities.

The FSC must also ensure it has the freedom to use the financial resources generated from licenses and fees to execute its duties and responsibilities under the law. The allocation of an entry by the Government in anticipation of income contributed by the FSC to the General Fund could potentially restrict the agency’s activities, particularly in its early years.

Strengthening Banking Supervision

The MOF is also proposing amendments to the Banking Act 2003, which would provide a suitable legal framework for the FSC’s activities. The agency has issued three comprehensive prudential statements since the Commissioner’s appointment in September 2003, covering licensing procedures, capital adequacy guidelines, and asset classification.

These proposed changes aim to address compliance with laws as well as safety and soundness concerns, ensuring that licensed financial institutions operate in a stable and secure environment. With these reforms, the Cook Islands is set to strengthen its financial regulation framework, enhancing its reputation as a responsible and transparent jurisdiction.

Key Highlights

• Amendments to the Financial Supervisory Commission Act (FSCA) aim to empower the Prime Minister to provide general policy direction to the FSC
• The FSC must have freedom to use financial resources generated from licenses and fees to execute its duties and responsibilities under the law
• Proposed amendments to the Banking Act 2003 will provide a suitable legal framework for the FSC’s activities
• The agency has issued three comprehensive prudential statements since September 2003, covering licensing procedures, capital adequacy guidelines, and asset classification
• Reforms aim to strengthen financial regulation framework and enhance reputation as a responsible and transparent jurisdiction.