Financial Crime World

FIC Budget Revision Sparks Controversy

The Palau Chamber of Commerce’s dominant role in appointing members to the Financial Institutions Commission (FIC) has raised concerns about the independence of the regulatory body.

Lack of Independence

The delay in the effective operation of the FIC is attributed to the lack of provisions on legal immunity for commission members and staff. The appointment of an Executive Commissioner by the governing board, which is largely comprised of banking industry representatives, has also sparked controversy.

  • One of the five voting members of the FIC remains unappointed.
  • Government employees are barred from joining the governing board.
  • This has led to concerns about the representation of the business community’s interests in the decision-making process.

Limited Regulatory Powers

The provision giving the Office of the President (OEK) powers to prevent the issuance of prudential regulations undermines the operational independence of the FIC. According to a recent assessment, the FIC’s regulatory powers are limited by requiring approval from the OEK and the President before its regulations can take effect.

  • This has raised concerns about the effectiveness of the commission in addressing compliance with laws and safety and soundness concerns.
  • The FIC’s powers to address non-compliance with laws and regulations are also limited, as it requires Supreme Court confirmation for the issuance of cease and desist orders.

Positive Development

In a positive development, an amendment to the Financial Institutions Act (FIA) is expected to be adopted by the OEK in its spring session, which will provide legal protection for supervisors and clarify their role in supervising financial institutions.

Access to Information

The FIC has access to banks’ offices and accounts, as well as the right to examine records. However, it cannot address safety and soundness concerns or assess a bank’s general risk situation.

  • The commission is required to cooperate with public authorities and provide general information unless constrained by confidentiality provisions.
  • The commission is also authorized to exchange information with foreign government agencies and international organizations.

Call for Revision

The Palau government has been urged to review its approach to appointing members to the FIC and ensure that it represents a diverse range of interests. The amendment to the FIA is expected to address concerns about legal immunity for supervisors and clarify their role in supervising financial institutions.

Revised Budget Needed

In light of these concerns, the Palau government has been urged to revise its budget to reflect the need for greater transparency and accountability in the FIC’s operations. The revised budget should prioritize measures to strengthen the commission’s regulatory powers and ensure its independence from industry interests.

  • Prioritize measures to strengthen the commission’s regulatory powers.
  • Ensure independence from industry interests.
  • Address concerns about the lack of legal immunity for supervisors and clarify their role in supervising financial institutions.

A revised budget that prioritizes these measures will be essential in ensuring the effective operation of the FIC and promoting stability in the financial sector.