Financial Crime World

Guyana’s Financial Institution Compliance Requirements Strengthened: World Bank-Backed Reforms Enhance Solvency, Governance in Insurance and Pension Sectors

In a significant step towards strengthening regulatory frameworks in Guyana, the country has embarked on a reform journey aimed at enhancing solvency, governance, and depth in both the insurance and pension sectors. The proposed laws are expected to increase financial protection for the poor, allowing them to better navigate vulnerability and livelihood risks.

The Need for Reform

The collapse of CLICO Guyana in 2009, which left assets worth 3% of GDP stranded, highlighted weaknesses in the regulatory framework and underscored the need for reform. The insurer’s demise resulted in a 75% reduction in the insurance market, destroying wealth, undermining confidence in the financial sector, and exposing pension funds to significant risk.

World Bank Support

The World Bank has been instrumental in providing technical assistance to Guyana, helping draft new laws that align with international standards on insurance supervision and pension regulation. Under the Supervision of Non-Bank Financial Institutions Project, the Bank assisted the government in drafting a new law strengthening the regulation and supervision of insurance companies.

  • The draft insurance law has undergone peer review to ensure technical quality.
  • The draft pension law was developed using an Outcomes-Based Assessment framework to prioritize changes that would most improve outcomes for individuals, employers, and the government.

Reforms

The reforms include:

  • Shorter vesting periods
  • Restrictions on cashing in before participants have vested
  • Safeguards to prevent misappropriation of pension funds

These reforms are expected to promote stronger growth in the insurance and pension sectors, with lower costs of pension provision and more diversified investments.

Funding

The World Bank has provided significant funding for these reforms, including:

  • US$195,000 under the Supervision of Non-Bank Financial Institutions Project
  • US$15,000 and US$118,000 under the Pension Regulation Project

The Bank’s primary partners in Guyana have been the Central Bank, particularly the insurance and pension department, and the Ministry of Finance.

Expected Outcomes

The success of these reforms is expected to lead to:

  • Stronger oversight of non-bank financial institutions
  • Increased insurance penetration (currently 0.8% of GDP)
  • Improved pension coverage (around 4% of the labor force)

Industry stakeholders, including the CEO of John Fernandes Ltd Shipping Company, have praised the World Bank’s efforts, noting that the reforms will help protect employees’ retirement savings.

Ongoing Efforts

The journey towards strengthening insurance and pension supervision in Guyana is expected to continue, with a third FIRST grant currently in preparation to focus on effective implementation of risk-based supervision in both sectors.