Ashford W. Meikle, Business Reporter

Dr. Omar Davies, Minister of Finance and Planning, says regulators cannot intervene on behalf of risk takers. - File

The government is challenged in its regulatory role and cannot protect investors from themselves if they opt for high-risk investment options which promise high returns, says Finance Minister Dr. Omar Davies, in a rare public comment on the current controversy over investment schemes that reward investors with double digit monthly returns.

"The search for higher returns," warned Davies, "is leading to somewhat more risky and speculative investments which fall out of the realms of government oversight and supervision."

The minister, who gave the main address Wednesday night at the opening banquet of the Jamaica Stock Exchange's annual capital markets conference in Montego Bay, said there was "nothing the authorities can do to effectively police persons motivated by ignorance or greed who decide to invest their savings in these entities."

Although he did not elaborate, the Finance Minister was clearly referring to the ongoing case brought against Olint Corporation and Lewfam trading by the Financial Services Commission (FSC). In fact, Davies utterances is of particular importance since, up to now, the minsiter has been silent on the issue.

Additionally, having wracked up approximately $140 billion of debt to rescue savers and retirees in the financial sector meltdown of the 1990s, Davies would be wary of putting the country into such a position again.

The national debt now tops $890 billion.

He created the Jamaica Deposit Insurance Corporation in the aftermath of the crash, but only savers with central bank regulated institutions are covered, and only for $300,000 of their savings.

Yesterday, the Finance Minister received a ring of endorsement boost from international quarters.

"Certainly from the IMF's perspective, are fully supportive of all the efforts the regulatory authorities," said Sanjaya Panth, from the International Monetary Fund's Western Hemisphere Department as he addressed a panel discussion at the conference which focused on integration of the capital markets in the region.

Last month, the Supreme Court upheld a cease and desist order sought by the FSC against David Smith's Olint and LewFam. The commission charge that both companies were offering investment advice as well as engaging in securities trading without a licence, and as such violated Sections 7 and 8 of the Securities Act.

Investment clubs

However, both Olint and LewFam whose investors reportedly earn as much as 10 per cent monthly on U.S. dollar investments, or 120 per cent per year, maintain that they are investment clubs rather than currency traders.

Investors have also sought out another company, CashPlus, although it does not offer U.S. dollar options and its modus operandi differs from that of Olint and LewFam.

Davies has challenged the JSE to take an active role in convincing Jamaican investors that the equities market is a safe and attractive medium for investment.

"In light of these factors it would seem that at the domestic level, the JSE needs to redouble its efforts of marketing the stock market as the conduit for attractive investments that do not threaten the stability of the financial market which we have strived so hard to achieve."

Stable regulatory framework

The Finance Minister, who argued that the Jamaican financial sector now exists in an environment of sound macroeconomic fundamentals, stable ratings from the international ratings agency and a stable and predictable regulatory framework, questioned the unwillingness of companies to list on the JSE, Jamaica's only exchange and the Caribbean's largest.

"We need to determine why the projected incentives of the policy change eliminating the tax on dividends has not materialised," said Davies.

We need to query what further stimulants are needed to ensure a vibrant local stock exchange." He suggested that companies were uncomfortable with the disclosure requirements since it would result in "the loss of control in family owned companies and increased transparency," a point raised by managing director of NCB Capital Markets, Christopher Williams, in a Financial Gleaner story on January 5.

Davies argued, as Williams noted, that "the preference still exists for loan financing in lieu of equity financing", adding that "the continued reduction in interest rates will only serve to reinforce the attractiveness of this option to firms."

ashford.meikle@gleanerjm.com