BANKING SYSTEM OF MONTSERRAT

Montserrat has the smallest financial sector of the six UK Overseas Territories and, except for banking services, it has the least offshore activity of any of these territories. Whilst the volume of financial services activity has fallen significantly since the volcanic eruption, there are 11 licensed offshore banks, down from 15 in 2000. Two banks are licensed to operate in the domestic market, providing domestic and International Banking services. These banks are The Royal Bank of Canada and an indigenous bank, The Bank of Montserrat.

Offshore banking

The legislation relating to offshore banking in Montserrat is the Offshore Banking Act (OB Act) and the Financial Services Commission Act, 2001 (FSC Act). The OB Act sets out a regime for the licensing of offshore banks, and also addresses other issues including:
- capital and reserves; restriction on business; returns and accounts; examination and audit;
- receivership, liquidation, and reorganization; and other general and administrative matters.
The FSC Act establishes the FSC and sets forth its functions and powers; establishes the position of Commissioner and the Commission’s directors; gives rules related to the membership of directors; addresses the Commission’s operations, governance, sources of funding, confidentiality, and power to make regulations; and provides for other general and administrative matters.

The Governor has constitutional responsibility for the offshore banks and, in his capacity as Governor-in-Council, has the power to issue regulations under the Offshore Banking Ordinance. The FSC is responsible for supervision but does not have the adequate capacity to conduct comprehensive supervision of offshore banks, particularly with respect to routine onsite examinations. A MOU was signed in September 2002 by the FSC and the ECCB in an effort to alleviate this constraint. The FSC also recently signed supervisory MOUs with four “home” regulators from Central and South America. Although several prudential visits have been made to the overseas offices of all the offshore banks, none has been subject to onsite inspections and steps to strengthen offsite supervision have only recently been initiated.

Eastern Caribbean Central Bank

The Eastern Caribbean Central Bank (ECCB) was established in October 1983. It is the Monetary Authority for a group of eight island economies namely - Anguilla, Antigua and Barbuda, Commonwealth of Dominica, Grenada, Montserrat, St Kitts and Nevis, St Lucia, and St Vincent and the Grenadines. The mission of ECCB is to maintain the stability of the EC dollar and the integrity of the banking system in order to facilitate the balanced growth and development of member states. The monetary arrangements are characterized by :
- the issuance of a single common currency, the flow of which is unrestricted among its members.
- a common pool of foreign exchange reserves; and
- the existence of a Central Monetary Authority which decides on the Union's monetary policy.
The purposes of the Bank are:
- to regulate the availability of money and credit;
- to promote and maintain monetary stability;
- to promote credit and exchange conditions and a sound financial structure conducive to the balanced growth and development of the economies of the territories of the Participating Governments;
- to actively promote through means consistent with its other objectives the economic development of the territories of the Participating Governments.

The governing bodies of the Eastern Caribbean Central Bank are the Monetary Council and the Board of Directors. The Monetary Council is the highest decision making authority. It is comprised of one Minister appointed by each Government of the participating countries. The function of the Council is to provide directives and guidelines on matters of monetary and credit policy to the Bank. The Board of Directors is comprised of ten Directors - the Governor and Deputy Governor, and one Director appointed by each Government of the eight participating countries. The Board of Directors is responsible for policy and general administration of the Bank, while the Governor, the Chief Executive, is responsible for the day-to-day management and operations.