jwala rambarran : consolidated supervision, risk - based supervision and market discipline opening remarks by mr jwala rambarran, governor of the central bank of trinidad and tobago, at the basel ii implementation workshop, organised by the caribbean regional technical assistance centre ( cartac ), port of spain, 17 – 20 september 2013. * * * good morning first, i wish to thank cartac for arranging this basel ii implementation workshop and for inviting me to give some brief opening remarks this morning. as we all know, safe and robust banks operating in a well regulated financial system play a key role in the economy and society. one of the main lessons of the recent global financial crisis is that banks must improve their ability to manage risk, so they do not inflict serious damage on the economy. this calls for a stronger risk management culture within banks. this calls for stronger regulation and supervision within central banks and other regulatory agencies. in today ’ s discourse, most commentators assume that “ strengthening regulation ” is simply a matter of implementing international standards, of which the most important is the basel capital accord, designed by the basel committee on banking supervision. other commentators, however, have examined alternative approaches to prudential regulation beyond standards. they argue that a strategy for prudential policy must address three main weaknesses : the impossibility of fine - tuning bank safety margins in the uncharted territory that is banking in the developing world ; the need to provide insulation against the large shocks to which these economies are prone ; and the lack of enforcement that results from the concentration of political power in many such countries. this year marks the 25th anniversary of the 1998 basel capital accord, which through its two incarnations has emerged as the international gold standard for banks [UNK] capital requirements. the first manifestation came in june 2004 when the basel committee wholly rewrote the original basel accord, which has a number of flaws. for instance, it is risk insensitive, it does not differentiate between credit risk and other risks a bank typically faces, and it can easily be circumvented by regulatory arbitrage. the new accord, generally known as basel 2, represented a fundamental change of approach to regulation. the revised framework is highly complex and makes its understanding and implementation a great challenge, not only to regulators but also to the regulated community. basel 2, for example, assumes that discipline by the markets and by supervisors is beneficial. yet, as we have seen particularly, over the last five years, both markets

u. s. internal revenue service ( irs ) all clients who are u. s. citizens, green card holders living in the u. s. or abroad, or who are foreign entities in which u. s. taxpayers hold a substantial ownership interest. to properly comply with these new reporting requirements, a foreign financial institution will have to enter into a special agreement with the irs by june 30, 2013. under this agreement, a participating foreign financial institution will be obligated to : 1. obtain information to determine which account holders are u. s. persons ; bis central bankers ’ speeches 2. comply with verification and due diligence procedures on such account holders as required by the irs ; and 3. report annually to the irs on the name and address of each u. s. client, as well as the largest account balance in the year and total debit and credits of any account owned by a u. s. person or foreign entities with substantial u. s. ownership. the penalties are steep for non - compliance. a participating foreign financial institution will be required to deduct and withhold a 30 percent tax on all payments of u. s. source income ( such as interest and dividends ) as well as u. s. source capital gains made to recalcitrant account holders ( those who do not willingly and promptly provide the requested information ), and to foreign financial institutions that did not enter into an agreement with the irs. in addition, fatca requires u. s. citizens and green card holders who have financial assets outside of the united states exceeding us $ 50, 000 to report these assets to the irs. fatca focuses on the high net - worth individuals, the so - called “ fatcats ”. if a foreign financial institution refuses to comply with these requirements, a withholding tax of 30 percent will be applied on all u. s. source income of that institution, regardless of whether or not such payment was made for the benefit of the u. s. account holder, for another client, or for the institution itself. foreign financial institutions, as currently drafted, may broadly include every member of the investment community and encompass banks, credit unions, custodians, asset managers, investment funds and pension fund schemes, brokers and insurance companies ( where their products have an investment element ). ladies and gentlemen, it would be quite easy for some non - u. s. institutions to believe that they will not be affected by fatca, as