BOJ reviews momentous events in 2024 and plans for 2025: New Cyber Risk standards to be implemented

 

 

In its newly released report on the central bank’s activities in 2024 Bank of Jamaica head Richard Byles outlined that The Standard of Sound Practice on Management of Cyber Risks was finalised in September 2024, which mandated DTIs to adopt robust frameworks to mitigate cyber risks and a consultation paper on a revised Standard of Sound Practice for Effective Corporate Governance was released in December 2024. 

Once finalised, the standard will define the roles and responsibilities for Board directors and set expectations for developing a corporate governance framework for financial holding companies (FHCs) in line with international standards.

In the review of the year, the Governor noted that annual headline inflation at December 2024 was 5.0 per cent, lower than the 6.9 per cent recorded a year earlier. Underlying (or core) inflation (which removes the impact of changes in food products and fuel prices from headline inflation) also decelerated to 3.9 per cent at December 2024 from 5.7 per cent a year earlier.

The deceleration in headline inflation during 2024 was largely underpinned by the Bank’s appropriate monetary policy posture and was supported by a relatively stable exchange rate, the non-recurrence of increases in some administered prices, falling international commodity prices and a moderation in inflation expectations. Since June 2024, Bank of Jamaica, through its Monetary Policy Committee (MPC), shifted its monetary policy posture from the tight stance that had prevailed since October 2021, to one of gradual easing.

This shift occurred in a context where inflation was generally contained within the inflation target range. The easing started with a gradual reduction of the Bank’s absorption of liquidity from deposit-taking institutions (DTIs) through open market operations (OMOs), followed by four successive decisions of the MPC to reduce the policy rate.

These decisions resulted in a cumulative reduction in the policy rate by 100 basis points (bps) to 6.0 per cent per annum. The Bank also continued its efforts to preserve relative stability in the foreign exchange market. Further, for the review year, the interest rate corridor was narrowed from 300 basis points to 200 basis points.

Bank also resumed the offer of its 14-day repurchase auctions in December 2024. Going forward, the MPC indicated that future monetary policy adjustments will continue to depend on the trajectory of inflation relative to the inflation target range. Real economic activity is estimated to have declined by 0.9 per cent in 2024, largely reflecting the adverse impact of Hurricane Beryl and other adverse weather/hydrological events on economic output.

This estimated decline contrasted with growth of 2.6 per cent for 2023 and the increase of 5.2 per cent for 2022. The estimated decline for 2024 largely reflected contractions in most industries, including Construction, Agriculture, Forestry & Fishing, Manufacturing, Wholesale & Retail Trade, Real Estate, Renting & Business Activities and Other Services. Bank of Jamaica’s gross foreign assets (GFA) increased during 2024, relative to the previous year, remaining well above the level considered adequate. The increase in the GFA predominantly reflected net purchases from the private sector by BOJ, as well as increased inflows to the Government.

The government-related inflows reflected receipts from the International Monetary Fund (IMF) under the Resilience and Sustainability Facility (RSF) in March and September 2024, along with proceeds from the sale of securitised future earnings of the Airports Authority of Jamaica. Bank of Jamaica Annual Report 2024 Jamaica’s sovereign credit ratings by the major credit rating agencies improved in 2024.

This was driven by the Government’s strong fiscal management; consistent achievement of its debt reduction targets and its programme of institutional strengthening. The country’s resilience to economic shocks, including its hurricane response, along with expectations of GDP growth and improved budget balances in 2025 were also contributory factors to the improvements in debt ratings.

 Despite the contraction in economic activity, Jamaica’s financial sector remained stable throughout 2024. Deposit-taking institutions maintained capital adequacy ratios (CAR) above the regulatory benchmark and reflected broad resilience to hypothetical market, credit and liquidity risk shocks. Other key financial health indicators for DTIs, including liquidity, profitability and asset quality, remained generally stable.

 In addition, private sector credit continued to grow during the year, albeit below pre-pandemic levels. Significant work was carried out by both BOJ and the Financial Services Commission (FSC) towards implementing the Twin Peaks Model during the year. Under this framework, BOJ will be responsible for the prudential supervision of all financial institutions operating within Jamaica while the FSC will be responsible for the market conduct and consumer protection oversight of these same institutions.

In preparation for Jamaica’s transition to the Twin Peaks Model, the Bank and the FSC implemented a ‘dress-rehearsal’ of the Twin Peaks Model by commencing joint prudential and market conduct examinations in July 2024. This was aimed at enhancing collaboration between the agencies, aligning supervisory methodologies and streamlining sector oversight once the necessary legislation is passed.

 In addition to the advancements on the Twin Peaks Model, the Bank made significant progress on key banking supervision initiatives to enhance financial system resilience. The development of drafting instructions for legislative changes for Phase I of the Basel III framework were in progress at the end of the year. Full engagement of the legislative process is slated for 2025. Phase II of the framework will focus on the Supervisory Review Process elements of the Basel III implementation plan while Phase III will address market disclosures and implementing additional capital and liquidity measures. As part of its responsibility to ensure the safety and soundness of the financial system, the Bank published a number of revised regulatory standards for the financial sector during 2024.

In April, the Minimum ABM Service-Level Standards were introduced, with DTIs given nine months to comply with the new guidelines. In addition, an updated Fitness and Propriety Standard was finalised in the June 2024 quarter. This standard introduced the concept of ‘suitability,’ where substantial shareholders, directors, officers and other key employees of the entities regulated by the Bank must demonstrate the ability to meet time commitments and avert conflicts of interest as new key criteria for obtaining the fit-and-proper designation.

On 28 June 2024, the Financial Action Task Force (FATF) at the conclusion of its Plenary, removed Jamaica from its ‘Grey List’ of countries that are assessed as having strategic deficiencies in their Anti-Money Laundering (AML)/Combatting the Financing of Terrorism (CFT)/Combatting the Financing of the Proliferation of Weapons of Mass Destruction (CFP) regimes. As a result, Jamaica is no longer subject to the FATF’s increased monitoring process. In 2024, the Bank also operationalised Phase II of its Risk-Based Supervisory (RBS) framework for the remittance sector.

 

This RBS approach facilitated targeted AML/CFT/CFP monitoring through more efficient employment of the supervisory resources in assessing the compliance framework of each entity, in keeping with its inherent risk and implications for financial system stability. Throughout 2024, Bank of Jamaica continued to fulfil its statutory obligation to satisfy the public's need for physical currency (banknotes and coins) as well as JAM-DEX® (the Central Bank Digital Currency (CBDC)).

 

 In this regard, during the year, the country continued its transition to a new polymer banknote series. The replacement of the old cotton-based notes advanced Bank of Jamaica Annual Report 2024 during the year, with the proportion of both the volume and value of these banknotes in circulation declining substantially, relative to the prior year. During 2024, the Bank remained resolute in ensuring safe and reliable Financial Market Infrastructures (FMIs).

Notable achievements during the year included Merchant Strengthening initiatives through an internal JAM-DEX® point of sale (POS) (inline) pilot as well as preparatory work for a JAM-DEX® (online) pilot with a government entity. Additionally, the Bank boosted its system resilience with the installation of the JAM-DEX® Disaster Recovery site. Work also continued on the preparation of the bill to amend the Payment Clearing and Settlement Act (PCSA), 2010, aimed at enhancing the Bank’s supervisory powers over Payment Service Providers (PSPs) and FMIs.

The Bank also further advanced the project to adopt ISO 20022 in the JamClear® Systems and other retail payment systems. As part of Jamaica’s financial deepening agenda, significant progress was made to facilitate the listing of Government of Jamaica (GOJ) domestically-issued securities on the Jamaica Stock Exchange (JSE) fixed income trading platform. As it relates to its risk management framework, Bank of Jamaica continued to identify, measure, monitor and report on the risks inherent in its operations, even as the risk landscape continued to evolve during the year. These risks continued to be proactively managed within Board-approved risk tolerance levels during the year.

Of note, the Bank completed a comprehensive review of its foreign reserves investment policy, aimed at managing risks in its investment portfolios and, in light of Jamaica’s Data Protection Act (DPA) coming into full effect on 01 December 2023, implemented a robust data protection programme. Throughout the year, the Bank’s Board of Directors, its board committees and the various statutory committees effectively carried out their responsibilities to provide oversight of the strategy, policies and administration of the Bank, in line with its statutory mandate. All the stipulated number of meetings required by the Board of Directors and these committees were attained for the year and, in some instances, even exceeded.

Administratively, the Bank continued to place significant emphasis on strengthening its workforce to support the attainment of key strategic objectives. Specifically, in preparation for the impending transition to the Twin Peaks Model, focus was placed on organisational analysis, design and resourcing of the Bank’s structure to facilitate the impending shift in its regulatory framework. This involved an increasing thrust to improve the competence of the Bank’s workforce through further talent acquisition as well as increased professional development and training interventions for existing staff. A number of activities were also executed to foster improved staff engagement during the year.

 The Bank continued to execute its ‘Mission Excellence’ strategic plan, during the year, in support of the achievement of its primary mandate of maintaining price and financial system stability. Concurrently, the Bank maintained its focus on digital and cultural transformation, aimed at ensuring that processes are upgraded to ensure efficiency and that the staff becomes fully engaged and consistently demonstrates the Bank’s core values. Additionally, progress was made on a number of key projects aimed at enhancing the operational efficiency and effectiveness of the Bank’s internal processes, including the Human Capital Management project as well as the Key Information for Organisational Strategic Knowledge (KIOSK) project - a centralised data repository that will function as the “single source of truth” for statistical data across the Bank.

 There was also meaningful progress on the Electronic Know-Your-Customer (eKYC) and Account Portability projects being undertaken by the Bank to enhance competition within the banking system. In order to drive further culture transformation, the Bank commenced the process of revamping its performance management framework to provide a mechanism for engendering performance improvement while promoting greater alignment, transparency and fairness. In an effort to deliver on its mandate of promoting low, stable and predictable inflation while fostering stability in the financial system, the Bank continued to place significant focus on delivering clear and efficient communication of its policies and actions.

 Accordingly, during the year, various initiatives were implemented across diverse communication channels to augment the effectiveness of monetary policy. Additionally, the Bank continued to engage in community outreach and welfare programmes as well as undertook initiatives to support education, culture and the creative arts. Bank of Jamaica Annual Report 2024 In conclusion, Bank of Jamaica is committed to maintaining a macroeconomic environment that is aligned with its mandate of ensuring price and financial sector stability.

Accordingly, the Bank will continue its surveillance of global and domestic developments and take appropriate actions, as needed, to ensure the achievement of this mandate. I wish to thank the members of the Board of Directors, statutory committees, management and staff for their continued hard work and unwavering commitment to excellence as the Bank seeks to become the world’s leading central bank, contributing to the development of Jamaica.

 

Source: Bank of Jamaica