After Twin Peaks: A Caribbean Capital Market Worthy of International Capital

Eleven articles have set out the case for Twin Peaks, the international evidence base, the legislative reform package, and the operational readiness work the next twelve months require. This closing article steps back and addresses the question that gives the transition its meaning: what is all of this for. The answer cannot be the cutover itself. The cutover is a mechanism. The end it serves is a Caribbean capital market that is taken seriously by international capital — that allocates regional savings into regional production, channels international capital into Caribbean opportunity, and does both at the cost of capital the region’s growth potential warrants. That market is buildable. The Twin Peaks transition is the foundation. The decade that follows is the construction.

The horizon question

The supervisory transition is necessary but not sufficient. A regulatory architecture that meets international standards is the entry condition for credible participation in international capital markets, not the achievement itself. The achievement is the capital market that the regulatory architecture enables — its depth, its liquidity, its product range, its issuer base, its investor base, the institutional infrastructure that supports it, and the price at which Caribbean borrowers can access capital relative to their international comparators.

Five jurisdictions that completed equivalent transitions — Australia in 1998, the Netherlands in 2002, the United Kingdom in 2013, New Zealand in 2011, and South Africa in 2018 — provide a usable evidence base for what the decade after the cutover can produce. None transformed in the year following supervisory reform. All of them transformed in the decade following. The pattern is consistent enough to support a structured forecast: in years one to three the supervisory architecture matures and the new regulators’ credibility builds; in years four to seven the reformed market shows measurable depth and liquidity improvements; in years eight to ten it reaches a recognisable plateau of international competitiveness.

The Caribbean transition can follow that pattern, with two qualifications. The region begins from a smaller base than any comparator, which means the proportional gains can be larger but the absolute scale will remain modest. And the region operates across multiple sovereign jurisdictions rather than as a single market — a complication and an opportunity that the comparators did not face.

What follows is a structured account of what the decade after the cutover can produce, organised around five pillars of a capital market worthy of international capital. The pillars mirror the five categories of boardroom readiness in Article 11 — but lifted from the institutional level to the market level. They are: institutional depth, product breadth, investor diversification, supervisory credibility, and regional integration. Each can be assessed against the international evidence base. Each has identifiable milestones. Each has implications for what boards, regulators and policymakers should be working towards beyond the cutover itself.

Pillar 1: Institutional depth

Institutional depth is the foundation of every credible capital market. By institutional depth is meant the quantum of long-duration, professionally-managed capital domiciled in the market, available for primary issuance and secondary liquidity, and operating under the governance disciplines that international capital expects. The Caribbean has institutional capital. What the region has lacked is the regulatory architecture that channels that capital into market-based intermediation rather than into bank deposit and direct lending structures.

The pension fund sector across CARICOM holds assets that, if intermediated through a deeper capital market, could materially expand both primary issuance capacity and secondary trading liquidity. The insurance sector adds further long-duration capital. The credit union and cooperative sector, while smaller in asset terms, holds the savings of a substantial proportion of the Caribbean population. The collective investment scheme sector — unit trusts, mutual funds, ETFs — is the natural intermediation layer between retail savers and the listed market, and the layer that has been most constrained by the legacy framework.

The international evidence is consistent that supervisory transitions of the Twin Peaks type produce, over a decade, material expansion in the collective investment scheme sector, the institutional asset management sector, and the professional intermediation layer. The Australian case is the clearest. In the decade after the 1998 reform, the Australian managed funds sector approximately tripled in real terms. The Dutch case shows similar directional movement from a higher starting base. Both transitions were supported by parallel pension reform, and the Caribbean policy debate on pension reform is therefore strategically connected to capital market development in ways the public discussion has yet to fully recognise.

The realistic horizon for institutional depth in the Caribbean over the decade following the cutover is a managed funds sector that is materially larger than today, an institutional asset management capability that operates to international professional standards, and an intermediation layer with the analytical capacity, the operational infrastructure and the regulatory standing to support a deeper market than the region has historically operated. None of this is automatic. All of it is achievable on the foundation that the supervisory transition provides.

Pillar 2: Product breadth

Product breadth is the second pillar. The Caribbean listed market today is dominated by ordinary equity and a relatively narrow range of corporate bonds. The product set in mature markets is materially wider — covered bonds, asset-backed securities, sukuk, exchange-traded funds across a range of underlying exposures, derivative products on local underlyings, and the full range of debt instruments that allow issuers to match financing structure to underlying cash flow profile. The narrowness of the Caribbean product set is a function of regulatory architecture, market infrastructure, and intermediation capability. Twin Peaks addresses the regulatory architecture. Market infrastructure and intermediation capability are the construction work of the decade that follows.

Three product categories warrant particular attention. The first is structured debt — the asset-backed and structured finance instruments that channel cash flows from identifiable pools of receivables into investable instruments. The Caribbean has the underlying pools — mortgage portfolios, commercial credit, infrastructure cash flows, tourism sector receivables — that could support a structured debt sector of meaningful scale. What the region has lacked is the regulatory framework, the rating infrastructure, the legal structuring capability and the investor demand profile that structured debt requires. The post-cutover regime makes a regulated structured debt market operationally viable.

The second is green and blue finance instruments. The Caribbean carries climate exposure recognised globally as a category in its own right. International capital allocated to climate adaptation, climate resilience, blue economy infrastructure and biodiversity protection is growing rapidly, and the region is a natural deployment location. The instruments through which that capital flows — green bonds, blue bonds, sustainability-linked bonds, biodiversity-linked instruments — require the regulatory architecture, verification infrastructure and intermediation capability that the post-cutover regime supports. A decade of considered work could position Caribbean issuers as preferred recipients of climate-linked international capital, at terms materially better than the conventional market would price.

The third is regional and diaspora-linked instruments. The Caribbean diaspora — several million people across North America and Europe with considerable accumulated wealth and standing connection to the region — represents a capital pool currently substantially disengaged from regional markets. The instruments that could re-engage that capital — diaspora bonds, regional infrastructure instruments, currency-hedged exposure to Caribbean growth — exist as concepts but have been constrained by the regulatory architecture and cross-border supervisory cooperation arrangements. The post-cutover regime improves both. The decade following the cutover can see diaspora capital become a material participant in regional market development.

Pillar 3: Investor diversification

Investor diversification is the third pillar. A capital market with a narrow investor base is a fragile market. It produces price formation that is dominated by a small number of large participants, liquidity that is concentrated in a small number of names, and price discovery that is shaped more by the rebalancing requirements of the dominant participants than by the underlying economic fundamentals of the issuers. A capital market with a broad investor base is more resilient, more efficient, and more attractive to international capital that is itself looking for diversification.

The Caribbean investor base today is structurally narrow. Domestic institutional capital is concentrated in a small number of pension funds, insurance companies and large asset managers. Retail participation is concentrated in a small number of high-profile listings. International institutional capital allocated to Caribbean market exposure is modest in absolute terms. Diaspora capital is, as noted, substantially disengaged. Each of these sources has expansion potential over the decade following the cutover, and each requires different policy and institutional work to realise.

Domestic retail expansion is the most immediately addressable. The international evidence on retail participation in transition markets is consistent: regulated, well-disclosed, protective frameworks for retail investors produce material expansion in retail participation over a five-to-seven year horizon. The post-cutover regime — with its outcomes-based conduct supervision, its dedicated investor protection focus, and its complaints handling and redress infrastructure — supports retail expansion in ways the legacy framework did not. The collective investment scheme sector is the natural vehicle for that expansion, and its development is one of the more reliably-projectable consequences of the post-cutover regime.

International institutional expansion is the more strategically important. Global institutional capital allocates to emerging and frontier markets through direct investment, dedicated frontier-market funds, and broader emerging market vehicles that include frontier exposures. The Caribbean has been a marginal participant because the regulatory architecture has not satisfied the due diligence frameworks that international institutional allocators apply. The post-cutover regime addresses that gap. The institutional credibility that builds over the first five years of the new regulators’ operation will, on the international evidence, translate into measurable expansion of international institutional allocations to Caribbean exposure over the second half of the decade.

Diaspora capital is the most distinctive opportunity. No comparator jurisdiction had a diaspora of comparable proportional scale to the resident population. The Israeli diaspora bond programme, the Indian sovereign-issued diaspora instruments, and several smaller diaspora-targeted programmes provide the international precedent base, but the Caribbean opportunity is distinctive in the combination of diaspora scale, emotional engagement, and regional integration that a coordinated diaspora capital programme could mobilise. The development of that programme is properly a regional rather than national policy question, and it is one of the strategic horizons that the cutover positions the region to address.

Pillar 4: Supervisory credibility

Supervisory credibility is the fourth pillar. The institutional credibility of the new conduct FSC and the reformed BOJ is the asset on which everything else depends. International capital, international counterparties, international rating agencies and international institutional allocators apply due diligence frameworks that begin with the supervisory architecture, the supervisory practice, and the supervisory track record of the relevant jurisdiction. The supervisory architecture is established at cutover. Supervisory practice and supervisory track record build over the first five to seven years.

The international evidence on the building of supervisory credibility is reasonably consistent. Three factors matter most. The first is operational independence — the demonstrable willingness of the supervisor to act against politically connected institutions on the merits, supported by legislative architecture and institutional governance that protect that independence. The second is technical competence — the demonstrable capability to identify, analyse and act on supervisory questions of comparable technical complexity to those mature jurisdictions handle routinely. The third is enforcement consistency — the demonstrable willingness to use enforcement powers in proportionate and predictable ways, neither over-using them in headline-driven ways nor under-using them in a manner that erodes credibility.

Each of these factors takes time to build. The first three years of the new regime will, on the comparator evidence, be characterised by supervisory establishment in which institutional capability is being constructed and supervisory practice calibrated. The middle years of the decade will see the supervisory track record begin to accumulate — the early enforcement cases, thematic reviews, and international cooperation engagements. The later years of the decade will see supervisory credibility consolidate to a level at which international capital and counterparties accept Caribbean supervision on equivalent footing to the comparable mature jurisdictions.

There is no shortcut to this trajectory. Supervisory credibility is built through cases, not through declarations. The enforcement actions, the supervisory engagements, the international cooperation arrangements and the public communications of the supervisors over the first decade of the new regime will collectively produce the institutional credibility — or the institutional credibility erosion — that the region’s capital market depends on.

Pillar 5: Regional integration

Regional integration is the fifth and most distinctively Caribbean pillar. The comparator jurisdictions that completed Twin Peaks transitions did so as single sovereign markets. The Caribbean operates across multiple sovereign jurisdictions, with multiple supervisors, multiple legal frameworks, and multiple capital markets connected by historical institutional architecture but separated by jurisdictional boundary. The post-cutover regime addresses the Jamaican supervisory architecture. The regional integration question — how the Jamaican Twin Peaks transition relates to the regulatory development of the wider region — is the strategic horizon no comparator jurisdiction has had to address in the same form.

Two trajectories are available. The first is a model in which Jamaica completes its supervisory transition and the wider region continues with its existing arrangements, producing a region with one Twin Peaks jurisdiction and a number of legacy jurisdictions operating to different supervisory standards. The second is a model in which the Jamaican transition becomes the foundation for a wider regional consistency programme — through bilateral cooperation, through CARICOM-level harmonisation, through the existing regional cooperation infrastructure that CARTAC, the Caribbean Group of Banking Supervisors and similar bodies provide. The first model is the default. The second requires deliberate regional policy work over the decade following the Jamaican cutover.

The strategic case for the second model is substantial. A regional supervisory architecture in which institutions of comparable risk profile are supervised to comparable standards across CARICOM is materially more attractive to international capital than a region in which standards differ by jurisdiction. A regional capital market in which an issuer can list, trade and access institutional capital across the wider region without meeting fundamentally different requirements in each jurisdiction is materially deeper than a market in which each jurisdiction operates as an isolated pool. A regional investor base that can allocate across the wider region is materially broader than one that is jurisdictionally constrained.

The Jamaican Twin Peaks transition does not by itself produce regional integration. What it does produce is a supervisory architecture that is sufficiently aligned with the international standards that the wider region can converge towards. The opportunity over the decade following the cutover is for the Jamaican transition to function as a reference point — a demonstrated working example of a Caribbean Twin Peaks regime that has been successfully implemented and has produced the regulatory credibility, institutional development and capital market deepening that the regional case for integration ultimately rests on.

The horizon, properly seen

The five pillars set out above are the structured forecast the international evidence base supports. None of them is automatic. All of them are achievable. The decade following the cutover, considered in the round, can produce a Caribbean capital market recognised internationally as operating to international standards, supporting an issuer base substantially broader than today’s, channelling regional and international capital into regional production at terms the region’s growth potential warrants, and contributing to the wider regional integration project in ways no previous regulatory development has been positioned to do.

The case for what is achievable should not be confused with the case for what is inevitable. Each of the five pillars depends on policy work, institutional construction, regulatory practice and market development that has to be deliberately undertaken. The cutover is the start of the work, not the completion of it. Boards, regulators, policymakers, and the wider Caribbean financial services community face a decade of construction work for which the cutover provides only the foundation.

There is also the question of what is at stake if the work is not done. A supervisory transition implemented mechanically without the institutional construction the wider development requires would produce a region that has met the formal standards but has not realised the capital market deepening they were intended to enable. International experience has examples of jurisdictions that completed supervisory reform without producing the wider development the reform was meant to support. The avoidance of that outcome is the strategic responsibility of the wider Caribbean financial sector over the decade following the cutover.

The Caribbean has historically been characterised, in the international financial sector’s view, as a region of small, fragmented, idiosyncratic markets with regulatory architectures that do not meet international standards and intermediation capability below international norms. That characterisation has been broadly accurate. The Twin Peaks transition is the inflection point at which the region begins, deliberately and visibly, to construct an alternative. A decade of considered work could see the region recognised instead as one of the more interesting frontier-to-emerging market development stories in global capital markets — a region that took its regulatory architecture seriously, constructed the institutional infrastructure it enables, channelled capital into regional production at scale, and contributed to the integration of CARICOM in ways previous decades had not.

That outcome is what the work of the next twelve months, and the decade that follows, can produce. The choice between that outcome and the lesser alternatives is being made now, in the boardrooms, the supervisory authorities, the policy ministries and the professional services firms across the region that are doing — or not doing — the work that the foundation of the new regime requires.

Closing the series

This article closes the twelve-article series that began with the structural diagnostic of the existing regulatory framework and the case for Twin Peaks reform. Across the series, we have traced the international evidence base, examined the IOSCO Principles compliance gap, set out the investor protection architecture the new regime should support, walked through the legislative reform package, mapped the operational implications for the JSE and broader market infrastructure, addressed the boardroom readiness work that the cutover requires, and now closed with the strategic horizon the work positions the region to reach.

Caribbean Boardroom Perspectives will continue. The Twin Peaks transition is one of several strategic questions that will shape Caribbean financial services over the coming years. Future series will address the regional integration agenda, the climate finance opportunity, the digital asset and tokenisation framework, and the wider capital market development questions that this series has only begun to identify. The work of analysing, advocating for and supporting the development of a Caribbean financial sector that meets the region’s potential continues.

To the boards, the senior management teams, the regulators, the policymakers and the professional services colleagues who have engaged with this series over the past twelve weeks — thank you. The conversation that this series has helped to convene is one that the region needs. The work that the conversation supports is work that, done well, will define the financial sector that the region’s next generation inherits. That is a worthwhile undertaking, and one to which Dawgen Global is committed for the long horizon that it requires.

THE CARIBBEAN TWIN PEAKS IMPERATIVE  —  SERIES COMPLETE

The complete series is available on the Caribbean Boardroom Perspectives newsletter on LinkedIn, and through the Dawgen Global website. The series can be read in sequence as a structured analysis of the Caribbean Twin Peaks transition, or individual articles can be referenced as standalone treatments of their respective subjects. A consolidated PDF compendium of the full series will be made available upon request 

ABOUT THE AUTHOR

Dr. Dawkins Brown is the Executive Chairman and Founder of Dawgen Global, an independent, integrated multidisciplinary professional services firm headquartered in New Kingston, Jamaica, operating across more than fifteen Caribbean territories. With Big Four heritage and over twenty-three years of professional experience, Dr. Brown writes regularly on Caribbean financial regulation, capital markets, governance and strategy through the LinkedIn newsletter Caribbean Boardroom Perspectives.

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