THE DEPOSIT INSURANCE SCHEME IN THE JAMAICAN FINANCIAL SAFETY NET SYSTEM -ASPECTS OF THE LEGAL & REGULATORY FRAMEWORK

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1 THE DEPOSIT INSURANCE PROTECTING DEPOSITS FOR YOU AND ME SCHEME IN THE JAMAICAN FINANCIAL SAFETY NET SYSTEM -ASPECTS OF THE LEGAL & REGULATORY FRAMEWORK Jamaica Deposit Insurance Corporation 30 Grenada Crescent Kingston 5, Jamaica Tel: (876) : Website: Presenter: Ms. Antoinette McKain Chief Executive Officer

2 THE ROLE OF THE BANKING SECTOR AND THE FINANCIAL SYSTEM SAFETY NETS Financial institutions that accept deposits from the public are important in the economy because they are involved in the payments system, as intermediaries between depositors and borrowers, and they also function as agents for the transmission of the Central Bank s monetary policy. Banks are in the business of taking on and managing risks as they transform liquid deposits into longer-term, less-liquid loans and investments. In doing this banks are vulnerable to liquidity and solvency problems, among other risks. They also lend to a wide variety of borrowers whose risk characteristics are not always readily apparent. As banks are so important to the economy with the potential for depositors to suffer losses when banks fail, and the need to mitigate contagion risk, lead countries to establish financial safety net systems. The financial system safety net embraces bank financial institution licensing, prudential regulation and supervision and the provision of lender of last resort facilities and compensation schemes for depositors and other purchasers and users of financial services. 1

3 THE ROLE OF THE BANKING SECTOR AND THE FINANCIAL SYSTEM SAFETY NETS Cont d. In accordance with international best practices as it relates to financial system safety, deposit insurance is considered as part of the financial system safety net. The financial system safety net institutions includes therefore the Central Government body responsible for the country s financial system, the Central Bank, financial institution supervisory organizations and guarantee schemes. 2

4 JAMAICAN FINANCIAL SYSTEM SAFETY NET DIAGRAM MINISTRY OF FINANCE & THE PUBLIC SERVICE [Minister of Finance and the Pubic Service] - Responsible for policy, licensing and regulation of deposit taking institutions (DTI s) under Banking Act, Finance Institutions Act and Building Societies Act - Intervention action JAMAICA DEPOSIT INSURANCE CORPORATION Deposit Insurance Act (DIA) - Management of DIF - Limited guarantee of deposits in deposit taking institutions (DTI s) - direct supervision limited to the deposit taking institutions banking information systems BANK OF JAMAICA Bank of Jamaica Act - Monetary policy - Banker to banks and Government - Lender of last resort - Regulation and supervision of deposit taking financial institutions (DTI s) - Intervention action by Supervisor of Banks and Financial Institutions FINANCIAL SERVICES COMMISSION Financial Services Commission Act - Regulation of Supervision - Insurance companies, securities dealers, investment companies, pension funds, unit trusts FINANCIAL REGULATORY COUNCIL Financial Secretary, Supervisor of Banks and Financial Institutions, Executive Director of FSC, Chief Executive Officer of JDIC and the Solicitor General 3

5 REGULATION AND SUPERVISION OF DEPOSIT TAKING FINANCIAL INSTITUTIONS (DTI S) MINISTER OF FINANCE AND THE PUBLIC SERVICE Licensing of DTI s and intervention actions BANK OF JAMAICA [Bank of Jamaica Act] Regulation and Supervision of DTI s Commercial Banks [Banking Act] Merchant Banks [Financial Institutions Act] Building Societies [Building Societies Act and Bank of Jamaica (Building Societies) Regulations] Credit Unions (Cooperative Societies Act Bank of Jamaica (Credit Union) Regulations] JAMAICA DEPOSIT INSURANCE CORPORATION [Deposit Insurance Act] Guarantee/deposit insurance for deposits in DTI s 4

6 WHAT IS DEPOSIT INSURANCE? Deposit Insurance is the provision of a guarantee to depositors in banks and other financial institutions that some part of, or all of their deposits will be returned to them if a deposit-taking institution which holds their deposit becomes insolvent and is unable to pay. 5

7 Why Deposit Insurance? Deposit insurance is designed to protect small depositors who are less likely to be in a position to assess the financial risk of a deposit-taking institutions. Internationally deposit insurance generally covers over 90 per cent of depositors and 40 per cent of the dollar value of deposits in the deposit taking system. Deposit insurance helps to build confidence in the financial system as it provides certainty to depositors as to their exposure in bank insolvency. Some countries also have similar schemes to protect persons who are customers of securities business, insurance schemes an pension fund schemes. Internationally, deposit insurance schemes and other guarantees of investment products are generally all referred to as compensation schemes. 6

8 Brief History and Position of Deposit Insurance in the Financial System in the World Economy Explicit deposit insurance is where a prearranged deposit insurance scheme is set up. The oldest system of bank deposit insurance is the U.S. system established in 1934 to prevent extensive bank runs that contributed to the Great Depression. It was after WWII, however, that deposit insurance spread worldwide. In the 1980 s there was an acceleration in the introduction of deposit insurance schemes with most OECD countries and an increasing number of developing countries adopting some form of explicit depositor protection. 7

9 Brief History and Position of Deposit Insurance in the Financial System in the World Economy CONT D. There are over 120 countries in the world with an explicit deposit insurance schemes. Many of these, including the Jamaican scheme were set up after a banking system crisis. Implicit deposit insurance is a blanket Government guarantee where depositors are rescued on an ad hoc basis after a crisis occurs.. 8

10 JAMAICA S DEPOSIT INSURANCE SCHEME INSTITUTIONS UNDER THE SCHEME Jamaica s deposit insurance scheme now only covers those institutions regulated and supervised by our central bank the Bank of Jamaica namely; COMMERCIAL BANKS licensed under the Banking Act; MERCHANT BANKS and trust companies licensed under the Financial Institutions Act and BUILDING SOCIETIES licensed under the Building Societies Act and supervised by the Bank of Jamaica under the Bank of Jamaica, (Building Societies) Regulations. Regulation is now being put in place to allow the Bank of Jamaica to prescribe prudential standards for the regulation of credit unions, which since 1999 have been subject to Bank of Jamaica supervision having been designated by the Minister of Finance as specified financial institutions under the Bank of Jamaica Act. 9

11 Definition of Deposit A deposit is defined in interpretation provisions at s. 2 of respectively the Banking Act, the Financial Institutions Act and the Deposit Insurance Act in the following terms: deposit means (a) A SUM OF MONEY PAID ON TERMS i. UNDER WHICH THE SUM WILL BE REPAID, with or without interest or a premium, and either on demand or at a time or in circumstances agreed by or on behalf of the person making the payment and the person receiving it; and ii. which are not referable to the provision of property or services or to the giving of security, and for the purposes of this paragraph, money is paid on terms which are referable to the provision of property or services or to the giving of security if and only if - 10

12 Definition of Deposit cont d. (A) (B) (C) it is paid by way of advance or part payment for the sale, hire or other provision of property or services of any kind and is repayable only in the event that the property or services of any kind and is repayable only in the event that the property or services is or are not in fact sold, hired or otherwise provided; or it is paid by way of security for payment for the provision of property or services of any kind provided or to be provided by the person by whom or on whose behalf the money is accepted; or it is paid by way of security for the delivery up or return of any property whether in a particular state of repair or otherwise, [in the case of the Deposit Insurance Act the following is added to the definition of deposit] and includes interest payable in respect of the sum of money; (a) (b) a share in a building society, other than a capital share, a deferred share or a preference share such other liabilities as may be determined by the Minister, on the advice of the Board, and for the purposes of this definition the terms capital share and deferred share shall have the meanings assigned to them respectively under the Bank of Jamaica (Building Societies) Regulations,

13 Insured Deposits Within the meaning of the definition of deposits the following products are covered by deposit insurance Savings and Chequing Accounts Certificates of Deposits Money Orders and Drafts Foreign Currency Deposits 12

14 Difference between a Deposit and an Investment A financial investment is one where funds are placed with expectation of gain/return in the future but this is dependent on investment risk. Financial investments include bonds, stocks, securities, mutual funds, loan products and repos. Investments are not covered by deposit insurance. 13

15 Which institutions in Jamaica can lawfully take deposits from the public? Companies licensed under the Banking Act, COMMERCIAL BANKS or Financial Institutions Act, MERCHANT BANKS, BUILDING SOCIETIES licensed under the Building Societies Act and CREDIT UNIONS established under the Cooperative Societies Act with passage of amendments to that Act. 14

16 Pre-Deposit Insurance period in Jamaica - Causes of banking sector problems in 1990 s Rapid growth in the size of the Jamaican financial sector in the 1980 s and 1990 s due to a confluence of factors. These included: - the deregulation of interest rates, - differential reserve requirements across financial institutions - the exemption of withholding taxes on interest income earned on deposits placed in building societies and - weaknesses in the regulatory framework These factors facilitated the establishment of new financial institutions which used the opportunities present for regulatory arbitrage, excessive risk taking and large credit exposures in particular to the real estate sector. 15

17 Banking sector problems cont d. The inflationary environment of the early 1990 s also led to rapid increases in asset prices and earning, whilst masking underlying weakness in the sector. These weaknesses emerged once the monetary authorities adopted an anti-inflationary policy stance in the mid 1990 s. The rapid expansion in the sector placed severe strain on available management expertise. In many cases this led to excessive risk taking, poor management practices with the inability to develop coherent business plans and risk management strategies. There was also poor internal control systems in particular including inadequate credit assessment and monitoring systems and absence of procedures regarding credit limits. Lack of effective corporate governance and inadequate oversight by the institution s Boards of Directors, non-arms length transactions, inadequate capital and contagion effects arising from problems in related companies with excessive intra-group transactions and co-mingling of assets and liabilities. 16

18 Banking sector problems cont d. A large number of financial institutions misunderstood and mismanaged the risks inherent in their balance sheets and this contributed to inordinate risk-taking, excessive leverage and unsustainable financial positions. Policy Response to Problems in the Financial Sector The initial response of the Government was the provision of liquidity support to ailing institutions in the banking and insurance sub-sectors, and a commitment to provide full protection to the savings of depositors, pensioner and policyholders of life insurance companies. These responses were supported by several initiatives to restore the financial system to viability, strengthen the regulatory framework, and restore stability and confidence in deposit-taking institutions. These initiatives were: 17

19 Policy Responses cont d. Banking Sector Problems cont d. The introduction of a series of fast tract legislation to enhance the effectiveness of legislative framework for financial institutions. The establishment of the Financial Sector Adjustment Company (FINSAC) to oversee the restructuring and consolidation of the financial sector; and The introduction of explicit deposit insurance scheme to replace the then implicit arrangement, whereby the protection of depositors was totally discretionary. 18

20 Establishment of the Jamaica Deposit Insurance Corporation The Jamaica Deposit Insurance Corporation (JDIC) was established in August 1998 under the Deposit Insurance Act (DIA). It was established to protect depositors and to help promote stability and confidence in Jamaica s financial sector as part of the country s financial system safety net. 19

21 The Deposit Insurance Act (DIA) Preamble to the DIA An Act to Establish a scheme for the protection of depositors through the establishment and management of the deposit insurance fund and to establish a body to be known as the Jamaica Deposit Insurance Corporation to be charged the responsibility for the management of the scheme and for connected matters. 20

22 The Principal Objects of the JDIC Section 4 of the DIA sets out the principal objects of the Corporation. The principal objects of the Corporation are to establish and manage a scheme for the insurance of deposits or parts thereof against risk of loss. In carrying out these the Corporation must take all such measures as may be necessary to ensure that there is the least possible exposure of the Corporation to loss. 21

23 Financial Institutions Must Apply for Deposit Insurance Subsection 12(1) of the DIA prescribes that financial institutions must apply for deposit insurance. Every financial institution shall apply in writing in the prescribed form and manner to the Corporation for deposit insurance. Once the financial institution receives a policy of deposit insurance from the Corporation it is classified as a policyholder. 22

24 Definition of financial institution under the DIA In section 2, the Interpretation section of the DIA, financial institution is defined in the following manner: financial institution means - (a) a bank licensed under the Banking Act or a financial institution licensed under the Financial Institutions Act (b) (c) a building society licensed under the Building Societies Act or, subject to subsection (3), any other person or undertaking whose business includes the accepting of deposits and who has been declared by the Minister under section 2 of the Bank of Jamaica Act to be a specified financial institution. 23

25 Payment of Premium by Financial Institutions Under section 14 of the DIA financial institutions brought under the Scheme must pay first an initial premium and thereafter an annual premium to the Corporation. This premium is based on the deposit liabilities to which a statutory rate is applied. This rate is now 15 basis points. 24

26 The Insurance of Deposits and Insurable Deposits Section 13 of the DIA mandates the insurance of deposits by the JDIC: The Corporation shall insure the insurable deposits of a depositor with a policyholder on the basis of the provisions set out in this part and section 18. In the Interpretation provision of the DIA an insurable deposit is defined in the following terms: insurable deposit means a deposit received or held by a policyholder from or on behalf of a depositor other than - (a) a deposit from another policyholder; (b) a deposit from a statutory body or authority or government company; 25

27 Deposit Insurance Payments to Depositors Subsection 18(1) of the DIA mandates the payment of deposit insurance to depositors who have an insured deposit in a financial institution up to a maximum of $600,000 in certain prescribed circumstances. These circumstances are that: - the licence of the policyholder to carry on its business has been revoked by the Minister - a winding up order has been made by a court against the policyholder or a resolution for a creditor s voluntary winding up has been passed - the policyholder is unable by reason of a court order or of any action taken by the Minister or the Bank of Jamaica to make any payment in respect of the deposit - the policy of deposit insurance issued to the policyholder has been cancelled subsequent to the making of an insurable deposit. 26

28 Deposit Insurance Payments to Depositors to be made within three months of closure The Corporation considers that effectively these circumstances must result in the inability of the policyholder to pay depositors, in particular in the case of the insolvency of the policyholder. It is contemplated that there can be intervention action by the Minister of Finance & the Public Service and the Supervisor of Banks and Financial Institutions which does not itself require that a deposit insurance payment will be made. Subsection 18(2) of the DIA The Corporation must pay depositors within 3 months of the closure of a policyholder. If it does not pay within this period it is liable to pay interest at a commercial rate on outstanding payments. 27

29 How Deposit Insurance Payments to Depositors applied Different rights and capacities of deposit insurance payments: Subsection 18(5) of the DIA provides that where a depositor holds more than one deposit in a policyholder in different capacities and with different rights in relation thereto each such deposit shall be treated as a separate deposit for the purpose of deposit insurance payment. The subsection also provides that where the depositor holds more than one deposit in a policyholder in the same right and capacity all such deposits shall be treated as a single deposit for the purpose of deposit insurance payment 28

30 Deposit Insurance Payments to Depositors applied cont d. The capacities and rights of deposit account ownership are deemed to coincide with ownership recognized at common law, that is: - individual (personal and corporate), - joint ownership and - ownership created by a trust. This means that where a depositor has in his name, say, two individual accounts in a policyholder that becomes insolvent these two are added together and he will receive only a maximum of $600,000 if the sum or the accounts equals or exceeds that sum. If the depositor has in his name, say, an individual account and a trust account he will be able to receive up to a maximum of $600,000 for each such account, totaling entitlement to $1,200,

31 How Deposit Insurance Payments to Depositors applied cont d. If a depositor has in his name an individual account and in his name and that of another person a joint account he would be entitled to deposit insurance payment in respect of both accounts. In the case of the joint account with another unless records suggest otherwise he would be entitled to half of the deposit insurance in respect of the joint account. 30

32 Depositors who profit from insolvency not entitled to payment Section 20 of the DIA provides that where the Corporation is satisfied that a depositor has been a party to or has benefited from the circumstances which gave rise to the insolvency of a policyholder the Corporation must not make a payment to that depositor. 31

33 JDIC Subrogated to the Depositors Interest up to the Maximum Subsection 18(7) of the DIA Where the Corporation pays out to a depositor it is subrogated to the extent of the amount of that payment to all the rights and interest of the depositor as against the policyholder and can maintain and action in respect of those rights and interest either in the name of the depositor or in its own name. 32

34 JDIC Ranks Pari Passu to Unsecured Creditors Subsection 18(8) of the DIA Where the Corporation pays out depositors it ranks pari passu to other unsecured creditors in the winding up of the insolvent policyholder. 33

35 Depositors have 18 months to Claim Payment Subsection 19(3) of the DIA provides that a depositor has 18 months after the closure of a policyholder to make a claim on the Corporation. After that period the depositor can only make a claim against the assets of the policyholder. 34

36 THE DEPOSIT INSURANCE FUND (DIF) Corollary to its obligation to make payments to depositors, one of the main duties of the Corporation is the establishment and management of a Fund for the purpose of carrying out its obligations under the DIA. Subsection 17(1) prescribes the establishment of a Deposit Insurance Fund (DIF). The Corporation must place the initial and annual premiums that are paid to the Corporation by policyholders into the DIF. Also payable into the DIF are contributions by way of advances which may be made by the Government from time to time, the proceeds of the investment of the Fund, monies borrowed by the Corporation and amounts realized for the liquidation of the assets of policyholders. 35

37 THE INTERRELATIONSHIPS AMONG THE FINANCIAL SAFETY NET INSTITUTIONS Safety net functions are assigned to different organizations within the Jamaican financial system. Issues relating to information sharing allocation of powers and coordination of actions among the different functions require explicit articulation. The deposit insurer s information needs vary significantly according to its mandate and power, but need for close coordination and information sharing is essential in all cases. Information sharing arrangements is mandated through legislation and is also achieved through a memorandum of understanding which establishes a Financial Regulatory Council comprising the safety net institutions. 36

38 THE INTERRELATIONSHIPS AMONG THE FINANCIAL SAFETY NET INSTITUTIONS cont d. Information Sharing between JDIC and Bank of Jamaica Under section 7 of the DIA the JDIC can, on its request receive from the Bank of Jamaica copies of the Bank s on-site examination reports on policyholders and all material information relating to the safety and soundness of policyholders. Similarly the Corporation must make available to the Bank information which the Bank can use to enhance the development of sound financial practice in Jamaica. 37

39 Information sharing through the Financial Regulatory Council (FRC) What would be clear from the respective legislation relating to policyholder intervention is that the Minister of Finance and the Public Service, the Bank of Jamaica/Supervisor of Banks and Financial Institutions and the Jamaica Deposit Insurance Corporation must work in tandem in the case of a DTI (policyholder) intervention. In order to deal with the issue of regulatory arbitrage it was proposed by the Minister in 2000 that there be coordination of the activities of the safety net institutions the Supervisor of Banks and Financial Institutions, the Financial Secretary, the Executive Director of the Financial Services Commission and the Chief Executive Officer of the JDIC signed a Memorandum of Understanding which saw the establishment of the Financial Regulatory Council (FRC) and the work out of a ladder of enforcement in the form of a Guide to Intervention of Financial Institution. 38

40 FINANCIAL INSTITUTION INTERVENTIONS Intervention action can be taken in relation to a DTI by the Minister of Finance & the Public Service under his powers under the Banking Act, the Financial Institutions Act and the Building Societies Act and by the Supervisor of Banks and Financial Institutions Act. Intervention action in a DTI can be taken by either the Supervisor of Banks and Financial Institutions and by the Minister of Finance & the Public Service. Intervention action is distinguishable from regulatory action where the former will be taken when the insolvency of the financial institution is imminent. The Supervisor can, where it believes that a bank is or appears likely to become unable to meet its obligations, or that certain other specified conditions exists, assume temporary management of the policyholder. In assuming temporary management the Supervisor can continue or discontinue the operations of the policyholder and must after sixty days, or such period allowed by the Court, return policyholder to its Board or owners or apply to have the institution wound up. 39

41 FINANCIAL INSTITUTION INTERVENTIONS cont d. The Minister of Finance & Planning can vest the shares and subordinated debt of the policyholder in himself if, after consultation with the Bank of Jamaica and the Financial Secretary, he considers that the entity is no longer viable and viability cannot be restored by any other of his powers or that of the Supervisor and that this is the best course for having the financial institution restructured within a short time. This action is subject to the approval of the Cabinet. He must effect this reconstruction within 180 days or such longer period as the Court will allow. If the reconstruction cannot be completed within the prescribed period or the longer period allowed by the Court, the Minister must apply to wind-up the policyholder. 40

42 JDIC S ROLE IN THE INTERVENTION OF POLICYHOLDERS The JDIC s primary role in the intervention will be the payment of the depositor as described above. The JDIC however has other statutory powers which concern to the intervention of a policyholder. Section 5 provides generally for the Corporation to do anything and enter into any transaction for the purpose of the performance of its functions. In particular however the section allows the Corporation: make recommendations to the Minister for action to be taken in accordance with the Banking Act, the Financial Institutions Act and the Building Societies Act. 41

43 JDIC S ROLE IN INTERVENTION cont d. - act as liquidator or receiver of a policyholder or its holding company which has become insolvent, in accordance with rules to be prescribed. - deduct from payments it is to make to depositors arrears of credit facilities, deposits pledged as collateral, called-in guarantees and unsecured overdrafts due from the depositor to the policyholder under intervention. 42

44 INTERVENTION GUIDE UNDER THE MEMORANUDM OF UNDERSTANDING The Intervention Guide (IG) is designed to ensure that regulatory and/or supervisory gaps do not occur. The IG established the protocol that (i) BOJ is lead supervisor for the parent company of a bank controlled group and (ii) the FSC is the lead regulator for a nonbank financial group controlled by and insurance company or other non-bank financial institution. As part of information sharing arrangement it is expected that procedures for joint on-site examinations of dually licensed regulated entities, and/or close coordination of examination are established to minimize the cost of supervision while ensuring that regulatory gaps do not occur. 43

45 INTERVENTION GUIDE cont d. The ladder of enforcement involves the following stages: - Where there are no foreseen problems routine supervisory and regulatory activities take place under the respective mandates of the BOJ, FSC and the JDIC. All agencies conduct research and analyze industry wide issues and trends, appropriate to their respective functions. Stage 1 Early warning: - Here deficiencies in policies or procedures or the existence of other practices, conditions and circumstances of the financial institution, including conditions requiring remedial action under regulations against unsafe practices outlined in applicable Acts or in Regulations made under those Acts, that could lead to the development of problems identified at Stage 2. 44

46 INTERVENTION GUIDE cont d. At Stage 1 - Inter-agency coordination on requested remedial measures by financial institution to deal with concerns and establishing timeframe for this to take place. BOJ post examination reports to be provided to JDIC, and status of breaches and remedial measures reviewed at regular inter-agency meetings. - The JDIC may request additional information from the BOJ or from the financial institution if it can, to ensure that it can make the best risk assessment and if considered necessary require the BOJ to conduct a special examination. This examination would be to look not only at the deposit liabilities but at the asset situation of the financial institution to determine its potential exposure. 45

47 INTERVENTION GUIDE cont d. Stage 2 - Risk to financial viability or solvency: At this stage situation or problems exist that, although not serious enough to present an immediate threat to financial viability or solvency could deteriorate into serious problems if not addressed promptly. This would be evidenced by factors including difficulty in meeting capital and surplus requirements; deterioration in quality or value of assets or profitability; poor earnings or operating losses or questionable earnings or expenses. 46

48 INTERVENTION GUIDE cont d. At Stage 2 - Inter-agency coordination sees the Bank of Jamaica putting the institution on a watch list and providing monthly watch list reports to the JDIC and FSC and the Minister and discussions held at the FRC. - The JDIC may look at and advise institution which has received notice of its status on the watch list of the potential for and implications of cancellation of the policy 47

49 INTERVENTION GUIDE cont d. Stage 3 - Future financial viability in serious doubt: At this stage situations or problems described at Stage 2 are at a level where, in the absence of mitigating actors such as unfettered access to financial support from a financially strong financial institution s parent, or principal shareholders, unless effective corrective measures are applied promptly, they pose a material threat to future viability or solvency. At this stage inter-agency activities involve Bank of Jamaica notifying JDIC of any material new findings or developments including results from enhanced examinations expanded audits and from enhanced monitoring are discussed with JDIC. BOJ will notify JDIC if DTI is deemed to be or about to become non-viable. Special report provided to RPC and the Minister of Finance & the Public Service. 48

50 INTERVENTION GUIDE cont d Stage 4 - Non-viability/insolvency imminent At this stage there are severe financial difficulties resulting in the conditions requiring remedial action under regulations against unsafe practices outlined in applicable Acts or Regulations made pursuant to those Acts including, failure or imminent failure to meet regulatory capital requirements in conjunction with inability to rectify the situation within a prescribed period of time; or statutory conditions for appointing temporary manager and taking control or revoking or suspending license being met. All intervention measures applied to the regulated financial entities at this stage whether initiated by BOJ, FSC or JDIC are subject to close coordination among the agencies. This might also involve actions to wind up the entity. 49