Financial Sector Assessment Program (FSAP) :The Role of the Regulator International Monetary Fund

The FSAP Framework – Assess financial sector stability and, where relevant, development needs, by the IMF and World Bank, respectively – Joint IMF/World Bank program in LICs and EMs; Fund-only in advanced economies – Stability and developmental assessments may be done together or in separate modules – May optionally include formal assessments of compliance with financial sector standards – Since 2010, stability assessments a mandatory part of IMF surveillance every 5 years for 25 countries with systemically important financial sectors

List of 25 jurisdictions CountryRankCountryRank UK1China11 Germany2Belgium12 United States3Australia13 France4India14 Japan5Ireland15 Italy6Hong Kong SAR16 Netherlands7Brazil17 Spain8Russia18 Canada9Korea19 Switzerland10Austria20 Luxembourg21 Sweden22 Singapore23 Turkey24 Mexico25

Jurisdictions with systemically important financial sectors

Less frequent (6-7 years), voluntary Regular (5 years), voluntary, commitment Regular (5 years), mandatory part of surveillance A risk-based approach to financial surveillance through FSAPs 25 jurisdictions with systemically important financial sectors Other G20/FSB All other members

Content: stability assessment

The FSAP and Financial Sector Standards Assessments Standards assessments usually associated with FSAPs… Standards assessments usually associated with FSAPs… …but FSAPs may or may not include standards assessments …but FSAPs may or may not include standards assessments Even for mandatory FSAPs, standards assessments remain optional Even for mandatory FSAPs, standards assessments remain optional 1-2 assessors, offsite and onsite component 1-2 assessors, offsite and onsite component

FSB “Key Standards for Sound Financial Systems” Financial Regulation and Supervision Macroeconomic Policy and Data Transparency Institutional and Market Infrastructure Banking (BCP) Insurance (IAIS) Securities (IOSCO) Monetary and financial policy transparency (IMF) Fiscal policy transparency (IMF) Data dissemination (IMF) Payments, clearing & settlement (CPSS/IOSCO) Crisis resolution & deposit insurance (BCBS/IADI) Market integrity (FATF) Corporate governance (OECD) Accounting & auditing (IASB/IAASB) Insolvency & Creditor Rights (World Bank/UN) The FSAP and financial sector standards: what’s covered?

Process and Timeline 4-6 months3-4 months1 -2 months Mission1 month2-3 months3-4 months Mission dates set; official mission counterpart determined Discussions on precise scope of mission Scope set; questionnaire sent to authorities; stress testing approaches discussed and work shared with the central bank Answers to questionnaire sent to mission team Proposed schedule of meetings sent to authorities 5-12 Fund (and Bank) staff and consultants for ≈2 weeks; ROSCs may be done on separate mission; Aide-Mémoire/DARs Authorities send comments to Aide-Mémoire/DARs Technical Notes/background notes sent to authorities Aide-Mémoire, DARs, Technical Notes reviewed at headquarters and finalized Board documents (FSSA, ROSCs) prepared

Outputs and disclosure requirements – Aide-Mémoire prepared onsite:confidential – Technical Notes, Detailed Assessment Reports on standards compliance: may be published – IMF: Financial Sector Stability Assessment (FSSA) and Reports on Observance of Standards and Codes (ROSC) circulated to Executive Board: publication is presumed

IOSCO Core Principles (%) Note: Only includes ratings from 2000 IOSCO Methodology. Principles Relating to the Regulator Principles of Self-Regulation Principles for the Enforcement of Securities Regulation Principles for Cooperation in Regulation Principles for Issuers Principles for Collective Investment Schemes Principles for Market Intermediaries Principles for the Secondary Market

IOSCO Core Principles (%) Note: Only includes ratings from 2000 IOSCO Methodology. Ratings for the United States and Canada are excluded from the aggregated WHD ratings. Principles Relating to the Regulator Principles of Self-Regulation Principles for the Enforcement of Securities Regulation Principles for Cooperation in Regulation Principles for Issuers Principles for Collective Investment Schemes Principles for Market Intermediaries Principles for the Secondary Market

IOSCO Core Principles (%) Note: Only includes ratings from 2000 IOSCO Methodology.

IOSCO Core Principles (%) Note: Only includes ratings from 2000 IOSCO Methodology. Ratings for the United States and Canada are excluded from the aggregated WHD ratings.

Role of the Regulator

Preparing for the Assessment Appoint a primary contact person for the mission Serves as a general liaison between authorities and assessors Ensures the information and materials requested by the assessors provided within the agreed timelines-- before, during and after the mission, and… Arranges meetings between assessors and the supervisory authorities, regulated entities and other stakeholders

Preparing for the Assessment Preparing the self assessment and data questionnaire—relevant material will be provided by the mission, including The standards assessment methodology A template for the self- assessment A questionnaire and data template prepared by the assessors Request for laws, regulations, and guidelines Authorities are requested to provide the information at least 4 weeks prior to the start of the assessment mission

Preparing for the Assessment Arranging meetings with authorities and stakeholders, including Authorities should prepare a tentative agenda which includes contact information for key counterparts for the meetings Assessors should be able to meet with stakeholders without representatives from the authorities Authorities are requested to provide a meeting schedule at least 1 week prior to the start of the assessment mission

The Standards Assessment Meeting of the assessors with the chairman and senior staff of the regulatory authority Followed by a meeting of the assessors with the contact person on administrative arrangement Mission meetings between assessors and supervisory staff …legislation, markets, data, regulations Wrap-up meeting with a summary of key findings and feedback from the authorities

Contents of Detailed Assessment Report a general section providing background information and the methodology used; an overview of institutional setting and market infrastructure; a review of the preconditions for effective supervision a concise overview of the main findings of the assessment; a detailed Principle-by-Principle assessment, describing the supervisory framework that deals with the relevant Principle, as well as providing substantive comments on the observance of the Principle and a substantiated grade; a compliance table summarizing the results of the assessment, Principle by Principle; a table of recommended actions geared towards improving the regulatory and supervisory framework and practices; and the authorities’ response to the assessment. The DAR for a financial sector standards assessment consists of the following parts:

Post Mission A final version of the DAR including an official response from the authorities….. … And the authorities and assessors should be willing “to agree to disagree” A revised DAR is prepared and provided to the authorities for further comments and request for information An interim draft assessment is prepared, also subject to peer review F ollowed by the peer review process Review process ensures that comments from the authorities and reviewers are addressed by assessors The DAR is reviewed by the authorities

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