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Strengthening financial sector regulation through Commonwealth institutional linkages

Strengthening financial sector regulation through Commonwealth institutional linkages

The aim of this project is to strengthen financial sector regulation in the Commonwealth through the provision of assistance to developing countries in implementing global financial sector regulatory standards.

Region: Pan-Commonwealth
Host: Financial Services Authority
Start date: 15/06/2015
End date: 30/06/2016 
Policy area: Economic Policy
Policy expert: Samantha Attridge
Project manager: Joel Burman

Background

The Commonwealth Finance Ministers 2009 Communiqué paragraph 12 stated `Ministers... noted developing member governments’ needs for technical assistance to implement internationally agreed standards ...They urged the Secretariat to give particular consideration to developing linkages between Commonwealth regulators for the benefit of all members’.

In 2009 Commonwealth Finance Ministers tasked the Commonwealth Secretariat to find a means of strengthening the linkages among financial sector regulators in Commonwealth countries. In response to this mandate a detailed survey of members was undertaken by EPD (formerly EAD) which showed that many countries are facing significant capacity challenges in implementing the changing global regulations in finance. Respondents therefore highlighted the need for practical on-the-ground support through the attachment and secondment of experienced practitioners from countries who had successfully implemented these changes. They also highlighted the added potential this could afford to tackling specific policy challenges, as well as for wider support with policy reviews and consultations. Members were of the view that there was significant expertise throughout the Commonwealth and this could be valuable in helping them meet these needs.

This project therefore aimed to establish linkages between Commonwealth Financial Sector Regulatory bodies through an assistance programme coordinated by the Commonwealth Secretariat. These linkages will assist members to meet the challenges of implementing global regulatory standards.

Goal

The goal of this project has been to strengthen financial sector regulation in the Commonwealth through the provision of assistance to developing countries in implementing global financial sector regulatory standards.

This has been supported through the Secretariat’s network of financial sector regulators who shared knowledge and experience and developed the capacity of developing country institutions. Expert inputs and linkages between regulators also provided a valuable resource for member countries to draw on and enhance the international effort to raise regulatory standards. This has also enabled a fuller understanding of the challenges facing developing countries in the implementation of global standards; offered a channel for identifying and helping fill strategic needs; and facilitated input into training and capacity building.

Impact

Financial regulators and central bodes of six (6) small island developing Commonwealth states have received support though this project, leveraging the expertise and experience which exists in the comparable organisations of more developed small Commonwealth states.

Outputs

In Rwanda a review was conducted of on-site examination and off-site analysis systems and procedures and advise on possible improvements that incorporate global regulatory standards. A CFTC expert assisted in and advised on separation process for remaining composite insurers, and provided advice, guidance and practical training to staff in the Financial Stability Directorate on a range of issues. Specific training of NBR staff was provided in: AML/CFT, Market Conduct and Consumer Protection; Insurance Accounting. Finally, a Corporate Governance and Board Oversight Responsibility workshop was conducted.

The Central Bank of Seychelles has benefitted from the development of both on-site and off-site Analysis Manuals for insurance supervisory personnel, accompanying capacity building and recommendations on the enhancement of insurance industry regulation in the Seychelles. In supporting these recommendations, legislative improvements to the Financial Services Commission Bill were also provided.

The Financial Services Commission, Gibraltar, provided support to the International Financial Services Authority, St Vincent and the Grenadines. Outputs achieved are as follows:

  • Trained IFSA staff on international standards, objectives, processes and systems
  • Knowledge sharing linkages established between the FSC, Gibraltar, and IFSA, St Vincent and the Grenadines
  • Two officers from St Vincent and the Grenadines participated in an understudy/attachment to Gibraltar's Financial Services Commission (FSC) where they gained actual practice on supervision and management of practices of financial regulators, including processing of funds and reviewing accounts, and review of applications, returns and risk assessment.
  • Agreed plan of action for future phases

Support to St. Lucia has delivered better supervisory practices for insurance protocols relating to off-site analysis and on-site inspections, supported by a structured training programme and capacity building. The CFTC expert has provided:

  • A comprehensive list of documents that a supervisory employee would expect to see from an insurance company as a prelude to a proper on-site inspection of the company.
  • Advice/guidelines for conducting on-site interviews that include the raising of difficult questions with insurance company management.
  • Providing SLFSRA employees with examples of fair market conduct legislative/policy treatment of policyholders from other jurisdictions.
  • Evaluation of the quality of documents produced by insurance companies.
  • Two sets of EXCEL spreadsheets which capture the essentials of the 18 early warning test ratios introduced by the consultant during the course of the three modules on Financial Analysis.
  • Eleven sets of generic on-site inspection questions that can be raised with the management and other involved parties such as auditors of insurance companies. Several were delivered to the SLFSRA during each of the past four working weeks.
  • On-site inspections and a manual.
  • Review and update of the Insurance Handbook used by the SLFSRA.

The Guernsey Financial Services Commission provided support the both the Cook Islands and St. Kitts and Nevis (Nevis Office), though a total of four visits and follow-up recommendations and support. The following outputs were produced:

Cook Islands

  • Delivery of Gap Analysis in respect of IAIS Insurance Core Principles (ICP) including: Financial Supervisory Commission Act 2003; Insurance Act 2008; Insurance Regulations 2009; Insurance Code 2010; Captive Insurance Act 2013; Captive Insurance Regulations 2013
  • Conducted Training Sessions in areas identified as priority or as current area of weakness
  • Provided assistance with on-site visits to two licensees and teleconferences with another two licensees
  • Delivered a risk based supervision manual in relation to insurance supervision
  • Addressed the Cook Islands Trustee Companies Association on the subject of captive insurance
  • Assisted with preparation for application to move from observer to membership of GIICS

St. Kitts and Nevis

  • Development of a suite of appropriate banking policies and guidelines based on those of the ECCB however updated and increased in scope to accommodate Nevis’ wishes to develop an international banking centre that is broadly in line with current international standards (at least Basel II), and fit-for-purpose in the international financial services context.
  • All policies and guidelines, where appropriate, were also accompanied by regulatory return forms.
  • Staff training on these policies and guidelines delivered. Additionally, delivery of high level training across a range of banking regulatory issues. These include liquidity, risk weighting, large exposures, VAR, risk assessment systems, credit risk controls, outsourcing, corporate governance etc.
  • Development of an Information Note on ‘Making Basel II implementation easier’.
  • Development of a concept note: Supervisory Twinning in the Financial Regulatory Sector.