## 1ttoea2020001 — EXECUTIVE SUMMARY (Trinidad and Tobago FSAP)

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### MACROFINANCIAL CONTEXT
- FSAP work was mostly conducted prior to the COVID-19 crisis; findings and recommendations for strengthening policy and institutional frameworks remain pertinent.
- Growth projections and oil price assumptions were significantly revised downward due to COVID-19; quantitative risk analysis on bank solvency was complemented with illustrative COVID-19 scenarios.
- At the eve of COVID-19:
  - Financial system assets were nearly twice GDP.
  - Banking system was well capitalized and liquid; general insurance sector recovered from climate-related claims.
  - Trinidad and Tobago was removed from the FATF list of jurisdictions under increased monitoring following progress on AML/CFT.
- Authorities’ initial responses to COVID-19:
  - Fiscal support measures totaling about TT$3.7 billion (2.3 percent of GDP).
  - Estimated total revenue shortfall around TT$9 billion (6 percent of GDP).
  - CBTT lowered policy rate by 150 bps to 3.5 percent.
  - Reserve requirement on commercial bank deposits lowered by 300 bps to 14 percent.
  - Temporary (three months) relaxation of regulatory treatment of restructured bank loans.

### FINANCIAL SYSTEM STRUCTURE
- System characteristics:
  - Financial conglomerates and SIFIs: six bank-led and two insurance-led groups account for about half of financial sector assets.
  - Authorities designated 11 SIFIs: 4 bank groups, 2 insurance groups, and 5 statutory corporations.
  - Two largest bank groups are majority government owned.
- Banks:
  - On the eve of COVID-19, capital adequacy and return on equity were above 20 percent.
  - Nonperforming loans (NPLs) were low, but retail refinancing and debt consolidation loans had risen.
- Insurers:
  - One insurer is the second largest in the region.
  - The 2009 failure of CLICO caused a domestic fiscal outlay of 17 percentage points of GDP.
  - Excluding CLICO, life insurance strong capital base; general insurers resilient to recent climate-event-related claims.
- Investment managers:
  - Largest issuer is state-sponsored; other major issuers form part of bank and insurance conglomerates.
- Credit unions:
  - Assets are only 9 percent of GDP but membership is high.
  - Sector lacks adequate regulatory and supervisory framework and reporting is weak.

### RISK ASSESSMENT — FINANCIAL SECTOR VULNERABILITIES
- Key vulnerabilities on the eve of COVID-19:
  - Energy dependence and regional integration increase exposure to energy and regional shocks.
  - Household debt increased by almost 12 percentage points of GDP since 2010.
  - Public sector absorbs roughly one-third of all domestic financial sector exposures; sovereign exposure accounts for a sizeable share of financial institutions’ assets.
  - Domestic financial investment opportunities limited; outward investments constrained by explicit limits and FX shortages.
  - About 60 percent of investment funds by AUM are at fixed prices; investors expect preservation of capital and instant access.
    - If underlying fund value falls below fixed price, funds could become depleted rapidly and propagate liquidity stress across financial conglomerates.
- Contagion and group risks:
  - Liquidity risks could arise through group structures.
  - Investment fund stress could propagate from fund issuers to banks within the same group.

### BANK SOLVENCY AND LIQUIDITY — COVID-19 ILLUSTRATIVE SCENARIOS
- Stress testing approach:
  - Illustrative stress tests run to quantify possible impact on bank solvency under adverse COVID-19 economic scenarios.
  - Scenarios carry a substantial degree of uncertainty given the unprecedented pandemic.
- COVID-19 solvency scenarios and outcomes:
  - Three illustrative stress scenarios assessed: COVID-19 central scenario; COVID-19 downside scenario; one pre-COVID-19 adverse scenario.
  - COVID-19 central scenario:
    - Incorporates June 2020 WEO assumptions for oil and gas prices and U.S. growth.
    - Envisages a sharp contraction in real GDP of close to 10 percent in 2020, followed by a rebound of 2–2½ percent both in 2021–22.
    - Aggregate capital adequacy ratio (CAR) for banks drops by 8 percentage points; no bank would fail the 8 percent minimum CAR under this scenario.
  - COVID-19 downside scenario:
    - Reflects a more prolonged recession with the economy contracting by 7.2 percent in 2021 before mildly recovering in 2022.
    - Implies a cumulative decline in real GDP relative to the October 2019 WEO projections equivalent to 2.2 standard deviations over two years.
    - Aggregate CAR for banks drops by 12 percentage points; under this scenario in 2022 three banks (two large and one small) would go below the minimum CAR; combined recapitalization needs equivalent to 1.6 percent of GDP.
  - Pre-COVID-19 adverse scenario:
    - Produced a V-shaped recession with a cumulative real GDP decline relative to October 2019 WEO baseline equivalent to 1.5 historical standard deviations.
    - No bank would breach the minimum CAR of 8 percent in the adverse scenario; one large bank fell below 10 percent and a smaller bank came close.
- Liquidity stress tests:
  - Cashflows-based liquidity stress test with run-off rates applied by liability maturity bucket (e.g., up 68 percent for time deposits); cash and shorter-term securities included in counterbalancing capacity; haircuts applied to longer-term securities.
  - Results:
    - Banks generally resilient with sufficient counterbalancing capacity to meet severe aggregate deposit outflows.
    - A large bank failed in the shortest maturity bucket, but only by a small share of its total deposits.
    - FX liquidity buffers at three banks insufficient to meet FX deposit outflows at maturities up to one year.
    - Total FX liquidity gaps small at system-wide level, amounting to 1 percent of FX deposits.
  - Recommendation: CBTT should implement cashflow-based liquidity stress tests in domestic and foreign currency.

### INSURANCE, INVESTMENT FUNDS, AND CONGLOMERATES
- Insurance stress tests:
  - Two top-down solvency tests: shocks to interest rates/market prices/credit risks; and reinsurance costs with simulated natural disaster shocks (catastrophe scenario).
  - Coverage: seven largest insurers representing 75 percent of the market.
  - Findings:
    - Under market shocks most insurers robust except an entity in liquidation; asset-liability duration mismatches noted.
    - Catastrophe scenario (three consecutive natural shocks within the region) consumed 30 percent of available regulatory capital; one general insurer failed.
    - Insurers are potentially vulnerable to a series of severe natural catastrophes.
- Investment fund stress tests:
  - Two adverse scenarios: 40 percent redemptions with market shocks; and 50 percent redemptions from sudden loss of confidence.
  - Assumption: domestic market illiquidity; buyer assumed to be the bank in the group applying a haircut.
  - Coverage: five fund managers representing 90 percent of total investment fund AUM.
  - Results: both tests showed very sizeable calls on liquidity from the banking sector; overlay with bank liquidity tests showed additional foreign and domestic banks failing under severe assumptions.
  - Recommendation: authorities should periodically undertake conglomerate stress testing.

### FINANCIAL SECTOR OVERSIGHT FRAMEWORK — GAPS AND PRIORITIES
- Progress since 2010 FSAP:
  - CBTT adopted consolidated supervision guidance internally.
  - Prudential reporting expanded with additional regulatory data collection.
  - New insurance legislative and strengthened supervisory regime expected to come into effect shortly.
  - CBTT implemented quarterly stress tests on eight commercial banks; solvency tests use single and multi-factor shocks; liquidity tests measure survival days in local and foreign currency.
  - Basel II/III Financial Institutions (Capital Adequacy) Regulations promulgated, introducing Pillar 2, leverage ratio, and capital conservation buffer.
- Remaining weaknesses and recommended reforms:
  - Financial sector legislation and regulation have not kept pace with international best practice.
  - Supervisors operate with guidelines instead of binding powers; supervisory independence and resources need strengthening.
  - Assign CBTT an explicit macroprudential mandate and powers; amend Central Bank Act to provide explicit macroprudential authority and tools and limits on loan-to-value and debt service-to-income ratios.
  - Strengthen framework for designating and supervising SIFIs; assign commensurate supervisory powers and implement capital surcharge buffers (Financial Institutions (Capital Adequacy) Regulations, 2020 introduced an additional charge for systemic banks, planned to be effective in January 2022).
  - Dedicated legal framework for independent prudential regulation and supervision of credit unions is urgently required; CBTT is best placed to assume this role or any new agency must be operationally independent with adequate resources.
  - Improve group-level supervision: implement consolidated risk assessment methodology with cross-sector views of material entities; agree and communicate group-level prudential requirements.
  - Adopt liquidity regulations (LCR and NSFR planned), require Board-approved funding strategies, contingency liquidity arrangements, and stress testing.
  - Enhance guidance on market, credit, liquidity, IRRBB, FX, cyber, AML/CFT, and climate risks; augment supervisory staff with technical expertise.
  - Address significant data gaps needed for financial stability analysis; implement flat-file bank returns and establish access to credit bureau or a credit registry.

### FINANCIAL SAFETY NET AND RESOLUTION
- Key recommendations:
  - Upgrade resolution framework to align with best international practice; establish tools and powers to preserve financial stability without exposing taxpayers to risk.
  - Amend legislation, establish a resolution unit at CBTT, and initiate resolution planning.
  - Strengthen emergency liquidity assistance (ELA), deposit insurance, and resolution funding.
  - CBTT’s ELA framework should be enhanced:
    - CBTT should have legal authority to accept a wider range of collateral (including loans) for ELA without relying on special emergency powers.
    - Provision of ELA should be available to any financial institution that could prove systemic upon failure; access at CBTT’s discretion for borrowers deemed solvent and viable on a forward-looking basis, against adequate collateral.
    - If CBTT provides liquidity where there is uncertainty it should be indemnified for potential loss by the MoF; solvency support should only be available from the government.
    - Any unrecovered public support should be recouped from levies on the financial sector.
  - Strengthen the deposit insurance scheme by:
    - setting a statutory target for initiation of payouts in seven days;
    - enabling the deposit insurance fund to fund resolution of a member on a least-cost basis;
    - establishing a stand-by credit-line from the government.
  - Establish a cross-agency coordinating body chaired by CBTT comprising MoF, CBTT, TTSEC, credit union supervisor, and DIC for regular information exchange and crisis coordination.

### FINANCIAL DEVELOPMENT, DIGITAL SERVICES, AND CLIMATE RISK
- State’s role and DFIs:
  - Public sector absorbs roughly one-third of domestic financial sector funds.
  - State-owned DFIs are hampered by small size, unreliable funding, high NPLs, and overlapping mandates.
  - Recommendation: merge DFIs with overlapping mandates into larger and financially stronger entities; consolidation to be part of a comprehensive financial sector development strategy developed by a high-level committee.
  - Enhance investment options for households by publicly listing shares of viable state-owned enterprises and allocating a substantial fraction to retail investors.
- Digital Financial Services:
  - Use of digital financial services is low; drivers include lack of innovative players, high fees, lack of inter-operability, paper-based government payments, and low financial literacy.
  - Needed actions: enact the comprehensive national payments law and approve CBTT’s proposed E-Money Policy to allow new entrants (e.g., telecom and payment services providers) and enhance financial inclusion.
- Climate and environmental risks:
  - Financial sector vulnerable to physical and transition risks.
  - Climate risks identified: rising sea levels, intensification of hurricanes, more volatile weather.
  - As largest natural gas and oil producer in the region, the financial sector is indirectly exposed to significant transition risks.
  - Recommendations:
    - Conduct a comprehensive environmental risk assessment for the financial sector.
    - CBTT should ensure board-level commitment and integrate material aspects of climate change and environmental risks into supervisory approach and guidance.
    - Develop a comprehensive green finance strategy to deepen financial markets for green growth and resilience and align financial sector policies with climate objectives, including commitments under the Paris Agreement.

### FSAP KEY RECOMMENDATIONS (HIGHLIGHTS)
- Immediate (I), Near-term (NT: 1–3 years), Medium-term (MT: 3–5 years) priorities:
  - Financial Sector Oversight:
    - Undertake scenario solvency and cashflow-based liquidity stress tests for banks and conglomerate stress tests. (CBTT, TTSEC — NT)
    - Strengthen independence, governance, and resources of financial supervisors; assign powers to issue regulation. (MoF, CBTT, TTSEC — NT)
  - Banks:
    - Implement the new Basel II/III banking regulations; update supervisory guidance and conduct more in-depth analysis in key risk areas. (MoF, CBTT — NT)
  - Insurers:
    - Implement modern insurance legislation and risk-based supervision. (MoF, CBTT — I)
  - Investment Funds:
    - Introduce regulation for investment funds; require industry-wide compliance; implement carefully sequenced industry-wide transition to floating funds. (MoF, TTSEC, CBTT — NT/MT)
  - Credit Unions:
    - Adopt new legislation and regulation for supervision and assign to a fully independent supervisor with sufficient powers and resources. (MoF — NT)
  - Financial Markets Infrastructure:
    - Enact a comprehensive National Payments Law. (MoF, CBTT — MT)
  - Financial Conglomerates:
    - Implement consolidated risk assessment methodology with cross-sector views of material entities. (CBTT, TTSEC — NT)
  - SIFIs:
    - Revise deemed SIFI list using best practice; assign commensurate supervisory powers; implement buffers. (MoF, CBTT — NT)
  - Market Integrity:
    - Continue to strengthen AML/CFT framework and address remaining FATF recommendations. (Authorities — I)
  - System-wide Oversight and Macroprudential Policy:
    - Strengthen financial sector data; assign macroprudential powers to CBTT; implement prudential policies to limit sovereign exposures. (Authorities — NT)
  - Financial Safety Net:
    - Amend legislation to align resolution regime with best practice; establish resolution unit at CBTT; initiate resolution planning; strengthen ELA, deposit insurance, and resolution funding. (MoF, CBTT, DIC — NT)
  - Financial Development and Climate Risk:
    - Develop a financial sector development policy covering DFI mandates and state-owned commercial banks. (MoF — MT)
    - Undertake a comprehensive environmental risk assessment and develop a green finance strategy. (MoF — MT)

### DATA GAPS AND RECOMMENDATIONS FOR FINANCIAL STABILITY ANALYSIS
- Data gaps identified:
  - No credit registry; supervisors do not have access to private credit bureau data.
  - Inadequate corporate balance sheet coverage and limited household income data.
  - Regulatory non-compliance by some credit unions; fines fixed in nominal 1971 terms.
  - Macroprudential indicators (loan to value and debt service to income ratios) are currently unavailable.
- Recommended data actions:
  - CBTT to collect granular bank-level data including liquidity positions in domestic currency and FX (weekly or bi-weekly), retail deposit breakdowns, secured/unsecured interbank exposures (quarterly), market risk exposures, and multidimensional NPL data.
  - Implement flat-file data bank returns to enable multidimensional analysis (by economic activity, product, institutional borrower, residence, currency).
  - Enhance insurer data (asset durations, liability breakdowns, reinsurance contracts, probable maximum losses).
  - Require credit unions to report detailed financial data under a new regulatory regime.
  - TTSEC to strengthen macroprudential reporting for investment funds and provide greater granularity on interconnections and asset durations.
  - Collect property price information to construct real estate price indices.

### SELECTED INDICATORS AND FINANCIAL SOUNDNESS METRICS (HIGHLIGHTS)
- System-level and economy indicators:
  - GDP per capita (U.S. dollars, 2018): 17,528
  - Population (millions, 2018): 1.36
  - Adult literacy rate (2010): 99
  - Unemployment rate (H1 2018): 3.8
  - Life expectancy at birth (years, 2018): 73.4
- Real GDP (annual percentage change): 2014 -0.9, 2015 1.8, 2016 -6.3, 2017 -2.3, 2018 -0.2, 2019 0.0, 2020 1.5
- Central government overall balance (percent of fiscal year GDP): 2014 -4.6, 2015 -7.9, 2016 -12.0, 2017 -11.1, 2018 -5.4, 2019 -5.0, 2020 -4.9
- Central government debt (percent of GDP): 2014 23.5, 2015 27.2, 2016 37.1, 2017 42.4, 2018 43.2, 2019 46.9, 2020 49.3
- Gross NFPS debt (percent of GDP): 2014 39.8, 2015 46.6, 2016 57.8, 2017 61.7, 2018 62.9, 2019 67.7, 2020 70.8
- Heritage and Stabilization Fund assets (percent of GDP): 2014 20.0, 2015 22.2, 2016 25.0, 2017 25.8, 2018 25.4, 2019 25.7, 2020 26.0
- Gross official reserves (in US$ million): 2014 11,493, 2015 9,927, 2016 9,466, 2017 8,370, 2018 7,575, 2019 6,614, 2020 5,747
- Reserves in months of goods and NFS imports: 2014 13.2, 2015 12.1, 2016 11.9, 2017 11.1, 2018 11.0, 2019 9.5, 2020 8.1
- Banking sector FSIs (selected):
  - Regulatory capital to risk-weighted assets: 2014 22.5, 2015 22.1, 2016 21.9, 2017 21.0, 2018 20.9, 2019 21.9
  - Non-performing loans to total gross loans: 2014 4.1, 2015 3.4, 2016 3.1, 2017 2.9, 2018 3.0, 2019 3.0
  - Return on assets (ROA): 2014 1.8, 2015 2.6, 2016 2.7, 2017 2.5, 2018 2.7, 2019 4.0
  - Return on equity (ROE): 2014 13.4, 2015 18.4, 2016 20.9, 2017 18.8, 2018 21.0, 2019 32.3
  - Liquid assets to total assets: 2014 25.9, 2015 24.4, 2016 22.6, 2017 20.3, 2018 19.6, 2019 19.0

### FSAP RISK ASSESSMENT MATRIX — PRINCIPAL RISKS (SELECTED)
- Large swings in energy prices:
  - Overall level of concern: High
  - Relative likelihood: High
  - Expected impact if materialized: High
- Prolonged COVID-19 outbreak, contagion from a major global/regional downturn, sovereign crisis, or natural disaster:
  - Overall level of concern: High
  - Relative likelihood: High
  - Expected impact if materialized: Medium/High
- Domestic confidence shock:
  - Overall level of concern: Medium
  - Relative likelihood: Medium
  - Expected impact if materialized: High
- Sharp rise in risk premia:
  - Overall level of concern: High/Medium
  - Relative likelihood: Medium
  - Expected impact if materialized: Medium

### IMPLEMENTATION STATUS AND AUTHORITIES’ RESPONSE
- Authorities’ recent actions and views:
  - In May, the Financial Institutions (Capital Adequacy) Regulations 2020 were given legal effect, allowing CBTT to implement new Basel II and Basel III capital requirements.
  - CBTT released its 2019 Financial Stability Report in July 2020 highlighting resilience of the domestic financial system while noting vulnerabilities.
  - Authorities acknowledge contagion risk between investment funds and banks and concur with careful sequencing for transition to floating NAVs.
  - Trinidad and Tobago was removed from the FATF “grey” list in February 2020.
- Authorities plan to:
  - Continue implementation of Basel II/III and other supervisory improvements.
  - Finalize insurance legislation proclamation and further strengthen supervisory capacity.
  - Improve data collection and gradually move toward flat-file returns.

*Source: 1ttoea2020001 — EXECUTIVE SUMMARY and chapter excerpts, IMF.*

### EXECUTIVE SUMMARY __________________________________________________________________________________ 6

### EXECUTIVE SUMMARY

### MACROFINANCIAL CONTEXT
- FSAP work was mostly conducted prior to the COVID-19 crisis; findings and recommendations for strengthening policy and institutional frameworks remain pertinent.
- Growth projections and oil price assumptions were significantly revised downward due to COVID-19; quantitative risk analysis on bank solvency was complemented with illustrative COVID-19 scenarios.
- At the eve of COVID-19:
  - Financial system assets were nearly twice GDP.
  - Banking system was well capitalized and liquid; general insurance sector recovered from climate-related claims.
  - Trinidad and Tobago was removed from the FATF list of jurisdictions under increased monitoring following progress on AML/CFT.
- Authorities’ initial responses to COVID-19 (Box 1):
  - Fiscal support measures totaling about TT$3.7 billion (2.3 percent of GDP).
  - Estimated total revenue shortfall around TT$9 billion (6 percent of GDP).
  - CBTT lowered policy rate by 150 bps to 3.5 percent.
  - Reserve requirement on commercial bank deposits lowered by 300 bps to 14 percent.
  - Temporary (three months) relaxation of regulatory treatment of restructured bank loans.

### FINANCIAL SYSTEM STRUCTURE
- System characteristics:
  - Financial conglomerates and SIFIs: six bank-led and two insurance-led groups account for about half of financial sector assets.
  - Authorities designated 11 SIFIs: 4 bank groups, 2 insurance groups, and 5 statutory corporations.
  - Two largest bank groups are majority government owned.
- Banks:
  - On the eve of COVID-19, capital adequacy and return on equity were above 20 percent.
  - Nonperforming loans (NPLs) were low, but retail refinancing and debt consolidation loans had risen.
- Insurers:
  - One insurer is the second largest in the region.
  - The 2009 failure of CLICO caused a domestic fiscal outlay of 17 percentage points of GDP.
  - Excluding CLICO, life insurance strong capital base; general insurers resilient to recent climate-event-related claims.
- Investment managers:
  - Largest issuer is state-sponsored; other major issuers form part of bank and insurance conglomerates.
- Credit unions:
  - Assets are only 9 percent of GDP but membership is high.
  - Sector lacks adequate regulatory and supervisory framework and reporting is weak.

### RISK ASSESSMENT — FINANCIAL SECTOR VULNERABILITIES
- Key vulnerabilities on the eve of COVID-19:
  - Energy dependence and integration within the region increase exposure to energy and regional shocks.
  - Household debt increased by almost 12 percentage points of GDP since 2010.
  - Public sector absorbs roughly one-third of all domestic financial sector exposures; sovereign exposure accounts for a sizeable share of financial institutions’ assets.
  - Domestic financial investment opportunities limited; outward investments constrained by explicit limits and FX shortages.
  - About 60 percent of investment funds by AUM are at fixed prices; investors expect preservation of capital and instant access.
    - If underlying fund value falls below fixed price, funds could become depleted rapidly and propagate liquidity stress across financial conglomerates.
- Contagion and group risks:
  - Liquidity risks could arise through group structures.
  - Investment fund stress could propagate from fund issuers to banks within the same group.

### BANK SOLVENCY AND LIQUIDITY — COVID-19 ILLUSTRATIVE SCENARIOS
- Stress testing approach:
  - Illustrative stress tests run to quantify possible impact on bank solvency under adverse COVID-19 economic scenarios.
  - Scenarios carry a substantial degree of uncertainty given the unprecedented pandemic.
- Key stress test findings:
  - Under further strong deterioration of macrofinancial conditions some banks could breach their minimum capital requirements.
  - Liquidity stress could propagate via group structures, notably from fixed-price investment funds to banks.

### FINANCIAL SECTOR OVERSIGHT FRAMEWORK — GAPS AND PRIORITIES
- Progress since 2010 FSAP:
  - CBTT adopted consolidated supervision guidance internally.
  - Prudential reporting expanded with additional regulatory data collection.
  - New insurance legislative and strengthened supervisory regime expected to come into effect shortly.
  - CBTT implemented quarterly stress tests on eight commercial banks; solvency tests use single and multi-factor shocks; liquidity tests measure survival days in local and foreign currency.
  - Basel II/III Financial Institutions (Capital Adequacy) Regulations promulgated, introducing Pillar 2, leverage ratio, and capital conservation buffer.
- Remaining weaknesses:
  - Financial sector legislation and regulation have not kept pace with international best practice.
  - Supervisors operate with guidelines instead of binding powers, limiting authority.
  - Supervisory independence and resources need strengthening; powers to issue regulation independently should be assigned.
  - Dedicated legal framework for independent prudential regulation and supervision of credit unions is urgently required.
  - Framework for designating and supervising SIFIs should be strengthened; assign commensurate supervisory powers and implement capital surcharge buffers.
  - CBTT should be assigned an explicit macroprudential mandate and powers.
  - Significant gaps in data needed for financial stability analysis should be addressed.

### FINANCIAL SAFETY NET
- Key recommendations:
  - Upgrade resolution framework to align with best international practice; establish tools and powers to preserve financial stability without exposing taxpayers to risk.
  - Amend legislation, establish a resolution unit at CBTT, and initiate resolution planning.
  - Strengthen emergency liquidity assistance (ELA), deposit insurance, and resolution funding.
  - CBTT’s ELA framework should be enhanced.

### FINANCIAL DEVELOPMENT AND CLIMATE RISK
- State’s role and DFIs:
  - Public sector absorbs roughly one-third of domestic financial sector funds.
  - Authorities should implement prudential policies encouraging banks to diversify portfolios and limit sovereign exposures.
  - A comprehensive financial sector development policy should outline goals for the state’s role, including for state-owned DFIs.
- Climate and environmental risks:
  - Financial sector vulnerable to physical and transition risks.
  - Authorities’ awareness and capacity need strengthening.
  - Undertake a comprehensive environmental risk assessment for the financial sector.
  - CBTT should ensure board-level commitment and integrate material aspects of climate change and environmental risks into supervisory approach and guidance.
  - Authorities should explore ways to deepen financial markets for green growth and resilience by developing a green finance strategy.

### FSAP KEY RECOMMENDATIONS (HIGHLIGHTS FROM TABLE 1)
- Immediate (I), Near-term (NT: 1–3 years), Medium-term (MT: 3–5 years) priorities:
  - Financial Sector Oversight:
    - Undertake scenario solvency and cashflow-based liquidity stress tests for banks and conglomerate stress tests. (CBTT, TTSEC — NT)
    - Strengthen independence, governance, and resources of financial supervisors; assign powers to issue regulation. (MoF, CBTT, TTSEC — NT)
  - Banks:
    - Implement the new Basel II/III banking regulations; update supervisory guidance and conduct more in-depth analysis in key risk areas. (MoF, CBTT — NT)
  - Insurers:
    - Implement modern insurance legislation and risk-based supervision. (MoF, CBTT — I)
  - Investment Funds:
    - Introduce regulation for investment funds; require industry-wide compliance; implement carefully sequenced industry-wide transition to floating funds. (MoF, TTSEC, CBTT — NT/MT)
  - Credit Unions:
    - Adopt new legislation and regulation for supervision and assign to a fully independent supervisor with sufficient powers and resources. (MoF — NT)
  - Financial Markets Infrastructure:
    - Enact a comprehensive National Payments Law. (MoF, CBTT — MT)
  - Financial Conglomerates:
    - Implement consolidated risk assessment methodology with cross-sector views of material entities. (CBTT, TTSEC — NT)
  - SIFIs:
    - Revise deemed SIFI list using best practice; assign commensurate supervisory powers; implement buffers. (MoF, CBTT — NT)
  - Market Integrity:
    - Continue to strengthen AML/CFT framework and address remaining FATF recommendations. (Authorities — I)
  - System-wide Oversight and Macroprudential Policy:
    - Strengthen financial sector data; assign macroprudential powers to CBTT; implement prudential policies to limit sovereign exposures. (Authorities — NT)
  - Financial Safety Net:
    - Amend legislation to align resolution regime with best practice; establish resolution unit at CBTT; initiate resolution planning; strengthen ELA, deposit insurance, and resolution funding. (MoF, CBTT, DIC — NT)
  - Financial Development and Climate Risk:
    - Develop a financial sector development policy covering DFI mandates and state-owned commercial banks. (MoF — MT)
    - Undertake a comprehensive environmental risk assessment and develop a green finance strategy. (MoF — MT)

*Source: 1ttoea2020001 - EXECUTIVE SUMMARY, IMF (https://www.imf.org/-/media/files/publications/cr/2020/english/1ttoea2020001.pdf).*

### 5.      The financial sector  is also vulnerable to climate and environmental risks. While  Trinidad

### 1ttoea2020001 - 5.      The financial sector  is also vulnerable to climate and environmental risks. While  Trinidad

### Vulnerabilities: climate, environmental, and transition risks
- Trinidad and Tobago faces relatively less direct exposure to hurricanes compared to other economies in the northern Caribbean region, but the insurance sector was hit by recent hurricanes across the region notwithstanding reinsurance arrangements cushioning the financial impact.
- Climate change risks identified:
  - rising sea levels
  - intensification of hurricanes
  - more volatile weather
- These climate-related changes would increase credit, market, operational, and underwriting risks.
- As the largest natural gas and oil producer in the region, the financial sector is indirectly exposed to significant transition risks.

### Banks’ cross-border exposures (Box 2, June 2019)
- Loan book concentration:
  - 95 percent of loans are to domestic corporates and households.
  - Loan geographic breakdown (visual/text combined in source): Trinidad and Tobago 95%, Caricom 3%, Non-Caricom 1%, other 0% (presented in source summary table).
- Investment portfolio and cross-border equity exposures more diversified:
  - Investments: North America 25 percent (primarily U.S. treasury bills 17 percent), followed by Europe and the CARICOM area.
  - Investment in subsidiaries and affiliates mostly in the CARICOM area: Barbados 11 percent and St. Lucia 30 percent.
- Source: FSAP calculations based on data provided by CBTT.

### COVID-19 and system-wide vulnerability
- A prolonged COVID-19 outbreak could impair the financial system through losses in domestic and cross-border holdings or via conglomerate group structures.
- Longer containment and uncertainty could reduce domestic economic activity and, via a protracted global contraction, negatively affect Trinidad and Tobago’s energy production and exports, and domestic investment and consumption.
- The economic downturn could lead to stress in the financial sector through increases in NPLs and/or tightened liquidity conditions.

### Bank solvency stress tests: scenarios and methodology
- Three illustrative stress scenarios assessed bank resilience:
  - two COVID-19 scenarios (COVID-19 central scenario; COVID-19 downside scenario)
  - one pre-COVID-19 adverse scenario
- Scenarios are severe but plausible macroeconomic shocks and do not represent staff’s economic forecasts.
- Common methodology features:
  - Credit losses estimated from cross-country analysis; loan classification and loan loss provisioning adjusted.
  - Credit-loss sensitivities to GDP (Fund staff methodology) applied to obtain bank-by-bank credit losses.
  - Two adjustments to pre-stress positions:
    - Initial provisions adjusted to that in 2009.
    - NPLs and capital ratios adjusted to reflect higher risk in refinancing and debt consolidation loans; NPL stock increased by the total stock of refinancing and consolidation loans and additional provisions applied (using the provisioning rate for sub-standard loans).
  - Consolidated adjustments plus adverse shock raised the aggregate NPL ratio to about 12 percent.

### COVID-19 solvency scenarios: assumptions and outcomes
- COVID-19 central scenario:
  - Incorporates June 2020 WEO assumptions for oil and gas prices and U.S. growth.
  - Envisages a sharp contraction in real GDP of close to 10 percent in 2020, followed by a rebound of 2–2½ percent both in 2021–22.
- COVID-19 downside scenario:
  - Reflects potential further downside risks; a more prolonged recession in 2021 with the economy continuing to contract (by 7.2 percent in 2021) before mildly recovering in 2022.
  - Implies a cumulative decline in real GDP relative to the October 2019 WEO projections equivalent to 2.2 standard deviations over two years.
- Stress test results:
  - Aggregate capital adequacy ratio (CAR) for banks drops by 8 percentage points under the COVID-19 central scenario and by 12 percentage points under the COVID-19 downside scenario.
  - No bank would fail the 8 percent minimum CAR under the COVID-19 central scenario.
  - Under the COVID-19 downside scenario in 2022, three banks (two large and one small) would go below the minimum CAR; combined recapitalization needs equivalent to 1.6 percent of GDP.

### Pre-COVID-19 adverse scenario
- Reflects risks in the RAM prior to the pandemic: significant drop in energy prices, regional contagion, a domestic confidence shock, and sharp rise in risk premia; weaker global growth and natural disasters (including climate risks) operate through similar channels.
- Produced a V-shaped recession with a cumulative real GDP decline relative to October 2019 WEO baseline equivalent to 1.5 historical standard deviations.
- Based on pre-COVID stress tests:
  - No bank would breach the minimum CAR of 8 percent in the adverse scenario.
  - One large bank fell below 10 percent (transition requirement under new Basel II standard) and a smaller bank came close.
  - FSAP recommended CBTT introduce scenario-based solvency stress tests.

### Liquidity stress tests
- Cashflows-based liquidity stress test with run-off rates applied by liability maturity bucket (e.g., up 68 percent for time deposits); cash and shorter-term securities included in counterbalancing capacity; haircuts applied to longer-term securities.
- Results:
  - Banks generally resilient with sufficient counterbalancing capacity to meet severe aggregate deposit outflows.
  - A large bank failed in the shortest maturity bucket, but only by a small share of its total deposits.
  - FX liquidity buffers at three banks insufficient to meet FX deposit outflows at maturities up to one year.
  - Total FX liquidity gaps small at system-wide level, amounting to 1 percent of FX deposits, but significant given limited availability of FX.
- Recommendation: CBTT should implement cashflow-based liquidity stress tests in domestic and foreign currency.

### Insurance sector stress tests
- Two top-down solvency stress tests applied:
  - First test: shocks to interest rates, market prices, and credit risks.
  - Second test: reinsurance costs and simulated natural disaster shocks (catastrophe scenario).
- Coverage: seven largest insurers (two life companies, three general insurers, two composite insurers) representing 75 percent of the market.
- Findings:
  - Largest five insurers tested under the first shock: all but the entity in liquidation proved robust; results highlighted asset and liability duration mismatches.
  - Catastrophe scenario (three consecutive natural shocks within the region) consumed 30 percent of available regulatory capital under the incoming capital regime, and one general insurer failed.
- Implication: insurers are potentially vulnerable to a series of severe natural catastrophes.

### Investment fund stress tests and conglomerate links
- Two adverse scenarios for funds:
  - First: 40 percent redemptions combined with higher interest rates and bond spreads, lower equity prices, and haircuts on asset fire sales.
  - Second: sudden loss of confidence resulting in 50 percent redemptions.
- Assumptions: domestic market illiquidity—market sales of domestic assets not possible under stressed conditions; buyer assumed to be the bank in the group applying a haircut.
- Coverage: five fund managers representing 90 percent of total investment fund AUM.
- Results: both stress tests showed very sizeable calls on liquidity from the banking sector.
- Overlay with bank liquidity stress tests:
  - Assuming ring-fencing of Trinidad and Tobago banks’ deposits in other countries in the region, under the severe scenario two additional foreign banks fail the liquidity test in all currencies and one additional large domestic bank failed the test in FX.
- Recommendation: authorities should periodically undertake conglomerate stress testing.

### Financial sector oversight framework: current structure and gaps
- Supervisory responsibilities:
  - MoF: enactment of laws and regulations for a safe and sound financial system.
  - CBTT: supervise commercial banks, nonbank financial institutions, insurers, pension funds, bureaux de change, and financial market infrastructures.
  - TTSEC: supervise the securities market, investment funds, and broker-dealers.
  - Commissioner for Cooperative Development currently supervises credit unions; a new agency under MoF to assume this responsibility was recently announced.
- Legal and data gaps:
  - Financial Institutions Act (2008) provides CBTT with a financial stability mandate but currently lacks a designated macroprudential framework and powers.
  - Significant data gaps need remedying to enable effective micro- and macroprudential supervision.

### Recommendations: macroprudential policy, SIFI framework, supervision, and regulation
- Macroprudential policy:
  - Amend the Central Bank Act to provide CBTT with explicit macroprudential authority and tools and limits on loan-to-value and debt service-to-income ratios.
  - Amend the law to provide a legal foundation for macroprudential tools and to collect needed data to calibrate them.
  - Implement prudential policies that encourage banks to diversify portfolios away from sovereign exposures (options include a systemic risk buffer based on concentration of exposures or Pillar II supervisory measures).
  - Phase in implementation to avoid procyclicality and disruptions to sovereign debt markets and bank lending capacity.
- SIFI designation and supervision:
  - Strengthen the framework for designating and supervising SIFIs; apply a revised SIFI methodology meeting best international practice.
  - Identification should be accompanied by implementation of the capital surcharge and enhanced supervisory monitoring.
  - Financial Institutions (Capital Adequacy) Regulations, 2020 introduced an additional charge for systemic banks, planned to be effective in January 2022.
- Supervisory powers, independence, and resources:
  - Give financial supervisors powers to issue prudential regulations and take supervisory decisions independently from the MoF.
  - Augment CBTT supervisory staff given the number of institutions supervised.
  - TTSEC to pursue cost-recovery review to develop proposals to increase resources; TTSEC currently has limited budget control and remuneration of professional staff is significantly below market.
- Banking-specific recommendations:
  - Continue transitioning to Basel II/III capital regulations (adopted in May 2020) to strengthen resilience via higher capital requirements, including Pillar II and III requirements, a leverage ratio and a capital conservation buffer.
  - Issue liquidity regulations for a liquidity coverage ratio (planned) and a net stable funding ratio; require Board-approved funding strategies, contingency liquidity arrangements, and stress testing.
  - Develop further guidance and/or in-depth analysis on market, credit, liquidity, interest rate risk in the banking book, FX, cyber, AML/CFT, and climate risks; enhance supervisory data in these areas.
  - Update bank corporate governance guidelines and specify additional requirements for SIFIs (e.g., mandatory Board committees); improve timeliness of communicating examination findings.
  - Conduct in-depth, regular onsite credit reviews at all large banks; update CBTT’s credit risk guidance to reflect international best practices.
- Insurance-specific recommendations:
  - Enact final amendments to the recently passed insurance legislation urgently; improvements include introducing risk-based capital, enhanced reporting, stricter corporate governance and market conduct requirements, and strengthened CBTT enforcement powers.
  - Risk-based supervision will require enhanced technical skills and additional resources at CBTT; supervisor to develop and issue technical guidelines and monitor compliance.

*Source: 1ttoea2020001 - 5. The financial sector is also vulnerable to climate and environmental risks. While Trinidad (IMF FSAP chapter content).*

### introduction of risk-based capital, develop a supervisory review and reporting framework, and adopt

### 1ttoea2020001 - introduction of risk-based capital, develop a supervisory review and reporting framework, and adopt

### Investment funds
- A new regulatory regime for collective investment schemes is being developed with new binding requirements covering:
  - investment restrictions;
  - reporting requirements;
  - segregation and custody of client assets;
  - asset valuation and pricing;
  - fund borrowing; and
  - suspension of redemptions.
- These reforms are critical for addressing the systemic risks posed by this sector and should be brought into force without delay.
- TTSEC should:
  - finalize implementation of the risk-based supervision framework as a matter of urgency; and
  - develop rules on liquidity management.
- The market is dominated by constant NAV funds (those with fixed prices), whose regulation is insufficient to capture risks to investors and to the financial groups that issue them.
- International experience recommends transitioning away from constant NAV funds except for those with highly liquid, low-risk assets unavailable in the domestic market.
- Moving the industry to variable NAV structures:
  - presents legal, operational, and market-impact challenges;
  - is critical to rebalance the sector away from quasi deposit-taking activities into longer-term investments;
  - requires carefully sequenced reforms, including levelling the regulatory playing field by removing statutory exemptions from which a large statutory corporation (which manages nearly half the assets invested in constant NAV funds) currently benefits.

### Financial conglomerates
- Group-level supervision of financial conglomerates needs strengthening given their systemic importance.
- To underpin group-level risk assessments, risk-based supervision needs strengthening at the solo level. (Footnote: Including strengthen analysis of key risk areas for banks and finalizing the implementation of risk-based supervision in insurance and securities sectors.)
- Although CBTT has the power to require a regulated financial holding company structure, CBTT’s group-level risk assessments do not incorporate analysis of all material financial entities (e.g., including insurance and securities firms) in the group.
- CBTT has adopted consolidated supervision guidance internally but has not fully:
  - introduced the necessary prudential requirements; nor
  - implemented the principles underpinning this guidance as it pertains to all sectors.
- CBTT, together with TTSEC, should:
  - agree and communicate group-level prudential requirements together with expectations and consequences of non-compliance; and
  - continue to strengthen the regular sharing of data and views on group entities.

### Credit unions
- Supervision of credit unions requires urgent reform; the current legal framework dates back to 1971 and the supervisor lacks sufficient powers and resources.
- The supervisor has a dual, conflicting mandate for developing all (including nonfinancial) cooperatives.
- Recommendations:
  - Introduce a new dedicated legal framework with an independent authority solely responsible for regulation and supervision, with sufficient powers and resources.
  - CBTT is best placed to meet this role to avoid duplicating scarce supervisory resources; if a new agency is established it must have operational independence, sound governance, adequate resources, and legal protection.
  - The new Board should include professional and operationally independent members and exclude industry representatives to avoid conflicts of interest.
  - Conduct a system-wide diagnostic followed by a clean-up of the sector before introducing sector-wide deposit insurance.

### Financial market infrastructures
- The current legal/regulatory framework for payment systems should be updated.
- While the Central Bank Act grants powers to CBTT for supervision of the payments market and a guideline covers oversight of systemically important payment systems (SIPS), gaps include:
  - lack of detailed onsite and offsite processes and the type of data to be collected, including for cyber resilience measures;
  - the Guideline treats both large value payment systems and retail payment systems as SIPS despite different risk levels.
- A comprehensive National Payments Law (as planned by CBTT) should address these gaps and allow for new types of payment service and infrastructure providers (FinTech).
- Local debit cards should be made usable for online payments.
- Cyber resilience policies and guidelines should be incorporated into the oversight framework, particularly for payment systems operators.

### Market integrity
- In February 2020, the FATF removed Trinidad and Tobago from the list of jurisdictions under increased monitoring, based on progress in implementing its AML/CFT framework.
- The country addressed the seven areas with strategic deficiencies identified in the 2017 action plan.
- FATF considers that the institutional capacity and commitment are in place to continue strengthening the AML/CFT framework.
- Despite financial integrity weaknesses, banks were able to maintain correspondent bank relationships; issues with due diligence and wire transfers were reported but domestic banks largely maintained their U.S. and non-U.S. relationships without significant disruption to cross-border transactions.
- Recommendations:
  - Continue implementing reforms and progress in addressing the remaining FATF recommendations.
  - Enhance internal information technology capacity to support AML/CFT supervision activities with more data analysis.

### Financial safety net
- The resolution regime should be updated to meet best international practice.
- Authorities resolved past financial failures at significant cost and risk (see Box 3). To mitigate such risk, an upgraded resolution regime should:
  - extend scope to cover any other financial institutions systemic at the point of failure;
  - include explicit powers to write-down or extinguish shareholders’ financial rights and impose losses on creditors (and/or convert them into shareholders);
  - require adequate loss-absorbing capacity;
  - replace the potential for a court to reverse resolution actions with ex post review and compensation;
  - limit joint decision-making with the Minister of Finance to resolution cases that entail public funding.
- CBTT should be formally designated as the resolution authority and establish a Resolutions Unit with a clear separation between supervisory and resolution functions.
- Resolution plans should be prepared for at least those institutions that could prove systemic in failure.
- Other financial safety net aspects to strengthen:
  - CBTT should have legal authority, without relying on special emergency powers, to accept a wider range of collateral (including loans and not just securities) in providing ELA.
  - Provision of ELA should be available to any financial institution that could prove systemic upon failure. (Footnote: Potential recipients could include insurers designated as SIFIs, and large credit unions whose disorderly failure could give rise to systemic distress once they are adequately supervised.)
  - Access should be at CBTT’s discretion for borrowers deemed solvent and viable on a forward-looking basis, against adequate collateral.
  - If CBTT provides liquidity where there is uncertainty (e.g., systemic case), it should be indemnified for potential loss by the MoF.
  - Solvency support should only be available from the government, not from CBTT.
  - Any unrecovered public support should be recouped from levies on the financial sector.
  - Strengthen the deposit insurance scheme by:
    - setting a statutory target for initiation of payouts in seven days;
    - enabling the deposit insurance fund to fund resolution of a member on a least-cost basis; and
    - establishing a stand-by credit-line from the government.
  - Establish a cross-agency body (as planned), chaired by CBTT and comprising the MoF, CBTT, TTSEC, the credit union supervisor, and the Deposit Insurance Corporation, to:
    - serve as a forum for regular information exchange and coordination on financial sector policy, regulatory and development issues; and
    - act as the coordinating body in a financial crisis.

- Historical resolution episodes and impacts (selected items from Box 3):
  - 1983-1986: Seven nonbank financial institutions (e.g., finance houses) failed. Two were liquidated, with costs borne by depositors. Five subsequently failed after receiving liquidity support from CBTT. The depositors were compensated up to TT$50,000 by the nascent DIC.
  - 1989–1993: The state injected equity (along with banks and insurance companies) and a state-owned asset management company purchased NPLs from failed Workers Bank. Two under-capitalized state-owned banks were merged with the nationalized Workers Bank, forming First Citizens bank. The authorities injected capital and an asset management company purchased NPLs.
  - 2008–2009: Hindu Credit Union failed; depositors were rescued by the government—deposits below $75,000 were paid in cash, those above in bonds. Failures of Colonial Life Insurance Company (CLICO), British American Insurance Company (BAIC), and CLICO Investment Bank led to policyholders and depositors being rescued and government debt increasing by 17 percentage points of GDP.

### Financial development and climate risk
A. State’s Role in Financial Intermediation
- A comprehensive financial sector development strategy should be developed.
- State-owned DFIs are hampered by small size, unreliable funding, high NPLs, and overlapping mandates.
- Recommendations:
  - Merge DFIs with overlapping mandates into larger and financially stronger entities and harmonize regulation to increase efficiency and development impact.
  - Consolidation should be part of a comprehensive financial sector development strategy developed by a high-level committee including all relevant stakeholders.
  - To enhance investment options for the household sector beyond investment funds and bank deposits, the government should upscale support for capital market development by publicly listing shares of viable state-owned enterprises and allocating a substantial fraction to retail investors.

B. Digital Financial Services
- Use of digital financial services is low; drivers include lack of innovative players, high fees, lack of inter-operability in digital payment systems, paper-based government payments, and low financial literacy.
- Needed actions:
  - Enact the comprehensive national payments law and approve CBTT’s proposed E-Money Policy to address gaps and accommodate FinTech.
  - CBTT completed public consultation of an E-Money Policy which would allow new entrants (for example, telecom and payment services providers), open up the market, create a level playing field, and help financial inclusion.

C. Climate and Environmental Risks
- (Section heading present; substantive content on climate and environmental risks not included in the supplied excerpt.)

*IMF staff summary based on the provided chapter excerpt.*

### 36.      The financial supervisors should strengthen the understanding, management, and

### 36.      The financial supervisors should strengthen the understanding, management, and

### Climate and environmental risks; green finance
- Recommendation: Financial supervisors should strengthen the understanding, management, and disclosure of climate and environmental risks.
- Proposed action: Conduct a comprehensive environmental risk assessment to raise awareness of the impact of climate change and environmental risks on the financial sector.
- Data and monitoring: Improve data collection and monitoring of regional and sectoral exposures to climate and disaster risks.
- Market development: Authorities should help deepen financial markets for green growth and resilience.
- Strategy: Develop a comprehensive green finance strategy to align financial sector policies and incentives with climate objectives, including commitments under the Paris Agreement.
- Rationale: Green finance can help to fund greening of the private sector, ensure and amplify government policy, potentially accelerate a low carbon transition, and help resilience.

### Banking system structure — key findings
- Loans are the main asset classes.
- Banks are primarily deposit funded.
- Liquid funds include material placements abroad, especially from large banks.
- About 40 percent of bank loans are to corporates.
- Banks' FX loans are significantly below FX deposits.

### Bank asset quality — key findings
- Non-performing loans (NPLs) remain below 4 percent.
- Loan loss reserves (LLR) are flat; given low provisioning flow, coverage could be improved at the largest banks.
- Refinanced and consolidated consumer loans have risen.
- Loan growth is faster in FX; FX exposures at some institutions are high.

### Bank profitability and efficiency — key findings
- Efficiency has eroded.
- There has been a recovery in net interest margins.
- Leverage has underpinned returns.
- Selected metric examples (as depicted): Leverage (Times) and ROAA / ROAE (In Percent) trends show reliance on leverage and interest margin recovery to support returns.

### Bank capital — key findings
- System remains well capitalized despite CAR declining.
- Capital is mainly tier 1; the tier 1 leverage ratio has been increasing.

### Bank liquidity — key findings
- Liquidity has declined, especially when compared to total assets.
- Wholesale funding has declined, reflected in lower loan-to-deposit ratios.
- Growth in deposits is relatively low and mostly from residents.
- Liquid assets / total assets and wholesale funding (percent of total liabilities) have trended down.

### Financial sector structure and interconnectedness
- Dominance of regional banks and regional insurance companies is noted (2018 depictions).
- Domestic financial institutions exhibit interconnectedness (percentage of lender’s total assets).
- Commercial banks’ cross-border interconnectedness: cross-border claims and liabilities are mainly with foreign banks and the United States.
- Notes: Data as of June 2019. Arrow thickness in depictions proportional to exposure relative to Trinidad and Tobago GDP.

### Exposures to the public sector
- Banking, insurance, pension, and investment funds have measurable exposures to the central government and SOEs (percent of total sector assets) with series shown for 2010–Jun-19.

### Selected economic indicators — highlights (from Table 2)
- GDP per capita (U.S. dollars, 2018): 17,528
- Population (millions, 2018): 1.36
- Adult literacy rate (2010): 99
- Unemployment rate (H1 2018): 3.8
- Life expectancy at birth (years, 2018): 73.4
- Real GDP (annual percentage change): 2014 -0.9, 2015 1.8, 2016 -6.3, 2017 -2.3, 2018 -0.2, 2019 0.0, 2020 1.5
- Energy (annual percentage change): 2014 -1.9, 2015 -0.8, 2016 -9.8, 2017 0.7, 2018 -3.2, 2019 -0.4, 2020 2.1
- Non-energy (annual percentage change): 2014 1/ -0.3, 2015 3.4, 2016 -4.2, 2017 -3.9, 2018 1.4, 2019 0.3, 2020 1.1
- Central government overall balance (percent of fiscal year GDP): 2014 -4.6, 2015 -7.9, 2016 -12.0, 2017 -11.1, 2018 -5.4, 2019 -5.0, 2020 -4.9
- Non-energy balance (defined): 2014 -21.5, 2015 -20.8, 2016 -18.1, 2017 -17.4, 2018 -13.8, 2019 -15.5, 2020 -14.8
- Budgetary revenue (percent of GDP): 2014 30.5, 2015 28.6, 2016 22.6, 2017 21.6, 2018 25.2, 2019 27.5, 2020 27.5
- Budgetary expenditure (percent of GDP): 2014 35.1, 2015 36.5, 2016 34.6, 2017 32.7, 2018 30.6, 2019 32.5, 2020 32.4
- Central government debt (percent of GDP): 2014 23.5, 2015 27.2, 2016 37.1, 2017 42.4, 2018 43.2, 2019 46.9, 2020 49.3
- Gross NFPS debt (percent of GDP): 2014 39.8, 2015 46.6, 2016 57.8, 2017 61.7, 2018 62.9, 2019 67.7, 2020 70.8
- Heritage and Stabilization Fund assets (percent of GDP): 2014 20.0, 2015 22.2, 2016 25.0, 2017 25.8, 2018 25.4, 2019 25.7, 2020 26.0
- Current account balance (percent of GDP): 2014 13.8, 2015 7.0, 2016 -4.4, 2017 5.5, 2018 5.0, 2019 1.4, 2020 1.9
- External public sector debt (percent of GDP): 2014 8.5, 2015 9.9, 2016 15.7, 2017 16.7, 2018 17.3, 2019 18.9, 2020 20.0
- Gross official reserves (in US$ million): 2014 11,493, 2015 9,927, 2016 9,466, 2017 8,370, 2018 7,575, 2019 6,614, 2020 5,747
- In months of goods and NFS imports: 2014 13.2, 2015 12.1, 2016 11.9, 2017 11.1, 2018 11.0, 2019 9.5, 2020 8.1

### Financial system structure (selected items from Table 3)
- Commercial Banks: number and assets (TTD billion) - examples shown for 2013, 2016, 2018.
- Other Financial Institutions: number 95 (2013), 41 (2016), 1,013 (2018); assets (TTD billion) 160.9 (2013), 174.0 (2016), 175.0 (2018).
- Insurance Companies: number 35 (2013), 35 (2016), 35 (2018); assets (TTD billion) 45.5 (2013), 47.7 (2016), 46.5 (2018).
- Pension Funds assets (TTD billion): 47.6 (2013), 50.4 (2016), 51.4 (2018).
- Total Financial System assets (TTD billion): 286.7 (2013), 312.6 (2016), 315.4 (2018); assets (percent of GDP) 164.2 (2013), 210.3 (2016), 195.7 (2018).
- Memo: GDP (TTD billion) 174.7 (earlier reference), 148.6 (2016), 161.2 (2018).

### Banking sector financial soundness indicators (selected, Table 4)
- Regulatory capital to risk-weighted assets: 2014 22.5, 2015 22.1, 2016 21.9, 2017 21.0, 2018 20.9, 2019 21.9, Q1 2019 21.4
- Regulatory tier 1 capital to risk-weighted assets: 2014 21.8, 2015 22.9, 2016 20.4, 2017 20.4, 2018 20.3, 2019 20.6, Q1 2019 19.3
- Non-performing loans net of provisions to capital: 2014 7.7, 2015 6.7, 2016 7.2, 2017 6.8, 2018 6.2, 2019 5.6, Q1 2019 7.2
- Non-performing loans to total gross loans: 2014 4.1, 2015 3.4, 2016 3.1, 2017 2.9, 2018 3.0, 2019 3.0, Q1 2019 3.3
- Return on assets (ROA): 2014 1.8, 2015 2.6, 2016 2.7, 2017 2.5, 2018 2.7, 2019 4.0, Q1 2019 3.4
- Return on equity (ROE): 2014 13.4, 2015 18.4, 2016 20.9, 2017 18.8, 2018 21.0, 2019 32.3, Q1 2019 26.5
- Liquid assets to total assets (Liquid asset ratio): 2014 25.9, 2015 24.4, 2016 22.6, 2017 20.3, 2018 19.6, 2019 19.0, Q1 2019 20.9
- Net open position in foreign exchange to capital: 2014 3.6, 2015 5.7, 2016 12.2, 2017 15.4, 2018 13.3, 2019 13.7, Q1 2019 10.9

### FSAP Risk Assessment Matrix — principal risks and staff assessment (Table 5)
- Large swings in energy prices.
  - Overall level of concern: High
  - Relative likelihood: High
  - Expected impact if materialized: High
  - Notes: OPEC+ break increases oil supply unpredictability; potential price wars and demand shocks raise oil market uncertainty and volatility; shocks cause large and persistent price swings; lower oil prices harm oil exporters.
- Prolonged COVID-19 outbreak, contagion from a major global and/or regional economic downturn, sovereign crisis, or natural disaster.
  - Overall level of concern: High
  - Relative likelihood: High
  - Expected impact if materialized: Medium/High
  - Notes: Broad impacts could impair the financial system via losses in domestic and cross-border holdings or through conglomerate group structures.
- Domestic confidence shock.
  - Overall level of concern: Medium
  - Relative likelihood: Medium
  - Expected impact if materialized: High
  - Notes: Sudden loss of confidence (e.g., sovereign debt crisis or run on investment funds) could trigger market sell-off, impacting investment funds and banking sector.
- Sharp rise in risk premia that exposes financial vulnerabilities.
  - Overall level of concern: High/Medium
  - Relative likelihood: Medium
  - Expected impact if materialized: Medium
  - Notes: Abrupt reassessment of market fundamentals could trigger risk-off events, significant losses in major financial institutions, debt service and refinancing difficulties, stress on leveraged firms, households, vulnerable sovereigns, and capital outflows.

*Source: IMF staff; content extracted from the provided PDF chapter.*

### Appendix I. Data for Financial Stability Analysis

### Appendix I. Data for Financial Stability Analysis

### Data gaps and diagnostic findings
- The FSAP faced challenges in securing adequate data to thoroughly analyze financial risks.
- Progress noted: the collection and analysis of macro financial data by TTSEC on collective investment schemes.
- Data collection needs to be strengthened in many areas, including banks, insurers, credit unions, investment funds, property, households, and corporates.
- Noted limitation: Information on corporate balance sheets covers few indicators and is limited to listed companies.
- Credit registry situation:
  - Currently, there is no credit registry.
  - Supervisors do not have access to data from the existing private credit bureau (to which lenders provide data on a voluntary basis).
  - Establishing a credit registry may take time; interim options include CBTT accessing existing private credit bureau information within a legal framework ensuring appropriate privacy, or CBTT collecting such data from banks.
- Regulatory compliance issue: Not all credit unions are providing regulatory returns (fines for non-compliance are fixed in nominal 1971 terms).
- Data deficiencies impede important analyses:
  - Inadequate data on loan delinquencies impedes assessment of the true health of the credit union sector.
  - Lack of household income and corporate balance sheet information prevents analysis of debt servicing capacity, including under stress.
  - Macroprudential indicators such as loan to value and debt service to income ratios are needed but currently unavailable.

### Recommendations for banks (CBTT)
- Expand granularity of individual bank-level data to monitor build-up of systemic vulnerabilities.
- CBTT should collect:
  - (i) liquidity positions in domestic currency and FX, including separately categorizing stable and less stable funding sources (weekly or bi-weekly) as well as the term structure of bank’s liquidity profiles;
  - (ii) a more granular breakdown of retail deposits, including the term structure of time deposits;
  - (iii) secured and unsecured interbank asset and liability exposures (quarterly) both domestic and cross-border;
  - (iv) market risk exposures of financial instruments; and;
  - (v) NPL data in more dimensions, including by currency, product, sector (including the public sector even if guaranteed), type of institutional borrower, and residence; and a breakdown for allowance for loan losses by risk category.
- Improve granularity and speed of data collection by implementing flat-file data bank returns (see proposed headings below).
- Adopt a more precise classification of loans and NPLs (e.g., breakdown by type of borrower and by sector should be clearly separable) to strengthen analysis and support environmental analysis.
- CBTT could, in the meantime, access information from the existing private credit bureau within a legal framework that ensures appropriate privacy; alternatively, CBTT could collect such data from banks.
- Additional data on corporate ownership would facilitate monitoring of corporate vulnerabilities.

### Recommendations for insurers, credit unions, investment funds, and property data
- Insurers:
  - Enhance data collected from insurers including asset durations, a breakdown of insurance liabilities, reinsurance contracts and probable maximum losses.
  - Datasets should allow for geographical breakdowns at the local and the group-level.
- Credit unions:
  - A new regulatory and reporting regime is urgently required to address non-compliance and inadequate data on loan delinquencies.
- Investment funds:
  - TTSEC recently strengthened macroprudential reporting.
  - Further granularity on interconnections to banks and asset durations would help strengthen stress testing.
- Property:
  - Collect information on property prices in major cities to calculate real estate price indices for housing and commercial real estate—including sales prices by property type and location.
  - Collect and analyze information on beneficiaries of government-run social programs that facilitate development of the mortgage market to ensure programs fulfill development objectives without jeopardizing stability of the financial system.

### Households and corporates: data needs
- Information on household income and corporate balance sheets is needed to analyze debt servicing capacity, including under stress.
- Macroprudential indicators such as loan to value and debt service to income ratios are needed to inform the design and calibration of macroprudential tools.
- Suggestion: CBTT to obtain credit information either via legal access to the private credit bureau or by collecting data directly from banks.
- Additional corporate ownership data recommended to monitor corporate vulnerabilities.

### Proposed flat-file data bank returns (multidimensional)
- Purpose: develop flat file data returns to collect from banks in a database multidimensional, array form (replacing two-dimensional returns) allowing for separate identification/aggregation/disaggregation of different categories (e.g., NPLs in foreign currency by state owned enterprises).
- Required series to be collected by bank and by date:
  - Loans, NPLs, by Economic Activity:
    - Agriculture
    - Petroleum
    - Manufacturing
    - Construction
    - Distributive Trades
    - Transp., Comm., Storage
    - Finance, Insurance (without real estate)
    - Personal Services
    - Other economic activities (excluding product lines or borrower types, see below)
  - Loans, NPLs, by product:
    - Consumer loans
    - Ow Credit cards
    - Ow Other
    - Mortgages
    - Ow Residential mortgages
    - Ow Corporate
    - Other products
  - Loans, NPLs, by Institutional borrower:
    - Households
    - Government
    - Local Government
    - State-owned enterprises
    - Nonfinancial corporates
    - Other banks
    - Nonbank financial institutions
    - Other institutional borrowers
  - Loans, NPLs, by Residence:
    - Domestic
    - Nonresident
  - Loans, NPLs, by currency:
    - In local currency
    - In FX

- Note on current returns limitation: For example, the current returns for the “real estate’, ‘financial services and real estate’ and ‘consumer’ (which includes mortgages) segments do not enable total real estate loans to be separately identified.

*Appendix I. Data for Financial Stability Analysis.*

### 4. Risks and

### 4. Risks and buffers

### Risks and behavioral assumptions
- Exposure to falls in valuation of investment assets.
- Exposure to sudden increases in client withdrawal.
- Behavioral adjustments: Balance sheets assumed to be static.

### Regulatory and market-based standards and parameters
- Calibration of risk parameters:
  - Test parameters mirror the approach of the bank stress test scenarios for solvency.
  - Client withdrawal in crisis and discount on fire-sale of local assets drawn from supervisor judgement, previous exercises, and from historical information.
- Regulatory/accounting and market-based standards:
  - Funds required to meet client withdrawals measured against available liquid assets to determine any shortfall.
  - Withdrawals assumed to be met from liquid assets in the following order: cash, international market assets; local market assets.

### Reporting format for results
- Output presentation:
  - Capital support: Absolute size of support required.
  - Liquidity:
    - Cash withdrawn from commercial bank accounts.
    - Aggregate amount of local market assets that needed to be sold, amount of cash required from holding companies.

### Implementation status of 2010 FSAP recommendations (key items and timeframes)
- Fully implement consolidated supervision. ST LI
- Issue regulation to strengthen capital requirements and establish liquidity risk management standards. ST PI
- Introduce a procedure for collecting administrative fines imposed by CBTT. ST I
- Increase frequency and timeliness of disclosure of bank-by-bank financial soundness information. ST NA
- Expand prudential reporting to include more detailed regular reports on loan classification and provisioning; connected party exposures that do not qualify as large exposures; liquidity; and interest rate risk in the banking book. ST PI
- Require that CUs report detailed financial data to CBTT. ST NA
- Acquire more specialist skills in CBTT’s bank supervision department, such as operational risk (including IT risk) and anti-money laundering/combating the financing of terrorism (AML/CFT). MT PI
- Put in place guidelines concomitantly with the new Insurance Act to address the inconsistencies of having both statutory funds and risk-based supervision, while establishing investment limits for statutory funds. ST NA
- Find a speedy resolution to the CLICO problem. ST LI
- Implement new rules for valuation of insurance liabilities through CBTT Guidelines for 2010. ST PI
- Implement formulas for risk-based capital through CBTT guidelines as soon as possible. ST PI
- Consider reforms to the motor liability insurance system to improve consumer protection and market conduct. MT PI
- Develop a national financial crisis management plan. ST LI
- Adopt measures to pay deposit insurance promptly. ST NA
- Assess the preconditions, parameters and requirements of providing insurance for CU deposits, before deciding how to proceed. ST NA
- Consider a policyholder protection scheme to guarantee claims under retail-style life and general insurance products in the event of insurer insolvency. ST NA
- Develop a new law or amend laws for financial institution insolvency to provide for efficient resolution. ST NA
- Participate in the implementation of the CGBS plan for regional financial crisis management. MT LI
- Strengthen the supervision of systemically important financial institutions. ST PI
- Continue to improve the capability of CBTT to conduct stress tests of the financial sector. ST PI
- Broaden the regulatory perimeter. ST NA
- Strengthen CBTT’s powers to regulate the financial sector. MT NA
- Analyze whether to adopt measures to contain the impact of the failure of systemically important institutions, including through the use of living wills and contingent capital. MT PI
- Assess the pros and cons of dynamic loan provisioning, before deciding whether to adopt. MT I
- Begin preparations for adoption of Basel III. MT PI
- Timeframe and compliance legend: 1/ ST short term; MT medium term; I implemented; LI largely implemented; PI partially implemented; NA no action.

### Appendix V — Basel Core Principles assessment: overview
- Assessment context:
  - Conducted by IMF and World Bank during the October 30 to November 18, 2019 mission, as part of the 2020 FSAP.
  - Assessment reflects the regulatory and supervisory framework in place as of that date.
  - Methodology: BCBS September 2012 methodology; authorities opted to be assessed and graded on the essential criteria (EC) only.
  - Revised CPs contain 247 separate essential and additional criteria.
- Key methodological points:
  - Assessment adopts a proportionate approach reflecting the sophistication and complexity of the financial system.
  - Emphasis on forward-looking supervision and actual use of supervisory powers through early intervention.

### Preconditions and structural observations
- Economic and financial vulnerabilities:
  - Real GDP contraction of 6.3 percent in 2016.
  - Household debt to GDP increased by about 10 percentage points from 2013 to 2018.
  - As of end-2018, total household debt stood at TT$56 billion, representing roughly 35 percent of GDP.
  - Banking sector accounts for approximately 60 percent of total estimated household debt, with exposures to households at 22.6 percent of total assets (or 160 percent of total capital).
  - Domestic sovereign exposures in the banking, insurance, and pension sectors accounted for 29.4 percent of their combined assets at end-2018.
- Institutional roles and coordination:
  - CBTT plays a significant role in promoting and maintaining financial stability and works closely with the MoF and other domestic regulatory agencies.
  - MoF has primary responsibility for fiscal matters and a significant role in supervisor governance and decision making.
- Legal, accounting, and market infrastructure:
  - Adoption of International Financial Accounting Standards (IFRS9).
  - Credit Bureau of Trinidad and Tobago established in 1985; CBTT neither has access to this credit information nor formally requires banks to make use of it.
  - Some statistical gaps: quarterly GDP data is unavailable.
  - CBTT regulates and supervises the national payments systems and has adopted the Core Principles for Systemically Important Payment Systems.
- Crisis management and resolution:
  - Legislative framework includes CBTT’s special emergency powers for resolving financial institutions in crisis.
  - CBTT is rolling out recovery and resolution planning requirement to all SIFIs.
  - CBTT has drafted a National Crisis Management Plan and contributed to a draft Regional Crisis Management Plan with the CGBS.
- Deposit Insurance Corporation (DIC):
  - DIC fund: TT$3.5 billion as at June 30, 2019.
  - Fund represents about 11 percent of insured deposits and about 3 percent of total domestic deposits.
  - DIC’s charter does not provide authority for independent onsite assessments; DIC relies heavily on information provided by CBTT.
  - Historical government bailouts of creditors of failed financial institutions (including banks, insurers, and a credit union); DIC paid creditors of the failed CLICO investment bank using government funds.
- Emergency liquidity assistance (ELA) risks:
  - CBTT may provide immediate liquidity assistance via repurchase agreements, lending via discount windows or collateralized loans (S. 36 (1) of the CBA).
  - CBTT can provide uncollateralized support to a bank to prevent its failure where there is a threat to the financial system (44D (1)(v) and 44(D)(2) of the CBA), potentially exposing CBTT to undue financial risks.
- Transparency and disclosure:
  - Banks fully implemented IFRS9 effective January 1, 2018.
  - Basel II Pillar 3 disclosure requirements need implementation to improve market transparency.
  - TTSEC requires listed companies to produce quarterly and annual financial statements; banks not listed are required to file annual audited financial statements per S. 80 of the Financial Institutions Act, though most banks place quarterly and annual financial information on their websites.

### Main findings (selected)
- Responsibilities, objectives, powers, independence (CPs 1–2):
  - CBTT’s independence is limited by the extensive role of the MoF in supervisor governance, decision making, and internal organization.
  - FIA allows the MoF to make regulations to set prudential criteria (S. 9) and to intervene in supervisory decision-making (e.g., consultation before approving or refusing a banking license (S. 21)).
  - Central Bank Act enables the MoF to approve CBTT rules for internal administration and management and request information on salary, organizational structure, and vacant positions.
- Licensing, changes in control, and acquisitions (CPs 4–7):
  - Licensing and approval processes are generally sound but require improvements:
    - No prohibition against borrowing required initial capital.
    - Approval threshold of 10 percent for a change in significant ownership needs extension to potential buyers that are not an ‘acquirer’; threshold currently too high at 20 percent for such buyers.
- Supervisory cooperation, consolidated and cross-border supervision (CPs 3, 12, and 13):
  - CBTT should create a formal mechanism to strengthen sharing of SIFI information with domestic agencies pertinent to the financial health of systemic banks to address macroprudential and microprudential issues jointly and timely.

*Source: IMF–World Bank FSAP material (selected excerpts).*

### 18.      Recovery and resolution plans, together with resolvability assessments, need to be

### 1ttoea2020001 - 18.      Recovery and resolution plans, together with resolvability assessments, need to be

### Recovery and resolution planning, resolvability assessments, and crisis preparedness
- Recovery and resolution plans and resolvability assessments need to be conducted and relevant aspects shared with both domestic and foreign regulators.
- Finalize the draft National Crisis Management Plan and the draft Regional Crisis Management Plan.
- Develop internal crisis management operational preparedness measures.
- Ensure all MoUs are up to date and include appropriately detailed provisions for the ongoing flow of information.

### Consolidated supervision and group-level oversight
- Continue efforts to enhance consolidated supervision for financial groups operating domestically and internationally.
- CBTT introduced a Consolidated Supervision Framework in 2016 (for internal purposes), rolled out enhanced data requirements for banking groups, and conducted several joint onsite examinations with key foreign regulators.
- More emphasis required on cross-sector analysis of financial entities within financial groups (e.g., investment funds, insurance) to ensure a group-level risk assessment view by CBTT.
- Key initiatives being rolled out at the group level include the Internal Capital Adequacy Assessment Process (ICAAP) and Liquidity Coverage Ratio (LCR).

### Supervisory approach, SIFI oversight, and resource allocation (CPs 8–10)
- CBTT’s risk-based supervisory framework needs updating to reflect enhanced supervisory requirements for SIFIs.
- CBTT identified SIFIs within banks/banking groups and contemplated a capital surcharge in 2014 but has not required additional prudential requirements nor articulated an enhanced supervisory framework for SIFIs.
- Some supervisory processes are too labor intensive and should be streamlined (see footnote reference to review of quarterly Board minutes, production of extensive section notes, supervisory planning document).
- Banks, Nonbanks Supervisory Unit resources should be augmented given its mandate to supervise SIFIs, banks and nonbanks, oversee “Deemed SIFIs”, and develop regulatory guidance.
- Strengthen mix/frequency of onsite examinations and offsite surveillance for SIFIs; increase timeliness of release of examination reports; enhance direct access to banks’ Boards.
- Determine criteria for meeting with full bank Boards/independent representatives to discuss onsite findings, emerging strategic risk information, and supervisory expectations.

### Data collection, validation, and supervisory information needs
- Reassess adequacy of regulatory data collected to ensure supervisors have necessary risk data.
- Data on liquidity, market, foreign currency, IRRBB, country risks, and exposures to related parties should be included or enhanced as appropriate.
- Make pertinent data collected by other CBTT units (e.g., Statistics Unit, Research Department) available to supervisors if relevant.
- Data validation mechanisms would benefit from planned adoption of an electronic software system versus current manual verification and validation processes.

### Corrective and sanctioning powers (CP 11)
- CBTT has an adequate range of legislative powers to take corrective measures but should formalize internal reporting and release its “ladder of intervention” document to banks.
- Augment reporting processes for tracking problem financial institutions through an aggregate report on all banks being monitored to the Inspector and to CBTT’s Governor/Board to ensure operational preparedness.

### Corporate governance and internal audit (CPs 14 and 26)
- CBTT’s Corporate Governance Guideline (2007) is outdated and omits essential elements, including requirement for Board-approved risk appetite frameworks.
- A new Corporate Governance Guideline, expected to be released in 2020, will address Board-approved risk management policies and practices and articulate internal audit and compliance functions.
- Once released, undertake full-scope reviews of banks’ corporate governance frameworks (at least for more complex banks) and improve direct contact with Boards, including independent Board members.

### Capital framework (CP 16)
- Laws, regulations, and prudential standards for capital adequacy have not been updated sufficiently.
- Banks currently subject to Basel I; CBTT is in process of introducing Basel II capital framework.
- Draft Capital Regulation, soon to be promulgated by parliament, will bring into force Basel II capital adequacy requirements.
- Banks have reported capital requirements under both frameworks on a parallel run basis for close to two years.
- CBTT’s Basel Policy Paper ‘Phase 2’, published early November 2019, outlined requirements for ICAAPs, a new leverage ratio, a capital conservation buffer, and Pillar 3 disclosure requirements.
- Further amendments to the Draft Capital Regulations were released for public consultation on November 26, 2019 proposing adjustments including a capital surcharge for SIFIs.

### Credit risk, problem assets, provisions, and supervisory reviews (CPs 17–18)
- Total NPL levels were 3.4 percent as at end-June 2019.
- As at end-June 2019 past-due loans (1 to 89 days) amounted to TT$3.2 billion or 4.5 percent of total commercial loans.
- Higher risk consumer-refinanced loans were TT$2.4 billion and debt consolidation loans TT$2.6 billion; together they represented 15 percent of commercial banks’ total consumer loans of TT$33.3 billion.
- Conduct an in-depth thematic credit review to assess potential impact on reported NPL level of 3.4 percent.
- Reassess onsite credit examination program to ensure adequate coverage of all SIFIs and update credit risk guidance (currently spread over several outdated guidelines).
- IFRS 9 implemented by all banks; CBTT needs to update guidance on measurement, monitoring, and control of impaired assets.
- CBTT currently relies on external auditors for assessment of banks’ expected loss credit risk models and valuation models for Level 2/3 assets; supervisors should ensure a good understanding of banks’ credit risk management practices.

### Risk-specific guidance and supervisory expectations (CPs 19–25)
- Reassess adequacy of large exposure limits for banks operating in multiple Caribbean jurisdictions; consider recalibrating to be based on Tier 1 capital versus total capital and reconsider certain exemptions (trading book, inter-banking exposures).
- Enhance monitoring of banks’ market risk exposures and update supervisory framework to include guidance on model use, valuation practices, and stress testing.
- Develop a guideline on IRRBB with minimum requirements for asset-liability management, diversification, target levels for interest margins, limits for off-balance sheet items sensitive to interest rate changes, procedures for setting interest rates on deposits and other liabilities, and permissible limits of maturity gaps.
- Although minimum prudential liquidity reserve requirements exist, risk-based liquidity requirements are not yet in place.
  - CBTT expected to release a Liquidity Risk Guideline establishing an LCR for banks.
  - Guidance should ensure banks use appropriate tools to measure liquidity risk, aggregate key liquidity information at group level, have Board-approved funding strategies and contingency liquidity arrangements tested under stress scenarios.
  - Contemplate adopting the net stable funding ratio (NSFR) Basel III requirements.
- Develop a guideline on Operational Risk Management including outsourcing, recovery and business resumption planning, IT systems, data security and integrity, and cyber-risk management.
- Strengthen CBTT’s technical risk expertise, securing industry experience particularly for market risk, IRRBB, and liquidity risk assessment and supervisory challenge.

### Disclosures and transparency (CPs 27–28)
- All banks fulfill disclosure requirements in accordance with IFRS9.
- CBTT should work toward adopting Basel II Pillar 3 disclosure requirements.
- Draft Capital Regulation (2018) and CBTT’s draft policy paper “Phase 2—Basel II and III implementation” released November 2019 indicate intention to move toward Pillar 3 compliance.
- Draft Capital Regulation will confer power to CBTT to specify required bank disclosures.

### Abuse of financial services and AML/CFT (CP 29)
- Legislative and supervisory changes in 2018–19 increased need for banks to comply with AML/CFT requirements (e.g., amendments to the Companies Act, May 2019).
- CBTT updated its AML/CFT Guideline effective April 2018 including requirement for group-level AML/CFT compliance.
- CBTT needs to conduct regular onsite examinations to secure independent supervisory confirmation of banks’ AML/CFT compliance and roll out AML/CFT risk-based supervisory program.
- Address outstanding CFATF recommendations related to banking supervision and reassess adequacy of CBTT’s AML/CFT expertise.
- Introduce monetary sanctions for noncompliance with AML/CFT requirements.
- Continue efforts to address gaps from the FATF Mutual Evaluation Report of June 2016 and follow-up reports, most recently in June 2019.

### Authorities’ response and planned actions
- CBTT appreciates the assessment and notes recommendations align with initiatives in its 2016/17–2020/21 Strategic Plan.
- Initiatives in progress include implementation of Basel II/III, development/update of guidelines for corporate governance, credit, market, operational and liquidity risk management, designation and enhanced oversight of SIFIs, improvement of stress testing, and finalizing the National Resolution/Crisis Management framework.
- CBTT will take on board the recommendations to ensure frameworks and guidelines developed are robust.

### Summary compliance highlights (selected Core Principles)
- CP1 Responsibilities, objectives, and powers:
  - CBTT lacks powers to make regulations to set prudential criteria; regulations are made by the MoF and are subject to negative resolution of Parliament (FIA S. 9).
  - The process can be long (example: Capital Adequacy Regulation still in draft) affecting regulatory effectiveness.
- CP2 Independence, accountability, resourcing, and legal protection for supervisors:
  - Two CBTT Board members are “public service directors.” Neither the CBA nor FIA formally prescribe CBTT’s independence in the legislation.
  - Several legal provisions allow MoF intervention in supervisory mandate and internal organization of CBTT.
  - Reduction in resources for the Bank, Nonbank Unit in recent years; Unit requires additional staff.
  - The Act does not require public disclosure of reasons for terminating the governor’s appointment.
- CP3 Cooperation and collaboration:
  - CBTT does not have a mechanism/committee for domestic agencies to discuss emerging risk issues and potential impacts on financial institutions (at minimum for SIFIs in normal times and leading up to a major bank failure).
  - No industry guidance requiring all SIFIs to have recovery and resolution plans (crisis contingency plans for smaller banks).
  - CBTT has not shared relevant aspects of received plans with domestic and foreign authorities as part of crisis preparedness.
  - National Crisis Management Plan is in draft; Regional Crisis Management Plan requires continuing regional coordination to complete.

*Source: 1ttoea2020001 - 18.      Recovery and resolution plans, together with resolvability assessments, need to be*

### 4. Permissible

### 4. Permissible activities

### Permissible activities
- Nonbank financial institutions as defined in the FIA can use the word “bank’’ in their name and can take deposits with maturities longer than one year.
- The share of deposits taken by nonbanks is limited (less than 3 percent).
- Nonbanks are subject to a regime of licensing and prudential supervision equivalent to that for commercial banks.

### Licensing criteria
- Applicants can borrow funds to meet the initial minimum capital requirement (TT$15 million) for a new bank, which could inappropriately increase the bank’s leverage.
- Following the Companies Act amendment (May 2019) changing the definition of ultimate beneficial ownership (UBO), CBTT needs to assure itself that applicants can provide accurate and timely UBO information at application and on a go-forward basis.
- New fit-and-proper guidelines recently came into force and have the potential to strengthen the suitability test of key individuals, particularly on conflict of interest and time commitment issues.

### Transfer of significant ownership
- When the potential buyer is not an ‘acquirer,’ the current threshold (20 percent) that requires CBTT’s approval of a change in a significant shareholder is considered much higher than in other jurisdictions.
- Lowering the threshold would strengthen CBTT’s ability to scrutinize fitness and propriety where proposed shareholders not defined as ‘acquirers’ might negatively influence banks’ decision-making.

### Major acquisitions
- S. 44 and 45 of the FIA, together with s. 73 and 74, outline criteria CBTT considers when assessing proposed mergers, including that combined ‘market share’ or concentration of economic power does not pose systemic risk or hinder supervision.
- Recommendation: CBTT should consider explicit criteria (for all entities, not just FHCs or bank parents) to assess whether its ability to effectively supervise the new combined entity would be hindered.

### Supervisory approach
- CBTT’s risk-based supervisory framework is comprehensive, but the Bank Inspection Manual (2003) is outdated and does not reflect current supervisory practices.
- Certain supervisory processes are labor intensive, limiting resources for other key supervisory aspects.
- The Banks and Nonbanks Supervisory Unit resources are insufficient given the mandate to supervise SIFIs, banks, nonbanks, oversee “Deemed SIFIs,” and develop regulatory guidance.
- CBTT has not undertaken resolvability assessments of banks, including large conglomerates.
- Although SIFIs have been identified within banks/banking groups, CBTT has not contemplated a capital surcharge or other additional prudential requirements, nor articulated an enhanced supervisory framework for SIFIs.

### Supervisory techniques and tools
- CBTT uses collected information well to analyze banks’ risk profiles.
- Onsite supervision for banks, especially SIFIs, does not adequately cover all key risks (credit, market, IRRBB, foreign exchange, liquidity), including overall risk management and internal controls.
- Onsite examination reports are not completed and released to banks timely; CBTT does not meet with banks’ Boards consistently.

### Supervisory reporting
- Regulatory data collected does not necessarily include all key risk data (liquidity, market, foreign currency, IRRBB, etc.).
- In some instances (e.g., liquidity), regulatory reporting is lacking.
- Data collected for stress testing is not necessarily being actively shared with supervisors.
- Data validation mechanisms will benefit from planned adoption of an electronic software system to replace some manual verification and validation processes.

### Corrective and sanctioning powers of supervisors
- CBTT has an adequate range of legislative powers to take corrective measures.
- CBTT lacks a practical internal guide to deal with a problem bank/banking group at an early juncture before failure.
- Informal internal communication channels work effectively, but formal internal reporting mechanisms (e.g., formal reporting to the Inspector/Governor or CBTT’s Board on CRA rated three banks) are absent.
- Banks are unaware of CBTT’s process for using enforcement or corrective measures as outlined in CBTT’s internal ladder of intervention table.

### Consolidated supervision
- CBTT introduced a Consolidated Supervision Framework in 2016, including key data collection, joint examinations with foreign regulators, and information sharing.
- Key components missing: group-level ICAAP, liquidity prudential requirements (LCR), the ability to collect group-wide key risk data (e.g., net cumulative cash flow).
- No requirement for group-level recovery and resolution plans or resolvability assessments as part of consolidated supervision.
- CBTT’s risk-based supervisory framework does not analyze all entity types in groups across sectors (e.g., insurance and securities).

### Home-host relationships
- CBTT has informal mechanisms to share key quantitative and qualitative bank and group information with host regulators.
- CBTT does not share pertinent information with host regulators regarding group-wide recovery and resolution plans (one has been completed for the largest bank SIFI).
- The CGBS has not finalized the Regional Crisis Management Plan.
- Recommendation: MoUs should be updated to include detailed provisions for the ongoing flow of information.

### Corporate governance
- CBTT’s Corporate Governance Guideline, 2007 is outdated and does not sufficiently emphasize the Board responsibility to approve a risk appetite.
- CBTT is working toward developing a new Corporate Governance Guideline.
- FIA prescribes only one mandatory Committee (Audit); CBTT may consider mandating additional key committees for SIFIs (such as a Risk Committee).
- CBTT does not appear to conduct full-scope onsite examinations to review senior management and Board strength; contact with Board representatives is limited.
- Thematic review on corporate governance scheduled for 2020 was postponed.
- CBTT has not implemented standards on remuneration and has never carried out supervisory activity on remuneration.

### Risk management process
- Guidance lacking on CBTT’s expectations for banks’ risk management practices in market risk, IRRBB, operational risk, and liquidity risk.
- Risk management function not required to develop ICAAP, ILAAP, recovery and resolution planning, or forward-looking stress test programs commensurate with risk profile and systemic importance.
- CBTT has not issued detailed requirements on risk data aggregation and reporting.
- Current guidance does not require the risk management function to be regularly reviewed by internal audit.
- No requirement that larger or more complex banks have a dedicated risk management unit overseen by a Chief Risk Officer.

### Capital adequacy
- Banks are still subject to a Basel I capital framework while CBTT is in the process of putting in place Basel II capital adequacy requirements.
- A Financial Institutions (Capital Adequacy) Regulations 2018 (Draft Capital Regulations) is awaiting promulgation by parliament to move from Basel I to Basel II.
- CBTT’s draft policy paper “Phase 2—Basel II and III implementation” (November 2019) announces introduction of Pillar 2 requirements, ICAAP, the leverage ratio, the capital conservation buffer and Pillar 3 disclosure requirements.
- Recently proposed amendments to the Draft Capital Regulations indicate CBTT will introduce a capital surcharge for SIFIs and address certain national discretion items.

### Credit risk
- CBTT carried out extensive onsite thematic reviews at all SIFIs three years ago using an internal credit risk expert/consultant, but consistent coverage of onsite credit examinations is lacking.
- CBTT’s credit risk management guideline is outdated and lacks clearly articulated expectations on credit underwriting in one guideline.
- There has been an increase in past-due loans and a substantial increase in consumer refinanced and debt consolidation loans for commercial banks; CBTT is conducting in-depth credit reviews to assess adequacy of asset classification systems.

### Problem assets, provisions, and reserves
- IFRS 9 accounting standards have been implemented effective January 1, 2018, but CBTT’s current guidance is outdated (e.g., Guideline for the Measurement, Monitoring and Control of Impaired Assets, July 2007).
- CBTT places some reliance on external auditors to assess adequacy of banks’ provisioning, including expected loss models.
- CBTT does not have a good understanding of banks’ credit risk models and overall credit risk management practices.

### Concentration risk and large exposure limits
- Banks are required to have policies/processes on concentration risk; law holds the Board accountable for adequate MIS to identify and monitor large exposures.
- CBTT collects and assesses regulatory data on large exposure (CB105).
- Concentration risk toward sovereigns reached 20 percent of total assets.
- Recent amendment to FIA (S. 421A) might increase the banking system’s exposures.

### Transactions with related parties
- The Law provides a broad definition of connected parties, capturing actors able to extract private benefits from the bank.
- Certain requirements (arm’s-length principle and Board approval) focus mainly on related-party lending rather than related-party transactions, which could allow abuse.
- Not all limits are monitored by CBTT; loans to directors are not reported as part of the regulatory return.
- Government credit exposures were recently excluded from the definition of “connected party,” potentially impacting lending to state‑own enterprises.
- Recommendation: An amendment in FIA wording is required to ensure government exposures continue to be undertaken using the arm’s-length principle and approval criteria.
- Exemptions for exposures to fully-owned subsidiaries and to a holding company or an FHC that is itself a licensee or permit holder are questionable and might lead to intra-group transaction abuse.

### Country and transfer risks
- CBTT expects banks to take country and transfer risk into account, but lacks guidance on identification, measurement, evaluation, monitoring, reporting and mitigation of these risks.
- Regulatory reporting requirements exist in some form, but CBTT is not conducting onsite reviews of banks’ risk management regarding country and transfer exposures.

### Market risk
- CBTT relies on external auditors’ views of banks’ market risk management and IFRS 9 valuation, providing only one level of assurance.
- CBTT does not monitor market risk exposures nor have supervisors assessed banks’ market risk policies, processes and systems.
- No guidance on market risk management policies, model use for valuation or stress testing.
- CBTT does not currently conduct onsite examinations of banks’ systems and controls to ensure mark-to-market positions are properly valued and revalued frequently.
- CBTT lacks a market risk expert to assist in rolling out new guidance in deficient risk areas, including IRRBB, liquidity, foreign currency and country risk exposures.

### Interest rate risk in the banking book (IRRBB)
- CBTT plans to issue a new guideline on Management of IRRBB in the coming months.
- No minimum requirements currently exist for asset-liability management: diversification of funding sources and tenor, target interest margins, limits for off-balance sheet items sensitive to interest rate changes, procedures for setting interest rates on deposits/liabilities, or permissible maturity gap limits.
- CBTT’s proposed Stress Testing guideline is expected to introduce requirements for stress testing IRRBB.

### Liquidity risk
- CBTT does not place qualitative or quantitative liquidity requirements to limit maturity mismatches or supervise estimated cash flows.
- CBTT tracks compliance with reserve liquidity requirements (per s. 57 of the FIA) and some liquidity coverage ratios on a quarterly basis, factored into supervisors’ overall risk assessment.
- High-level requirements exist for banks to have policies and procedures for liquidity risk management, but CBTT does not conduct onsite examinations of overall liquidity risk management.
- CBTT is developing a Guideline on “Liquidity Risk Management” to introduce the Liquidity Coverage Ratio (LCR).
- Recommendation: CBTT should contemplate adopting the NSFR Basel III requirement to assess longer-term liquidity horizons.
- CBTT’s supervisory framework does not currently reflect the need to examine bank liquidity risk management policies and practices.
- Liquidity data collection will need to meet future data needs for LCR and other key liquidity information; current relevant liquidity data collected by the Statistics Unit is not shared with supervisors.

### Operational risk
- CBTT is developing a new Guideline on “Operational Risk Management” covering governance, outsourcing (including cloud service providers), IT systems, customer data security, disaster recovery and business continuity, and cyber risk monitoring/management.
- Current onsite and offsite frameworks do not necessarily cover all these key areas.

### Internal control and audit
- Regulatory framework for internal audit is contained in several guidelines and should be rationalized.
- Roles and responsibilities for the Compliance Function need definition beyond AML/CFT requirements.
- No definition for independence of Internal Audit (e.g., no conflict of interest requirement, remuneration structure not tied to business line performance).

### Financial reporting and external audit
- Financial statements are prepared in accordance with internationally accepted accounting standards (IFRS 9) and duly audited by a certified auditor, on an individual and consolidated basis.
- Agendas of bilateral meetings with External Auditors are relatively limited.

### Disclosure and transparency
- Audited Financial Statements are the main source of disclosure for banks.
- Basel II, Pillar 3 disclosure requirements are expected to be implemented by CBTT.

*Source: 1ttoea2020001 - 4. Permissible*

### 29. Abuse of financial

### 29. Abuse of financial services

### AML/CFT and CBTT supervisory capacity
- Many recent changes/enactments in AML/CFT legislation and the issuance of CBTT’s new guideline.
- CBTT is in the process of rolling out its new risk-based AML/CFT supervisory methodology to all banks.
- Recommended: CBTT should introduce monetary sanctions for banks’ noncompliance with AML/CFT requirements (as planned).
- CBTT’s AML/CFT experts are stretched given the need to roll out an AML/CFT supervisory program for insurance companies.

### Recommended Actions to Improve Compliance with the Basel Core Principles and the Effectiveness of Regulatory and Supervisory Frameworks
- Principle 1
  - Confer to CBTT the power to make regulations to set prudential criteria (amend FIA S. 9).
- Principle 2
  - Enshrine CBTT independence in the law and remove MoF representation on CBTT’s Board.
  - Reassess areas within the FIA and CBA where CBTT should possess the power to make approvals relating to operational and financial independence, as well as the regulatory approvals concerning banks.
  - Prescribe public disclose of reasons for the termination of appointment of the governor.
- Principle 3
  - Create a mechanism/committee where domestic agencies are able to discuss views on emerging risk issues impacts on SIFIs.
  - Roll out requirement for SIFI recovery and resolution planning, develop supporting guidance and share relevant aspects of the plans with domestic and foreign authorities.
  - Finalize draft National Crisis Management Plan.
- Principle 4
  - Prevent nonbank financial institutions from using the word “bank.”
- Principle 5
  - Change initial capital injection requirement by bank applicants to not permit the use of borrowed funds.
  - Reassess the adequacy and timeliness of ultimate beneficial ownership (UBO) information being received by applicants.
- Principle 6
  - Reduce the threshold that triggers for a CBTT significant shareholder authorization from 20 percent to 10 percent, whenever the potential buyer is not an acquirer.
- Principle 8
  - Update its Bank Inspection Manual (2003) to reflect current supervisory practices and streamline the documentation process to make better use of its limited resources.
  - Increase the supervisory resources of the Banks and Nonbanks Supervisory Unit, given its mandate to supervise SIFIs, banks and nonbanks, to examine the affairs of “Deemed SIFIs,” as well as undertake the development of regulatory guidance.
  - Undertake resolvability assessments now of its banks to ensure the effective resolution of a bank.
  - Develop SIFI prudential supervisory framework for enhanced monitoring.
- Principle 9
  - Reassess mix of onsite and offsite examinations to ensure adequate coverage of risk in SIFIs.
  - Improve timeliness of the release of examination reports.
  - Determine when CBTT should meet with representatives of banks’ Boards, including independent Board members.
- Principle 10
  - Reassess the adequacy of regulatory risk data and reporting.
  - Ensure the implementation of the new electronic software data validation system.
- Principle 11
  - Develop a practical internal guide to deal with a problem bank/banking group, including formalizing internal reporting mechanisms to ensure operational preparedness.
  - Finalize and release the ladders of intervention corrective measures to the banks.
- Principle 12
  - Reassess key risk data currently collected from conglomerates to align with group-level assessment requirements (e.g., LCR, ICAPP, Liquidity—net cumulative cash flow).
  - Develop group-level recovery and resolution plans, including resolvability assessments that incorporate all sectors of operations (e.g., insurance, investment funds).
  - Update the risk-based supervisory framework/matrix to ensure the adequate analysis of all types of entities in the group.
- Principle 13
  - Share relevant information on group-wide recovery and resolution plans once developed.
  - Assist the CGBS in finalizing the draft Regional Crisis Management Plan.
  - Ensure all MoUs are up to date and include appropriately detailed provisions for the ongoing flow of all information, including bank’s compliance with AML/CFT requirements.
- Principle 14
  - Revise the new Corporate Governance Guideline to address requirements for banks to have a risk appetite framework.
  - Introduce minimum mandatory Board Committees for SIFIs (e.g., Risk Committee).
  - Once the new guideline is released, consider conducting deep-dive examination, thematic review, and/or onsite inspection of the adequacy on governance at SIFI banks.
  - Taking stock of remuneration policies and practices and assess if they incentivize excessive risk taking.
- Principle 15
  - Develop overarching guidance on bank’s risk management policies and practices to include requirement for banks to have contingency arrangements (including recovery plans), risk data aggregation reporting and testing capability in place for SIFIs, and CRO to oversee Risk Management Units in banks and be subject to regular internal audit reviews.
- Principle 16
  - Roll out Pillar 2 requirements to banks, including the introduction of ICAAP, the leverage ratio, the capital conservation buffer, and Pillar 3 disclosure requirements.
  - Remove the asset revaluation reserve from Tier 2 capital under the new capital rules (as planned).
- Principle 17
  - Ensure consistent coverage of credit risk onsite credit examinations for SIFIs.
  - Develop and finalize a credit risk management guideline for banks.
  - Finalize the current in-depth thematic credit review on a high-priority basis, which will assess the potential impact on the currently reported low NPL levels, especially given the increase in both past-due loans and refinanced/debt consolidation loans.
- Principle 18
  - Update all guidance to reflect the adoption of IFRS9.
  - Supervisors are to become familiar with bank’s expected loss credit risk models.
- Principle 19
  - Consider reassessing adequacy of prudential limits for banks that operate in multiple jurisdictions in the Caribbean region.
- Principle 20
  - Suggest amending the FIA so as to include transactions, other than lending to those subject to the arm’ length principle and to Board approval.
  - Introduce a new regulatory return to adequately monitor the limits to loans to directors.
  - Amend the FIA to ensure that government exposures continue to be undertaken using the arm’s length principle and criteria for approval.
  - Amend the FIA to eliminate exemption from the limit of 10 percent granted to exposures to fully owned subsidiaries and to holding company or FHC which is itself a licensee or a permit holder.
- Principle 21
  - Develop country risk and transfer risk guidelines for banks.
- Principle 22
  - Update supervisory framework (onsite examinations and offsite surveillance data needs) to ensure supervisors are adequately monitoring bank’s market risk exposures, as well as having a supervisory view on the strength of bank’s market risk management policies, processes and systems.
  - Develop market risk guidance for banks, including guidance on the use of models for valuation and stress testing purposes.
  - Bring on board a market risk expert to cover deficient risk areas (e.g., to IRRBB, liquidity and all aspects of market risk, including foreign currency and country risk exposures).
- Principle 23
  - Update supervisory framework (onsite examinations and offsite surveillance data needs) to ensure supervisors are adequately monitoring bank’s IRRBB as well as having a supervisory view on the strength of bank’s IRRBB management policies, processes and systems.
  - Issue a new guideline on the Management of Interest Rate Risk.
  - Ensure the new Stress Testing guideline introduces requirements for banks to include the testing of IRRBB for risk management purposes.
- Principle 24
  - Develop new Guideline on “Liquidity Risk Management” to reflect LCR requirements.
  - Update CBTT’s risk-based supervisory framework to reflect the new Liquidity Risk Guideline.
  - Reassess its current collection of liquidity data and assess future data needs to support LCR and other key liquidity information.
  - Make better use of the limited liquidity data currently collected for stress testing purposes but not currently shared with Supervisors.
- Principle 25
  - Develop a Guideline on the “Operational Risk Management” that encompasses all key topics.
  - Update current onsite examination framework and offsite surveillance programs to assess bank’s operation risk frameworks will need to be adopted to include the soon to be released new guidance.
- Principle 26
  - Expand the definition of bank’s Compliance Function beyond only the AML/CFT requirements.
  - Define the concept of ‘independence’ for the Internal Audit Function.
- Principle 28
  - Implement Basel II, Pillar 3 disclosure requirements.
- Principle 29
  - Roll out the new risk-based AML/CFT supervisory methodology to all banks.
  - Introduce monetary sanctions to banks noncompliance with AML/CFT requirements.
  - Reassess adequacy of AML/CFT experts, given CBTT’s broader mandate.

### Authorities’ statement: assessment and recent developments
- Acknowledgements and context
  - Authorities thank staff for comprehensive and fruitful discussions during the FSAP engagement.
  - Missions occurred prior to the onset of the COVID-19 outbreak but incorporated COVID-19 scenarios into risk analyses.
- Financial soundness since last FSAP
  - Since the last FSAP in 2010, financial soundness indicators (FSI) for both the banking sector and insurance companies have generally been robust.
  - Capital adequacy ratios have remained much higher than the regulatory minimum requirement; profitability has improved; asset quality and liquidity measures have been maintained at relatively high and stable levels.
  - In July 2020, the Central Bank of Trinidad and Tobago (CBTT) released its 2019 Financial Stability Report (FSR) highlighting the resilience of the domestic financial system, while noting that strong capital positions could be eroded if potential vulnerabilities materialize.
- COVID-19 timing and risks
  - COVID-19 occurred while the economy was making positive strides to return to growth following three years of contraction over the period 2016 to 2018.
  - Pandemic stifled domestic activity in 2020; a second wave of confirmed cases emerged, resulting in another bout of restrictions and heightened economic uncertainty.
  - Authorities view financial institutions as resilient but note prolonged effects from COVID-19 can threaten financial stability; they remain vigilant and proactive.
- Legislative issues
  - Regulation of the banking sector strengthened by the recent promulgation of Basel II/III capital requirements.
  - Since 2014, CBTT commenced consultative process with the banking sector on Basel II/III implementation; followed by quantitative impact studies.
  - In May, the Financial Institutions (Capital Adequacy) Regulations 2020 were given legal effect, allowing CBTT to implement the new Basel II and Basel III capital requirements.
  - Modernizing the Central Bank Act is important to enhance CBTT supervisory effectiveness and autonomy.
  - Insurance sector legislative developments progressing slower; new Insurance Act passed by parliament and awaiting proclamation, expected to strengthen corporate governance, increase minimum capital requirement, support risk-based supervision and fortify CBTT’s regulatory powers.
- Stress testing of banks and insurance companies
  - Stress tests indicate the domestic banking system should be able to withstand extreme but plausible shocks.
  - Under the pre-COVID-19 adverse scenario and the COVID-19 central scenario, none of the banking institutions is expected to breach the minimum capital requirement over the three years to 2022.
  - The pre-COVID-19 adverse scenario is now deemed unrealistic; the COVID-19 central scenario shows strong capital buffers can absorb negative fallout from a prolonged recession.
  - Staff’s COVID-19 downside scenario stress test showed that some banks could need additional capital in 2022.
  - CBTT refining stress testing methodology to capture multiple adverse factors occurring simultaneously and welcomes recommendations to introduce scenario-based solvency stress tests and cash-flow based liquidity stress tests.
  - Data collection: CBTT recognizes benefits of collecting data in a flat-file format but immediate implementation is unlikely; institutions need to invest in technology, improve data capture and employ additional resources.
  - Insurance stress tests covered a large segment of the industry and found the sector is quite robust but vulnerable to severe natural disasters; CBTT plans to introduce top-down stress testing of insurance companies over the next twelve months.
- Systemically Important Financial Institutions (SIFIs)
  - Authorities have made strides in designating and monitoring SIFIs; supervision is shared among several regulatory agencies.
  - CBTT’s five-year strategic plan includes developing a strategy to monitor designated SIFIs and other large financial institutions outside its perimeter.
  - CBTT conducting regular on-site and off-site visits of SIFIs and engaged the IMF Caribbean Regional Technical Assistance Centre (CARTAC) for network analysis technical assistance.
- Investment funds
  - Mutual fund industry experienced stable growth in assets under management.
  - Some investment funds are deemed to have systemic impact based on size and interconnectedness within conglomerates.
  - Authorities acknowledge contagion risk between investment funds and banks and monitor developments cautiously.
  - Authorities concur with staff’s recommendation to carefully sequence an industry-wide transition of investment funds to floating NAVs.
- Other issues
  - Authorities working to improve financial integrity, strengthen supervision of credit unions and finalize the national crisis management plan.
  - Trinidad and Tobago was removed from the Financial Action Task Force’s (FATF) “grey” list in February 2020.
  - Supervision of credit unions under active discussion to determine most effective regulatory approach.
  - Deficiencies identified in Basel Core Principles assessment will be actioned over time; many issues expected to be addressed during the remaining duration of the CBTT’s strategic plan FY2017-FY2021, including operationalizing a national crisis management/resolution plan.

### Conclusion
- Authorities appreciate engagement with the Fund and World Bank and value the report’s assessments and recommendations.
- FSSA supports authorities’ assessments while highlighting systemic issues requiring greater priority.
- Need for agility emphasized given dynamic economic and financial conditions over the past six months.
- FSSA report expected to contribute to a blueprint of concrete actions to maintain financial stability in Trinidad and Tobago.

*Source: Trinidad and Tobago—Financial System Stability Assessment (content unit: 1ttoea2020001 - 29. Abuse of financial services).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1ttoea2020001.pdf_