## 1wauea2022006 - EXECUTIVE SUMMARY ## Source details **Canonical URL:** [1wauea2022006 - EXECUTIVE SUMMARY](https://www.imf.org/-/media/files/publications/cr/2022/english/1wauea2022006.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2022/english/1wauea2022006.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2022/english/1wauea2022006.pdf.json) --- ### Introduction and scope - Scope: assessment of financial safety net and crisis management mechanisms in the WAEMU region, limited to credit institutions as defined by the banking law (Article 2)—banks, bank-like financial institutions, and financial companies within the WAEMU’s prudential framework adopted in 2016. - Objective: ensure authorities are prepared to maintain financial stability, protect depositors, and minimize fiscal costs and moral hazard through an effective financial safety net comprising an early intervention mechanism, a bank resolution framework, an emergency liquidity assistance (ELA) mechanism, and a deposit insurance scheme. - Methodology: review of legislation and documents and discussions with authorities (scoping mission January 2021; full consultation through September 2021). ### Overall framework and institutional roles - Core regional institutions forming the WAEMU financial safety net: - Central Bank of West African States (BCEAO) - Banking Commission (CBU) - Deposit Guarantee and Resolution Fund (FGDR-UMOA) - Council of Ministers (CM) - Financial Stability Committee (CSF-UMOA) - BCEAO role: monetary authority responsible for financial stability; enforces laws and regulations on banks and financial institutions (Article 30 of the BCEAO charter); executes credit operations and acts as lender of last resort subject to guarantees (Article 18). BCEAO governor is ex officio member of governing bodies of other financial safety net institutions. - CBU structure: - Supervisory Board — bank supervision - Resolution Board — bank resolution - CBU governed by convention (April 1990; amended April 2007; Annex amended September 2017) ### Progress since 2008 and key structural statistics - Institutional and legal progress: - Institutional reform of WAEMU and BCEAO in 2010; new banking law in 2010; Basel II/III mechanism initiated in 2016; bank resolution regime introduced in 2015 with framework in 2017; deposit guarantee fund created in 2014 and mandate expanded in 2018; macroprudential framework developed around BCEAO and CSF-UMOA in 2010. - Remaining gaps: safety net elements largely untested; corrective measures applied under early intervention but no bank resolved and no deposit guarantee intervention required to date. - Financial sector structure and key statistics: - Number of licensed credit institutions: end-2008: 116 (including 99 banks); end-2020: 152 (including 131 banks). - Total assets as percentage of GDP: increased from 25 percent to 53 percent of WAEMU GDP, equivalent to CFAF 48 billion. - Banking assets concentration: 99 percent of financial sector assets are banking institutions; more than half of bank assets are held in Côte d’Ivoire (34 percent) and Senegal (18 percent). - Banking groups: number increased from 18 to 32 between 2008 and 2020; the 12 largest groups represent 76 percent of assets. - Ownership: foreign shareholders’ holdings fell from 74 percent in 2010 to 69 percent in 2019; share of public banks’ capital declined from 13 percent to 11 percent over same period. ### Early intervention and supervision: practice and limitations - Supervision model: permanent off-site surveillance and periodic on-site inspections; implementation of WAEMU’s Rating System for Credit Institutions and Basel II/III Pillar 2 Supervisor Review Process implemented from 2016. - Liquidity risk surveillance: mainly ex post review of liquidity ratios; no indication of an early warning system for liquidity. - Legal early intervention powers: - Pre-resolution powers include administrative measures, disciplinary/monetary sanctions, appointment of an interim administrator. - Administrative measures often have long implementation periods (six months to one year) and are frequently extended. - Procedural delays and appeals to CM introduce risks of non-prudential influence; CBU decisions generally automatically enforceable upon notification. - Effectiveness in practice: - Persistent noncompliance on critical regulations (solvency, leverage, exposure diversification, liquidity) despite many administrative and disciplinary measures. - Counts of actions: Injunctions: 31 in 2017, 50 in 2018, 31 in 2019, and 10 in 2020. Heightened surveillance: 4 entities in 2017, 2 in 2018, 4 in 2019, and 3 in 2020. Disciplinary measures: 12 in 2017, 35 in 2018, 24 in 2019, and 7 in 2020. - Recommendation direction: - Establish time limits on execution of administrative measures and provisional administration with strict total-duration limits (including extensions). - Consider escalating sanctions using full range of measures, including liquidation or resolution. ### Noncompliance statistics (selected figures preserved exactly) - WAEMU: Proportion of Noncompliant Credit Institutions — Share of Noncompliant Institutions in Total Number of Credit Institutions (in percent) and Noncompliant Institutions’ Assets in Percent of Total Assets (2020 column) - Minimum Capital: 2017 21.1; 2018 5.2; 2019 2.4; 2020 17.5; 2020 Noncompliant Institutions’ Assets in Percent of Total Assets 9.4 - Solvency Standards: Ratio of CET1 capital: 2018 14.8; 2019 15.4; 2020 10.3; 2020 Noncompliant Institutions’ Assets in Percent of Total Assets 10.1 - Ratio of T1 capital: 2018 16.5; 2019 17.9; 2020 13.5; 2020 Noncompliant Institutions’ Assets in Percent of Total Assets 10.9 - Capital adequacy ratio: 2017 10.5; 2018 16.5; 2019 17.9; 2020 15.1; 2020 Noncompliant Institutions’ Assets in Percent of Total Assets 12.2 - Risk Concentration Limit: 2017 19.3; 2018 28.7; 2019 24.4; 2020 31.7; 2020 Noncompliant Institutions’ Assets in Percent of Total Assets 31.2 - Leverage Ratio: Leverage ratio: 2018 n/a; 2019 17.4; 2020 17.9; 2020 Noncompliant Institutions’ Assets in Percent of Total Assets 14.3; 2020 Noncompliant Institutions’ Assets in Percent of Total Assets 11.5 - Other prudential standards (selected): individual limit on investments in commercial entities (25% of the company's capital): 2018 0.9; 2019 11.4; 2020 18.3; 2020 Noncompliant Institutions’ Assets in Percent of Total Assets 17.5; liquidity ratio: 2017 18.0; 2018 9.6; 2019 8.9; 2020 14.3; 2020 Noncompliant Institutions’ Assets in Percent of Total Assets 14.1 ### Recovery plans and resolution planning status - Requirement: On January 1, 2018, all credit institutions covered by the bank resolution regime were required to adopt preventive recovery plans. - Coverage: SIBs, relevant subsidiaries, and any other credit institution, financial company, DFS, market infrastructure, or covered entity whose bankruptcy may significantly impact one or more WAEMU member states. - Required content: measures addressing deterioration, continuity of critical functions, capital/refinancing options, access to FMIs, escalation procedures, and internal indicators. - Frequency (Circular 1-2020, March 2020): update triggers and minimum frequencies — each year for SIBs/financial companies/credit institution parent companies; two years for other banks; three years for bank-like financial institutions, electronic money issuers, and DFS. - Implementation status (as of March/September 2021): - Only SIBs, financial companies, and credit institution parent companies had submitted plans; at end-September 2021, one SIB had yet to submit. - Non-systemic banks expected to submit in January 2022; other institutions by July 2023. - Preventative recovery plans were required by end-2021 but drafting was ongoing in March 2022. - Recommendation: use phased schedule to refine requirements, provide feedback based on comparative analysis, and finalize resolution plans for systemic banks and financial companies. ### Governance and operational priorities for the resolution regime - Governance constraints: - Resolution Board limited in authority: decision to initiate resolution lies exclusively with Supervisory Board; significant overlap of membership jeopardizes independence. - Ex officio and state representatives on boards and CM jurisdiction over appeals limit independence. - FGDR-UMOA board powers limited; industry members represent half the board; BCEAO governor chairs the board. - Human resources: - Resolutions entrusted to a directorate with limited staff; “crisis resolution and business practices oversight” unit had only one staff member; plans to hire two legal specialists. - Need to increase number of CBU staff dedicated to resolutions. - Suggested institutional changes (high level): - Grant CBU Resolution Board powers to initiate bank resolutions (to be exercised jointly with the Supervisory Board). - Increase number of Resolution Board members appointed by the CM based on subject-matter expertise and integrity. - Submit appeals of Resolution Board decisions to the WAEMU Court of Justice rather than to the CM; limit appeals to claims for financial compensation except for decisions made in bad faith or contrary to law. - Institute evaluation and accountability mechanisms for independent assessment of Resolution Board decisions. - Strengthen FGDR-UMOA independence by limiting industry representation and reconsidering BCEAO governor chairmanship. - Keep administrative reporting lines of supervision and resolution separate up to the level of two deputy secretaries and provide sufficient human resources for crisis resolution unit. ### Resolution powers, gaps, and recommended legal changes - Scope: CBU resolution powers broadly aligned with FSB Key Attributes and expanded (Annex, Article 53) to include suspension of activity, bridge entity, bail-in, requiring issuance of equity instruments, termination of agreements, and suspension of acceleration/termination/set-off rights. - Two noteworthy gaps: - Power to require continued delivery of critical services and essential functions is limited during implementation and cannot be applied to affiliated or unregulated subsidiaries in many cases. - Liquidation is designated as a supervisory measure and generally requires prior license revocation via disciplinary proceedings, delaying expeditious liquidation in resolution contexts. - Bail-in concerns: - Bail-in power exists (Annex, Article 53-8) with no explicit scope limits. Retail customer deposits constitute 81 percent of total refinancing for WAEMU institutions, creating potential systemic risks if deposits are subject to bail-in. - Lack of transparency on bail-in modalities (scope, hierarchy, valuation, safeguards). - Other gaps and recommendations: - Authorize CBU to require continuation of critical services across group entities and via service contracts. - Include liquidation among resolution measures without requiring disciplinary procedure sequencing. - Exempt CBU from prior notice and shareholder consent obligations when exercising resolution powers; authorize termination of shareholders’ preemptive rights in resolution. - Clarify bail-in scope, protect insured depositors, and ensure transparent valuation and hierarchy consistent with liquidation priority. - Introduce program to strengthen SIB internal loss-absorption capacity before resolving systemic institutions without public funds. - Require valuations at inception of resolution and limit suspension of counterparties’ rights (recommendation: limit suspension to a maximum of two days unless obligations are met). ### Deposit insurance and FGDR-UMOA assessment - Mandate and coverage: - Primary mission: protect deposits received by credit institutions and DFS; legal status: independent with financial autonomy; two standalone funds for credit institutions and DFS. - At end-2019: 73 percent of total deposits and over 90 percent of depositors were eligible for guarantees. - Compensation limits: CFAF 1.4 million for credit institutions and CFAF 0.3 million for DFS; share of total insured depositors combined 61 percent, or 70 percent and 50 percent, respectively. - Covered deposits represented 68 percent of total deposits; 32 percent of deposits remain exposed. - Governance and operational gaps: - Board independence limited; industry representatives account for half of board; BCEAO governor chairs the board. - Suitability tests apply only to member state representatives, not industry representatives. - No internal audit requirement in charter; internal audit function unstaffed. - High dependence on BCEAO for information system; only first phase completed for credit institutions by end-September 2021. - Financing capacity and targets: - Target reserves: CFAF 100 billion (set in 2018) to be built over 10-year horizon; corresponds to 0.45 percent of eligible deposits based on end-2019 data. - End-2020 reserves: CFAF 34.6 billion (credit institutions) and CFAF 6.5 billion (DFS). - For credit institutions, reserves cover eligible deposits for the 16 smallest firms reporting at end-2020, or only 4.9 percent of total assets held by all institutions. - Collection rates for DFS: 74 percent (2019) and 84 percent (2020). - Operational readiness: - Pending circular expected to set reimbursement period at three months (exceeds IADI recommended seven-day period). - No depositor compensation intervention or simulation conducted as of end-2021. - Recommendations for FGDR-UMOA: - Confer decision-making authority to the FGDR-UMOA Board on member contribution rates and depositor compensation modalities. - Prohibit active industry representatives from business relationships with fund members during their term. - Strengthen internal governance, internal controls, and audit; introduce independent performance review mechanisms. - Implement an information system providing a consolidated single-customer view and incorporate CBU risk profiles; introduce differentiated premiums by risk. - Reduce compensation period to seven days and conduct operational tests. - Reconsider arbitrage between coverage level and funding target; set target as a percentage of eligible deposits and accelerate reserve accumulation. - Raise member contributions to achieve target ratio over the medium term (three to four years). ### Resolution funding, backstops, and moral hazard safeguards - System vulnerabilities: - Average capital ratio: 11.6 percent at end-2020, with strong heterogeneity and high loan concentration. - Weak internal loss-absorption capacity and scarcity of refinancing other than deposits exposed to bail-in. - FGDR-UMOA role and limits: - Under 2018 Charter, FGDR-UMOA charged with financing resolution actions at CBU's request after private financing exhausted (Article 6), but not informed until late in process and modalities unspecified. - Fund's available funds represented only 0.12 percent of total insured deposits at end-2019. - Need for action plan and backstop: - Introduce an action plan to boost FGDR-UMOA resources and establish credible support facilities. - Introduce a public backstop mechanism (member states pooled or FSF) to allow rapid mobilization of resources; public support must be last resort and include strict safeguards to minimize moral hazard: - (i) provided as a last resort and solely for preserving financial stability; - (ii) subject to pricing, maturity, collateralization, and intrusive surveillance to encourage prompt repayment; - (iii) combined with recovery mechanisms from shareholders and unsecured creditors or the financial system. - Integrate FGDR-UMOA in early warning process and require a "least-cost" intervention condition for FGDR-UMOA contributions to resolution funding. - Establish a public backstop enabling FGDR-UMOA to resort to member state or FSF funding for bank resolutions when needed. ### Crisis management, coordination, and preparedness - Coordination gaps: - Need to improve cooperation and coordination mechanisms among financial safety net stakeholders. - CSF-UMOA currently involved in macroprudential surveillance; would benefit from a strengthened formal role in crisis management as central hub for multilateral coordination. - Recommendation: include FGDR-UMOA in CSF-UMOA composition or create a new committee dedicated to coordination among safety-net stakeholders. - Information sharing and cross-border arrangements: - CBU has conventions and MOUs with several authorities; FGDR-UMOA authorized to enter cooperation agreements but is not yet a CSF-UMOA member and receives information only when asked to fund an entity (late in process). - CBU has signed agreements with nine supervisory authorities; FGDR-UMOA has signed one with a foreign guarantee fund. Few agreements include resolution-specific coordination; CBU has not established resolution colleges or participated in crisis management groups. - Recommendations: include FGDR-UMOA in CSF-UMOA; amend FGDR-UMOA charter for confidentiality and reciprocity; strengthen CBU–foreign authority agreements to cover resolvability and resolution planning. - Crisis plans and simulation exercises: - CBU Resolution Board nine-step procedure for entities whose failure could significantly impact member states: (i) resolution preparation; (ii) request for resolution; (iii) initiation; (iv) takeover; (v) request for FGDR-UMOA intervention; (vi) consultation/selection of acquirers; (vii) application of measures; (viii) monitoring; (ix) close-out. - CSF-UMOA could serve as framework for multilateral crisis management plans and simulation exercises; no simulation exercises conducted to date. - Recommendation sequencing: conduct regional simulation exercises first, then extend to cooperation with non-WAEMU authorities. ### Select highlights from the Table of Recommendations (authority and priority preserved) - Finalize resolution plans for systemic banks and financial companies. — Authority: CBU. Priority: ST - Increase the number of CBU staff dedicated to resolutions. — Authority: CBU. Priority: ST - Provide the CBU Resolution Board with powers to initiate bank resolutions (to be exercised jointly with the Supervisory Board). — Authority: CBU/BCEAO. Priority: MT - Strengthen the independence of the Resolution Board by increasing the number of members appointed by the CM based on subject-matter expertise and integrity. — Authority: CBU/BCEAO. Priority: MT - Submit appeals of resolution decisions to the sole jurisdiction of the WAEMU Court of Justice, while limiting these appeals to claims for financial compensation except in cases where the CBU decision was adopted in bad faith or is contrary to law. — Authority: CBU/BCEAO. Priority: MT - Clarify in the Annex to the Convention that in the context of a resolution, a creditor should receive treatment no worse than would have been received in a liquidation. — Authority: CBU/BCEAO. Priority: MT - In the Annex to the Convention, clarify that the application of the resolution measure should respect the priority of claims in liquidation in accordance with international standards. — Authority: CBU/BCEAO. Priority: MT - Amend the banking law to clarify that in liquidation proceedings, the priority ranking of depositors does not entail a limit. — Authority: BCEAO. Priority: MT - Initiate a plan to strengthen systemic entities' bail-in buffers. — Authority: CBU. Priority: MT - Prohibit industry representatives on the FGDR-UMOA’s board from holding an active position (or establishing a business relationship) with members of the fund during their terms of office. — Authority: FGDR. Priority: MT - Increase the institutions’ contributions to the FGDR-UMOA to ensure that it achieves the target ratio in the medium term (three to four years). — Authority: FGDR. Priority: MT - Include a requirement for a "least-cost" intervention in the FGDR-UMOA’s contributions to bank resolution funding, including in determining the contribution amounts. — Authority: FGDR. Priority: MT - Establish a financial backstop mechanism enabling the FGDR-UMOA to resort to member state or FSF funding for bank resolutions in case of need. — Authority: FGDR. Priority: MT - Establish the CSF-UMOA, or a new committee yet to be created, as the lead entity on multilateral coordination in crisis situations. — Authority: CSF. Priority: MT - Incorporate the FGDR-UMOA in the composition of the CSF-UMOA (or the new Committee yet to be created). — Authority: CSF. Priority: MT Notes: - ST: short term (1-2 years); MT: medium term (3-5 years). *Prepared from the IMF technical note "EXECUTIVE SUMMARY" (1wauea2022006).* ### EXECUTIVE SUMMARY _____________________________________________________________________________ 4 ### 1wauea2022006 - EXECUTIVE SUMMARY ### Introduction - Scope: assessment of financial safety net and crisis management mechanisms in the WAEMU region, limited to credit institutions as defined by the banking law (Article 2)—banks, bank-like financial institutions, and financial companies within the WAEMU’s prudential framework adopted in 2016. - Objective: ensure authorities are prepared to maintain financial stability, protect depositors, and minimize fiscal costs and moral hazard through an effective financial safety net comprising an early intervention mechanism, a bank resolution framework, an emergency liquidity assistance (ELA) mechanism, and a deposit insurance scheme. - Methodology: review of legislation and documents and discussions with authorities (scoping mission January 2021; full consultation through September 2021). ### Overall framework - Core regional institutions forming the WAEMU financial safety net: Central Bank of West African States (BCEAO), Banking Commission (CBU), Deposit Guarantee and Resolution Fund (FGDR-UMOA), Council of Ministers (CM), and Financial Stability Committee (CSF-UMOA). Ministers of finance of member states play a subsidiary role. - BCEAO role: monetary authority responsible for financial stability; enforces laws and regulations on banks and financial institutions (Article 30 of the BCEAO charter); executes credit operations and acts as lender of last resort subject to guarantees (Article 18). The BCEAO governor is by law a member of governing bodies of other financial safety net institutions. ### Progress since 2008 and remaining gaps - Institutional and legal progress: - Institutional reform of WAEMU and BCEAO in 2010 clarified mandates and responsibilities and strengthened CBU legal autonomy and enforcement powers. - New banking law adopted in 2010 established an overall framework for operation and supervision. - Gradual implementation of the Basel II/III mechanism initiated in 2016 to make supervision more risk based. - Bank resolution regime introduced in 2015; related framework in 2017. - Deposit guarantee fund created in 2014; mandate expanded to bank resolution funding in 2018. - Macroprudential policy framework developed around the BCEAO and CSF-UMOA in 2010. - Despite reforms, safety net elements remain largely untested and incomplete; corrective measures have been applied under early intervention but no bank has yet been resolved and no deposit guarantee intervention has been required. ### Financial sector structure and key statistics - Number of licensed credit institutions: - end-2008: 116 (including 99 banks) - end-2020: 152 (including 131 banks) - Total assets as percentage of GDP: increased from 25 percent to 53 percent of WAEMU GDP, equivalent to CFAF 48 billion. - Banking assets concentration: - 99 percent of financial sector assets are banking institutions. - More than half of bank assets are held by licensed credit institutions in two countries: Côte d’Ivoire (34 percent) and Senegal (18 percent). - Banking groups and concentration: - Number of banking groups increased from 18 to 32 between 2008 and 2020. - The 12 largest groups represent 76 percent of assets. - Ownership structure: - Foreign shareholders’ holdings fell from 74 percent in 2010 to 69 percent in 2019. - Share of public banks’ capital declined from 13 percent to 11 percent over the same period. ### Early intervention and supervisory findings - Early intervention mechanism exists and supervision has become more proactive and risk based following Basel II/III implementation starting 2016. - FSAP review of violation reports and CBU-applied administrative measures and disciplinary sanctions shows some credit institutions persistently struggle to operate in accordance with their license terms. - No resolution measures have been taken to date, even for entities with persistent violations that could threaten viability. ### Bank resolution regime and operational priorities - Status of resolution planning: - Bank resolution regime adopted in 2015; implementation framework in 2017; required implementation texts published in 2020. - Process of preparing resolution plans remains incomplete. - Preventative recovery plans were required by end-2021 but drafting was still ongoing in March 2022; finalization pending completion of a final CBU review. - Urgent need to finalize resolution plans for systemic banks and financial companies and to coordinate with resolution authorities in each country. - Human resources: meeting timelines and cross-border dialogue requires mobilization of adequate human resources at the CBU. - Independence and governance concerns: - CBU governance: significant overlap between Supervisory and Resolution Boards; mandate to initiate a bank resolution lies exclusively with the Supervisory Board; Resolution Board independence is jeopardized by many ex officio state representatives and the CM’s jurisdiction to hear appeals of its decisions. - FGDR-UMOA governance: board powers appear limited in key areas; independence is jeopardized by participation of active banking industry members who represent half of the board and by BCEAO governor chairing the board. - Suggested institutional changes (high level): - Grant the CBU Resolution Board powers to initiate bank resolutions (to be exercised jointly with the Supervisory Board). - Increase number of Resolution Board members appointed by the CM based on subject-matter expertise and integrity. - Submit appeals of Resolution Board decisions to the WAEMU Court of Justice rather than to the CM. - Institute evaluation and accountability mechanisms for independent assessment of the Resolution Board’s decisions or lack thereof. - Strengthen FGDR-UMOA independence by limiting industry representation and reconsidering BCEAO governor chairmanship. ### Resolution funding and deposit insurance - Loss-absorption capacity: - Internal resources of failing institutions are currently inadequate, making bail-in unrealistic in practice. - FGDR-UMOA resources: - Available funds are insufficient to contribute substantially to resolution funding without compromising deposit guarantee mandate in medium term. - Operational recommendations for funding: - Develop a plan to ensure FGDR-UMOA attains target ratios and accelerates reserve accumulation. - Establish a backstop mechanism allowing FGDR-UMOA to tap member states or the Financial Stability Fund (FSF) for quick mobilization of resolution funds. - Prohibit industry representatives on FGDR-UMOA’s board from holding an active position (or establishing a business relationship) with members of the fund during their terms of office. - Increase institutions’ contributions to FGDR-UMOA to ensure it achieves the target ratio in the medium term (three to four years). - Include a requirement for a "least-cost" intervention in FGDR-UMOA’s contributions to bank resolution funding, including in determining contribution amounts. - Establish the FGDR-UMOA’s ability to resort to member state or FSF funding for bank resolutions when needed. ### Crisis management, coordination, and emergency preparedness - Coordination gaps: - Need to improve mechanisms for cooperation and coordination among stakeholders in the financial safety net. - CSF-UMOA currently involved in surveillance of macroprudential risks; would benefit from a strengthened formal role in crisis management to serve as the central hub for multilateral coordination in crisis situations. - With an extended mandate, CSF-UMOA could be formalized in preparation of crisis management plans and simulation exercises at the regional level and for cooperation with authorities outside the WAEMU. - Alternative: consider creating a new committee exclusively dedicated to coordination among financial safety net stakeholders. - Operational preparedness and legal robustness: - Mission proposed improvements across numerous other areas relating to operational preparedness of regional institutions and legal robustness of interventions. ### Table of Recommendations (select highlights from Table 1) - Finalize resolution plans for systemic banks and financial companies. — Authority: CBU. Priority: ST - Increase the number of CBU staff dedicated to resolutions. — Authority: CBU. Priority: ST - Provide the CBU Resolution Board with powers to initiate bank resolutions (to be exercised jointly with the Supervisory Board). — Authority: CBU/BCEAO. Priority: MT - Strengthen the independence of the Resolution Board by increasing the number of members appointed by the CM based on subject-matter expertise and integrity. — Authority: CBU/BCEAO. Priority: MT - Submit appeals of resolution decisions to the sole jurisdiction of the WAEMU Court of Justice, while limiting these appeals to claims for financial compensation except in cases where the CBU decision was adopted in bad faith or is contrary to law. — Authority: CBU/BCEAO. Priority: MT - In the Annex to the Convention, clarify that in the context of a resolution, a creditor should receive treatment no worse than would have been received in a liquidation. — Authority: CBU/BCEAO. Priority: MT - In the Annex to the Convention, clarify that the application of the resolution measure should respect the priority of claims in liquidation in accordance with international standards. — Authority: CBU/BCEAO. Priority: MT - Amend the banking law to clarify that in liquidation proceedings, the priority ranking of depositors does not entail a limit. — Authority: BCEAO. Priority: MT - Initiate a plan to strengthen systemic entities' bail-in buffers. — Authority: CBU. Priority: MT - Prohibit industry representatives on the FGDR-UMOA’s board from holding an active position (or establishing a business relationship) with a member of the fund during their terms of office. — Authority: FGDR. Priority: MT - Increase the institutions’ contributions to the FGDR-UMOA to ensure that it achieves the target ratio in the medium term (three to four years). — Authority: FGDR. Priority: MT - Include a requirement for a "least-cost" intervention in the FGDR-UMOA’s contributions to bank resolution funding, including in determining the contribution amounts. — Authority: FGDR. Priority: MT - Establish a financial backstop mechanism enabling the FGDR-UMOA to resort to member state or FSF funding for bank resolutions in case of need. — Authority: FGDR. Priority: MT - Establish the CSF-UMOA, or a new committee yet to be created, as the lead entity on multilateral coordination in crisis situations. — Authority: CSF. Priority: MT - Incorporate the FGDR-UMOA in the composition of the CSF-UMOA (or the new Committee yet to be created). — Authority: CSF. Priority: MT Notes: - ST: short term (1-2 years); MT: medium term (3-5 years). *Prepared from the IMF technical note "EXECUTIVE SUMMARY" (1wauea2022006).* ### 11. The CBU is specifically responsible for the organization and supervision of credit ### 11. The CBU is specifically responsible for the organization and supervision of credit ### Institutional framework and mandates - The CBU is responsible for the organization and supervision of credit institutions (Article 23 of the WAEMU Treaty). - Governed by a convention signed in April 1990 and amended in April 2007; key provisions set out in an Annex on CBU operations most recently amended in September 2017. - The CBU’s mandate: ensure the soundness and security of the WAEMU’s banking system through supervision of credit institutions and resolution of banking crises. - The CBU assigns supervision and resolution to two distinct decision-making bodies: - Supervisory Board (bank supervision) - Resolution Board (bank resolution) - Table of BCEAO Governor functions (areas of authority, not exhaustive): - President of the BCEAO Board of Directors — Banking regulation - President of the Monetary Policy Committee — Monetary policy (including ELA) - President of the CBU Supervisory Board — Bank supervision - President of the CBU Resolution Board — Bank resolution - President of the FGDR-UMOA Board of Directors — Deposit guarantee and resolution funding - President of the CSF-UMOA — Monitoring of financial stability - Source references for functions: WAEMU Treaty, BCEAO Charter, Annex on CBU operations, FDGR-UMOA Charter, and 2010 MoU on CSF-UMOA. ### Deposit Guarantee Fund (FGDR-UMOA) and CSF-UMOA - Deposit Guarantee Fund created in 2014; renamed FGDR-UMOA when its charter was revised to include resolution funding in its mandate. - FGDR-UMOA principal functions: - Deposit insurance - Bank resolution funding - Corollary tasks: promoting the stability of the banking and microfinance sectors and development of financial culture in the region - FGDR-UMOA structure: - Functions managed by distinct divisions, financed respectively by credit institutions and by decentralized financial systems (DFS) - Each division responsible for coverage of deposits held by the type of entity it oversees - CSF-UMOA (created by 2010 MoU among CM, Inter-African Conference on Insurance Markets, Inter-African Conference on Social Security): - Mandate: promote cooperation and coordination among member state authorities whose missions entail financial stability; evaluate financial risks and vulnerabilities; define corrective actions and monitor implementation; formulate recommendations for sound and efficient operation of the financial sector - Serves as executive-level forum, supported by a network of authorities’ experts and task forces - Chairs and assistance: chaired by the BCEAO governor and assisted by presidents of WAEMU Regional Public Investment and Financial Markets Board, WAEMU Insurance Company Supervisory Commission, Social Security Supervisory Commission, and representatives of each WAEMU member state (appointed by the CM based on expertise). ### Role of the Council of Ministers (CM) - CM plays an important role in the regional financial safety net (WAEMU Treaty, Article 5) but is not directly involved in bank supervision or crisis management. - CM general role: management of the WAEMU (Article 10). - CM powers with respect to the financial sector: - Adopt general rules for the conduct of financial and related activities (Article 17) - Approve any convention concluded between the BCEAO and governments, central banks, or international institutions (Article 20) - Assign specific projects or missions to the BCEAO and decide on BCEAO’s participations in special funds, bodies, or institutions that contribute to diversification and strengthening of the WAEMU financial system - CM appoints some CBU members: - Supervisory Board: 9 out of 19 members appointed by CM - Resolution Board: 1 out of 4 members appointed by CM - FGDR-UMOA Board of Directors: 2 out of 6 members appointed by CM - Appeals: - Annex to the Convention (Article 43) indicates that “decisions by the Banking Commission may be appealed only to the Council of Ministers of the WAEMU.” - In practice jurisdiction over appeals is not exclusive: individuals sanctioned by the CBU have previously appealed CBU decisions to the WAEMU Court of Justice after they were upheld by the CM. - CM is forum for arbitration of disputes between WAEMU member states and the CBU on matters where CBU consent is required. ### Evolution of member-state ministers’ powers - Strengthening of regional institutions (BCEAO, CBU, FGDR-UMOA, CM, CSF-UMOA) has considerably reduced the role of member state finance ministers. - Ministers continue to be responsible for licensing banks in their states (subject to CBU approval). - Limits on ministers’ power to revoke licenses: - Revocation limited to situations where revocation is requested by the credit institution or the institution has been inactive for at least one year (Annex, Article 19). - In other cases (e.g., disciplinary procedure), CBU has exclusive authority to revoke a license. - Minister of the credit institution’s home state is informed of the CBU decision and instructed to notify the institution; if notice is not given within seven days, the CBU’s revocation decision becomes automatically enforceable. - Other CBU decisions (disciplinary sanctions, appointment of interim administrator, liquidation) are automatically enforceable upon the CBU notifying the minister of finance, who must appoint an interim administrator or trustee within seven days. - Conclusion: powers of finance ministers—both individually and in their collective role on the CM—have been reduced considerably since 2008. ### Financial safety net: Early intervention and recovery planning — supervisory framework - CBU supervision model: permanent off-site surveillance and periodic on-site inspections. - Implementation of WAEMU’s Rating System for Credit Institutions improved capacity for predictive risk analysis. - Ratings used for ongoing monitoring; conducted annually or semiannually for highest-risk entities, absent significant risk-profile changes or updates after on-site inspection. - Rating encompasses nine risk factors and relies on multidimensional analysis combining degree of risk exposures and quality of control/management mechanisms. - Risk factors are evaluated on a numeric scale with strict, predetermined criteria; modifications permitted pursuant to expert opinion on events not yet reflected in prudential reports. - CBU does not conduct stress tests nor systematically obtain results of tests carried out by financial institutions. - BCEAO conducts stress tests each year. - Basel II/III supervisory review process implemented: - Internal rating system enables development of a risk map and identification of vulnerable institutions to trigger early intervention. - Supervisor Review Process (Pillar 2) sets prudential requirements based on individual institutions’ risk profiles. - Result: more proactive supervisory regime enabling early, proportional, and adapted actions before regulatory or legislative violations occur. - Liquidity risk surveillance: - Current supervision mechanism for liquidity risk is mostly based on ex post review of liquidity ratios. - No indications of an existing early warning system for liquidity. ### Legal early intervention powers, constraints, and practice - Legal mechanism contains many measures of varying intrusiveness; CBU discretion to implement measures subject to strict constraints. - Pre-resolution CBU powers include: - Administrative measures - Disciplinary or monetary sanctions - Appointment of an interim administrator - Observations on implementation constraints: - Decision to place under interim administration: criterion covers wide range but in practice used only in extreme circumstances due to likely adverse depositor/counterparty reactions. - Distinction: administrative measures are not subject to determination of a regulatory violation; disciplinary/monetary measures are subject to such a determination. Failure to implement administrative measures is itself a regulatory violation. - Administrative measures’ implementation time limits usually extend over relatively long periods (six months to one year) and frequently extended further in absence of regulatory limit. - Procedural delays: adversarial process time requirements for disciplinary measures; notification time associated with license revocations or nomination of interim administrator or trustee. - Appeals to CM entail risk that non-prudential factors may impact final decisions, which are automatically enforceable. - Procedural specifics: - Even if CBU exempts itself from obligation to serve summons at least 15 days before Board meeting in identified emergency, it must allow parties to submit written responses within 7 days of appearance or summons (Circular 1-2011). - CBU decisions are automatically enforceable by interested parties upon notification, except license revocation decisions or authorizations of establishment, which must be served within 7 days by the relevant minister of finance; at the end of 7-day period, even in absence of notice by the competent minister, the license revocation or authorization is automatically enforceable and notice is given by the CBU itself. - Interim administrator (or trustee) is appointed within a maximum of seven days from date of receipt of the CBU decision by the minister of finance (Article 34 or Article 35, respectively, of the Annex). ### Early intervention toolkit (selected powers summarized) - Administrative measures (triggered if CBU finds supervised entity has violated rules of good conduct; jeopardized financial equilibrium; deviated from sound management; or no longer meets licensing conditions): - Issue a warning; enjoin corrective or precautionary measures within specific time period. - Corrective powers: impose capital requirements higher than minimum regulatory targets; impose liquidity requirements; require governance, risk management, internal control strengthening; require submission of restoration plan; require immediate provisioning; require shareholders to increase capital. - Precautionary measures: require transfer of risky activity; suspend shareholder rights; limit or prohibit discretionary distributions; require fiscal year profits be allocated to capital; suspend/restrict disposal of assets; require preventive recovery plan. - Other measures: object to appointment of management individuals; direct external special audits; subject institution to heightened surveillance; impose any other necessary administrative measure. - Disciplinary or monetary sanctions (triggered if CBU finds violation of banking regulations or related law): - Warnings; censure; suspension/prohibition of some/all operations; other business limitations; suspension/compulsory retirement of responsible officers and directors; prohibition for responsible individuals to serve as director, officer, or manager; revocation of entity’s license or authorization. - Monetary sanctions in addition to disciplinary measures. - Temporary administration (triggers include officers inform CBU they cannot perform functions; CBU finds entity cannot be managed under normal conditions; CBU ordered suspension/compulsory retirement of officers or directors responsible for violation): - CBU may place a supervised institution under temporary administration and appoint an interim administrator with all necessary powers to administer, direct, and manage the entity. - Liquidation (triggers include license revoked under Article 19 or Article 31; institution suspended payments to creditors; illegal banking activities): - CBU may place the institution in liquidation. ### Effectiveness of early intervention in practice and quantitative indicators - Recent implementation experience indicates limited effectiveness of the early intervention mechanism. - Despite numerous administrative and disciplinary measures since 2019, the share of entities noncompliant with prudential regulations remained elevated, particularly for regulations critical to financial stability such as solvency and leverage, exposure diversification, and liquidity. - Many noncompliant institutions have not met regulatory requirements for many years; placements under close surveillance or provisional administration have been continually extended with no major improvement. - Recommendation direction: review to establish time limits on execution of administrative measures and provisional administration with strict limits on total duration (including extensions); consider a system of escalating sanctions using entire range of available measures, including liquidation or resolution decisions. - Counts of actions (reported): - Injunctions: 31 in 2017, 50 in 2018, 31 in 2019, and 10 in 2020. - Heightened surveillance: 4 entities in 2017, 2 in 2018, 4 in 2019, and 3 in 2020. - Disciplinary measures: 12 in 2017, 35 in 2018, 24 in 2019, and 7 in 2020. ### Key statistics on noncompliance (selected figures preserved exactly as reported) - Table 4. WAEMU: Proportion of Noncompliant Credit Institutions — Share of Noncompliant Institutions in Total Number of Credit Institutions (in percent) and Noncompliant Institutions’ Assets in Percent of Total Assets (2020 column shown where available) - Minimum Capital: 2017 21.1; 2018 5.2; 2019 2.4; 2020 17.5; 2020 Noncompliant Institutions’ Assets in Percent of Total Assets 9.4 - Solvency Standards: Ratio of CET1 capital: 2018 14.8; 2019 15.4; 2020 10.3; 2020 Noncompliant Institutions’ Assets in Percent of Total Assets 10.1 - Ratio of T1 capital: 2018 16.5; 2019 17.9; 2020 13.5; 2020 Noncompliant Institutions’ Assets in Percent of Total Assets 10.9 - Capital adequacy ratio: 2017 10.5; 2018 16.5; 2019 17.9; 2020 15.1; 2020 Noncompliant Institutions’ Assets in Percent of Total Assets 12.2 - Risk Concentration Limit: Risk concentration limit: 2017 19.3; 2018 28.7; 2019 24.4; 2020 31.7; 2020 Noncompliant Institutions’ Assets in Percent of Total Assets 31.2 - Leverage Ratio: Leverage ratio: 2018 n/a; 2019 17.4; 2020 17.9; 2020 Noncompliant Institutions’ Assets in Percent of Total Assets 14.3; 2020 Noncompliant Institutions’ Assets in Percent of Total Assets 11.5 (note: table lists both 17.9 and 14.3/11.5 entries—preserve as presented) - Other Prudential Standards (selected): - Individual limit on investments in commercial entities (25% of the company's capital): 2018 0.9; 2019 11.4; 2020 18.3; 2020 Noncompliant Institutions’ Assets in Percent of Total Assets 17.5 - Individual limit on investments in commercial entities (15% of T1 capital): 2019 0; 2020 9.5; 2020 Noncompliant Institutions’ Assets in Percent of Total Assets 5.8 - Overall limit on investments in commercial entities (60% of actual capital): 2019 0; 2020 1.6; 2020 Noncompliant Institutions’ Assets in Percent of Total Assets 4.5 - Limit on nonoperating assets: 2018 18.3; 2019 14.6; 2020 21.4; 2020 Noncompliant Institutions’ Assets in Percent of Total Assets 17.7 - Limit on total nonoperating assets and investments: 2017 10.5; 2018 2.6; 2019 4.1; 2020 11.9; 2020 Noncompliant Institutions’ Assets in Percent of Total Assets 10.6 - Limit on loans to shareholders, to directors, and to staff: 2017 11.8; 2018 10.4; 2019 6.5; 2020 13.5; 2020 Noncompliant Institutions’ Assets in Percent of Total Assets 14.1 - Coverage ratio for medium- and long-term applications through stable resources (medium- and long-term assets): 2017 14.9; 2018 17.4; 2019 16.3; 2020 16.7; 2020 Noncompliant Institutions’ Assets in Percent of Total Assets 14.8 - Liquidity ratio: 2017 18.0; 2018 9.6; 2019 8.9; 2020 14.3; 2020 Noncompliant Institutions’ Assets in Percent of Total Assets 14.1 - Note: Table presents share of credit institutions failing to comply and the proportion of total sector assets held by those institutions. - Table 5. WAEMU: Proportion of Noncompliant Decentralized Financial Systems (DFSs) (in percent of total number of DFSs) - Solvency Standards — Capitalization: 2017 40.3; 2018 30.3; 2019 29.2; 2020 37.4 - Risk limits: 2017 1.4; 2018 2.1; 2019 1.9; 2020 1.2 - Standard for Exposure Diversification: 2017 15.8; 2018 11.7; 2019 11.2; 2020 22 - Individual limit on investments in commercial entities (25% of the company's capital): 2017 0.7; 2018 6.2; 2019 6.8; 2020 6.0 - Limit on loans to shareholders, directors, and staff: 2017 25.9; 2018 20.7; 2019 20.5; 2020 32.4 - Coverage ratio of medium- and long-term assets through stable funding: 2017 97.8; 2018 49.3; 2019 50.9; 2020 47.8 - Cash ratio: 2017 23.7; 2018 43.4; 2019 41.0; 2020 33.3 ### Recommendations and implications (as indicated in the source) - Review the early intervention mechanism to: - Establish time limits on the execution of administrative measures and placement under provisional administration, with strict limits on their total duration (including extensions). - Consider a system of escalating sanctions that employs the full range of available measures, including decisions to liquidate or resolve an entity. - Reassess effectiveness and credibility of early intervention mechanism and independence under which a resolution procedure could be initiated, given persistence of noncompliance and extended supervisory forbearance. *Source: Annex on CBU operations and related sections of the WAEMU FSAP chapter as provided in the source PDF.* ### 20. On January 1, 2018, all credit institutions covered by the bank resolution regime were ### 1wauea2022006 - 20. On January 1, 2018, all credit institutions covered by the bank resolution regime were ### Recovery plans: scope, content, and frequency - On January 1, 2018, all credit institutions covered by the bank resolution regime were required to adopt preventive recovery plans. - Coverage: systemically important banks (SIBs) and any relevant subsidiaries, as well as any other credit institution, financial company, decentralized financial system, market infrastructure, or covered entity whose bankruptcy may have a significant impact on the financial stability of one or more WAEMU member states. - Required content of recovery plans: - Measures to address a significant deterioration of the entity’s financial position or of the group to which it belongs. - A strong focus on ensuring continuity of the critical functions that the entity provides to the economy. - Measures to address capital deficiencies and/or refinancing difficulties, with credible recovery options to address a range of crisis scenarios, support mechanisms, and escalation procedures clearly supported by internal indicators. - Measures to ensure institutions’ access to financial market infrastructures and their business continuity. - Frequency and update triggers (CBU’s Circular 1-2020, March 2020): - Update in case of actual or expected changes likely to have a potentially significant impact on implementation. - Minimum frequency commensurate with the institution's characteristics: - each year for SIBs, financial companies, and credit institution parent companies; - two years for other banks; - three years for bank-like financial institutions, electronic money issuers, and DFS. - Plans must be approved by the entity’s decision-making body before submission to the CBU for evaluation. ### Implementation status and timelines - Circular adoption: March 2020 (Circular 1-2020). - Phased implementation through mid-2023; not all covered entities had submitted recovery plans by March 2020. - Submissions to date: - Only SIBs, financial companies, and credit institution parent companies have submitted their plans to the CBU. - At end-September 2021, one SIB had yet to submit its recovery plan in accordance with the terms of the circular. - Non-systemic banks were expected to submit their plans in January 2022. - Other types of institutions were expected to submit in July 2023. - Review and next steps: - Plans received are being reviewed by the CBU and will serve as the basis for preparing SIB resolution plans. - SIB resolution plans were initially expected by end-2021 but are now anticipated later this year. ### Recommendations for the CBU on recovery plans - Use the phased schedule to refine key requirements based on review of the first wave of submissions. - Anticipated divergences across initial submissions in areas such as: - identification of core business areas and critical functions; - calibration of recovery indicators and trigger levels; - severity of scenarios; - plausibility and timeline of reorganization measures; - integration of plans in sound governance; - relevance of communication policies. - Provide feedback to the industry on future submissions based on comparative analysis. ### Resolution regime: overview and assessment (since 2017) - Areas for evaluation: governance; preparation of resolution plans; resolution procedures with triggering criteria and associated powers; guarantees and the safeguard mechanism. ### Governance: structure, limits, and operational issues - Nominal resolution authority: the CBU; limits on autonomy of decision-making process exist. - Within the CBU: - Resolution and Supervisory Boards have well-delineated stand-alone authority for resolution and supervision, respectively. - The Resolution Board has limited authority at the time of a resolution decision because the decision lies with the Supervisory Board, which has sole authority to determine that an entity is not viable and has no prospect of returning to profitability. - The Supervisory Board is chaired by the BCEAO governor and supplies the majority of the Resolution Board members (three of five members are also members of the Supervisory Board). - In case of a resolution decision, the Supervisory Board representative of the state hosting the bank is invited to participate as a non-permanent member with voting rights. - Ministerial and political involvement: - Two of the five voting members of the Resolution Board are member state representatives. - The CM (Council of Ministers) has jurisdiction over appeals of CBU decisions and the power to annul CBU decisions, posing risks to Resolution Board independence. - Absence of mechanisms for independent assessment of Resolution Board decisions exacerbates the risk to independence. - Operational assignment and staffing: - Supervisory function performed by three directorates: "ongoing off-site supervision," "on-site inspection of credit institutions and electronic money issuers," and "on-site inspection of DFS." - Resolutions entrusted to a fourth directorate: "resolution and legal affairs," composed of units for "legal affairs" and "crisis resolution and business practices oversight." - All directors report to the CBU’s deputy secretary general; only one deputy secretary general has been appointed despite the need for two under Article 12 of the Annex. - The "crisis resolution and business practices oversight" unit has only one staff member (a financial analyst); plans to hire two legal specialists exist. - Legal protections: - No civil or criminal action can be brought against a CBU member for actions taken in performance of their functions. - CBU’s secretary general and staff are immune from legal liability or arrest for actions taken while performing their functions as employees of the BCEAO (Articles 13 and 16 of the protocol on privileges and immunities of the BCEAO). ### Governance recommendations - Give the Resolution Board authority to take decisions on resolution and the assessment of an entity’s viability or non-viability (following consultations with the Supervisory Board). - Strengthen independence from the Supervisory Board and finance ministers by increasing the number of members appointed by the CM based on expertise and integrity. - Revise the CM’s jurisdiction to hear appeals or conduct arbitration against CBU resolution decisions exclusively in favor of the WAEMU Court of Justice, which has acknowledged its substantive jurisdiction. - Introduce accountability mechanisms, including periodic independent reviews of CBU-implemented resolution strategies and the specific criteria used to decide whether to begin a resolution; report such mechanisms to the CM. - Keep administrative reporting lines of supervision and resolution functions separate up to the level of the two deputy secretaries, as provided by the Annex. - Provide the unit responsible for crisis resolution and business practices oversight with sufficient human resources without delay. ### Resolution plans: preparation, evaluative focus, and implementation challenges - Since 2017, the CBU authorized to prepare and regularly update resolution plans for each credit institution subject to the resolution regime on an individual and, where applicable, consolidated basis. - For SIBs or entities whose failure could significantly impact financial stability of one or more WAEMU member states: - The plan is prepared by the Resolution Board based on information reported by the entity. - The plan includes the measures that would be taken in the event of its failure. - Plans for financial companies and parent credit institutions cover the entire group and subsidiaries to which resolution measures apply. - The Resolution Board may involve resolution authorities responsible for subsidiaries or the group concerned. - Plans should be updated every two years or whenever a legal, organizational, or financial change likely to have a significant impact occurs. - Resolvability assessments (in developing and updating resolution plans): - Identify potential obstacles to implementation of planned resolution strategies and require measures to eliminate those obstacles. - Evaluate organization of operations and information systems; internal interdependencies of business areas and with other entities; participation in market infrastructures; internal loss-absorption capacity; and level of cooperation with foreign resolution authorities. - If significant obstacles found, the Board can require the entity to submit a corrective plan or enjoin the entity to take necessary measures; final adoption of the resolution plan contingent on implementation of these measures. - Implementation challenges: - Delays in submission of recovery plans and resultant delay in Supervisory Board analysis significantly hold up evaluations of bank resolvability and preparation of initial resolution plans (planned for end-2021 and only covering SIBs). ### Key sensitive issues in resolution planning - Need to optimize coordination between the Supervisory and Resolution Boards once recovery plans are analyzed to ensure consistency with resolution plans. - Recovery options presented by an entity must have their impact on resolvability carefully scrutinized by the Supervisory Board, including operational and financial aspects. - Coordination with foreign authorities has not yet begun and should be supported by: - a specific mapping of essential activities and critical functions of cross-border groups; - an analysis of the distribution of their capital in regard to the risks assumed; - a review of intragroup financing mechanisms. - Selection of optimal resolution strategy depends on diagnostics of internal loss-absorption capacity, financing modalities, and quality of cross-border cooperation: - Decision points include whether to adopt a “single point of entry” or “multiple points of entry” strategy, and whether internal restructuring of the group is necessary. - Recent CBU powers (Decision 14-2016, Article 5) allow requiring a parent company with subsidiary credit institutions licensed in the WAEMU to create an intermediary financial holding company to hold the group’s stakes in credit institutions. - Only four intermediary financial holding companies were licensed at end-May 2021. - Weak internal loss-absorption capacity and limited immediately available resolution funding mechanisms will likely complicate adoption of resolution plans. ### Resolution powers and triggers - The CBU may, at the request of the Supervisory Board, initiate a resolution process for any entity "deemed nonviable and with no prospect of returning to viability" by the Supervisory Board (terms of the Annex). - Criteria for evaluating non-viability (Circular 3-2020, Article 4) are based on capital or liquidity indicators, including: - forward-looking indicators suggesting that protection of depositors or creditors is no longer appropriate; - indicators suggesting creditors have lost confidence in the entity; - difficulty in accessing market funding; - lack of capacity to mobilize capital at the CBU’s request (or at the entity’s initiative); - whether the entity has requested exceptional public financial support. - These criteria are not exhaustive, not subject to prior adoption of early intervention measures, and could trigger a resolution process before insolvency in net assets or cashflows. ### Use and scope of resolution powers - After resolution proceedings are opened, the CBU has a wide range of resolution powers and may use them with full legal autonomy. - The CBU may act directly or intervene through a "special administrator" tasked with implementing the Board's measures and decisions; contractual stipulations treating such appointment as a case of default are invalidated. - In the absence of explicit prohibitions or sequencing requirements, the CBU has discretion to select the combination and sequence of resolution measures. - Decision-making: usual CBU procedures apply; in emergency, the Resolution Board may adopt interim resolution measures without observing due process. - Once resolution measures adopted, the president of the CBU must inform the relevant minister of finance of their implementation. No prior approval by the courts is required. ### Judicial review and legal remedies - Judicial review of resolution decisions follows the usual rules applicable to CBU decisions, with effects on mechanism effectiveness: - Appeal period: two months. - An appeal does not suspend execution of the resolution decision. - A decision by the Resolution Board may be invalidated following an appeal, but this will not affect validity of actions taken to implement it if altering those actions could harm third-party interests, except in case of fraud by third parties. - Unclear whether shareholders and creditors may seek annulment of a resolution decision on grounds that a resolution measure harms their interests. - Recommendation to avoid such scenarios: - Specify that the only available remedy in an appeal of a resolution decision is financial compensation, unless the CBU decision was made in bad faith or contrary to law. *1wauea2022006 - 20.* ### 37. The extent of the CBU's resolution powers is broadly aligned with the ### 1wauea2022006 - 37. The extent of the CBU's resolution powers is broadly aligned with the ### Resolution powers — scope and recent expansion - The extent of the CBU's resolution powers is broadly aligned with the recommendations of FSB’s Key Attributes. - With the recent revision of the Annex, the new range of resolution measures has expanded considerably (Annex, Article 53). - In addition to key resolution measures (e.g., suspension of activity, bridge entity, bail-in), the CBU was granted powers to: - require an entity to issue equity instruments; - temporarily prohibit the payment of any or all claims arising prior to the resolution, or more generally to execute certain transactions; - terminate agreements that entail financial obligations for the entity, with the exception of agreements related to settlement, payment, or clearing systems; - suspend the exercise of the rights to invoke acceleration clauses and to terminate or set off any or all contracts signed with the entity. - The legal framework allows the CBU and/or judicial authorities to bring claims or collection actions against individuals whose actions or omissions significantly contributed to the entity’s failure. - Certain measures are still missing from this arsenal, even though they would be useful, as such or in support of the use of key resolution measures that the CBU may now apply. ### Two particularly noteworthy gaps in CBU resolution powers - Power to require continued delivery of critical services and essential functions: - CBU may exercise this power on a preventive basis in the context of a resolvability evaluation. - During implementation of the resolution, CBU can only exercise it with respect to the failed entity and only to the extent that some or all of the entity’s activities have been transferred (Circular 3-2020, Article 19). - CBU may not exercise this power if resolution measures other than transfer of activities are taken, nor with respect to affiliated entities or unregulated subsidiaries of the failed entity (Annex, Article 45-2). - Recommendation: grant the CBU such powers regardless of the resolution measures taken, either directly with respect to operational entities within the group (regulated or not) or via service contracts the defaulted institution has with internal service providers. - Liquidation not included among resolution measures: - Liquidation is designated as a supervisory measure (Annex, Article 16) and CBU’s power to order liquidation of a credit institution is subject to prior revocation of its license (Annex, Article 35). - Except in cases of inactivity for at least one year or a request by the credit institution itself, a license can be revoked only as a result of disciplinary proceedings subject to a finding of regulatory or statutory violation and completion of an adversarial procedure. - CBU’s inability to liquidate non-systemic entities deemed nonviable through other than disciplinary procedures raises concerns about expeditiousness in resolution contexts. ### Auxiliary measures missing or limited — operational implications - Absence of explicit exemption from obligation to give prior notice to shareholders or to obtain their consent before exercising CBU powers. - No explicit power for CBU to terminate preemptive rights of a failing institution’s shareholders. - Other gaps specific to implementation of certain resolution strategies noted. ### Transfer of business segments, AMCs, and operational risks - Power to fully or partially transfer an entity's business segments (Annex, Article 53-4) is exposed to legal or operational risks. - Circular 3-2020, Article 14: transfer of a business segment entails transfer of all assets and liabilities and associated rights and obligations. - Symmetrical power to transfer assets or liabilities back to the institution in resolution, subject to transferee's consent. - Transferee type (bank or non-bank) not specified; transfer could be to a credit institution or to an asset management company (AMC). - Use of AMC is not explicitly in the Annex (Article 53) but exists in the region outside the formal resolution framework. - Operational considerations: - Transfer to existing institution: efficient for small institutions and depositors, but CBU must be able to (i) liquidate remaining shell after transfers; and (ii) raise sufficient financing to cover any gap between value of assets and transferred liabilities. - Transfer of extinguished claims to an AMC: mixed efficacy; advantages for centralized management of homogeneous nonperforming loans, but risks if governance inadequate, transfer prices improperly valued, or host loses access to client management information. - Recommendation: limit AMC transfers to a centralized management company model, support with sound governance, transparent objectives, appropriate selection and fair valuation, and mobilization of funding at least cost; use only in the context of a resolution procedure, possibly jointly with other resolution measures. ### Bridge entity authority — need for clarity - CBU may create a bridge institution to transfer provisionally all or part of assets, rights, obligations, or shares of the entity in resolution (Annex, Articles 53-5 and 53-6). - Supervisory Board (Circular 3-2020, Title IV, Section 2) responsible to promptly issue a license to a bridge institution, approve board and senior management, and, if necessary, restrict scope of activities or impose specific prudential requirements. - Uncertainties: - Timeliness of issuing licenses is far from certain. - Repartition of bridge institution’s capital is indetermined: capital subscribed by "one or more public entities or the FGDR-UMOA." - Recommendation: eliminate uncertainties regarding licensing and shareholding structure so bridge institutions can be created quickly and operate at full capacity. ### Bail-in powers — scope, transparency, and systemic risks - Power to reduce creditor claims included in resolution mechanism (Annex, Article 53-8): CBU may impose capital reduction, write-off of capital or debt instruments, or conversion of debt instruments, providing a potential source for bail-in. - Bail-in power is established in principle with no explicitly indicated limits on scope of application. - Funding structure context: retail customer deposits constitute 81 percent of total refinancing for WAEMU institutions. - Concerns: - Predominance of retail deposits means bail-in principle poses a significant but largely undefined threat to this funding source and could undermine financial stability. - Risk of loss to depositors in bail-in similar to liquidation or transfer of activities; should be counterbalanced by safeguards to exclude depositors insured by the FGDR-UMOA from scope of write-downs or conversion. - Lack of transparency on bail-in modalities: - No information on scope of application, terms of exercise (write-downs or conversion), consideration of hierarchy of claims in liquidation, standards for asset valuation, or availability of safeguards for creditors. - This lack of transparency could affect depositor and creditor confidence and exacerbate financing difficulties through contagion. - Recommendation: re-examine bail-in structure and define precisely scope and conditions for implementation (see FSB’s “Principles of Bail-In Execution,” June 2018). Carefully review inclusion of deposits, especially retail deposits, and ensure transparency and legal certainty for treatment of shareholders, depositors, and other creditors. ### Systemic institutions and internal loss-absorption capacity - Resolution of systemic institutions without recourse to public funds should not be considered until these institutions have built up adequate internal loss-absorption capacity. - Given retail deposits generally provide little or no contribution to an institution’s loss-absorption capacity, recommendation to require systemic institutions to strengthen their eligible buffers in case of resolution. ### Recommendations (resolution powers and related measures) - Clarify that appeals to resolution decisions can only be remedied by financial compensation, except in cases where the CBU’s decision was made in bad faith or illegally. - Authorize the CBU to require that critical services and essential functions continue to be provided, regardless of the resolution measures taken (directly by operating entities within a group — regulated and unregulated — or via the failing institution’s service contracts). - Include liquidation in the collection of available resolution measures, without subjecting this measure to the opening of a disciplinary procedure; liquidation measures should include both the institution placed in resolution and any residual entity after transfer of certain segments. - Exempt the CBU from the obligation of providing prior notice to shareholders of the measures it decides to take and from the obligation to obtain shareholder consent before exercising its powers. - Authorize the CBU to terminate shareholders’ preemptive rights in case of resolution. - Make inclusion of mechanism for nonperforming loans transfers to an AMC in the resolution framework subject to a robust cost-benefit analysis and strict safeguards. - Remove legal or operational uncertainties related to establishment of a bridge facility; if necessary, authorize the CBU to transfer back assets or liabilities to the institution in resolution, subject to appropriate guarantees. - Review the appropriateness of the bail-in resolution measure and, at minimum, specifically define its scope of application and conditions of implementation. - Introduce a program for gradually strengthening SIB’s internal loss-absorption capacity in case of resolution. ### Guarantees and safeguards — current status and shortcomings - Guarantees recommended by the Key Attributes appear included only through: ability to appeal CBU decisions to the CM and right of any creditor wrongfully harmed to receive compensation. - These guarantees should be substantially strengthened to prevent adverse consequences of improper use of resolution measures. - Key weaknesses: - Uncertain compensation: compensation available to creditors who “do not receive, at a minimum, what they would have received if the entity had been liquidated” is left to the Resolution Board’s discretion and is not a general right; scheme provides compensation “if the resolution procedures lead to liquidation of the failed entity” (Annex, Article 54), thereby excluding the specific case of resolution. - Limited protections: no legal protection (immunity or right to compensation) for directors, management, personnel of the entity in resolution, or for CBU-appointed special administrator, if they acted in good faith and in accordance with CBU’s decisions and instructions. - Unclear priority of claims: resolution measures, notably bail-in, should be applied in accordance with the priority of claims in liquidation; current banking law appears to assign preferential rank to depositors but subject to limits left to discretion of judicial authority; judicial discretion on reimbursement limits may not correspond to FGDR-UMOA compensation limit and could expose FGDR-UMOA to greater losses. - Valuations needed: resolution mechanism does not mention requirement for valuation when resolution is initiated nor specify that it be conducted through a thorough, transparent, and independent process. - Unspecified limits on suspensions: scheme authorizes CBU, upon initiation of resolution, to suspend counterparties’ rights (invoke acceleration clauses or exercise right to terminate and set off) but strict conditions on duration, scope, or modalities are lacking; recommendation that suspension be specifically limited to a maximum of two days and cease if the entity in resolution (or its successor) does not fulfill contractual obligations (clarify Article 32 of Circular 3-2020). ### Recommendations (guarantees and safeguards) - In the Annex to the Convention, clarify that in a resolution context, a creditor receives treatment at least equal to what it would have received in case of liquidation. - Authorize the CBU to order issuance of warrants to former shareholders or former holders of subordinated debt whose claims were extinguished. - Institute legal protection for directors, executives, and employees of the entity in resolution, and for the special administrator appointed by the CBU, if they act in good faith and in accordance with the CBU’s instructions. - In the Annex to the Convention, clarify that any resolution measures should be applied in accordance with the priority of claims in liquidation, allowing departure from equal treatment of creditors of the same class if necessary to contain systemic impact or to maximize value for all creditors as a whole. - Clarify in the Banking Law that the preferential rank of depositors in case of liquidation does not entail limits. - Introduce an explicit requirement in the legal framework for valuations to be conducted at the inception of resolution and thereafter according to a thorough, transparent, and independent process. - Limit the conditions under which the CBU may suspend the right to invoke acceleration clauses or the right of termination and set-off by counterparties of the entity in resolution. *Excerpt from IMF assessment (West African Monetary Union) contained in 1wauea2022006 - 37.* ### 48. The primary mission of the Deposit Guarantee Fund, renamed the FGDR-UMOA in ### The primary mission of the Deposit Guarantee Fund, renamed the FGDR-UMOA in 2017 ### Mandate and scope - Primary mission: protect deposits received by credit institutions and DFS. - Legal status: independent legal status and financial autonomy. - Organizational design: composed of two distinct, standalone funds dedicated to the two types of institutions and funded by their respective contributions. - At end-2019: - 73 percent of total deposits and over 90 percent of depositors were eligible for guarantees. - Given the CFAF 1.4 million and 0.3 million compensation limits for credit institutions and DFS, respectively, the share of total insured depositors is a combined 61 percent, or 70 percent and 50 percent, respectively. - Covered deposits represented 68 percent of total deposits; 32 percent of deposits remain exposed to market discipline. ### Coverage, exclusions, and comparative context - Ineligible deposits are clearly defined in the revised FGDR-UMOA charter and include foreign currency deposits (negligible in the WAEMU). - Comparative metrics: - At end-2020, median coverage of deposits observed by the IADI throughout Africa was 26 percent (2020 IADI Annual Survey), leaving 74 percent of deposits exposed. - Within WAEMU, exposure was 32 percent, closer to Europe (about 38 percent). - Rule-of-thumb (IADI March 2013): 80 percent of depositors are fully covered, but only 20 percent of deposits are fully covered. ### Governance: gaps and risks - Role in resolution funding is new and mechanisms need strengthening legally, regulatorily, and operationally. - Legal framework issues: - Does not yet guarantee optimal internal governance or complete independence. - Board of Directors holds ultimate authority but Board independence is significantly limited. - Board can issue proposals but not take decisions on key aspects (e.g., member contribution rates and depositor compensation modalities are set by the CM). - Board composition and conflict-of-interest risks: - Industry representatives account for half of the Board; decisions adopted by simple majority. - Quorum rules require two-thirds of members present (or represented). - The involvement of active bankers may hinder cooperation with foreign banking authorities. - BCEAO governor serves as ex officio chair of the Board, potentially weakening independence. - Legal protections and liability: - Fund cannot be liable for losses incurred as a result of assistance except in case of fraud (2018 Charter, Article 36). - No legal protection for abstention in good faith or for current/former directors, executives, and employees from legal action following actions taken in good faith. - Ratification of the memorandum of understanding between the FGDR-UMOA and WAEMU member states (Article 44) is intended to cover this gap. - Suitability and integrity requirements: - Suitability tests (fit and proper) apply only to WAEMU member state representatives, not industry representatives. - No appropriate requirements for FGDR-UMOA Management (director and deputy director); director selected via BCEAO call for applications; deputy director appointed by Board on BCEAO governor recommendation. - Internal control and audit gaps: - Charter does not include a requirement about internal control or internal audit; internal audit function is not staffed. - Investment management procedure centralizes many functions under "officer in charge of management and finance" that would typically be distributed across front/middle/back offices and risk management. - Transparency: - Law does not specify FGDR-UMOA’s mandate or extent of powers; right to contribute to resolution funding embedded in 2018 Charter. - Positive steps: website launch, online publication of regulatory provisions, missions and financial education program, and annual reports. - Critical gap: lack of information for depositors on indemnification procedures; a circular is pending validation to address this. ### Operational preparation: progress and shortcomings - Staffing and logistics: - Staffing increased to seven persons (including the director) with ongoing training and international seminar participation. - Information and reporting system initiated in 2018 with BCEAO assistance to automate: (i) collection of data on deposits; (ii) calculation of contributions; and (iii) creation of a platform for depositor compensation providing a single consolidated view by institution of covered deposits held under each customer’s name. - Only the first phase of the project was completed—and for credit institutions only—by end-September 2021. - Without internal resources to develop and maintain the information system, FGDR-UMOA remains highly dependent on the BCEAO. - Risk-based premiums and single-customer view: - Project underway since 2018 to introduce premiums differentiated by member risk profiles, based on methodology similar to WAMU’s Rating System for Credit Institutions; rapid implementation is critical to reduce moral hazard. - Need to develop reporting: consolidated amount of covered deposits per customer ("single customer view") and member risk profiles (based on member reports or CBU-transmitted profiles under a recently signed protocol). - Compensation timeframe and testing: - Legally, BCEAO or the CBU determines deposits are unavailable and refers matter to the Fund for reimbursement up to regulatory limits. - Pending circular expected to set reimbursement period at three months, exceeding the IADI recommended seven-day period. - FGDR-UMOA has not yet intervened or simulated compensating depositors; a joint simulation with BCEAO and a pilot institution was expected by end-2021. ### Financing capacity and targets - Target reserves: - Comprehensive target of CFAF 100 billion in available reserves set in 2018, to be built over a 10-year horizon. - Calibration based on assumption of simultaneous failure of eight medium-sized banks in the WAEMU. - Target corresponds to 0.45 percent of eligible deposits based on end-2019 data. - Contribution burden and investment policy: - Horizon allowed relatively small contribution from member institutions, averaging 0.7 percent of financial institutions' net banking income. - Investment policy: low risk tolerance, preference for low risk and high liquidity instruments, limitation of average life of portfolio investments to less than five years, specification of intervention limits by state and by credit institution. - Discussions with BCEAO underway for backup financing line and access to BCEAO refinancing window. - End-2020 reserves and shortfall: - At end-2020, available reserves: CFAF 34.6 billion (credit institutions) and CFAF 6.5 billion (DFS). - For credit institutions, reserves cover eligible deposits for the 16 smallest firms reporting at end-2020, or only 4.9 percent of total assets held by all institutions. - Collection rates for DFS (publication dates of Fund's annual reports): 74 percent (2019) and 84 percent (2020). - Use of further ex post contributions is not deemed desirable due to procyclicality. - Need for recalibration: - Target appears insufficient given desired coverage level and extension of mandate to include resolution funding. - Target should be set as a percentage of eligible deposits. - Recommendation to reconsider arbitrage between coverage level and funding target and pace of accumulation to ensure capacity to fulfill mandate over a shorter horizon. - Recalibration could rely on WAMU’s Rating System for Credit Institutions to estimate probability of default and criticality of associated losses net of recoveries; methodology should be transparent and publicly accessible. ### Recommendations (as stated) - Confer decision-making authority to the FGDR-UMOA Board on key aspects of its terms of reference, including member contribution rates and modalities of depositor compensation. - Prohibit active representatives of industry associations from carrying out business activities (or entering into business relationships) with any member of the Fund for the duration of their terms. - Strengthen the Fund’s internal governance (internal controls, internal and/or external audits, transparency mandate, and independent performance review mechanisms). - Put in place an information system that: - (i) provides an up-to-date, consolidated view of covered deposits by customer at each institution; and - (ii) incorporates the CBU analysis of member risk profiles; and introduce a differentiated system of contributions based on risk profiles. - Implement an action plan to reduce the compensation period to seven days and conduct operational feasibility tests of the process. - Reconsider the terms of arbitrage between: - (i) the level of deposit coverage; and - (ii) the funding target available. - This recalibration should be part of an ambitious action plan based on a transparent, publicly accessible methodology and meant to quickly build the Fund’s reserves needed to compensate eligible depositors in case of a concurrent failure of multiple medium-size entities. - Raise member contributions to enable the FGDR-UMOA to achieve the target ratio over the medium term (in three to four years), while also covering its operating expenses. ### Resolution funding: system vulnerabilities and implications - Criticality: - Resolution funding is critical for a system with weak internal loss-absorption capacity to minimize taxpayer costs. - System metrics and vulnerabilities: - Average capital ratio: 11.6 percent at end-2020, with strong heterogeneity across member state entities and high loan concentration. - Detailed bank-level data reveal numerous vulnerabilities and lack of internal loss-absorption capacity, which would be striking in the event of resolution. - Scarcity of refinancing other than deposits eligible for bail-in exacerbates weakness. - Use or threat of resolution measures would likely trigger massive run-on deposits and adverse contagion effects throughout the financial system. *Source: Excerpt from IMF chapter on the FGDR-UMOA (Deposit Guarantee Fund), 2017–2021 materials.* ### 63. Given the scarcity of available internal resources within the banking system, it is ### 1wauea2022006 - 63. ### Resolution funding and the role of the FGDR-UMOA - Given the scarcity of available internal resources within the banking system, it is essential to set up resolution funding mechanisms, with an important potential role for the FGDR-UMOA. - The legal framework does not provide an option other than recourse to the FGDR-UMOA, nor does it clarify the type of support (e.g., liquidity or solvency support) that the Fund could provide. - Under the 2018 Charter, the FGDR-UMOA is charged with financing resolution actions at the CBU's request (2018 Charter, Article 6), which can only take place after all private financing solutions have been exhausted. - The FGDR-UMOA is not informed until late in the process (i.e., only when the CBU requests its participation), and therefore is not necessarily involved in preliminary stages of deciding on resolution measures.32,33 - There is no indication of the modalities of the FGDR-UMOA’s contributions to resolution funding, including no requirement for a "least-cost" intervention.34 ### FGDR-UMOA operational capacity and credibility - The FGDR-UMOA's operational capacity to contribute to resolution funding currently appears uncertain and should be strengthened and better aligned with international standards. - The Fund's available funds represented only 0.12 percent of total insured deposits at end-2019. - The Fund's funding base could be supported by grants, subsidies, loans, or supplemental contributions from member institutions, but it is doubtful such resources could be mobilized on an urgent basis. - Priority should be to strengthen the FGDR-UMOA's credibility by demonstrating capacity to compensate depositors should a significant number of small institutions or several medium-size institutions fail; until then, its potential contribution to financing any bank resolution remains highly conjectural. ### Need for an action plan and backstop mechanism - These reservations underscore the need for an action plan to define ambitious objectives for ensuring adequate FGDR-UMOA resources and establish credible support facilities. - Given the Fund's limited cash flow, the priority is to boost its capacity to fulfill its primary function of deposit insurance; reaching its target ratio for a fully pre-financed cushion is doubtful in the short to medium term. - A prudent approach would be to immediately introduce a backstop mechanism to allow rapid mobilization, thereby avoiding the need for pre-financing, including via a resolution fund separate from the FGDR-UMOA. - The creation of a second fund financed ex ante is noted as not in line with the optimal allocation of resources in the region's financial system.35 ### Safeguards to mitigate moral hazard for public backstops - Large-scale financial support in an emergency can only be provided from public sources and should involve the member states; such support must include strict guarantees to minimize moral hazard in line with international best practices.36 - Any public financing should be: - (i) provided as a last resort after all sources of private financing have been exhausted and solely for the purpose of preserving financial stability; - (ii) subject to modalities (e.g., on pricing, maturity, collateralization, and/or intrusive surveillance) to encourage prompt repayment; - (iii) combined with a mechanism to recover potential losses from shareholders and unsecured creditors, or from the financial system. - Determining the distribution of contributions of each member state is sensitive; a preferred approach is to pool contributions across states to mitigate the bank-sovereign nexus in the WAEMU, implemented gradually.37 - An alternative is to negotiate backstop assistance from the FSF, but its mandate would need to be extended to include mitigation of propagation risk of banking crises as well as sovereign crises.38 ### Key recommendations on resolution funding - Integrate the FGDR-UMOA in the early warning process for vulnerable institutions and their potential resolution. - Introduce a requirement for a “least-cost” intervention in the FGDR-UMOA’s contributions to bank resolution funding, including in determining the contribution amounts. - Establish a public backstop mechanism for the FGDR-UMOA—involving the member states on a pooled basis or the FSF—to ensure rapid mobilization of resources required to finance a bank resolution, with strict safeguards to mitigate moral hazard. ### Emergency plans, crisis management preparation, and institutional framework - The financial safety net comprises multiple stakeholders with well-defined mandates (BCEAO units, national directorates, CBU Secretariat General, WAEMU Regional Public Investment and Financial Markets Board, WAEMU Insurance Company Supervisory Commission, FGDR-UMOA, and foreign supervisory and resolution authorities). - An appropriate institutional framework should be established among all actors to facilitate cooperation in crisis situations and establish better operational preparedness. A. Intra-Regional mechanisms and information exchange - The legal framework grants the CBU access to any information deemed useful for exercising its powers, permitting information provision to other supervisory or resolution authorities subject to cooperation agreements. - The CBU has signed a convention with the WAEMU Regional Public Investment and Financial Markets Board, a memorandum of understanding with the FGDR-UMOA, and a charter with insurance and pension regulators. - The FGDR-UMOA is authorized to enter into cooperation agreements with any other authority as needed. - Permanent members of the CBU Resolution Board include the BCEAO governor, the member state representative who chairs the CM, and the FGDR-UMOA director, and the minister of finance affected by the resolution. - The CSF-UMOA, created in 2010, provides a framework for multilateral discussions and could serve as a forum for crisis preparation and management; it generally meets semiannually and its internal regulations require continuous information exchange, but it has not prepared a crisis management plan or conducted simulation exercises. B. Gaps in information sharing and membership - The FGDR-UMOA is authorized to receive information from the BCEAO and the CBU but only for entities whose resolution it has been asked to fund (i.e., at a late stage).39 - The FGDR-UMOA is not a member of the CSF-UMOA, despite its potential central role in resolution funding and crisis management. - Recommendations: - Include the FGDR-UMOA in the composition of the CSF-UMOA. - Amend the FGDR-UMOA charter to introduce obligations of confidentiality and reciprocity in information sharing within exchange agreements with foreign authorities and conclude necessary agreements. - Introduce in the legal framework a recommendation that the CBU assess the impact on financial stability in other jurisdictions when adopting a national resolution measure. - In CBU–foreign authority agreements, introduce an explicit obligation to cooperate and coordinate on addressing bank difficulties and resolving crises, and to cooperate in the preparation of resolution plans, at least for SIBs. - If the CBU does not participate in crisis management groups for G-SIBs, strengthen and institutionalize cooperation with home country authorities, particularly on resolvability and implications of resolution strategies for WAEMU financial stability. C. Cross-border coordination and resolution colleges - The legal framework recognizes cross-border information sharing; the CBU has signed agreements with nine supervisory authorities, while the FGDR-UMOA has signed only one (with a foreign guarantee fund). - The existing agreements often lack resolution-specific coordination requirements; only four of nine include an explicit requirement to coordinate on financial market difficulties and resolving crises, and only one provides for coordination on preparation of resolution plans or participation in a crisis management committee. - The CBU has not established resolution colleges for groups of which it is the home country authority, does not participate in any resolution college as host country authority, and is not a member of any crisis management group established by foreign authorities—weaknesses that affect resolvability reviews and preparation of initial resolution plans. D. Crisis management plans and simulation exercises - A nine-step procedure defined by the CBU Resolution Board applies when an entity's failure could significantly impact one or more WAEMU member states.42 - The nine steps: (i) resolution preparation; (ii) request for resolution of an entity; (iii) initiation of resolution procedure; (iv) takeover of the entity; (v) request for FGDR-UMOA intervention; (vi) consultation and selection of potential acquirers; (vii) application of resolution measures; (viii) monitoring of the resolution procedure; and (ix) close-out of the resolution procedure. - The CSF-UMOA—expanded to include the FGDR-UMOA—could serve as the framework for preparing a crisis management plan involving all stakeholders, with dedicated committees or task forces aligned with WAEMU geographic scope. - Crisis simulation exercises have not yet been conducted; objectives of such exercises include testing operational aspects of crisis management plans, internal procedures, adequacy of mandates, legal robustness of information exchange, interoperability of information systems, and feasibility of resolution strategies. - Recommended sequencing: first conduct exercises at the regional level, then extend to cooperation with non-WAEMU authorities. E. Recommendations on crisis preparedness - Establish a crisis management plan, preferably in a multilateral context under the auspices of the CSF-UMOA or a dedicated committee yet to be set up. - Conduct crisis simulation exercises at the regional level and, in the longer term, extend these to account for cooperation with non-WAEMU authorities. *Source: 1wauea2022006 - 63.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1wauea2022006.pdf_