## _100510c - Sections 1 and 2 ## Source details **Canonical URL:** [_100510c - Sections 1 and 2](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2010/_100510c.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2010/_100510c.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2010/_100510c.pdf.json) --- ### INTRODUCTION - Document title: Guidance Note for Staff on Undertaking Targeted (Risk-Based) Reports on the Observance of Standards and Codes (ROSCs) in Financial Regulation and Supervision. - Prepared by: Monetary and Capital Markets Department and the Financial and Private Sector Development Vice Presidency, World Bank. - Approved by: Jose Viñals and Janamitra Devan. - Date: October 5, 2010. - Context and objectives: - In September 2009, the IMF and the World Bank Boards approved changes to the Financial Sector Assessment Program (FSAP) to: (i) make it more flexible and better-aligned with country needs as well as IMF and WB financial sector priorities and core responsibilities; (ii) enhance the quality, candor, and comparability of assessments; and (iii) better-integrate FSAP analysis into the institutions’ evolving mandates. - Key reform: mission teams in FSAP updates can choose either a full reassessment or a targeted (risk-based) ROSC update for Core Principles for banking, securities, and insurance regulation when an initial full assessment has been previously carried out. - Targeted ROSC updates are intended to improve on factual updates by providing a more robust and comparable approach in FSAP updates; they do not replace full assessments. - Targeted ROSCs in stand-alone ROSC updates are not precluded but not encouraged. ### CRITERIA AND GUIDANCE FOR USE - Applicability limits: - Targeted assessments available except if: (i) time elapsed between initial assessment and reassessment exceeds seven years; or (ii) a substantive overhaul of the standards was undertaken by the standard-setting body since the earlier assessment. In both cases, a full reassessment is mandatory. - Decision basis: - Mission teams decide on principles to reassess based on evaluation of relevant risks and vulnerabilities, country knowledge, ongoing surveillance, other country work, and results of previous assessments. No ex ante primacy to any principle. - Six disaggregated criteria are provided (use together; presumption in favor of reassessment when criteria met; findings should be contrasted and informed by other criteria and a holistic review). - Criterion 1: - Principles where significant weaknesses in implementation were found during the previous assessment. - Methodology uses a four-level rating scale. Significant deficiencies exist when rated in the last two categories: - Basel: materially noncompliant and noncompliant. - IOSCO: partly implemented or not implemented. - IAIS: partly observed or not observed. - Presumption: any principle previously assigned such ratings by IMF or WB should be reassessed. - “Not applicable” rated principles will not be reassessed unless conditions prompting that rating no longer apply. - Criterion 2: - Principles associated with key areas of risk or development identified by an earlier or ongoing FSAP, bilateral surveillance missions, or country work. - Mission should analyze key findings from earlier FSAPs, surveillance, country work, and preliminary findings from ongoing FSAPs to inform selection. - Criterion 3: - Principles connected to key areas of risks or regulatory gaps identified during regional or multilateral surveillance. - Regional and multilateral surveillance (examples include GFSR, WEO, IMF vulnerability exercises) and thematic reviews by standard-setting bodies can identify recurring risks or gaps. - Criterion 4: - Principles that have been significantly revised (or newly established) by the standard setters since the last assessment. - A review of a principle by a standard-setting body presumes reassessment; review includes changes to criteria or methodology. - If a standard-setting body conducts a substantive overhaul of the standards, a complete assessment and ROSC are warranted. - IMF and WB will jointly assess changes approved by a standard-setting body and provide guidance on whether changes amount to a substantive overhaul and which principles should be reassessed; feedback from the corresponding standard setter should be requested. - Criterion 5: - Principles affected by material changes in the structure of financial supervision or in laws and regulations. - Examples of material changes: creation of new agencies; merger of existing agencies; changes in allocation of responsibilities between agencies; changes to structure of an existing agency. - Such events trigger a presumption in favor of evaluation of principles that relate directly to the regulator: - Basel: Principle 1. - IOSCO: Principles 1 to 8. - IAIS: Principles 2 to 5. - Significant structural or legal/regulatory changes may warrant a complete assessment and ROSC rather than a targeted update. - Criterion 6: - Principles that deal with institutions/products/markets that have experienced significant growth or activity since the last FSAP. - Rapid growth could create unmanaged risks; mission encouraged to use quantitative information and authorities’ self-assessment to determine whether new risks have developed. - Significant market changes may warrant a complete reassessment and ROSC. ### DECISION ON COVERAGE - Pre-assessment and early decisions: - Mission team should conduct a rigorous pre-assessment review to decide principles to reassess. - Decisions on which standards and codes are undertaken and the standards assessors involved should be made at an early stage; standards assessors should participate in scope discussions. - Preliminary scope decision by mission chief based on mission team discussions, including standards assessors; sources include bilateral and regional surveillance country work and previous FSAP assessments. - Mission team encouraged to request feedback from relevant IMF and WB staff and to consult relevant staff in applying Criterion 4. - Communication and authorities’ input: - Preliminary decisions should be communicated to authorities early; their views on scope should be requested. - Authorities required to submit a complete self-assessment based on available methodologies and quantitative data as required in a full assessment; also required to submit information necessary to assess compliance with newly-developed principles not yet covered by methodologies. - Mission should encourage authorities’ input on scope when self-assessment prepared. - Final decision and flexibility: - Based on pre-assessment review, mission chief makes final decision on coverage of targeted ROSC. Decision should: - Contain list of principles to be reassessed and brief explanation referencing criteria used. - Provide brief explanation for exclusion of a principle when that principle triggered at least one criterion or was requested for reassessment by authorities. - Be communicated to authorities. - Mission chiefs have flexibility to amend choice of principles in field in response to emerging information and changing priorities, but changes only in consultation with relevant IMF and WB staff. ### CONTENT AND FORMAT OF THE TARGETED ASSESSMENT AND ROSC - Documents produced: - Two documents: the ROSC and the Detailed Assessment Report (DAR). - Structure and content should follow existing templates for initial assessments, with changes and clarifications set out in the guidance note. - The DAR and ROSC should carry over all principles from previous assessment not reassessed during the update to foster transparency. - Both DAR and ROSC should explicitly identify: - Principles that have been reassessed. - Principles carried over from previous assessments. - Standards assessors should discuss and document progress made on implementation of recommendations from previous assessments in both DAR and ROSC, even if those principles were not reassessed. ### PROCEDURES AND REVIEW PROCESSES - Formal procedures: - Same formal procedures and review processes that apply to initial ROSCs apply to targeted ROSC updates to ensure consistent application of the targeted approach. ### GUIDANCE FOR WRITING TARGETED ASSESSMENTS AND ROSCS IN FINANCIAL REGULATION AND SUPERVISION - Outputs and format: - As with initial assessments, two documents produced: ROSC and DAR; structure and content follow full-assessment templates with additions/clarifications. - ROSC—Executive Summary: - One-paragraph executive summary should highlight the targeted, or risk-based, nature of the assessment and the principles that have been reassessed, along with key relevant findings. - ROSC—Introduction: - Should indicate targeted nature and context (e.g., part of an FSAP update). - Should mention name and qualifications of assessor(s) and date of initial (or most recent full) assessment. - ROSC—Scope: - Should clearly indicate principles reassessed with explanation of reasons supporting their selection. ### SECTION 2 — INTRODUCTION AND REPORT STRUCTURE - Selection statement example: - “The selection of the principles to be reassessed was made by the mission team based on an analysis of the risks and vulnerabilities of country X, informed by the findings from previous assessments, as well as country work, bilateral, multilateral, and regional surveillance. The process followed for the identification of the principles that needed reassessment did not suggest the need to reassess other principles.” - Report must indicate: - Specific principles reassessed and specific reasons (with reference to the criteria used) for their selection. - That findings and grades for principles not reassessed have been carried over from the initial assessment to provide a complete view. ### INFORMATION, METHODOLOGY, AND INSTITUTIONAL CONTEXT - Information and Methodology: - “There are no changes in relation to the template for the full ROSC.” - Institutional and Market Structure—Overview: - Section should provide a general overview of the main changes since the previous ROSC/FSAP in regard to market structure and development; laws and regulations; and the supervisory framework, which are relevant for the purposes of the update. - Assessor encouraged to use key sector indicators obtained from the data questionnaire, other mission members, and other sources. ### PRECONDITIONS FOR BASEL CORE PRINCIPLES AND IOSCO ASSESSMENTS - Findings from previous assessments will be carried over, except if preconditions were subject to reassessment. - In case findings are carried over, section should start with the heading: - “The initial assessment included the following findings in regard to preconditions.” ### MAIN FINDINGS AND TABLES - Main Findings: - Section should summarize key findings of the detailed assessment and cover all principles, not only those being reassessed; assessor will rely in part on findings from the initial assessment. - Tables required: - One table (identical to Table 1A of the templates) conveying degree of compliance with brief description of strengths and weaknesses; the table should not include grades and should include the heading: - “Only principles XX have been reassessed. The summary of key findings for principles XX has been carried over from the initial (or most recent full) assessment conducted in XX, in order to provide a complete view.” - A second table (identical to Table 1B of the templates) setting out the detailed principle-by-principle assessment with main findings, comments, and grades; the table should include the heading: - “Only principles XX have been reassessed. The description, comments, and grades for principles XX have been carried over from the initial (or most recent full) assessment conducted in XX, in order to provide a complete view.” - The date of the assessment should be indicated for each principle. ### RECOMMENDED ACTION PLAN, AUTHORITIES’ RESPONSE, AND DAR - Recommended Action Plan and Authorities’ Response: - The table of recommendations should carry over the recommendations from previous assessments and discuss any progress in their implementation. - The Detailed Assessment Report (DAR): - No changes from the template for the initial assessment, except the detailed assessment will start with the heading: - “Only principles XX have been reassessed. The description, comments, and grades for principles XX have been carried over from the initial (or most recent full) assessment conducted in XX, in order to provide a complete view. The selection of the principles that have been reassessed was done by the mission team based on an analysis of the risks and vulnerabilities of country X, informed by the findings from previous assessments, as well as country work, bilateral, multilateral, and regional surveillance. The process followed for the identification of the principles that needed reassessment did not suggest the need to reassess other principles.” *Source: Guidance Note for Staff on Undertaking Targeted (Risk-Based) Reports on the Observance of Standards and Codes (ROSCs) in Financial Regulation and Supervision, October 5, 2010.* ### Section 1 ### _100510c - Section 1 ### INTRODUCTION - Document title: Guidance Note for Staff on Undertaking Targeted (Risk-Based) Reports on the Observance of Standards and Codes (ROSCs) in Financial Regulation and Supervision. - Prepared by: Monetary and Capital Markets Department and the Financial and Private Sector Development Vice Presidency, World Bank. - Approved by: Jose Viñals and Janamitra Devan. - Date: October 5, 2010. - Context and objectives: - In September 2009, the IMF and the World Bank Boards approved changes to the Financial Sector Assessment Program (FSAP) to: (i) make it more flexible and better-aligned with country needs as well as IMF and WB financial sector priorities and core responsibilities; (ii) enhance the quality, candor, and comparability of assessments; and (iii) better-integrate FSAP analysis into the institutions’ evolving mandates. - Key reform: mission teams in FSAP updates can choose either a full reassessment or a targeted (risk-based) ROSC update for Core Principles for banking, securities, and insurance regulation when an initial full assessment has been previously carried out. - Targeted ROSC updates are intended to improve on factual updates by providing a more robust and comparable approach in FSAP updates; they do not replace full assessments. - Targeted ROSCs in stand-alone ROSC updates are not precluded but not encouraged. ### CRITERIA AND GUIDANCE FOR USE - Applicability limits: - Targeted assessments available except if: (i) time elapsed between initial assessment and reassessment exceeds seven years; or (ii) a substantive overhaul of the standards was undertaken by the standard-setting body since the earlier assessment. In both cases, a full reassessment is mandatory. - Decision basis: - Mission teams decide on principles to reassess based on evaluation of relevant risks and vulnerabilities, country knowledge, ongoing surveillance, other country work, and results of previous assessments. No ex ante primacy to any principle. - Six disaggregated criteria are provided (use together; presumption in favor of reassessment when criteria met; findings should be contrasted and informed by other criteria and a holistic review). - Criterion 1: - Principles where significant weaknesses in implementation were found during the previous assessment. - Methodology uses a four-level rating scale. Significant deficiencies exist when rated in the last two categories: - Basel: materially noncompliant and noncompliant. - IOSCO: partly implemented or not implemented. - IAIS: partly observed or not observed. - Presumption: any principle previously assigned such ratings by IMF or WB should be reassessed. - “Not applicable” rated principles will not be reassessed unless conditions prompting that rating no longer apply. - Criterion 2: - Principles associated with key areas of risk or development identified by an earlier or ongoing FSAP, bilateral surveillance missions, or country work. - Mission should analyze key findings from earlier FSAPs, surveillance, country work, and preliminary findings from ongoing FSAPs to inform selection. - Criterion 3: - Principles connected to key areas of risks or regulatory gaps identified during regional or multilateral surveillance. - Regional and multilateral surveillance (examples include GFSR, WEO, IMF vulnerability exercises) and thematic reviews by standard-setting bodies can identify recurring risks or gaps. - Criterion 4: - Principles that have been significantly revised (or newly established) by the standard setters since the last assessment. - A review of a principle by a standard-setting body presumes reassessment; review includes changes to criteria or methodology. - If a standard-setting body conducts a substantive overhaul of the standards, a complete assessment and ROSC are warranted. - IMF and WB will jointly assess changes approved by a standard-setting body and provide guidance on whether changes amount to a substantive overhaul and which principles should be reassessed; feedback from the corresponding standard setter should be requested. - Criterion 5: - Principles affected by material changes in the structure of financial supervision or in laws and regulations. - Examples of material changes: creation of new agencies; merger of existing agencies; changes in allocation of responsibilities between agencies; changes to structure of an existing agency. - Such events trigger a presumption in favor of evaluation of principles that relate directly to the regulator: - Basel: Principle 1. - IOSCO: Principles 1 to 8. - IAIS: Principles 2 to 5. - Significant structural or legal/regulatory changes may warrant a complete assessment and ROSC rather than a targeted update. - Criterion 6: - Principles that deal with institutions/products/markets that have experienced significant growth or activity since the last FSAP. - Rapid growth could create unmanaged risks; mission encouraged to use quantitative information and authorities’ self-assessment to determine whether new risks have developed. - Significant market changes may warrant a complete reassessment and ROSC. ### DECISION ON COVERAGE - Pre-assessment and early decisions: - Mission team should conduct a rigorous pre-assessment review to decide principles to reassess. - Decisions on which standards and codes are undertaken and the standards assessors involved should be made at an early stage; standards assessors should participate in scope discussions. - Preliminary scope decision by mission chief based on mission team discussions, including standards assessors; sources include bilateral and regional surveillance country work and previous FSAP assessments. - Mission team encouraged to request feedback from relevant IMF and WB staff and to consult relevant staff in applying Criterion 4. - Communication and authorities’ input: - Preliminary decisions should be communicated to authorities early; their views on scope should be requested. - Authorities required to submit a complete self-assessment based on available methodologies and quantitative data as required in a full assessment; also required to submit information necessary to assess compliance with newly-developed principles not yet covered by methodologies. - Mission should encourage authorities’ input on scope when self-assessment prepared. - Final decision and flexibility: - Based on pre-assessment review, mission chief makes final decision on coverage of targeted ROSC. Decision should: - Contain list of principles to be reassessed and brief explanation referencing criteria used. - Provide brief explanation for exclusion of a principle when that principle triggered at least one criterion or was requested for reassessment by authorities. - Be communicated to authorities. - Mission chiefs have flexibility to amend choice of principles in field in response to emerging information and changing priorities, but changes only in consultation with relevant IMF and WB staff. ### CONTENT AND FORMAT OF THE TARGETED ASSESSMENT AND ROSC - Documents produced: - Two documents: the ROSC and the Detailed Assessment Report (DAR). - Structure and content should follow existing templates for initial assessments, with changes and clarifications set out in the guidance note. - The DAR and ROSC should carry over all principles from previous assessment not reassessed during the update to foster transparency. - Both DAR and ROSC should explicitly identify: - Principles that have been reassessed. - Principles carried over from previous assessments. - Standards assessors should discuss and document progress made on implementation of recommendations from previous assessments in both DAR and ROSC, even if those principles were not reassessed. ### PROCEDURES AND REVIEW PROCESSES - Formal procedures: - Same formal procedures and review processes that apply to initial ROSCs apply to targeted ROSC updates to ensure consistent application of the targeted approach. ### GUIDANCE FOR WRITING TARGETED ASSESSMENTS AND ROSCS IN FINANCIAL REGULATION AND SUPERVISION - Outputs and format: - As with initial assessments, two documents produced: ROSC and DAR; structure and content follow full-assessment templates with additions/clarifications. - ROSC—Executive Summary: - One-paragraph executive summary should highlight the targeted, or risk-based, nature of the assessment and the principles that have been reassessed, along with key relevant findings. - ROSC—Introduction: - Should indicate targeted nature and context (e.g., part of an FSAP update). - Should mention name and qualifications of assessor(s) and date of initial (or most recent full) assessment. - ROSC—Scope: - Should clearly indicate principles reassessed with explanation of reasons supporting their selection. *Source: Guidance Note for Staff on Undertaking Targeted (Risk-Based) Reports on the Observance of Standards and Codes (ROSCs) in Financial Regulation and Supervision, October 5, 2010.* ### Section 2 ### _100510c - Section 2 ### Introduction - “The selection of the principles to be reassessed was made by the mission team based on an analysis of the risks and vulnerabilities of country X, informed by the findings from previous assessments, as well as country work, bilateral, multilateral, and regional surveillance. The process followed for the identification of the principles that needed reassessment did not suggest the need to reassess other principles.” - An indication of the specific principles that were reassessed, along with the specific reasons (with reference to the criteria used) for their selection should follow. - 4. This section should also indicate that the findings and grades for the principles not reassessed have been carried over from the initial assessment in order to provide a complete view. ### C. Information and Methodology Used for Assessment - 5. There are no changes in relation to the template for the full ROSC. ### D. Institutional and Market Structure—Overview - 6. This section should provide a general overview of the main changes that have taken place since the previous ROSC/FSAP in regard to market structure and development; laws and regulations; and the supervisory framework, which are relevant for the purposes of the update. - As for a full assessment, the assessor is encouraged to use key sector indicators. This information can be obtained from the data questionnaire that the authorities will be required to submit and from other mission members, as well as from other sources. ### E. Preconditions for Basel Core Principles and International Organization of Securities Commissions Assessments - 7. The findings from previous assessments will be carried over, except if preconditions were subject to reassessment. - In case the findings are carried over, the section should start with the following heading: - “The initial assessment included the following findings in regard to preconditions.” ### F. Main Findings - 8. This section should summarize key findings of the detailed assessment. It should cover all principles and not only those being reassessed. Thus, the assessor will rely, in part, on the findings from the initial assessment to complete this section. - 9. The assessor will also include a table that should convey a clear sense of the degree of compliance, providing a brief description of the main strengths and especially, and weaknesses with respect to each principle. The table should not include grades. This table should be identical to the one currently used for the full ROSC (Table 1A of the templates), except that it will include the following heading: - “Only principles XX have been reassessed. The summary of key findings for principles XX has been carried over from the initial (or most recent full) assessment conducted in XX, in order to provide a complete view.” - 10. A second table will set out the detailed principle-by-principle assessment with main findings, comments, and grades. This table should be identical to the one currently used for the full ROSC (Table 1B of the templates), except that it will include the following heading: - “Only principles XX have been reassessed. The description, comments, and grades for principles XX have been carried over from the initial (or most recent full) assessment conducted in XX, in order to provide a complete view.” - In addition, the date of the assessment should be indicated for each principle. ### G. Recommended Action Plan and Authorities’ Response - 11. The table of recommendations should carry over the recommendations from previous assessments and discuss any progress in their implementation. ### II. THE DETAILED ASSESSMENT REPORT (DAR) - 12. There are no changes from the template for the initial assessment, except that in this case, the detailed assessment will start with the following heading: - “Only principles XX have been reassessed. The description, comments, and grades for principles XX have been carried over from the initial (or most recent full) assessment conducted in XX, in order to provide a complete view. The selection of the principles that have been reassessed was done by the mission team based on an analysis of the risks and vulnerabilities of country X, informed by the findings from previous assessments, as well as country work, bilateral, multilateral, and regional surveillance. The process followed for the identification of the principles that needed reassessment did not suggest the need to reassess other principles.” *Source: _100510c - Section 2* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2010/_100510c.pdf_