## _cr0675 ## Source details **Canonical URL:** [_cr0675](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr0675.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr0675.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr0675.pdf.json) --- ### Executive summary — systemic features and soundness - Belgium’s financial system is large and dominated by a few internationally active bancassurance conglomerates; the bancassurance model is a well-developed feature and a potential anchor for stability. - Key size metrics: - Banking assets: over EUR 1.3 trillion in 2005 (over 440 percent of GDP). - Insurance sector assets: equivalent to less than 60 percent of GDP. - Concentration (2004): - The four largest bancassurance groups accounted for 82 percent of deposits and 44 percent of total insurance premia. - The four largest bancassurance groups together account for 88 percent of banking assets compared with an average of 55 percent for the EU-15. - The Herfindahl Index now exceeds 2,000. - System resilience and supporting features: - No systemic crisis historically; cautious bank risk attitudes; large holdings of government securities; extremely low holdings of equity by banks; stable funding with generous tax incentives; high standard of banking supervision; stable macroeconomic policy framework. ### Stress testing and vulnerabilities - Stress test outcomes and observations: - Institutions withstood an adverse macroeconomic stress scenario well. - Diversification benefits within bancassurance groups: compensating impacts of interest rate shocks on banking and insurance businesses at group level. - Stress tests confirm considerable resilience against shocks but show vulnerability to interest rate and credit risks. - Sources of potential vulnerability: - Heavy exposure abroad and open economy. - Importance of the Euroclear Group globally increases exposure to global developments and financial contagion. - Insurance sector: very high exposure to guaranteed rate contracts on life insurers’ books combined with low long-term interest rates; profitability and solvency margins under pressure. - Near-term vulnerability assessment: - Near-term vulnerability appears low due to sound banking system, benign international financial environment, strong corporate sector financial condition, and relatively healthy household sector. - Risks may increase with a business cycle downturn, increased cross-border operations, and deeper links to global money centers. ### Structure and concentration of the financial system - Financial sector composition (2004, percent share of total assets): - Banks: 75.2 - Insurance companies: 10.8 - Others: 14.0 - Bancassurance market shares (2004): - Banking market share of bancassurance sector: - Fortis: 32.3 - KBC: 20.6 - Dexia: 15.6 - ING: 13.6 - Other: 17.9 - Insurance market share of bancassurance sector: - Other: 55.7 - Fortis: 17.8 - KBC: 13.4 - Dexia: 6.4 - ING: 6.7 - Selected long-term local currency ratings of Belgian banks: - Fortis: Fitch AA, S&P AA- - Dexia: Fitch AA+, S&P AA - KBC: Fitch AA, S&P A+ - ING Belgium: Fitch AA-, S&P AA ### Supervision arrangements for major bancassurance groups - Consolidated supervision context: - Belgium adopted a system of consolidated supervision under the CBFA. - Cross-border bancassurance model requires MOUs between home and host supervisors to facilitate consolidated supervision. - Summary of supervisory arrangements for principal groups: - Fortis: CBFA is consolidating supervisor of Fortis’ banking arm; CBFA supervises Belgian insurance companies; no consolidated supervision of Fortis insurance pool; coordination committee under DNB per Helsinki protocol; CBFA coordinates supervision under framework signed with DNB in 2002. - Dexia: CBFA consolidating supervisor of Dexia Bank Belgium; CBFA is consolidating supervisor of Dexia SA in close collaboration with CB and CSSF; specific MOU signed in 2000; CBFA supervises Belgian insurance companies; no consolidated supervision of insurance pool. - KBC: CBFA consolidating supervisor of banking activities and KBC group financial holding company; MOUs with Poland, Czech Republic, Hungary, Slovenia; CBFA supervises Belgian insurance companies; no consolidated supervision over insurance activities. - ING (Belgium): CBFA consolidating supervisor of ING Belgium covering South-West-Europe; regular contacts with DNB (consolidated supervisor of entire ING Group); CBFA supervises Belgian insurance companies on a company basis; no consolidated supervision over insurance activities; no CBFA supervision at holding level as activities kept separately. - Cross-border supervisory cooperation: - MOUs and coordination committees are in place but consolidated insurance supervision at group/holding level is limited. ### Prioritized recommendations (short-term and medium-term) - Short-term / soundness and supervisory priorities: - Establish an effective mechanism for consolidated supervision and organize the supervisory structure and approach to meet challenges of bancassurance conglomerates. - Expeditiously upgrade insurance supervision and regulation and intensify monitoring of insurance companies. - Establish an overarching corporate governance framework for the financial sector. - Perform stress tests more systematically and regularly and use results to inform Financial Stability Committee (FSC) discussions. - Continue emphasis on liquidity management at bank and group level; provide explicit guidelines for banks on liquidity management. - Enhance resources and capacity for oversight and prudential supervision of the Euroclear System (ES) and strengthen NBB–CBFA cooperation. - Build on synergies between the NBB and the CBFA; improve CBFA efficiency within existing legal structure. - Further refine and test crisis management arrangements. - Introduce more flexibility in setting the maximum guaranteed rate in life insurance and de-link guaranteed rates in insurance and pensions. - Begin substantially strengthening prudential supervision of pension funds. - Medium-term challenges: - Ensure supervisory capacity keeps pace with market developments and complexity of financial conglomerates. - Overhaul supervision of the pension industry. - Revisit supervisory institutional arrangements to enhance synergies with the NBB and strengthen effectiveness of CBFA management boards and the FSC. - Streamline and harmonize laws and regulations applicable to the CBFA mandate. - Meet implementation challenges of the Financial Services Action Plan and reap benefits of European integration. ### Banking sector — business model, soundness, and challenges - Business model and performance: - Bancassurance groups follow a low-risk-low-return implicit strategy with large securities portfolios, low-spread interbank positions, emphasis on relationship lending to SMEs. - Profitability: ROA is on the low side in EU-13 comparison; ROE ranks higher due to greater leverage. - Net interest margins fell from a peak of 1.23 percent to nearly 1.10 percent in 2005. - Cost-to-income ratios remain high despite improvements; large retail branch networks constrain further cost reduction. - Competition and market segments: - Low overall net interest margins suggest competitiveness in some segments. - Many small and medium-sized banks provide competition in savings deposits and mortgage market. - Big banks’ retail branch networks give advantage over new entrants; foreign banks can still enter via mergers and acquisitions. - Systemic and foreign exposure: - Total foreign exposure (including all financial assets) of the banking system at end-June 2005 exceeded EUR 850 billion (over sixteen times system-wide own funds). - Major bancassurance groups accounted for 95 percent of this exposure. - Foreign exposure concentrated in Western Europe and the U.S.: 85 percent. - Largest country exposures: U.K., The Netherlands, and the U.S. account for close to 50 percent of total foreign exposure. - Exposure to CEEC mostly Czech Republic, Hungary, and Poland, accounts for 5 percent of total foreign exposure (equivalent to about 61 percent of own funds); virtually all CEEC exposure is concentrated in one major Belgian group. ### Insurance sector — size, guaranteed returns, and supervision - Size and recent challenges: - Insurance industry premia equal 9 percent of GDP (annual premia). - Total premium close to 8 percent of GDP in recent years. - Insurance market less concentrated than banking; bancassurance network is the most important distribution channel for life insurance. - Guaranteed returns and asset allocation: - Life insurance policies with guaranteed returns accounted for over 80 percent of life insurance premium in 2003. - Insurers offered maximum allowed guaranteed return of 4.75 percent until 1999 and 3.75 percent thereafter; more recently insurers lowered guaranteed returns of new contracts to the proximity of 3 percent. - Estimated guaranteed return on all outstanding contracts remains close to 4 percent. - Historical portfolio shift: equity share reduced from 25 percent in 2000 to 13 percent in 2004; at end-2004, 56 percent of insurers’ portfolio was in fixed income securities; in 2003, fixed income securities accounted for 72 percent and equities 15 percent. - Net impact of a rise in interest rates on insurers’ financial position is ambiguous: alleviates guaranteed return burden but negatively affects value of fixed income securities. - Supervisory observance and weaknesses: - A relatively low level of compliance with some international criteria in insurance supervision despite a developed market. - Key supervisory weaknesses: low frequency and scope of on-site inspections; absence of risk-based supervision; weak assessment of assets, derivatives, and ALM issues. - Principal recommended actions include delegating determination of the maximum interest rate for life provisions to the CBFA and subjecting all Belgian groups to consolidated supervision by the CBFA. ### Pension funds — size, exposures, and supervisory weaknesses - Size and composition: - Total reserves: EUR 42 billion. - Reserves held mostly in the form of group insurance: 75 percent. - About EUR 11 billion held in the form of pension funds. - Trends and exposures: - Private pension fund industry relatively small but growing due to generous tax incentives. - Pension funds heavily exposed to equities: equities account for nearly half of total pension fund investments. - Supervisory weaknesses and recommendations: - Major weaknesses include virtual lack of onsite inspections, absence of a risk-based supervision system, and lack of a uniform system for assessing risk exposures/funding/investment strategies. - Authorities advised to overhaul supervision, introduce a risk-based approach, revisit externalization of pension obligations and increase minimum funding requirements, and review governance. ### Capital markets and market infrastructure - Market features: - Market capitalization close to 77 percent of GDP, in line with Euro area average. - Close to half of market capitalization consists of bancassurance listings. - Integration into Euronext in 2001 increased visibility and liquidity but risk of marginalization of small Belgian listed companies remains. - Market intermediaries and collective investment: - 66 licensed investment firms; 37 members of the exchange; 65 credit institutions; 3 licensed investment advisers. - 138 separate (open-ended) investment fund companies, 1,462 subfunds, EUR 96.2 billion in assets under management. - Sector dominated by bank affiliated collective investment schemes. - Disclosure and issuer supervision: - IFRS introduced for listed issuers on January 1, 2005. - CBFA monitors material event disclosure for listed issuers; recommended to extend material event requirements to unlisted issuers and broaden transaction reporting to officers, directors and related parties. - Use of bearer shares undermines disclosure and investor rights; proposed legislation to abolish bearer shares. ### Euroclear Group and securities settlement systems (ES, EB, CIK, NBB SSS) - Euroclear Group importance and stats: - Euroclear Group/Euroclear Bank is a major international central securities depository. - Euroclear Group turnover (consolidated) averaged EUR 307 trillion in 2004; total value of securities held on behalf of customers hovered around EUR 5.9 trillion at end-2004. - Euroclear Bank figures: EUR 132 trillion turnover and EUR 3.5 trillion securities held in 2004. - CPSS/IOSCO assessment (Euroclear Bank): - ES is safe, sound, efficient, and reliable and observes almost all Recommendations. - Key recommended actions include abolishing the zero-hour rule for nonfinancial participants, enlarging EB’s credit limit system to all activities, improving tools to monitor/manage total credit exposures, enhancing business continuity transparency, and fully securing credits to Clearstream Banking Luxembourg on the Bridge. - NBB and CIK assessments: - NBB SSS observed almost all Recommendations; suggested establishing user groups and client surveys. - CIK — some non-observed items: DVP in FMS and use of electronic book-entry procedures not compliant with Belgian law; actions recommended include revising DVP procedures, stopping noncompliant book-entry issuance/safekeeping, updating contractual documentation, and developing a risk methodology for links. ### Liquidity, fiscal incentives, and funding stability - Regulated savings deposits: - At end-2004 amounted to EUR150 billion, equivalent to over 50 percent of GDP. - Share of savings deposits represents over 15 percent of banks’ liabilities and a third of funds collected from customers on an unconsolidated basis. - Major bancassurance groups attract 70 percent of these deposits. - Fiscal treatment: - Deposits free from the regular 15 percent withholding tax, up to the maximum annual limit of EUR 1,520, subject to legal conditions. - Legal rate caps: base rate and premia limits set at 4 and 2 percent respectively. - Stability implications and stress test: - Regulated deposits provided a large pool of stable funding but create maturity mismatch when financing long-duration assets. - Stress test: a parallel upward shift in the yield curve of 200 basis points would lead to a large market value loss, equivalent to about 9 percent of regulatory capital in the four major banks. This loss is cushioned at the bancassurance group level because the insurance component benefits from such a shift. - Potential consequences of removing fiscal incentives: - Removal could have significant consequences for banks; households shift toward other tax-advantaged instruments; banks respond by offering such products and replacing lost interest income with fee income. ### Basel II implementation, AML/CFT, and systemic liquidity arrangements - Basel II: - Institutions representing over 98 percent of total assets will opt for the more complex approaches; major groups will adopt internal ratings based on advanced measurement approaches. - Implementation not likely to have negative impact on capital ratios given asset quality and SME role. - CBFA recognizes Basel II implementation as a resource challenge. - AML/CFT: - Belgium has a sound legislative AML/CFT framework; FIU highly effective. - Phasing out of bearer shares will align AML/CFT with international standards. - Importance that insurance sector be subject to compliance supervision regarding AML/CFT obligations. - Systemic liquidity and emergency assistance: - Comfortable liquidity position due to large stable savings base, broad collateral, access to deep markets, and Eurosystem intraday reserve use. - NBB emergency liquidity principles: last resort, in principle fully collaterized, and for liquidity not solvency problems; under Eurosystem ELA remains national responsibility. ### BCP and IAIS assessments — supervisory strengths and recommended reforms - BCP assessment: - High overall level of compliance with Core Principles; CBFA supervision staff well regarded. - Recommendations include considering a broader CBFA mandate (financial stability and consumer protection), ensuring bank supervision quality is not weakened by expansion into nonbank functions and Basel II, formalizing coordination between banking and insurance supervision, introducing formal liquidity guidelines, abolishing bearer shares, and considering more aggressive use of sanctioning powers. - CBFA responses: implementing governance, recruitment, legal changes (e.g., bearer shares law with new shares from January 1, 2008 and transition until December 2013), liquidity guidelines as part of CRD by January 1, 2007, and initiatives to integrate banking and insurance supervision. - IAIS assessment (insurance): - Conditions for effective insurance supervision mainly met; supervisory system broadly observes international criteria but requires legislative and operational improvements. - Key actions: increase on-site inspections, adopt risk-based supervision, strengthen corporate governance and actuary roles, require documentation of underwriting/investment/reinsurance policies, and improve disclosure and AML/CFT supervision. - CBFA response: reorganization of insurance supervision department; integration of banking know-how and development of prudential insurance supervision for conglomerates; strengthening on-site supervision and joint on-site work. ### Principal policy implications and follow-up - Preserve bancassurance diversification benefits while addressing opacity and regulatory arbitrage risks from complex group structures. - Strengthen consolidated supervision, particularly over insurance activities within groups. - Introduce explicit liquidity guidelines and continue systematic stress testing to inform FSC and crisis preparedness. - Increase supervisory resources and technical capacity for Euroclear oversight and securities clearing and settlement supervision. - Reduce prudential vulnerabilities in insurance and pension sectors by introducing flexibility in guaranteed rates, strengthening solvency and funding requirements, improving governance, and implementing risk-based supervision for pension funds and insurers. - Continue implementation of EU directives, Basel II, AML/CFT enhancements, and recommended legal changes (including the phase-out of bearer shares) to align with international standards. *Source: IMF Financial Sector Assessment Program — “Supervision of Belgium’s Major Bancassurance Conglomerates.” (content from supplied PDF excerpt)* ### 1. Supervision of Belgium’s Major Bancassurance Conglomerates.......................................12 ### 1. Supervision of Belgium’s Major Bancassurance Conglomerates ### Executive summary — systemic features and soundness - Belgium’s financial system is large and dominated by a few internationally active bancassurance conglomerates; the bancassurance model is a well-developed feature and a potential anchor for stability. - Banking sector size and insurance sector size: - Banking assets: over EUR 1.3 trillion in 2005 (over 440 percent of GDP). - Insurance sector assets: equivalent to less than 60 percent of GDP. - Concentration within bancassurance groups (2004): - The four largest bancassurance groups accounted for 82 percent of deposits and 44 percent of total insurance premia. - System resilience and historical record: - Belgium’s financial sector has never experienced a systemic crisis and has generally weathered business cycles well, though the insurance sector faced strains. - Belgium-specific features that support stability: - Traditionally cautious bank risk attitudes, large holdings of government securities, extremely low holdings of equity by banks, a stable funding source with generous tax incentives, high standard of banking supervision, and a stable macroeconomic policy framework. ### Stress testing and vulnerabilities - Stress test results: - Institutions withstood an adverse macroeconomic stress scenario well. - Diversification benefits within bancassurance groups observed: compensating impacts of interest rate shocks on banking and insurance businesses at group level. - Sources of potential vulnerability: - Heavy exposure abroad and the open nature of the economy. - Importance of the Euroclear Group globally increases exposure to global developments and financial contagion. - Near-term vulnerability assessment: - Near-term vulnerability appears low due to sound banking system, benign international financial environment, strong corporate sector financial condition, and relatively healthy household sector. - Risks may increase with a business cycle downturn, increased cross-border operations, and deeper links to global money centers. - Insurance sector challenges: - Very high exposure to guaranteed rate contracts on life insurers’ books combined with low long-term interest rates; profitability and solvency margins remain under pressure. - Historical portfolio shift: equity share reduced from 25 percent in 2000 to 13 percent in 2004; at end-2004, 56 percent of insurers’ portfolio was in fixed income securities. ### Structure and concentration of the financial system - Financial sector composition (2004, percent share of total assets): - Banks: 75.2 - Insurance companies: 10.8 - Others: 14.0 - Bancassurance market shares (2004): - Banking market share of bancassurance sector: - Fortis: 32.3 - KBC: 20.6 - Dexia: 15.6 - ING: 13.6 - Other: 17.9 - Insurance market share of bancassurance sector: - Other: 55.7 - Fortis: 17.8 - KBC: 13.4 - Dexia: 6.4 - ING: 6.7 - Selected long-term local currency ratings of Belgian banks: - Fortis: Fitch AA, S&P AA- - Dexia: Fitch AA+, S&P AA - KBC: Fitch AA, S&P A+ - ING Belgium: Fitch AA-, S&P AA ### Supervision arrangements for major bancassurance groups (summary) - General supervisory context: - As in other EU countries, Belgium adopted a system of consolidated supervision under the newly established CBFA. - Cross-border bancassurance model requires Memoranda of Understanding (MOUs) between home and host supervisors to facilitate consolidated supervision. - Key supervisory arrangements for principal groups (summary of Table 1): - Fortis - Legal: Belgo-Dutch group with banking and insurance arms. - Banking: CBFA is consolidating supervisor of Fortis’ banking arm; specific MOU with DNB and Luxembourg supervisor for Fortis Bank. - Insurance: CBFA supervises Belgian insurance companies; no consolidated supervision of Fortis insurance pool; coordination committee under DNB per Helsinki protocol. - Holding: CBFA coordinates supervision under framework signed with DNB in 2002. - Dexia - Legal: Belgo-French group predominantly banking, with an important U.S.-based insurance company (FSA). - Banking: CBFA is consolidating supervisor of Belgian subsidiary Dexia Bank Belgium. French supervisor (CB) and Luxembourg supervisor (CSSF) ensure consolidated supervision of other parts. - Insurance: CBFA supervises Belgian insurance companies; no consolidated supervision of insurance pool. - Holding: CBFA is consolidating supervisor of Dexia SA in close collaboration with CB and CSSF; specific MOU signed in 2000. - KBC - Legal: Belgian group with banking (predominantly) and insurance subsidiaries. - Banking: CBFA is consolidating supervisor of banking activities; specific MOUs with Poland, Czech Republic, Hungary, Slovenia. - Insurance: CBFA supervises Belgian insurance companies; no consolidated supervision over insurance activities. - Holding: CBFA is consolidating supervisor of KBC group financial holding company. - ING (Belgium) - Legal: ING Bank Belgium and ING Insurance Belgium are distinct Belgian subsidiaries of Dutch ING Group. - Banking: CBFA is consolidating supervisor of ING Belgium covering South-West-Europe; regular contacts with DNB (consolidated supervisor of entire ING Group). - Insurance: CBFA supervises Belgian insurance companies on a company basis; no consolidated supervision over insurance activities. - Holding: No CBFA supervision at holding level as banking and insurance activities are kept separately in ING. - Cross-border supervisory cooperation: - MOUs and coordination committees are in place but consolidated insurance supervision at group/holding level is limited. ### Prioritized recommendations (short-term and medium-term) - Short-term / soundness and supervisory priorities: - Establish an effective mechanism for consolidated supervision and organize the supervisory structure and approach to meet challenges of bancassurance conglomerates. - Address identified weaknesses in insurance supervision: expeditiously upgrade insurance supervision and regulation and intensify monitoring of insurance companies. - Establish an overarching corporate governance framework for the financial sector. - Perform stress tests more systematically and regularly and use results to inform the Financial Stability Committee (FSC) discussions. - Continue emphasis on liquidity management at bank and group level for bancassurance conglomerates; provide explicit guidelines for banks on liquidity management to complement informal discussions. - Enhance resources and capacity for oversight and prudential supervision of the Euroclear System (ES) and further strengthen NBB–CBFA cooperation in this area. - Build on progress to take fuller advantage of synergies between the NBB and the CBFA; improve CBFA efficiency within existing legal structure. - Further refine and test crisis management arrangements to ensure an effective crisis management mechanism. - Introduce more flexibility in setting the maximum guaranteed rate in life insurance and de-link guaranteed rates in insurance and pensions to prevent further vulnerability build-up. - Begin substantially strengthening prudential supervision of pension funds. - Medium-term challenges: - Ensure supervisory capacity to identify and address financial system risks keeps pace with market developments, innovations, and increasing complexity of financial conglomerates. - Overhaul supervision of the pension industry. - Revisit supervisory institutional arrangements to enhance synergies with the NBB and strengthen effectiveness of CBFA management boards and the FSC. - Streamline and harmonize laws and regulations applicable to the CBFA mandate. - Meet implementation challenges of the Financial Services Action Plan and reap benefits of European integration. ### Observations on Euroclear and market infrastructures - Euroclear importance: - Euroclear Group/Euroclear Bank is a major international central securities depository; oversight and supervision of the Euroclear System require adequate resources and capacity. - Recommendation: - Devote adequate resources and capacity to the oversight and supervision of the Euroclear Group/Euroclear Bank and strengthen cooperation between the NBB and the CBFA. ### Additional salient points and policy implications - Bancassurance model benefits and risks: - Benefits: full range of financial products, revenue and cost synergies, funding base stability, diversification benefits (confirmed by stress tests). - Risks: complex structures reduce transparency; potential for regulatory arbitrage where banking and insurance supervision differ. - Liquidity and crisis management: - Emphasize liquidity management at bank and group levels; provide explicit liquidity guidelines. - Refine crisis management arrangements and ensure they are tested and effective. - Supervision quality and institutional change: - Overall high degree of compliance with international standards; major weaknesses identified in insurance and pension fund areas are being addressed. - Move toward unified supervisor (CBFA) posed initial challenges but has strengthened overall supervision; CBFA must continue to build on progress and exploit synergies with the NBB. - Implementation status: - Since end-March 2005 FSAP mission, many recommendations have been implemented or are in process. *Source: IMF Financial Sector Assessment Program — “Supervision of Belgium’s Major Bancassurance Conglomerates.”* ### 4. Belgium has one of the most concentrated banking sectors in Europe, and a high ### _cr0675 - 4. Belgium has one of the most concentrated banking sectors in Europe, and a high ### Banking Sector - Structure and concentration - The four largest bancassurance groups together account for 88 percent of banking assets compared with an average of 55 percent for the EU-15. - The Herfindahl Index now exceeds 2,000. - Competition and market segments - Low overall net interest margins suggest the system could still be competitive in some segments of the loan and deposit markets. - A large number of small and medium-sized banks provide competition in savings deposits and the mortgage market. - Markets for savings products and private banking are exposed to foreign competition. - Big banks’ large retail branch networks give them an advantage over new entrants in retail banking, although foreign banks can still enter via mergers and acquisitions. - Financial soundness indicators and business model - Belgian banks enjoy high ratings. - Profitability: return on assets (ROA) is on the low side in EU-13 comparison; return on equity (ROE) ranks higher due to greater leverage relative to many EU-13 counterparts. - Bancassurance groups follow a low-risk-low-return implicit strategy with large securities portfolios, low-spread interbank positions, and emphasis on relationship lending to SMEs. - Net interest margins have been comparatively low; fee and commission income has been gradually rising due to a shift from bank deposits to bank-based mutual funds. - Operating cost containment has progressed, but the large retail branch network constrains further cost reductions. - Key 2004 indicators (as presented) - Return on Assets (after tax, percent of total assets): Belgium comparable to Euro Area. - Return on Equity (after tax, percent of Tier I): Belgium ranks higher than Euro Area and EU-13. - Net Interest Margin (in percent of assets), 2004: Belgium exhibits very low net interest margins relative to comparators. - Cost (in percent of income), 2004: Belgium shows a high cost structure. - Capital Adequacy Ratio, 2004: Belgium is well capitalized. - Liquid Assets (in percent of assets), 2004: Belgium is highly liquid. - Source for indicators: The ECB. ### Insurance - Size and recent challenges - Insurance industry premia equal 9 percent of GDP (annual premia). - The insurance market is less concentrated than the banking sector. - Bancassurance network is the most important distribution channel for life insurance; independent agents account for the majority of nonlife premium. - Since 2001–02 downturn, insurers faced: major adjustment in equity prices, depressed insurance premia in the late 1990s, historically low interest rates, and rising reinsurance costs. - Impacts and vulnerabilities - Developments led to substantial erosion in solvency of many insurers and exposed risks associated with liability contracts offering guaranteed returns. - Financial position of the insurance industry has markedly improved, but challenges remain due to: - High proportion of guaranteed rate contracts on life insurers’ books. - Low long-term interest rates that will keep profitability and solvency margins under pressure. ### Pension Funds - Size and composition - Total reserves: EUR 42 billion. - Reserves held mostly in the form of group insurance: 75 percent. - About EUR 11 billion held in the form of pension funds. - Trends and exposures - Private pension fund industry is relatively small but growing due to generous tax incentives. - Pension funds are heavily exposed to equities: equities account for nearly half of total pension fund investments. - Supervisory weaknesses - Major weaknesses include: - (i) Virtual lack of onsite inspections and analysis of offsite reports. - (ii) Absence of a risk-based supervision system. - (iii) Lack of a uniform system for assessing risk exposures, funding levels, and investment strategies. ### Capital Markets - Features shaped by SMEs and public debt - Dominance of SMEs and high public debt history have limited development of an active corporate bond market. - Tradition of strong ownership concentration has limited stock market attractiveness. - Market capitalization and structure - Belgian stock market capitalization is close to 77 percent of GDP, in line with the Euro area average. - Close to half of market capitalization consists of bancassurance listings. - Integration into Euronext in 2001 increased visibility and liquidity but risk of marginalization of bulk of Belgian listed companies remains due to small firm sizes. ### Sources of Strength and Potential Risk - Overview - Sources of strength and potential risk include: large international exposure of the financial system; financial health of counterparties; the role of a global securities and settlement system located in Belgium; dominance of guaranteed rates in past insurance contracts. - International Exposure - Total foreign exposure (including all financial assets) of the banking system nearly doubled since 1999 and at end-June 2005 exceeded EUR 850 billion (over sixteen times system-wide own funds). - Major bancassurance groups accounted for 95 percent of this exposure. - Foreign exposure concentrated in Western Europe and the U.S.: 85 percent. - Largest country exposures: U.K., The Netherlands, and the U.S. account for close to 50 percent of total foreign exposure. - Exposure to Central and Eastern Europe Countries (CEEC), mostly the Czech Republic, Hungary, and Poland, accounts for 5 percent of total foreign exposure (equivalent to about 61 percent of own funds). - Virtually all CEEC exposure is concentrated in one major Belgian group, which draws a quarter of its income from CEEC countries. - Counterparties: Corporate and Household Sectors - Corporate sector - Median return on equity of large and medium-sized nonfinancial enterprises in 2004: 9.1 and 7.0 percent, respectively. - Solvency ratios (own funds as a ratio of the balance sheet total) increased to a peak of about 30 percent for all companies. - Corporate sector debt/equity ratio is now 63 percent; Belgian firms are less leveraged than Euro area counterparts. - Banks lowered risk profile through relationship lending to SME-dominated corporate sector. - Household sector - Financial assets hover around 400 percent of disposable income. - Debt/GDP ratio stable at around 42 percent. - Strong savings ratio: 12.3 percent of gross disposable income. - Aggregate level of indebtedness of households: 66 percent of disposable income. - Household loans comprise 49 percent of banks’ loan portfolio; nearly 75 percent of household borrowing is secured by mortgages. - Residential real estate prices have been increasing strongly, but less than in some neighboring countries. - Insurance industry’s guaranteed rates exposure - Life insurance policies with guaranteed returns accounted for over 80 percent of life insurance premium in 2003. - Insurers offered maximum allowed guaranteed return of 4.75 percent until 1999 and 3.75 percent thereafter. - Narrowing (and occasional inversion) of the spread between long-term interest rates and guaranteed rates since 1998 makes it difficult for insurers to obtain sufficient investment income to cover obligations. - Note in source: More recently, based on market developments, Belgian insurers lowered the guaranteed returns of new contracts to the proximity of 3 percent. - Global center for securities settlement: Euroclear Group - Euroclear Group provides settlement and custody services for international and European domestic securities and offers associated banking services. - Euroclear Group turnover (consolidated) averaged EUR 307 trillion in 2004; total value of securities held on behalf of customers hovered around EUR 5.9 trillion at end-2004. - Euroclear Bank corresponding figures: EUR 132 trillion turnover and EUR 3.5 trillion securities held. - Corporate restructuring created new holding Euroclear SA/NV (ESA) owning Euroclear Bank (EB) and national CSDs; EB relinquished ownership of three CSDs and became a sister company under ESA. - Supervision and oversight: a new multilateral MOU signed in early 2005 by Belgian authorities and authorities of France, The Netherlands, and the United Kingdom; NBB and CBFA cooperate and have intensified coordination. - Systemic risk and stability issues: - The corporate restructuring reduced systemic risk to CSDs from potential EB insolvency. - FSAP assessment against CPSS-IOSCO recommendations: ES is safe, sound, efficient, and reliable and observes almost all Recommendations. - Recommendations included: - (i) EB enhance risk management procedures to establish and manage links to other markets and ESA put in place procedures to identify and solve potential conflicts between different interests of the users and shareholders. - (ii) Authorities in Belgium amend regulation on settlement finality to abolish the zero-hour rule for nonfinancial participants in the ES. - (iii) CBFA and NBB increase effectiveness of cooperation and strengthen capacity for supervision and oversight. ### Soundness and Short-Term Vulnerability - Overall assessment - Financial system is resilient and benefits from Belgium-specific stabilizing features, but increased complexity, bancassurance strategies, openness and cross-border activities, growth and performance pressures, and the special role of the Euroclear Group pose supervisory challenges. - Sources of systemic resilience (Belgium-specific) - Generally cautious attitude toward risk: low-risk, low-yield approach; loan portfolio weighted toward higher-grade corporate borrowers; SMEs and household risks mitigated by relationship lending and collateral. - Large holdings of government securities: 17 percent of assets (supporting stable returns and systemic liquidity). - Extremely low holdings of equity: currently less than two percent of banks’ balance sheets. - Stable sources of funding: steady inflow of large, stable, relatively inexpensive financial savings due to high Belgian savings rate and tax incentives. - High standard of banking supervision and stable macroeconomic policy framework. - Diversification benefits, cost savings, and synergies associated with the bancassurance model (with attendant risks). - Stress tests - Stress tests confirm considerable resilience against shocks but show vulnerability to interest rate and credit risks. *Source: IMF staff report content provided in the supplied PDF excerpt.* ### Box 4. Fiscal Incentives and Stability of Banks’ Funding Source ### Box 4. Fiscal Incentives and Stability of Banks’ Funding Source ### Importance of regulated savings deposits - Regulated savings deposits have more than doubled in the last decade and at end-2004 amounted to EUR150 billion, equivalent to over 50 percent of GDP. - The share of savings deposits represents over 15 percent of banks’ liabilities and a third of funds collected from customers on an unconsolidated basis. - The major bancassurance groups attract the lion’s share of these deposits (70 percent); smaller banks’ share is increasing due to more aggressive pricing. ### Fiscal treatment - These deposits are free from the regular 15 percent withholding tax, up to the maximum annual limit of EUR 1,520, if the basic conditions outlined in the law are met. - Legal conditions include a tiered remuneration structure consisting of a base rate and premia, whereby the limits for the base rate and the various premia are set at 4 and 2 percent respectively. - The noncumulative premia consist of: - an accrual premium applying to new inflows into savings books that remain on the account for at least six months, and - a loyalty premium applying to outstanding savings account balances that remain on the account for at least 12 months. - Tax treatment and reporting features create evasion opportunities: - Tax exemption is applied per savings account. - There are no requirements for banks to report taxes on a consolidated basis. - Taxpayers can evade taxes by opening multiple savings accounts; so far, there has been no significant attempt to trace tax evaders. ### Stability implications and risks - Regulated deposits have been fairly stable over time and provided a large pool of stable funding for banks, including for longer term mortgage financing. - Maturity mismatch risk: - The use of regulated savings deposits, with a priori an indeterminate maturity to finance long duration assets (including mortgages), creates a significant mismatch and vulnerability to an upward change in the yield curve. - Stress test result cited: - A parallel upward shift in the yield curve of 200 basis points would lead to a large market value loss, equivalent to about 9 percent of regulatory capital in the four major banks. - This loss is cushioned at the bancassurance group level because the insurance component benefits from such a shift. - Risk management responses: - Banks and supervisors prudently estimate the duration of the savings book and pay great attention to liquidity management. - A recent joint exercise by the NBB and the CBFA underscores the increasing importance attached to liquidity management. ### Potential consequences of removing fiscal incentives and observed behavioral shifts - A removal of incentives to save in regulated accounts could have significant consequences for banks. - Households are turning toward other instruments, mostly those that offer tax incentives. - Banks respond by offering such products to preserve funding and replace lost interest income with fee income. *Source: Box 4, "_cr0675 - Box 4. Fiscal Incentives and Stability of Banks’ Funding Source_"* ### 26. Preparations for the introduction of Basel II are on track. Belgium’s major banking ### 26. Preparations for the introduction of Basel II are on track. Belgium’s major banking ### Basel II implementation and bank preparedness - Institutions representing over 98 percent of the total assets will be opting for the more complex approaches. - Belgium’s major banking groups will adopt the internal ratings based on advanced measurement approaches for credit and operational risk. - Cooperation between the banks and supervisory authorities is intense and frequent in the run-up to Basel II. - Due to the high quality of assets and the important role played by SMEs, the implementation is not likely to have a negative impact on capital ratios. - Banks have already been using advanced risk assessment tools for individual borrowers for several years; credit extension is unlikely to be influenced in a major way. - In terms of resources, the CBFA is aware that the Basel II implementation constitutes a challenge. ### Supervisory capacity and standards compliance - Assessments of Belgium’s compliance with internationally accepted standards and codes show that Belgian supervisors meet the challenges of supervising a large, internationally active financial system. - Supervision in the banking and securities areas were of high standards; a number of weaknesses were identified in the insurance area (Annex). - The CBFA, as a new institution, needs to position itself to meet the new challenges posed by the increasingly international character of the bancassurance groups, including their important links to global money centers. ### AML/CFT framework and FIU effectiveness - Belgium has a sound legislative AML/CFT framework in place. - Belgium has ratified the relevant international conventions and criminalized money laundering and terrorist financing in line with international standards. - The Belgian financial intelligence unit (FIU) is highly effective and professional in carrying out its functions. - Belgian mechanisms for responding to mutual legal assistance and extradition requests largely correspond to international standards. - The CBFA has generally adequate powers of supervision and inspection for the financial entities under its regulatory authority. - The phasing out of bearer shares will align AML/CFT with international standards. - It is important that the insurance sector be subject to compliance supervision regarding AML/CFT obligations. ### Systemic liquidity arrangements - Belgian banks enjoy a comfortable liquidity position because of: - (i) a large, and stable savings deposit base; - (ii) a broad range of eligible collateral, including large portfolios of government bonds; - (iii) access to deep markets; and - (iv) the Eurosystem’s policy of allowing banks to use required cash reserves for intraday payments. - The NBB outlines three main principles under which emergency liquidity assistance can be provided: - Assistance can only be provided as a last resort, after having considered and disqualified all other options, including market options and the ability of the deposit insurance scheme to intervene preventively. - Emergency liquidity assistance should in principle be fully collaterized, although the central bank organic law does not prohibit uncollaterized assistance in “emergency situations.” - It should only be provided in the event of liquidity and not solvency problems, but this distinction is sometimes difficult to make in times of crises. - Under the Eurosystem emergency liquidity assistance remains a national responsibility. ### Deposit insurance, crisis management, and cross-border coordination - The deposit guarantee scheme provided by the Belgian Protection Fund (BPF) is a core component of the financial safety net. - Given the rise in cross-border banking activities and the diversity of national depositor protection systems operated by the EU member states, there is some uncertainty about how well home/host coordination would operate in an actual crisis situation. - The review of the EU directive on deposit guarantee schemes that is currently underway should provide an important opportunity to clarify questions. - Despite an enviable track record in financial stability, further strengthening of crisis prevention and management tools is warranted. - The NBB has assembled a broad-based crisis team and established detailed procedures for financial crisis management, which are regularly tested. - Given the cross border structure of the bancassurance groups, effective management of a crisis would likely require ex-ante greater coordination among authorities in several countries. - The challenge for the NBB and the CBFA going forward is to identify potential sources of systemic risk, appreciate the cross-border dimension, and fine tune their arrangements in light of tests conducted in this area. ### Medium-term challenges for Belgian banks and insurance/pension sectors - Income growth and further improvements in the cost-income ratio remain two of the main challenges facing Belgian banks. - Net interest margins (NIMs) have continued to remain under pressure. - Net interest income for Belgian banks has fallen despite growth of interest-bearing assets and liabilities, reflecting mainly the clear downward trend in NIMs. - NIMs fell from a peak of 1.23 percent to nearly 1.10 percent in 2005 in the context of persistently low interest rates, a flattening of the yield curve, and downward pressures on commercial interest margins (e.g., on mortgage loans and savings deposits, where competition among banks remained strong). - Operating costs have remained relatively high despite major improvements over the past several years; further significant cuts will be challenging in the Belgian environment. - Cost-to-income ratios, while on a declining trend, are high even by European standards, posing a challenge with the increasing competitive environment in the European market. - Regulated savings deposits: - Form part of the large and stable funding base for banks. - Are sensitive to changes in the withholding tax. - The deposit rate cap can create distortions in the deposit market in times of high interest rates. - The withholding tax exemption provides opportunities for tax evasion. - Any rationalization of the tax system should take into account its impact on the stability of the banking sector. - Insurance sector and guaranteed returns: - A new build-up of vulnerabilities associated with guaranteed returns needs to be prevented. - Stress tests and the most recent downturn show a further downward shift of interest rates would be very costly for insurers, given the existing stock of contracts. - The industry has already adapted by lowering the guaranteed return and guaranteeing a given return only for the current premium. - Supervisory need: exercise more flexibility in setting the maximum guaranteed rate, which plays an important prudential role. - Political considerations make the maximum guaranteed rate sticky because it is linked to the minimum guaranteed rate in pension arrangements; these two rates have fundamentally different functions and objectives and should be de-linked to allow the maximum guaranteed rate to be adjusted to prudential requirements in the insurance industry. - Pension funds: - Minimum funding requirements for pension funds are low and a number of funds are underfunded, even compared with these minimum requirements. - The authorities should take advantage of the current benign financial environment to: - (i) overhaul the supervision of pension funds; - (ii) introduce a risk-based approach and focus supervision on core activities; - (iii) revisit the issue of externalization of pension obligations with a view to increasing the minimum funding requirements to a more realistic level; and - (iv) review governance of pension funds. *Source: IMF staff report content provided in the supplied document.* ### 37. The assessment of implementation of the Basel Core Principles (BCP) for Effective ### _cr0675 - 37. The assessment of implementation of the Basel Core Principles (BCP) for Effective ### Institutional setting - The Banking Finance and Insurance Commission (Commission Bancaire, Financière et des Assurances, CBFA) is expressly charged with the oversight of credit institutions (para. 38). - The CBFA cooperates and shares resources with the National Bank of Belgium (NBB) in key areas, including prudential reporting by credit institutions (para. 38). - The NBB has oversight responsibilities for the payment system, and the NBB and the CBFA jointly constitute the Committee for Financial Stability (para. 38). - Deposit insurance to a limit of EUR 20,000 is provided by the Fund for the Protection of Deposits and Financial Instruments (FIF) (para. 42). - Participation in the FIF is mandatory for Belgian institutions and foreign institutions from non-EU member states, and optional for institutions from other EU states that participate in their home country’s fund (para. 42). - Liquidity support may be provided by the NBB in its capacity of lender-of-last-resort, within the broader European Central Bank system (para. 41). ### General preconditions for effective banking supervision - Belgium’s financial sector is well developed and has benefited from a sound domestic economy; recent growth has been somewhat higher than the Euro area average (para. 39). - The budget has been in balance or small surplus; low growth has meant that gross public debt has declined only slowly and is still equivalent to nearly 100 percent of GDP (para. 39). - Government infrastructure is well developed with a substantial body of commercial law and a well respected judiciary (para. 40). - Accounting standards are in transition: all publicly traded Belgian companies, including banks and insurance companies, required to adopt International Financial Reporting Standards for the fiscal year beginning in 2005 (para. 40). - Overall responsibility for the public safety-net lies with the Committee for Financial Stability, charged with coordination of crisis management, oversight of deposit insurance, and protection of investors (para. 41). ### Main findings (BCP assessment summary) - High overall level of compliance with the essential and additional criteria of the Core Principles; legal framework well developed; practical implementation strong (para. 43). - CBFA bank supervision staff enjoy a strong reputation for professional skill and integrity (para. 43). - Assessment completed against both essential and additional criteria, viewed as appropriate for a highly developed country (para. 37). Key observations and concerns: - Objectives, autonomy, powers, and resources (CP 1) - CBFA has appropriate autonomy and powers for banking supervision (para. 44). - Recommendation to consider establishing a clear, broader mandate for the CBFA to reflect responsibilities for financial stability and consumer protection across banking, capital markets activity, and insurance (para. 44). - Concern that upgrading capacity in nonbank areas and investing to meet evolving best practices such as Basel II could divert resources from existing bank supervision (para. 45). - Management structure where three members of the CBFA management committee also have senior responsibilities at the NBB may present challenges; authorities should assess practical success after initial experience (para. 46). - Licensing and structure (CPs 2–5) - High level of compliance; need to ensure sufficiently knowledgeable and skilled non-executive directors across all banks, not only large groups (para. 47). - Consider vetting directors for skills and experience, and the overall balance of the board (para. 47). - Prudential regulations and requirements (CPs 6–15) - Prudential regulations generally appropriate and well enforced (para. 48). - Recommend expanding Article 20 of the banking law to provide more explicit legal foundation for internal governance and control; several governance areas now addressed in protocols or CBFA circulars (para. 48). - Common practice of issuance of bearer shares could undermine anti-money laundering and countering financing of terrorism efforts (para. 48). - Methods of ongoing supervision (CPs16–21) - Well developed and effective system incorporating onsite and offsite work by integrated teams; good risk-focused approach (para. 49). - Consolidated supervision effective for large conglomerates due to MOUs and established practices (para. 49). - Need to establish a more formal process within the CBFA for coordination between banking and insurance supervision (para. 49). - Formal powers of supervisors (CP 22) - Article 57 permits the CBFA to act quickly without time-consuming legal proceedings; wide range of remedial measures available (para. 50). - In the last ten years there have been three instances where a special inspector was appointed to supersede management and directors of a bank (para. 50). - Home-host supervision (CPs 23–25) - Strong home-host regime, especially for largest banking groups where specific MOUs are in place (para. 51). - CBFA staff routinely conduct onsite work in significant foreign establishments; good information exchange and coordination with foreign supervisors (para. 51). ### Recommendations (summary of Table 6) - CP 1.1 Objectives: Consider establishing a broader mandate for the CBFA to help address internal allocation of resources and support cases for increased total resources. - CP 1.2 Independence: Ensure bank supervision quality is not weakened by strengthening nonbank functions and meeting Basel II; review effectiveness of management board structure. - CP 3 Licensing criteria: Explicitly consider skills and experience of directors to ensure boards can oversee management. - CP 5 Investment criteria: Consider linking the power to object to required notification by amending Article 33bis regarding subsidiaries to parallel Article 34 on branches. - CP 13 Other risks: Introduce formal liquidity guidelines for banks. - CP 14 Internal control and audit: Formally assess whether banks’ boards have the skills, experience, and understanding of risks to effectively oversee the business. - CP 15 Money laundering: Abolish bearer shares or develop an alternative to preclude changes in beneficial ownership without the bank’s knowledge; ensure all key elements of the AML/CFT framework have the force of law. - CP 20 Consolidated supervision: Introduce a more formal and standardized process for coordination and liaison between insurance and banking supervision. - CP 22 Remedial measures: Consider more aggressive use of power to sanction for deterrent effect. - CP 23 Globally consolidated supervision: Consider formalizing the process for assessing the quality of home country supervision, likely aligned with the proposed EU approach to mutual recognition for third-country supervisory regimes (paras. 52 and Table 6). ### Authorities’ response (CBFA) - CBFA subscribes to the main findings and is satisfied with the overall conclusion that banking supervision has a high overall level of compliance and that CBFA bank supervision staff have a strong reputation (para. 53). - Work underway to address issues raised, at CBFA initiative or within EU-supervisory framework (CEBS) (para. 54). - Governance and organizational points: - CBFA governance structure laid down in law of August 2, 2002; since January 2004 CBFA is single supervisory authority for the Belgian financial sector following integration (para. 55). - Internal rules for Management Committee completed, internal audit set up, public communication policy enhanced; move into one building in September 2004 contributed to collaboration (para. 56). - New staff being recruited within budget constraints to upgrade capacity in nonbank supervisory functions; Basel II implementation acknowledged as a challenge for supervisory resources (para. 57). - Licensing and governance measures: - CBFA undertaking thorough review of internal governance framework; intends to build on Basel Committee and CEBS work and to delineate responsibilities for annual accounts, prudential reporting, internal control, and external auditors; launched consultation in October 2005 on external auditors’ role and tasks (para. 58). - Alignment of legal provisions for objecting notifications (BCP 5) to be addressed with forthcoming EU-solvency regulation changes (para. 59). - Prudential and AML/CFT actions: - Overhaul of internal governance framework to root governance principles in law or regulations (BCP 14) (para. 60). - New law approved: as from January 1, 2008 all new shares will be issued in registered or dematerialized form; transitional measures for existing bearer securities up to December 2013 (para. 61). - Other AML/CFT recommendations to be implemented with transposition of EU regulations: Special Recommendation VII of the FATF before the end of 2005 and the 3rd EU-Directive on money laundering by December 2007 (para. 61). - Liquidity and consolidated supervision: - Formal guidelines for liquidity management (BCP 13) to be introduced as part of implementation of the European Capital Requirements Directive (CRD), targeting January 1, 2007; will result in revised liquidity reporting framework and more explicit qualitative guidelines (para. 62). - Initiatives to develop common approach between banking and insurance supervision already taken: exchange of information, joint team meetings, common approaches, joint on-site examination and supervisory review, integration of IT systems (para. 63). - Specific committee established consisting of heads of departments and management committee members to enhance exchange and discussion regarding supervision of complex cross-sectoral institutions (para. 64). - Project established end of 2004 within Banking supervision department to update and review procedures, job descriptions, on-site work programs, and management tools (para. 65). - CBFA will inquire into potential benefits and consequences of more aggressive use of sanctioning powers (BCP 22) (para. 66). - CBFA will follow proposed EU approach for mutual recognition of third-country supervisory regimes when assessing the quality of home country supervision (BCP 23) (para. 67). ### IAIS (Insurance Core Principles) assessment—summary - Assessment covers observance of IAIS Insurance Core Principles in Belgium; supervised by CBFA (para. 68). - Assessment conducted during November 30 to December 13, 2004, based on circumstances and practices at that time; prospective changes not considered (para. 69). - Assessment conducted by Mr. Wil Dullemond, Senior Policy Advisor on Strategic Issues in Insurance Supervision at the Dutch Central Bank and Chairman of the IAIS Solvency Subcommittee, assisted by IMF staff (para. 70). - Institutional and macroprudential context: - Belgium’s financial system is large with assets of over 500 percent of GDP, dominated by a few large, complex financial institutions (LCFIs) (para. 71). - Insurance sector assets equivalent to less than 50 percent of GDP; insurance plays an important role through bancassurance groups (para. 71). - Belgium has adopted consolidated supervision under the newly established CBFA (para. 71). *Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr0675.pdf* ### 72. The Belgian insurance market is smaller, relative to GDP, than the OECD and EU 15 ### _cr0675 - 72. The Belgian insurance market is smaller, relative to GDP, than the OECD and EU 15 ### Market size and structure - Total premium close to 8 percent of GDP in recent years. - Many stand-alone insurers exist, but most of the largest insurers are part of bancassurance groups. - Insurance market concentration versus banking: - Top four banking groups account for over 80 percent of both loans and deposits. - Top four insurance groups collect 64 percent of the life premium and 52 percent of the nonlife insurance premium. - Insurance importance within bancassurance groups: - Insurance contributed to 30–40 percent of total profits of Fortis and KBC in 2003. ### Life insurance performance and asset allocation - Guaranteed returns history and current levels: - Guaranteed returns offered by insurers were close to the maximum of 4.75 percent until 1999, after which the maximum was lowered to 3.75 percent. - Insurers have been offering guaranteed rates for new contracts of around 3 percent recently. - The estimated guaranteed return on all outstanding contracts remains close to 4 percent, which is approximately equal to long-term interest rates. - Asset mix and implications: - Losses from the steep decline in equity prices led insurers to increase fixed income weight. - In 2003, fixed income securities accounted for 72 percent of the investment portfolio, with only 15 percent of the portfolio invested in equities. - Net impact of a rise in interest rates on insurers’ financial position is unclear: higher rates would alleviate guaranteed return burdens but would negatively affect the value of fixed income securities. ### Supervisory observance and institutional findings - Overall observance and governance: - A relatively low level of compliance is surprising given a well developed insurance market. - Authorities are pursuing supervisory initiatives likely to materially improve observance. - Supervisory guidance and professional standards (e.g., for the actuarial profession) are in some cases absent or at a high non-operational level. - ICP assessment summaries: - Conditions for effective insurance supervision (ICP1): Belgium mainly meets the conditions necessary for effective insurance supervision. - The supervisory system (ICP 2-5): Broad observance of international criteria; some legislative improvements would be beneficial. CBFA adopted a project leading to a risk-based approach to supervision. - The supervised entity (ICP 6-10): Room for improvement in suitability of persons, corporate governance, and internal control. CBFA formed a unit to address corporate governance aspects. - Ongoing supervision (ICP 11-17): Principles mainly met; on-site inspections require improvement in number and scope. - Prudential requirements (ICP 18-23): Most important improvements needed here; supervision historically focused on technical provisions, product profitability, and solvency—greater analysis of assets, derivatives, and ALM issues recommended. - Markets and consumers (ICP 24-27): Intermediary regulation is in the process of transposing the EU directive and is largely observed; public information requirements should be upgraded to international standards. - Anti-money laundering (ICP 28): Belgium has extensive AML regulations; sufficient resources need to be allocated to AML/CFT supervision in insurance. ### Key statistics on broader financial sector (as reported) - Investment funds and market structure: - 66 licensed investment firms, including portfolio managers, derivatives specialists, order execution firms and full service firms. - 37 of these firms are members of the exchange. - 65 credit institutions, many of which carry out investment services without a separate license. - 3 licensed investment advisers. - 138 separate (open-ended) investment fund companies in Belgium, with a total of 1,462 subfunds and EUR 96.2 billion in assets under management. - Sector dominated by bank affiliated collective investment schemes. - Euronext and issuance: - Euronext Brussels market capitalization of EUR 232 billion with 227 listed companies. - EUR 385 million in equities were issued on the Belgian market in 2003 (EUR 33 million representing Belgian companies and 352 foreign companies). - EUR 1.57 billion in fixed income securities issued in 2003 (EUR 50 million representing Belgian companies). - Another 200 unlisted issuers in Belgium. - Corporate practice: - Use of bearer shares remains a unique feature with a tradition of use for transferability and tax-related motivations. - CBFA and resources: - CBFA formed in 2004 as an integrated regulator for credit institutions, investment firms, regulated secondary markets, collective investment schemes, issuers and insurance companies. - CBFA has approximately 400 staff employed directly by the CBFA and subject to an independent salary scale. ### Principal recommended actions (selected highlights from Table 7) - Conditions for effective insurance supervision (CP 1): - Keep regulations in line with best practices (e.g., corporate governance, solvency). Better regulate the role of the accredited actuary and its competencies. - Supervisory objectives and authority (CP 2–3): - Clarify overall objectives of the CBFA to enable strategic and business plans. - Consider combining all insurance regulations into one document or harmonizing cross-sector regulations. - Provide for smooth transfer of knowledge between banking and insurance supervisors; establish an internal audit function for the CBFA. - Supervisory process and cooperation (CP 4–5): - Make the supervisory process explicitly risk based to balance quantitative and qualitative assessment. - Share relevant information with host supervisors and enhance reciprocity. - Suitability, governance, and internal control (CP 7, CP 9, CP 10): - Consider legal right for CBFA to request fit and proper tests for statutory auditors and accredited actuaries. - Strengthen corporate governance requirements and utilize banking supervision experience in the new “Internal Control and Internal Audit” unit. - Require actuary reports to the Board of Directors and submission to the CBFA. - On-site inspection and group-wide supervision (CP 13, CP 17): - Increase frequency and comprehensiveness of on-site inspections. - Subject all Belgian groups to consolidated supervision by the CBFA. - Risk assessment, liabilities, investments, and derivatives (CP 18–22): - Extend supervision of internal control and internal audit; require documentation of underwriting, premium setting, and reinsurance policies. - Delegate determination of the maximum interest rate for setting life provisions to the CBFA. - Require insurers to document investment policy and verify application via internal controls; utilize banking expertise for assessment of derivatives. - Capital adequacy, intermediaries, disclosure, fraud, AML (CP 23–28): - Improve follow-up of resistance tests for solvency; transposition of Directive 2002/92/EC to address intermediaries and enhanced information to prospective policyholders. - Improve disclosure requirements to include information on risk exposures and management; clarify responsibility for monitoring disclosures. - Require insurers and intermediaries to allocate resources and controls to deter, detect, record and report fraud; ensure sufficient resources for AML/CFT supervision. ### Authorities’ response - CBFA supports IMF conclusions and indicates the FSAP recommendations have been useful to initiate and elaborate significant improvements in insurance sector supervision. - Reorganization of the department started end 2004 and will end beginning 2006, with efforts to integrate banking supervision know-how and develop prudential insurance supervision for conglomerates. - On-site supervision, including joint on-site supervision of conglomerates, is being strongly developed on audit, technical and financial levels. *Source: _cr0675 - 72. The Belgian insurance market is smaller, relative to GDP, than the OECD and EU 15* ### 98. The CBFA sets and enforces detailed prospectus and on-going disclosure ### _cr0675 - 98. The CBFA sets and enforces detailed prospectus and on-going disclosure ### Disclosure, accounting, and issuer supervision - Accounting and auditing standards are of an internationally acceptable quality. - The International Financial Reporting Standards (IFRS) were introduced for listed issuers on January 1, 2005. - Material event (or price sensitive information) disclosure requirements are monitored by the CBFA’s market surveillance function. - CBFA requires additional authority over unlisted issuers (described as a very tiny group in the Belgian market) and should impose material event disclosure requirements on these companies. - Transaction reporting requirements for large shareholders are in place but: - This requirement should be extended to officers, directors and related parties. - Such transactions should be made public. - The use of bearer shares may undermine the rights of investors by creating obstacles to the dissemination of disclosure information. ### Collective investment schemes - Regulation is well developed—prospectuses and marketing material are reviewed prior to an offering. - Rules exist to deal with delegations, changes to unit holder rights and net asset value calculation. - Inspection program encompasses all facets of the operation of a fund, including accounting and administration and custody of assets. ### Market intermediaries - Investment firms are subject to internal control, risk management, and capital adequacy rules. - A process is in place for winding up a firm and an investor compensation fund exists. - Investment firms are subject to examinations by the CBFA (on a risk-assessed basis), and semi annual external audits. - Additional rules required (to be introduced as part of the implementation of the new EU Investment Services Directive) include: - Requirement that firms keep a registry of client complaints. - Written customer account agreements should be mandatory. ### Secondary markets and Euronext coordination - The CBFA has full power to supervise Euronext Brussels; while it does not directly license the exchange, it must be consulted in the granting of a license. - Over the past two years CBFA focused on developing a coordination program with other Euronext regulators and on approving the Euronext rule book in conjunction with the Euronext group. - Future focus: coordinating operational supervision of the exchange, including risk management, to avoid overburdening the exchange with regulation by five separate regulators. ### Recommended Actions (extracted from Table 8) - Principles Relating to the Regulator (P 1–5) - A review of “like product” regulation should be conducted with a view to leveling the playing field for UCITs. - An investor education program should be developed by the CBFA. - Principles for the Enforcement of Securities Regulation (P 8–10) - Enforcement procedures should be more transparent. - Application of administrative sanctions should be published as a matter of course (subject to exemptions where the public interest may be damaged). - Principles for Issuers (P 14–16) - The CBFA should be granted direct authority over on going supervision of unlisted issuers. - Unlisted issuers should be subject to a material event (price sensitive information) disclosure requirement. - The concept of “insider” (large shareholders, directors, officers and related parties) should be brought into transaction reporting requirements. - An insider transaction reporting system should be developed and reports made publicly available. - The above-market price requirement should be removed from takeover bid rules. - The use of bearer shares should be eliminated to remove intransparency of ownership (per proposed legislation). - Principles for Collective Investment Schemes (P 17–20) - The use of bearer shares should be eliminated, per proposed legislation. - Principles for Market Intermediaries (P 21–24) - Written customer account agreements should be mandatory. - Firms should be required to keep a registry of all client complaints. - Principles for the Secondary Market (P 25–30) - The CBFA should continue to pursue coordination of Euronext oversight. ### Authorities’ response (summary) - Authorities welcome the assessment and consider it a comprehensive review. - They generally agree with the recommendations and will strive to implement them insofar as possible. - They emphasize perspective on “unlisted issuers”: the greater part are regulated entities (such as collective investment schemes or credit institutions) already subject to adequate supervision. - Authorities thanked the IMF team for the interactive and dynamic assessment process. --- ### Euroclear Bank — CPSS/IOSCO Recommendations assessment (ES) ### Introduction and scope - Assessment covers the Euroclear System (ES) operated by the Euroclear Bank (EB), in the context of the IMF FSAP exercise for Belgium in December 2004. - Focuses on structure and governance of the ES as on the end of September 2005; some services provided by Euroclear SA/NV (ESA) to the EB are also covered. ### Institutional and market structure highlights - ES core market: Eurobonds and other international securities; ES acts as one of the ICSDs in the European Union. - ES has a network with 31 domestic markets worldwide. - In April 2002 the EB concluded an agreement with Euronext NV making the ES a preferred partner for settlement of trades executed on Euronext markets of Paris, Amsterdam and Brussels. ### Key statistics on the Euroclear Bank (Table 9) - Turnover (in EUR trillions): 2002: 103.5; 2003: 114; 2004: 132.6 - Of which Internal settlement: 2002: 78%; 2003: 78%; 2004: 88% - Bridge settlement: 2002: 11%; 2003: 11%; 2004: 6% - External settlement: 2002: 11%; 2003: 11%; 2004: 6% - Instructions processed (in millions): 2002: 18; 2003: 22; 2004: 24 - Of which Internal settlement: 2002: 67%; 2003: 70%; 2004: 84% - Bridge settlement: 2002: 23% ; 2003: 21% ; 2004: 11% - External settlement: 2002: 10%; 2003: 9%; 2004: 5% - Total value of securities held (in EUR trillions, as of Dec. 31): 2002: 4.8; 2003: 5.2; 2004: 5.9 - Of which International Bonds: 2002: 3.3; 2003: 3.5; 2004: 3.5 - Domestic bonds: 2002: 1.3; 2003: 1.4; 2004: 1.6 - Equities: 2002: 0.1; 2003: 0.1; 2004: 0.3 - Other securities: 2002: 0.1; 2003: 0.2; 2004: 0.5 - Number of issues accepted: 2002: 139,293; 2003: 159,095; 2004: 126,415 - New issues (in € billions): 2003: 2047; 2004: 1596 - Number of participants: 2002: 1634; 2003: 1538; 2004: 1491 - Overnight credit (Daily average in EUR billions): 2002: 1.4; 2003: 1.4; 2004: 1.5 - Securities lending outstanding (Daily average in EUR billions): 2002: 8.5; 2003: 8.6; 2004: 8.3 - Collateral provision outstanding (Daily average of triparty repo in EUR billions): 2002: 103; 2003: 128; 2004: 162 ### Main findings — overall - The assessment demonstrates that the ES is a safe, sound, efficient, and reliable system. - The ES observes almost all CPSS/IOSCO Recommendations for Securities Clearing and Settlement Systems. ### Legal risk (Recommendation 1) - Settlement and custody activities are governed by a consistent and solid set of laws, regulations and rules supporting enforcement, protection of customer assets, immobilization/dematerialization, securities lending and DVP with finality. - Non-financial participants in the ES, accounting for less than 0.5 percent of total settlement activities, are not protected against the zero hour rule. - A legislative project is underway to address this residual risk. ### Pre-settlement risk (Recommendations 2–5) - The ES does not influence trade confirmation or settlement cycles; it settles trades executed OTC and on trading platforms located outside Belgium. - ES settles transactions in international and domestic securities cleared by CCPs when present, to expedite settlement and reduce settlement failures. ### Settlement risk (Recommendations 6–10) - ES operates on a real time gross settlement (RTGS) basis and settles on a delivery versus payment (DVP) with intraday settlement finality. - System provides automated collateralization mechanism and securities lending facility to reduce settlement failure. - EB provides securities lending and cash credit in connection with settlement and advances payments for securities issuances and corporate events. - EB uses collateralization, credit limits, financial commitments from third parties and rating, but needs to enhance risk management by: - Enlarging its credit limit system to all activities. - Improving tools to monitor and manage total credit exposures from different activities for individual and interrelated participants systematically. ### Operational risk (Recommendation 11) - Adequate procedures are in place to monitor, identify, and manage operational risk. - Board of Directors of EB has overall responsibility for operational risk policies and reviews regular reports. - ESA provides support services to EB in risk management. - Business continuity arrangements include written documentation, a “live” secondary data center and a dual office structure, and external audits of disaster recovery/business continuity. - Improvement suggested: enhance communication with participants on business continuity transparency and include participants in testing procedures. ### Custody risk (Recommendation 12) - Almost all securities are immobilized. - Law of August 2, 2002 obliges depositories established in Belgium to hold their own securities and the securities of their clients on separate accounts. - Belgian custodians must reconcile holdings regularly within their systems and with accounts at ES; EB monitors securities movements with depositories/local CSDs daily. - EB requests depositories to carry external audits and provide access to audit reports. ### Other issues (Recommendations 13–19) - Governance arrangements designed to fulfill public interest and promote owners’/users’ objectives; EB consults participants on major changes. - Euroclear could increase transparency on financial objectives beyond the 2004 Annual report and implement procedures to identify and resolve conflicts between users and shareholders. - Roles and responsibilities of the NBB and the CBFA with respect to clearing and settlement are clearly defined in the Royal Decree; cooperation has become more transparent. - Suggestion: publish cooperation agreement between NBB and CBFA in a more readily accessible form on their Internet sites. - NBB and CBFA set up an international cooperation framework with French, English, and Dutch authorities following the Euroclear restructuring. - A high level Steering Group for oversight and supervision of Euroclear has been set up by CBFA and NBB; its role should be further strengthened and formalized. - EB should enhance risk management for links to other markets by: - Developing standardized risk assessment methodology. - Abolishing the procedure of booking securities on the account of participants before finality is achieved in local markets. - Fully securing and establishing clear limits for credits granted to Clearstream Banking Luxembourg through the Bridge. ### Summary observance of CPSS/IOSCO Recommendations (Table 10) - Observed: 1, 2, 3, 4, 5, 6, 7, 8, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19 (Free of payment links in the EU markets). - Broadly Observed: 9, 19 (DVP links, except the links to the U.S., France, Spain, and Germany). - Partly observed: 19 (the Bridge between Euroclear and Clearstream Banking Luxembourg). - Non-observed: 19 (Links to the U.S., France, Spain, and Germany). ### Actions to improve observance (Table 11 — selected recommended actions) - Recommendation 1: Legal Framework - Amend Belgian regulation on settlement finality to abolish the zero hour rule for non-financial participants in the ES. - Recommendation 9: Risk Controls - EB should enlarge its credit limit system to all performed activities and improve tools to monitor/manage total credit exposures systematically. - EB should abolish the procedure of debit balances in securities. - Recommendation 11: Operational reliability - EB should better inform its participants on business continuity issues, transparency of contingency procedures and test facilities. - Recommendation 12: Protection of Customers’ securities - CBFA may accelerate implementation of Article 26 of the Law of August 2, 2002 (separation of depositories' own securities and clients' securities). - EB may consider amending rules to make regulation and supervision of foreign depositories a prerequisite for selection. - Recommendation 13: Governance - Board of Euroclear plc may consider increasing transparency of financial objectives and establish procedures to identify/solve conflicts between users and shareholders. - Recommendation 18: Regulation and oversight - CBFA and NBB may consider making the Royal Decree Article 118 (or the part dealing with clearing and settlement) more permanently public. - Human resources of CBFA need strengthening to increase staff specialized in securities clearing and settlement activities. - Recommendation 19: Cross-border links - EB should develop a standardized assessment methodology for links, make it transparent and discuss with relevant public authorities; update assessments regularly. - For the Bridge: EB should fully secure and establish clear limits for credits granted to Clearstream Banking Luxembourg. - For provisional links to the U.S., France, Spain, and Germany: EB should avoid booking securities on participant accounts before finality is achieved in the local market or prohibit their retransfer until the first transfer is final. *Source: _cr0675 - 98. The CBFA sets and enforces detailed prospectus and on-going disclosure* ### 123. In 2004, the NBB had conducted a first assessment of the ES against CPSS-IOSCO ### _cr0675 - 123. In 2004, the NBB had conducted a first assessment of the ES against CPSS-IOSCO ### Introduction and Scope - Assessment context: - Undertaken in the context of the IMF FSAP exercise for Belgium in December 2004. - Covered the NBB SSS and the Caisse Interprofessionnelle de Depôts et de Virements de Titres/Interprofessional Securities Depository Organization (CIK). - Pre-mission self-assessments: - The NBB and the CBFA made a thorough self-assessment of the CIK based on the CPSS-IOSCO Methodology. - The NBB made a similar self-assessment for the NBB SSS. - Systems in scope: - CIK systems: - Forward Market Settlement (FMS) system: settles Euronext Brussels on-exchange cash market transactions; LCH.Clearnet SA intervenes as central counterparty. - Electronic Matching and Securities Settlement (EMSS) system: settles over-the-counter (OTC) transactions. - NBB SSS: central securities depository and settlement operator for a broad range of euro-denominated instruments (government securities, Belgian Treasury Bills (BTBs), Staatsbons/Bons d’Etat, commercial paper). ### Institutional and Market Structure — Key Facts - Euronext Brussels: - Since September 2000, stock exchange operator is Euronext Brussels SA/NV, a wholly owned subsidiary of Euronext NV. - As of July 2004, Euronext Brussels stock market capitalization amounted to approximately EUR 164 billion. - Clearing and settlement flows: - Except for minor exceptions, all trades on Euronext Brussels are cleared by LCH.Clearnet. - Euronext Brussels cash trades represent less than five percent of the overall volume of all Euronext cash market trades cleared by LCH.Clearnet. - After LCH.Clearnet clears the trade, positions are settled in FMS; CIK uses EMSS for OTC. - Government debt market activity (2003–2004): - OTC trading volume in OLOs (excluding repo transactions): EUR 662.8 billion in 2003; EUR 557 billion in 2004. - Trading volumes in treasury certificates: EUR 245.6 billion in 2003; EUR 201 billion in 2004. - Percentage of OLO trading volume on MTS Belgium: 19 percent in 2003; 21 percent in 2004. - Percentage of treasury certificate trading volume on MTS Belgium: 22 percent in 2003; 20 percent in 2004. - Settlement mechanics: - OTC and stock exchange trades in Belgian government debt and commercial paper are settled at the NBB SSS. - NBB SSS operates through several real-time batch cycles during settlement date, usually T+3. - Transactions are settled on a gross basis (trade by trade) according to DVP model 1. ### Regulatory and Oversight Framework - Competent authorities: - CBFA and NBB are the competent authorities for regulation and oversight of securities clearing and settlement systems. - Under the law of August 2, 2002, CBFA exercises prudential supervision of the CIK as a settlement institution; NBB is in charge of oversight of the CIK and the NBB SSS as settlement systems. - CBFA does not supervise the NBB SSS. - Oversight arrangements: - Practical modalities are agreed in a protocol between overseer and operator. - Chinese Walls instituted within NBB to separate operation and oversight functions; separate departments report to different Board members. - A Working Methodology between the NBB SSS and the NBB’s Oversight Group, approved by NBB's Board, arranges practical modalities. ### Main Findings — Legal Risk (Recommendation 1) - Legal framework: - Consistent set of laws, regulation and contracts forms the legal foundation for custody and clearing and settlement of securities. - All relevant laws and regulations are publicly available. - Customer assets are protected by law against bankruptcy of a custodian. - Netting, securities lending arrangements and establishment of collateral interest are well regulated. - All laws, regulations, and contractual arrangements are fully enforceable. - CIK contractual updates: - By October 2005, the CIK had revised the most relevant parts of its contractual framework and published new versions of the CIK By-Laws and the CIK circular letters on its web site. - Anticipated completion of relevant technical documentation by the end of 2005. - Result: CIK’s rules should be more accessible and moment of irrevocability of transfer orders and settlement finality should be clearly defined. ### Main Findings — Pre-settlement Risk (Recommendations 2–5) - Settlement performance: - The CIK settles 96 percent of the trades from Euronext Brussels on their intended T+3 settlement date. - Transactions involving Belgian debt securities settled at the NBB SSS enjoy a low fail rate. - 12 percent of the transactions executed in the OTC equity market fail to settle on time. ### Main Findings — Settlement Risk (Recommendations 6–10) - DVP issues in CIK FMS: - The DVP arrangements of CIK’s FMS system do not always link the transfer of securities to the payment of cash so that DVP is achieved. - FMS allows Clearnet to re-use securities received from selling clearing members to deliver to buying clearing members before paying the seller. - During this period, the seller could be at risk to the CCP because securities are debited from the seller’s account before the seller receives payment. ### Main Findings — Other Issues (Recommendations 11–19) - Custody and dematerialization: - For issuance and safekeeping of print-on-demand securities, the CIK uses electronic book-entry procedures that are not compliant with Belgian law or regulations, increasing custody risk. - Recommendation: CIK should stop using such procedures pending new legislation that protects dematerialization and book-entry safekeeping. - User communication at NBB SSS: - No formal mechanisms for NBB SSS users to interact with management (no user committees or participant surveys). - NBB SSS interacts informally and is responsive, but establishing permanent user groups and formal methods of communication is advisable. ### Summaries of Observance and Action Items — CIK - Observance summary (preserve table entries): - Recommendation Observed: 2, 3, 4, 5, 6, 7 (EMSS), 9, 10, 11, 13, 14, 15, 16, 18 - Broadly Observed: 1, 3 (exchange transactions), 2 (OTC), 5 (OTC) - Partly observed: 8, 17 - Non-Observed: 7 (FMS), 12 - Actions recommended (selected, verbatim): - Recommendation 1: update all relevant contractual documentation. (CIK is currently updating its technical documentation.) - Recommendation 3: develop procedures to mitigate risks from failed trades in the OTC market; consider requiring EMSS matches to be binding; consider establishing a fine or fee schedule for failed trades. - Recommendation 5: None. - Recommendation 7: revise CIK’s DVP procedures for the FMS so that transfer of securities is linked to payment of cash in a manner that eliminates principal risk, particularly when participants deliver securities to the central counterparty. - Recommendation 8: amend documents and procedures to clearly stipulate the moment of irrevocability and finality of transfer orders. - Recommendation 12: stop using electronic book-entry procedures for issuance and safekeeping of securities as they are not compliant with current Belgian legislation. - Recommendation 17: ensure disclosure to the CPSS-IOSCO disclosure framework or the CPSS-IOSCO assessment framework. - Recommendation 19: develop a risk methodology for the design of their links. ### Summaries of Observance and Action Items — NBB SSS - Observance summary (preserve table entries): - Recommendation Observed: 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 14, 16, 17, 18, 19 - Broadly Observed: 13, 15 - Partly observed: (none listed) - Non-Observed: (none listed) - Actions recommended (verbatim): - Recommendation 13 (Governance): consider forming user groups or other formal methods to enable structured and formalized communication between the NBB SSS and its participants. - Recommendation 15 (Efficiency): regularly organize client surveys to review service levels. ### Authorities’ Response and Follow-up - General response: - Authorities are in broad agreement with the IMF assessment report. - CIK follow-up: - Action plan to remedy non-compliance is in the process of being implemented. - CIK has adapted its contractual framework. - NBB oversight will request CIK to prioritize remedying the absence of DvP in the CIK FMS System and to remedy issuance and safekeeping of print-on-demand securities without a necessary legal base. - NBB SSS follow-up: - NBB-Oversight Unit will monitor initiatives by the NBB SSS to launch a clients survey and the system’s intention to organize a formal user meeting during Q4 2005. *Source: IMF staff assessment text (annex) of Belgium securities clearing and settlement systems against CPSS/IOSCO Recommendations.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr0675.pdf_