## 1. Detailed Assessment of Compliance of the Basel Core Principles for Effective Banking Supervision ## Source details **Canonical URL:** [1. Detailed Assessment of Compliance of the Basel Core Principles for Effective Banking Supervision](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr07172.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr07172.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr07172.pdf.json) --- ### General - Assessment covers compliance by the National Banking and Securities Commission (CNBV) with the Basel Core Principles for Effective Banking Supervision as of February 2006. - Mission: joint World Bank/IMF FSAP Update mission, visited Mexico City on February 22−March 7, 2006. - Assessor: Mr. Rudolph Zepeda, Jr. (Directing Bank Examiner, Federal Reserve Bank of Atlanta). - Basis: examination of key documents and discussions with senior officials of the CNBV, the Bank of Mexico (BOM), and the Secretariat of Finance and Public Credit (SHCP), plus discussions with bankers and other financial sector participants. ### Institutional and macroprudential setting; market structure - Economic context and reforms: - Fiscal consolidation reduced the gross public debt to GDP ratio to below 50 percent. - Monetary policy brought inflation down to less than 4 percent in the context of a floating exchange rate. - After a recession in 2002-2003: real GDP rose to 4.4 percent in 2004; declined to 3 percent in 2005; consensus forecast sees growth close to 4 percent for 2006. - Main risk factors: - Slowdown of U.S. industrial production could weaken domestic activity and credit demand. - Increased reliance on oil (production and prices) could raise public sector borrowing requirements and crowd out private credit. - Domestic government debt remains relatively short and vulnerable to tightening global liquidity and sharp interest rate increases. - Gaps remain in consolidated supervision and in the autonomy of supervisory agencies (Comisiones). - Financial system structure and concentration: - Commercial banks: 49 percent of financial system assets. - Development banks: 13 percent. - Privately managed pension funds (AFOREs): 13 percent. - Mutual funds: 11 percent. - Insurance, Sofoles, and other financial institutions: 14 percent. - The three largest banks account for close to 60 percent of the banking sector’s assets. - Foreign ownership represented close to 80 percent of all banking assets as of September 2005. - Market participants and regulators: - Multiple regulators: SHCP (regulatory policy, licensing, capital requirements), CNBV (supervisor and regulator for banks, other credit institutions, securities markets), BOM (money, foreign exchange, derivatives, payment systems), CONSAR (AFOREs), CNSF (insurance). - Other institutions: AMIB, Bolsa, MexDer, IPAB, and SHF. ### General preconditions for effective banking supervision - Transparency and market discipline: - Significant improvements in accounting and disclosure standards; limitation of previously unlimited guarantee on bank liabilities increased market discipline. - Legal and regulatory reforms: - April 2001 legislative amendments addressed foreign supervisor access to information and introduced a minimum requirement of 25 percent of independent Board members in banks’ Boards of Directors. - December 2, 2005 reform mandated improvements in risk management systems and a risk manager for financial institutions. - August 2004 credit rating and provisioning regulations: allowed internal credit rating methodologies for consumer, mortgage, and commercial loans; applied specific methodologies for loans to states and municipalities; introduced additional provisions for foreclosed assets and substantial loan-loss reserves for unrated municipalities. - CNBV issued regulatory accounting standard aligning banks to international accounting standards to include all subsidiaries within a supervised group. - External auditor regulations issued in 1994 and 2000, strengthened in April 2005; definition of “independence” updated with limits on contracting additional services. - Capital and prudential frameworks: - Capital standards strengthened in accordance with Basel I; preparations underway for Basel II implementation. - SHCP modified capital adequacy regulation concerning market risk and reduced participation of deferred assets in Tier 1 capital. - CNBV rates capital levels in five categories (in relation to risk-weighted assets) and posts this information on its website. - November 2004: CNBV established a framework with minimum capital triggers under which prompt corrective action (PCA) is undertaken, allowing for resolution of problem banks with IPAB. - New legislation established an early warning system. - CNBV institutional improvements: - Reorganization in 2001; quality control structure and a uniform On/Offsite Examination Manual. - Introduction of electronic work papers and mandatory exit meetings. - Formation of specialized examiners for information technology, credit review, and anti-money laundering and terrorist financing. - Efforts to attract, train, and retain newly qualified examiners required to follow internal CNBV Code of Ethics. ### Main findings: compliance progress and remaining issues - Overall compliance progress: - In 2001 Mexico was noncompliant or materially noncompliant with 6 Core Principles and fully compliant with 12 principles. - In 2005 Mexico was noncompliant with 1 principle and fully compliant with 19 principles. - Improvement attributed to coordinated regulatory and legislative efforts by the authorities. - Remaining major issue: - Principle 1: Lack of an autonomous supervisory agency with the power to control all activities from inception through demise of a financial institution, including all nonbank subsidiaries—hinders comprehensive consolidated supervision and allows outsourcing to jurisdictions outside Mexico without CNBV approval or supervision. - Supervision quality and perception: - Internal restructuring and standardization led to ongoing contact with supervised entities and a perception of CNBV management as “attentive and approachable.” - Key operational reforms: quality control structure, standardized examination methodology, automated electronic work papers, mandatory exit meetings, and specialized examiners to bolster professionalism and accountability. ### Detailed assessments by principle (selected highlights) - Objectives, Autonomy, Powers, and Resources (CP 1) - CNBV lacks autonomy and sole authority to control a banking institution from inception to demise. - Accountability spread among SHCP, BOM, and CNBV; SHCP has begun gradual transfer of some powers to CNBV sector-by-sector. - Assessment: Noncompliant. - Licensing and Structure (CPs 2–5) - Licensing authority currently rests with SHCP; CNBV licenses securities intermediaries under Securities Market Law (December 2005). - Proposed LIC revisions would transfer bank licensing to CNBV and grant CNBV formal authority over changes in ownership and investments. - In practice SHCP follows CNBV opinions. - Prudential Regulations and Requirements (CPs 6–15) - Capital: Mexican banks comply with the initial Basel Capital Accord and positioned to comply with Basel II in credit and operational risk; all institutions may apply for authorization to use internal models. - Credit and provisioning: August 2005 Circular Única de Bancos updated credit process requirements; 2004 provisioning rules allow internal rating methodologies; additional provisions for foreclosed assets; unrated municipalities face substantially higher provisioning requirements. - Concentration limits and related-party lending: 12 percent limit on exposures to individuals/groups as share of basic capital (Tier 1), with graduated higher limits for higher capital levels; sum of financing to top three borrowers cannot exceed 100 percent of Tier 1 capital; related party lending monthly reporting and Board approval required; related party lending limited to 50 percent of total capital. - Market and operational risk: CNBV uses VAR and stress tests; banks beginning to gather operational loss data under Basel II. - AML/CFT: progressive legal framework since 1997; electronic reporting of cash transactions over US$10,000 and suspicious transactions; May 2005 refinement of PEP criteria; automated AML work paper program implemented in 2005 with roll-out planned for 2006. - Methods of ongoing supervision (CPs 16–20) - Onsite supervision: at least annually and quarterly for larger banks; standardized methodology and specialized units; CNBV can request external auditors’ work papers and penalize auditors. - Reporting and interaction: monthly financial reports; minimum quarterly meetings with top-tier management; daily contact possible for larger banks. - Offsite supervision: conducted by CNBV and BOM through quarterly reporting; consolidated supervision requires coordination. - Validation: examination teams of four to six examiners over two-to-three months depending on bank size and risks. - Cross-Border Banking (CPs 23–25) - CNBV supervises Mexican subsidiaries, agencies, and branches abroad via review of strategic plans; lacks extraterritorial investigative powers over parallel banks formed by Mexican individuals abroad. - CNBV has signed bilateral MOUs with 12 foreign bank regulatory agencies and 32 MOUs with securities regulators; negotiating additional MOUs. - Joint examinations with foreign supervisors permitted with advance notice and MOUs. ### Remedial measures, PCA, and bank resolution - PCA and legal framework: - Circular Única de Bancos establishes an early warning system; CNBV posts capital-level ratings in five categories. - November 2004 issuance: “Reglas de Carácter General a que se refiere el Articulo 134 Bis de la Ley de Instituciones de Crédito” provides the PCA framework. - New bank resolution law (April 2006): - Introduced cessation of payments as a trigger; provides information exchange among agencies; establishes flexible closed-bank resolution options: insured deposit transfers, purchase and assumptions (P&A), and bridge banks—subject to a less cost criteria; improves legal protection for supervisors; allows possibility of open-bank resolution for “too-big-to-close” banks decided by a “Financial Stability Committee.” - Remaining challenges: - Resolution of “too-big-to-close” banks needs attention: amend banks’ statutes for “conditioned capital restoration plan”; develop guidelines for haircut determination for uninsured creditors. - IPAB financial constraints: servicing of 1995 crisis debt prevents accumulation of deposit insurance fund; authorities encouraged to seek formulas (including transferring IPAB’s debt to the Federal Government) to alleviate IPAB condition. - Deposit insurance framework needs alignment with international best practices on coverage, base, and risk-based premiums. - Need to formalize BOM contingency planning and lender-of-last-resort procedures and establish framework for resolution of financial groups, noting systemic groups are foreign owned. - Assessment: Largely compliant (significant progress on PCA and resolution law, with unresolved items noted). ### Key recommendations and Action Plan (selected, from Table 3) - Principle 1 - In stages make the CNBV a single autonomous supervisory agency with power to control its own budget. - During transition, hold regular meetings with other supervisors to set priorities on delivery of opinions and interpretation of laws. - Final stage: CNBV to have full power to license or revoke licenses of any bank, nonbank intermediary, or financial group and demand full consolidated disclosure with concurrence of CNBV’s Board of Directors. - Principle 5 and Principle 20 - Amend LIC to permit CNBV formal authority in approving investments by banking institutions; legislation must authorize CNBV to approve investments or outsourcing of critical functions and examine on an enterprise-wide basis. - Principle 10 - Continue controls over related party lending (monthly comparisons, Board approval); consider limiting credit to shareholders to the shareholder’s investment value. - Principle 22 - Ensure CNBV has full power to determine when a bank’s license must be revoked; prevent court delays from hampering license revocations. - Principle 23 - Formulate legislation to allow CNBV to supervise financial or nonfinancial institutions set up by Mexican individuals that form parallel banks abroad; ensure CNBV authority to examine enterprise-wide activities including cross-border outsourcing. - Implementation priorities: - Achieve CNBV autonomy and budgetary control. - Enact LIC amendments for formal investment approval authority. - Strengthen legal powers for licensing, revocation, consolidated supervision, and approval of outsourcing/investments. - Tighten monitoring and limits for related-party and shareholder lending. ### Institutional reallocation and CNBV governance recommendations - Streamline and clarify division of labor among CNBV, IPAB, and SHCP. - Consider empowering CNBV with full licensing authority and responsibility for issuing prudential regulations. - Amend CNBV board composition to grant more independence (reduce number of SHCP representatives) and enhance cooperation with IPAB. - Adopt PCA only after sufficient evidence CNBV can enforce actions free of political interference. - Set up a “Quality Assurance” function within CNBV to perform internal control functions and incorporate international best practices; discontinue existing “Internal Auditor” department reporting to SECODAM under assumption of greater independence. ### Assessments of institutional reform progress and operational independence - Agreement among authorities on need to reallocate powers; SHCP started gradual sector-by-sector transfers. - Securities Market Law (December 2005) transferred licensing for securities intermediaries from SHCP to CNBV. - Amendments to LIC envisaged to transfer bank licensing to CNBV. - Federal Transparency Law introduced broader disclosure and access to official information; Auditoría Superior de la Federación and congress scrutiny strengthened. - Developments toward legal protection: June 20, 2005 Article 21 added to CNBV's Law regarding assistance and legal protection to CNBV officers; April 10, 2003 Federal Civil Service law covers CNBV positions from section chief to Director General. - Budgetary arrangements: SHCP receives quotas imposed on banking sector and disburses approximately 80 percent to cover CNBV’s overall expenses; CNBV lacks budgetary discretion. - Assessments: - Licensing: Compliant in practice (SHCP follows CNBV opinion) with amendments under consideration. - Capital adequacy: Compliant. - Information sharing and confidentiality: Noncompliant (formal procedures for sharing specific information and joint examinations not fully formalized). - Consolidated supervision: Largely compliant (legislation under study to ensure full comprehensive consolidated supervision). ### Authorities’ response (paragraphs 17–19) - 17. Financial authorities cooperated with the World Bank and IMF during the 2006 FSAP; assessment carried out in a highly professional manner. - 18. Authorities consider the report provides a fair appraisal of CNBV implementation of the Basel Core Principles. - 19. Authorities will continue efforts to strengthen the prudential framework and incorporate new international best practices; the broad challenge remains achieving autonomous status for the CNBV and bringing proposals to the legislative branch to ensure an independent supervisor. *Source: _cr07172* ### 1. Detailed Assessment of Compliance of the Basel Core Principles for Effective Banking ### 1. Detailed Assessment of Compliance of the Basel Core Principles for Effective Banking Supervision ### General - Assessment covers compliance by the National Banking and Securities Commission (CNBV) with the Basel Core Principles for Effective Banking Supervision as of February 2006. - The assessment was conducted as part of the joint World Bank/IMF FSAP Update mission, which visited Mexico City on February 22−March 7, 2006. - The assessor was Mr. Rudolph Zepeda, Jr. (Directing Bank Examiner, Federal Reserve Bank of Atlanta). - Basis of assessment: examination of key documents and discussions with senior officials of the CNBV, the Bank of Mexico (BOM), and the Secretariat of Finance and Public Credit (SHCP), plus discussions with bankers and other financial sector participants. ### Institutional and Macroprudential Setting, Market Structure—Overview - Economic context and reforms: - Fiscal consolidation reduced the gross public debt to GDP ratio to below 50 percent. - Monetary policy brought inflation down to less than 4 percent in the context of a floating exchange rate. - After a recession in 2002-2003: - real GDP rose to 4.4 percent in 2004, - declined to 3 percent in 2005, - the consensus forecast sees growth close to 4 percent for 2006. - Main risk factors: - A slowdown of U.S. industrial production could weaken domestic activity and credit demand, harming loan portfolio quality. - Increased reliance on oil (production and prices) could raise public sector borrowing requirements and crowd out private credit. - Domestic government debt remains relatively short and vulnerable to tightening global liquidity and sharp interest rate increases. - Gaps remain in consolidated supervision and in the autonomy of supervisory agencies (Comisiones). - Financial system structure and concentration: - Commercial banks account for 49 percent of financial system assets. - Development banks account for 13 percent of financial system assets. - Privately managed pension funds (AFOREs) account for 13 percent. - Mutual funds account for 11 percent. - Insurance, Sofoles, and other financial institutions account for the remaining 14 percent. - The three largest banks account for close to 60 percent of the banking sector’s assets. - Foreign ownership represented close to 80 percent of all banking assets as of September 2005. - Market participants and regulators: - Multiple regulators oversee the system: SHCP (regulatory policy, licensing, capital requirements), CNBV (supervisor and regulator for banks, other credit institutions, securities markets), BOM (money, foreign exchange, derivatives, payment systems), CONSAR (AFOREs), CNSF (insurance). - Other institutions: AMIB, Bolsa, MexDer, IPAB, and SHF (Federal Mortgage Society). ### General Preconditions for Effective Banking Supervision - Transparency and market discipline: - Significant improvements in accounting and disclosure standards; limitation of previously unlimited guarantee on bank liabilities increased market discipline. - Legal and regulatory reforms: - Legislative amendments approved in April 2001 addressed foreign supervisor access to information and introduced a minimum requirement of 25 percent of independent Board members in banks’ Boards of Directors. - Reform legislation passed on December 2, 2005, included improvements in risk management systems and mandated a risk manager for financial institutions. - Credit rating and provisioning regulations revamped in August 2004: - Allowed internal credit rating methodologies for consumer, mortgage, and commercial loans. - Applied specific credit rating methodologies for loans to states and municipalities. - Introduced requirements for additional provisions for foreclosed assets and substantial loan-loss reserves for unrated municipalities. - CNBV issued a regulatory accounting standard in accordance with international accounting standards for all banks to include all subsidiaries within a group supervised by the CNBV. - Regulations related to external auditors were issued in 1994 and 2000 and further strengthened in April 2005; the definition of “independence” was updated with limits on contracting additional services from the same audit firm. - Capital and prudential frameworks: - Capital standards strengthened in accordance with Basel I; preparations underway for Basel II implementation. - SHCP introduced modifications in capital adequacy regulation concerning market risk and reduced participation of deferred assets in Tier 1 capital. - CNBV rates capital levels in five categories (in relation to risk-weighted assets) and provides this information on its website. - In November 2004 the CNBV established a framework with minimum capital triggers under which prompt corrective action (PCA) is undertaken, allowing for resolution of problem banks in concert with the IPAB. - New legislation established an early warning system. - CNBV institutional improvements: - Significant internal functional and operational reorganization implemented at the CNBV in 2001. - Establishment of a quality control structure to ensure standardization and a uniform On/Offsite Examination Manual. - Introduction of electronic work papers and mandatory exit meetings to ensure findings are discussed prior to issuance of formal examination reports. - Formation of specialized examiners for information technology, credit review, and anti-money laundering and terrorist financing. - Efforts to attract, train, and retain newly qualified examiners required to follow the internal CNBV Code of Ethics. ### Main Findings - Overall compliance progress: - In 2001 Mexico was noncompliant or materially noncompliant with 6 Core Principles and fully compliant with 12 principles. - In 2005 Mexico was noncompliant with 1 principle and fully compliant with 19 principles. - The improvement is attributed to coordinated regulatory and legislative efforts by the authorities. - Remaining major issues: - Principle 1: Lack of an autonomous supervisory agency with the power to control all activities from inception through demise of a financial institution, including all nonbank subsidiaries. - This lack of full autonomy hinders comprehensive consolidated supervision, particularly where financial institutions can outsource activities to jurisdictions outside of Mexico without CNBV approval or supervision. - Supervision quality and perception: - Internal restructuring and standardization at the CNBV led to ongoing contact with supervised entities and a perception of CNBV management as “attentive and approachable.” - Key operational reforms: quality control structure, standardized examination methodology, automated electronic work papers, mandatory exit meetings, and specialized examiners. - These changes aimed to bolster professional workforce, standardize examinations, and improve accountability and enforcement. *1. Detailed Assessment of Compliance of the Basel Core Principles for Effective Banking Supervision* ### 16. The main findings of the detailed assessment of the compliance with the Basel Core ### 16. The main findings of the detailed assessment of the compliance with the Basel Core Principles for Effective Banking Supervision ### Objectives, Autonomy, Powers, and Resources (CP 1) - The CNBV lacks autonomy and authority to solely control a banking institution from its inception to its demise. - Current legislation spreads accountability among three regulatory agencies: the SHCP, the BOM, and the CNBV. - Agreement among authorities exists on the need to reallocate powers between financial authorities. - The SHCP has started to transfer some of its powers to the CNBV on a gradual, sector-by-sector basis. - Example: the new Securities Market Law (December 2005) transfers the licensing process for securities intermediaries from the SHCP to the CNBV. - Authorities envisage amendments to the Law of Credit Institutions (LIC) to transfer the licensing process for banks to the CNBV. - In practice: - The CNBV shares information with other regulatory bodies and performs simultaneous inspections with these agencies. - Procedures for sharing specific information and conducting joint examinations have not been formalized, though informal practice exists and cooperation has been highly effective. ### Licensing and Structure (CPs 2–5) - Banks in Mexico are classified as institutions that receive deposits; the broad definition has allowed other institutions and nonbanks to capture funds without labeling them as “deposit.” - Recent Law on Popular Savings and Credit broadens CNBV supervision to previously unregulated activities, but loopholes remain. - Licensing authority currently rests with the SHCP; CNBV licenses intermediaries in the securities area under the Securities Market Law of December 2005. - Proposed LIC revisions would: - Transfer bank licensing to the CNBV and mandate that all license applications be reviewed by the CNBV’s Board of Directors. - Grant the CNBV formal authority to control changes in ownership or controlling interests for banks (currently SHCP approval is required; CNBV provides opinion which SHCP historically follows). - Grant CNBV formal authority in approving investments by banking institutions. - In practice, CNBV provides definitive opinions to the SHCP on individual applicants; SHCP has historically followed CNBV opinions. ### Prudential Regulations and Requirements (CPs 6–15) - Capital and Basel compliance: - CNBV supervises minimum capital requirements and has pushed to significantly increase them. - Mexican banks are in accordance with the initial Basel Capital Accord and positioned to comply with Basel II in credit and operational risk. - All institutions may apply for authorization to use internal models for regulatory purposes; multinational banks expected to comply with advanced Basel II models on schedule. - Credit regulation and provisioning: - August 2005 Circular Única de Bancos updated prudential requirements governing the credit process and redefined banks’ credit policies and responsibilities. - Credit approval responsibility rests with the bank’s Board of Directors and cannot be delegated. - CNBV reviews credit types and underwriting methodology at each examination and can demand preventive loan-loss provisions and suspend new credits. - New provisioning rules (2004, modifying 1997 and 2000 rules) allow internal credit rating methodologies for consumer, mortgage, commercial loans, and for loans to states and municipalities. - Credit risk mitigation techniques applied to loans, guarantees, and collateral; additional provisions required for foreclosed assets. - Credit to unrated municipalities is penalized through substantially higher loan-loss provisioning requirements than for rated municipalities. - Concentration limits and related-party lending: - 1988 faculty to rule on risk concentrations revised in 2005: limits established on concentration of credit risk of 12 percent to either individuals or groups of individuals, as a share of basic capital (Tier 1). - Framework codified groups and corporate holding companies into “common risk”; excluded corporate entities not exposed to both credit and market risks. - Banks may lend more than 12 percent to a particular group provided they have higher capital levels. - Sum of all financing granted to the top three borrowers cannot exceed 100 percent of Tier 1 capital. - Diversification requirement for liabilities replaced by obligation to report diversification whenever operations exceed regulatory limits. - Related party lending: - Monthly reporting must include an indicator on related party lending for CNBV review and peer comparison. - All related party lending must have Board of Directors’ approval and be limited to 50 percent of total capital. - Country and transfer risk: - CNBV requires banks to perform analysis of country risk and concentration on loan portfolios; examiners review country risk related mainly to letters of credit. - Regulation and supervisory guidelines on country and transfer risk are very limited; CNBV considers these risks not material. - CNBV lacks jurisdiction over parallel banks in other jurisdictions unless a Mexican bank has ownership interest. - Market risk and operational risk: - CNBV utilizes VAR models in accordance with Basel guidance; tests interest sensitivity and stress tests using worst-case historical scenarios for the Mexican market. - Each bank must perform proprietary VAR tests compared to CNBV’s model to ensure conservative assumptions. - Mexican banks beginning to gather operational loss data to quantify operational risk under Basel II. - Contingency planning and risk management: - Banking circular sets norms for contingency plans (liquidity and continuity of management); these must be approved by Boards and are reviewed annually. - Since 2003 law requires comprehensive risk management processes with board and senior management oversight; annual examinations review these systems and capital allocation. - Internal controls, audits, and AML/CFT: - First regulation on internal controls (September 2001, full implementation June 2002); updated September 2005 to extend scope and retain operational risk data. - Circular Única de Bancos updated in 2006 requires external auditor reporting to both the board and audit committee; CNBV may request work papers and review audits and may fine or request removal of audit partners. - Anti-money laundering legislation: - Instituted early 1997; regulated institutions required to file reports of cash transactions over US$10,000 and suspicious transactions to SHCP through CNBV. - January 2004 reform included additional institutions; May 2004 General provisions established customer identification procedures, PEPs, correspondent banking, beneficial owner and trusts rules. - May 2005 refined PEP criteria and included government officials by position. - Since 2005, CNBV implemented an automated work paper program to rate AML/CTF systems, policies and procedures on all bank examinations; implementation to all regulated financial institutions planned for 2006. ### Methods of Ongoing Supervision (CPs 16–20) - Onsite supervision: - Greatly improved since 2001 due to legal framework overhaul requiring prudential standards, internal control, risk management, and corporate governance. - Onsite supervision conducted at least annually; quarterly for larger banks; methodology standardized and Supervision Manual continuously updated. - CNBV restructured to create specialty areas coordinating with onsite examiners; preplanning ensures new risks are reviewed by competent staff. - CNBV can request external auditors’ work papers, issue reports to audit firms, fine or request removal of partners for noncompliance. - Reporting and interaction with banks: - Banks required to issue monthly financial reports reviewed by CNBV; reports validated in advance with CNBV officials. - CNBV meets at minimum once quarterly with top-tier management; documents concerns in examiners’ work papers and records exit meeting minutes. - CNBV may be in daily contact with larger institutions when significant changes occur. - Offsite supervision: - Conducted by CNBV and BOM through quarterly bank reporting; validated by onsite inspections. - System allows offsite supervision on a solo basis by each entity, but consolidated supervision of large financial groups requires coordination. - CNBV can fine and sanction banks and bank officials for poor information. - Validation and external audit oversight: - Validation of supervisory information performed by examination teams of four to six examiners over two-to-three months depending on bank size and risks. - CNBV actively involved in creating an oversight framework for external auditors in Mexico. - Legislative work: - SHCP studying legislation with CNBV opinion to ensure full comprehensive consolidated supervision. - Current distribution of duties leaves bank licensing and supervision under different regulators, whereas securities industry places both functions under one regulator. ### Information Requirement (CP 21) - CNBV developed regulatory accounting standards in accordance with international accounting standards; consolidated financial statements must include all subsidiaries, financial or not. - CNBV issued regulations related to external auditors in 1994 and 2000 (Circulars 1222 and 1479); modifications issued April 2005 to reflect international best practices (e.g., Sarbanes-Oxley). - Definition of “independence” updated. - Audit partner rotation shall not be longer than five years. - Additional services limited from audit firms: bookkeeping, services related to accounting records, design and implementation of financial information systems, appraisal or valuation services, internal audit services, and some legal services. ### Formal Powers of Supervisors (CP 22) - Circular Única de Bancos establishes an early warning system. - CNBV provides bank capital level ratings on its website in five categories consistent with BOM standards and SHCP regulations. - System tested in 2004 when a bank’s capital fell below authorized level due to derivatives trading; BOM took immediate same-day action to restore capital levels. - November 2004 issuance: “Reglas de Caracter General a que se refiere el Articulo 134 Bis de la Ley de Instituciones de Crédito,” which provides the PCA framework. ### Cross-Border Banking (CPs 23–25) - Supervision of foreign operations: - CNBV supervises Mexican subsidiaries, agencies, and branches abroad through review of each bank’s strategic plan under Circular Única de Bancos. - Difficulty arises from structures formed by Mexican individuals creating parallel banks in other jurisdictions without CNBV knowledge; CNBV has no extraterritorial investigative powers over shareholders in those jurisdictions. - When foreign financial institution is owned by a bank holding company, CNBV can request financial information; CNBV has authority to review data-processing functions performed by Mexican banks for foreign subsidiaries. - Outsourcing to entities outside Mexico may cause future supervision problems. - Cooperation with foreign supervisors: - CNBV maintains dialogue with home country supervisors for foreign banks represented in Mexico; U.S., Canada, and Spain supervisors regularly visit annually. - Joint examinations with foreign supervisors permitted with advance notice and when an MOU exists. - CNBV has signed bilateral MOUs with 12 foreign bank regulatory agencies and is negotiating six more; has also signed 32 MOUs with securities regulatory agencies. ### Table 1 — Principle 1 (excerpt) - Principle 1 assessment: - Description: The CNBV lacks autonomy and authority to solely control a banking institution from its inception to its demise; accountability spread among SHCP, BOM, and CNBV; procedures for sharing specific information and joint examinations not formalized though practiced. - Assessment: Noncompliant. *Source: _cr07172 - 16. The main findings of the detailed assessment of the compliance with the Basel Core Principles for Effective Banking Supervision* ### 1. Streamlining and clarifying the division of labor between the CNBV, the IPAB, and the SHCP. ### _cr07172 - 1. Streamlining and clarifying the division of labor between the CNBV, the IPAB, and the SHCP. ### Licensing and prudential regulation - Recommendation to give consideration to empowering the CNBV with the full licensing authority. - Responsibility for issuing prudential regulations should fully rest with the CNBV in view of its expertise and role as the leading organization for supervisory purposes. - Other authorities are represented on the CNBV’s board, so their viewpoints regarding regulations and licensing would be considered. ### Governance of the CNBV - Amend the composition of the board of the CNBV with the aim of: - granting more independence to the CNBV (reducing the number of the SHCP’s representatives); and - enhancing cooperation with the IPAB (which was not represented). ### Strengthening mechanisms for addressing problem banks - Adopt a Prompt Corrective Action (PCA) system to improve interaction between the CNBV’s duties and IPAB’s responsibilities, and to create a more effective framework for bank resolution. - Condition for adopting the PCA: - Should be considered only if there was sufficient evidence to believe that the CNBV would be capable of enforcing, free of political interference, the prescribed actions when trigger points were reached. - Adoption of such a system should be delayed if these preconditions were assumed not to be in place. ### “Quality Assurance” function within the CNBV - Set up a “Quality Assurance” function charged with: - (i) performing internal control functions; and - (ii) taking stock of the best practices at the international level with a view to incorporating them into the supervisory process, where relevant. - Under the assumption that the CNBV would be granted more independence, the existing “Internal Auditor” department, which was reporting to SECODAM, should be discontinued. *Source: _cr07172 - 1. Streamlining and clarifying the division of labor between the CNBV, the IPAB, and the SHCP.* ### 5. Revamping the overall institutional set-up along the following lines with the CNBV entrusted ### 5. Revamping the overall institutional set-up along the following lines with the CNBV entrusted with the following responsibilities ### Institutional reallocation and core responsibilities - Recommended responsibilities for the CNBV: - (i) licensing of financial institutions (banks and all other financial institutions including finance companies and credit unions) - (ii) off- and onsite supervision of all licensed institutions - (iii) drafting and enacting banking regulations - (iv) international cooperation - (v) enforcement powers (the role of the board of the CNBV as a jurisdiction should be carefully crafted) - Recommended design of very detailed rules regarding the trigger points leading to IPAB’s intervention, given existing system delays where IPAB could act only after a third party assessment. - Rationale and reallocation: - Limited rationale for BOM involvement in supervisory process where supervision is delegated to CNBV; BOM should retain access to information needed for central bank duties. - Recommend scaling down the role of the SHCP in banking supervision to empower IPAB with bank restructuring and deposit insurance, and to delineate IPAB’s role vis-à-vis the CNBV. ### Current institutional framework (as described) - Multiple regulators oversee the financial system: SHCP, CNBV, BOM, CONSAR, CNSF, AMIB, Bolsa, MexDer, and IPAB. - CNBV gaps: lacks full autonomy and operational independence to exercise effective supervision; cannot solely control a banking institution from inception to demise under existing legislation. - Accountability and information access: - SHCP sets regulatory policy, particularly license granting and removal for banks. - CNBV is supervisor and regulator for banks, other credit institutions, and securities markets. - BOM regulates money, foreign exchange, and derivatives markets, payment systems, and financial operations/product characteristics. - IPAB: bank resolution and deposit insurance agency, charged with disposing of distressed assets inherited from the 1994 Tequila crisis. ### Assessments of institutional reform progress - Assessment: Noncompliant (institutional allocation and CNBV responsibilities) - Comments on progress: - Agreement among authorities on need to reallocate powers; SHCP has started transferring some powers to CNBV gradually, sector-by-sector. - Securities Market Law (December 2005) transferred licensing for securities intermediaries from SHCP to CNBV. - Amendments to the Law of Credit Institutions (LIC) envisaged to transfer bank licensing to CNBV. - Federal Transparency Law introduced broader disclosure and access to official information; Auditoría Superior de la Federación and congress scrutiny strengthened. - New framework for CNBV role in banking resolution contained in a specific law recently approved by congress. ### Operational independence, legal protection, and budgetary arrangements - Principal issues identified: - 2001 FSAP: political interference and budgetary constraints undermined CNBV independence. - Requirements recommended: autonomy over budget allocation; legal protection for supervisors; CNBV President appointed for a minimum term with removal only for reasons established by law. - Developments: - SHCP receives quotas imposed on banking sector and disburses approximately 80 percent to cover CNBV’s overall expenses; CNBV does not have budgetary discretion. - June 20, 2005: Article 21 added to CNBV's Law regarding assistance and legal protection to CNBV officers performing supervisory duties. - April 10, 2003: “Ley del Servicio Profesional en la Administración Pública Federal” brings CNBV into Federal Civil Service covering positions from section chief to Director General. - Assessment: Largely compliant. - Comments: Operating budgets adequate since 2000, though less than fees collected; SHCP ability to restrict budget creates potential future limitations. ### Legal and regulatory framework for supervision, licensing, and enforcement - Licensing and prudential rule-making: - 2001 FSAP recommendation: licensing authority should rest with supervisory authority (CNBV). - Article 8 of the LIC: licensing authority rests with SHCP; SHCP follows CNBV opinion in practice. - New unit: Dirección General de Métodos, Procesos y Calidad to standardize supervisory activities. - CNBV adopted ISO 9001:2000 (2002) for quality assessment of core functions. - Assessment on licensing: Compliant (current practice gives CNBV decisive voice though formal authority rests with SHCP). - Powers to address compliance and safety/soundness: - New Article 134 in the LIC established CNBV’s Prompt Corrective Actions (PCA); December 2004 CNBV issued Reglas de Carácter General a que se refiere el Artículo 134 Bis de la ley de Instituciones de Crédito. - Supervisory Handbook and CNBV Internal Handbook issued to reduce discretion. - Assessment: Compliant. - Legal protection for supervisors: - June 20, 2005: Article 21 added to CNBV’s Law; legal fund set up in a trust with Nacional Financiera (NAFIN) to cover CNBV Directors through Department Managers (covers only legal defense costs). - Assessment: Compliant. ### Information sharing and confidentiality - Description: - Powers to exchange information stated in CNBV’s Law, LIC, Securities Market Law, Mutual Funds Law, and CNBV’s governing provisions. - CNBV has signed several MOUs with other supervisory authorities. - Assessment: Noncompliant (formal procedures for sharing specific information and joint examinations not fully formalized; in practice cooperation exists but is loosely followed). ### Permissible activities, use of the word “bank”, and coverage - Legal provisions: - Article 105 of the LIC restricts the use of the word "bank" to banking entities. - Article 2 and Article 46 of the LIC define permissible activities for licensed banks. - BOM Circular 2019 also defines activities for supervised banks. - Article 2 of the LIC reserves taking of deposits to institutions that are licensed and subject to supervision. - Law on Popular Savings and Credit broadened CNBV supervision to previously unregulated activities. - Assessment: Compliant. ### Licensing criteria, ownership change, and investment approvals - Licensing criteria and process: - Article 10 of the LIC sets minimum contents to apply for a new bank license; SHCP considers opinions of CNBV and BOM; fit and proper tests per Articles 23 and 24. - Minimum initial capital per Article 9 and stipulation in Article 19 of the LIC. - Assessment: Compliant; amendments under consideration to transfer licensing authority to CNBV. - Ownership transfer and notification: - SHCP approval required to acquire more than 5 percent of equity capital of another bank (Article 17). - Any person purchasing/selling more than 2 percent of paid-in capital must notify SHCP within three working days (Article 14). - Assessment: Compliant; CNBV opinion required and followed in practice; amendments under consideration to provide CNBV formal authority. - Investment criteria: - Article 75 of the LIC limits investments in nonfinancial firms and establishes a 5 percent cap of a company's paid-in capital without approval, with special rules between 5 percent and 15 percent and for holdings longer than three years. - Sum of bank’s investments in nonfinancial institutions shall not exceed 5 percent of the bank's deposit base. - Article 88 and Article 89 set approvals for ancillary services and investments in financial companies registered abroad. - Assessment: Largely compliant; CNBV currently provides decisive opinion. ### Capital adequacy - Framework and developments: - Capitalization Rules for Banking Institutions (1999) require capital adequacy ratio that takes into account credit and market risks. - Market risk methodology: building blocks approach per Amendment on Market Risk of the 1988 Basel Capital Accord. - Core capital composition: paid-in capital, reserves, and hybrid instruments with noncumulative dividends. - Supplementary capital (Tier 2) includes instruments with cumulative dividends, subordinate debt, and loan-loss provisions (cannot exceed 1.25 percent of total assets); Tier 2 cannot exceed Tier 1. - Article 19 of the LIC: minimum capital for banks shall be at least 0.12 percent of the sum of the overall capital of all banks as measured at the end of each year. - Current requirements do not mandate banks to calculate their capital ratio on a consolidated basis; banks' investments in financial subsidiaries must be deducted from regulatory capital per the 1988 Basel Accord. - CNBV working towards implementation of the New Capital Accord (Basel II) per Basel timetable. - Assessment: Compliant. - Comments: Banks significantly increased capitalization; system has a comfortable cushion. ### Credit policies, loan evaluation, and provisioning - Credit policies: - August 2005: Circular Única de Bancos issued detailed prudential requirements for credit process, Board responsibilities, independent loan control, sensitivity analysis thresholds, and onsite/offsite review procedures. - Sensitivity analysis required when operation exceeds the lowest of 10 percent of the bank's capital or the equivalent in domestic currency of UDIs 30 million. - Assessment: Compliant. - Loan evaluation and provisioning: - 2004 revamping of provisioning rules allowed use of internal credit rating methodologies across loan types and specific approaches for states and municipalities; additional provisions for foreclosed assets; higher provisions for unrated municipalities. - Circular Única de Bancos compiles these provisioning rules. - Assessment: Compliant. ### Large exposures and connected lending - Large exposure limits (limits established as function of Tier 1 capital): - Capitalization Level — Financing limit in terms of Tier 1 capital - More than 8 percent and up to 9 percent — 12 percent - More than 9 percent and up to 10 percent — 15 percent - More than 10 percent and up to 12 percent — 25 percent - More than 12 percent and up to 15 percent — 30 percent - More than 15 percent — 40 percent - Sum of financing to the three largest borrowers cannot exceed 100 percent of a bank’s Tier 1 capital. - Assessment: Compliant. - Connected lending: - Articles 73, 73 bis, and 73 bis 1 of the LIC revised framework; related lending indicator required monthly; total amount of credit to related parties cannot exceed 75 percent of a bank's Tier 1 capital (Article 73 bis). - Assessment: Largely compliant. ### Market, other risks, internal control, audit, and accounting standards - Market risk: - CNBV uses VAR models, stress tests, and compares banks' proprietary VAR to CNBV’s model; Market Risk Committee reviews analyses. - Circular Única de Bancos requires contingency plans and Board-approved limits. - Assessment: Compliant. - Other risks and risk management: - Circular Única de Bancos requires comprehensive risk management covering credit, market, liquidity, operational, legal, and other material risks; CNBV may require additional capital for other material risks. - Assessment: Compliant. - Internal control and audit: - Circular Única de Bancos (Title II, Chapter VI) provides framework for internal controls and internal auditing; audit committee requirements and code of ethics specified; external auditors must report to board and committee; audit partner rotation limited to five years. - Assessment: Compliant. - Accounting standards and external auditors: - CNBV updated regulatory accounting standards to align with international accounting standards; consolidated financial statements must include subsidiaries whether financial or not. - Circular Única de Bancos (Title III, Chapter III) provides framework for external auditors; CNBV can request work papers and sanction auditors. - Assessment: Compliant. ### Anti-money laundering (AML) and counter-terrorism financing - Timeline and regulatory measures: - March 1997: anti-money laundering regulation applicable to banking institutions and other financial entities. - September 11, 2002: regulated institutions required to file electronically to SHCP through CNBV cash transactions over US$10,000, plus suspicious and worrisome transactions. - January 2004 / May 2004: legislation reformed to include non-banking institutions; General provisions enacted (May 2004) for customer identification, politically exposed persons, correspondent banking, beneficial owner, and trusts. - May 2005: SHCP issued further regulation defining politically exposed persons criteria; questionnaire for high-risk customers. - December 1, 2005: Senate approved initiative to penalize international terrorism/terrorism financing and forwarded to Deputies. - CNBV implemented automated work paper program (since 2005) to rate AML/TF systems; implement across all regulated financial institutions in 2006. - Information sharing and secrecy reforms: - Amendments modified Article 117 (bank secrecy) and revoked Article 118 to homologate trust secrecy and allow judicial and law enforcement authorities access to information. - Assessment: Compliant. ### Onsite and offsite supervision, validation, and management contact - Onsite and offsite supervision: - CNBV has moved to a risk-focused approach, standardized methodologies, specialty coordination units, and preplanning; onsite at least annually and quarterly for larger banks. - Circular Única de Bancos consolidates supervisory rules and validates systems yearly. - Assessment: Compliant. - Validation of supervisory information: - Onsite examinations by teams of four to six examiners for two to three months depending on size/risk; CNBV provisions regarding external auditors included in Circular Única de Bancos. - Assessment: Compliant. - Bank management contact: - CNBV meets at minimum once quarterly with top-tier banks' management; monthly financial reports required and validated; exit meeting minutes documented. - Assessment: Compliant. ### Consolidated, global, host, and cross-border supervision - Consolidated supervision: - Capital adequacy requirements set at individual entity level, not consolidated, creating multiple gearing opportunities. - Legislation under study by SHCP with CNBV opinion to ensure full comprehensive consolidated supervision. - Assessment: Largely compliant. - Globally consolidated supervision: - CNBV has authority to supervise overseas activities (LIC, Article 89); conducts onsite inspections abroad where risk materiality warrants. - Assessment: Largely compliant. - Host country supervision and MOUs: - Article 117 of the LIC permits MOUs with home country supervisors; Article 45 allows home country supervisors to conduct joint examinations in Mexico; CNBV engages with supervisors of U.S., Canada, Spain, etc. - CNBV signed bilateral MOUs with 12 foreign bank regulatory agencies and negotiating eight more; signed 34 MOUs with securities regulatory agencies. - Assessment: Compliant. - Supervision over foreign banks' establishments: - Article 45-D and Article 45-N of the LIC apply same-treatment principle and make CNBV responsible for supervision under same regulatory framework as domestic banks. - Article 4 of CNBV's Law enables information sharing with home country supervisors. - Assessment: Compliant. ### Remedial measures, PCA, and bank resolution framework - Historical issues and PCA: - 2001 FSAP: CNBV had been reluctant to enforce harsh sanctions and faced legal/judicial hurdles; PCA system introduced (Article 134 and Article 134 Bis) to reduce discretion. - December 2004: CNBV issued Reglas de Carácter General a que se refiere el Articulo 134 Bis de la Ley de Instituciones de Crédito. - Circular Única de Bancos (Title V, Chapter I) establishes an early warning system and CNBV posts capital-level ratings in five categories. - New bank resolution law (April 2006): - Introduced cessation of payments as a trigger for bank resolution. - Provides for information exchange among agencies. - Establishes flexible closed-bank resolution options: insured deposit transfers, purchase and assumptions (P&A), and bridge banks—subject to a less cost criteria. - Improves legal protection for supervisors acting. - Leaves possibility for open-bank resolution for “too-big-to-close” banks decided by a “Financial Stability Committee” composed of highest relevant authorities. - Remaining challenges and recommendations: - Attention needed on resolution of “too-big-to-close” banks: amend banks’ statutes to enable “conditioned capital restoration plan” and develop internal regulations/guidelines for haircut determination for uninsured creditors. - Legal reform of bank liquidation framework pending. - IPAB concerns: servicing of 1995 crisis debt prevents accumulation of deposit insurance fund and weakens IPAB credibility; authorities encouraged to seek formulas to alleviate IPAB financial condition, including transferring IPAB’s debt to the Federal Government (would require legal reform). - Deposit insurance framework needs alignment with international best practices regarding coverage, base, and risk-based premiums. - Need to formalize BOM contingency planning and lender-of-last-resort procedures; establish framework and operational guidelines for resolution of financial groups, considering systemic groups are foreign owned. - Assessment: Largely compliant. - Comments: Significant progress on PCA and new resolution law; unresolved items on too-big-to-close, statutes, liquidation law, IPAB financing, and deposit insurance design. *Source: IMF staff summary as provided in the content unit.* ### 1. Objectives, Autonomy, Powers, and Resources ### 1. Objectives, Autonomy, Powers, and Resources ### Scope and topics covered - The chapter addresses: Objectives; Independence; Legal framework; Enforcement powers; Legal protection; Information sharing; Permissible Activities; Licensing Criteria; Ownership; Investment Criteria; Capital Adequacy; Credit Policies; Loan Evaluation and Loan-Loss Provisioning; Large Exposure Limits; Connected Lending; Country Risk; Market Risks; Other Risks; Internal Control and Audit; Money Laundering; Onsite and Offsite Supervision; Bank Management Contact; Off-Site Supervision; Validation of Supervisory Information; Consolidated Supervision; Accounting Standards; Remedial Measures; Globally Consolidated Supervision; Host Country Supervision; Supervision Over Foreign Banks’ Establishments. ### Key recommendations (Table 3: Recommended Action Plan to Improve Compliance of the Basel Core Principles) - Principle 1 - In stages make the CNBV a single autonomous supervisory agency with power to control its own budget to ensure continuous improvement of systems, examination procedures, highly skilled personnel, and supervision of its constituents. - During transition, hold regular meetings with other supervisors to set priorities on the delivery of opinions in processing bank applications or interpretation and clarification of laws and regulations. - Final stage: CNBV to have full power to license or revoke licenses of any bank, nonbank intermediary, or financial group and demand full disclosure on a consolidated basis with the concurrence of the CNBV’s Board of Directors. - Principle 5 - CNBV should continue preparing amendments to the LIC to permit CNBV formal authority in approving investments by banking institutions. - In practice, CNBV currently delivers opinions to the SHCP on each applicant and SHCP has historically followed CNBV’s opinion. - Principle 10 - CNBV has improved control over related party lending by comparing monthly data received from banks to a peer group and requiring Board of Directors’ approval for related loans limited to 50 percent of the bank’s capital. - Parallel banking institutions continue to pose a threat not readily discovered when preferential treatment on loans is granted to these institutions. - Consider limiting credit to shareholders not on Tier 1 capital, but rather on the shareholder’s investment, so a shareholder could not be granted loans that exceed the value of its investment in the bank. - Principle 20 - CNBV should have full power to license or revoke licenses of any bank, nonbank subsidiary, or financial group and demand full disclosure on a consolidated basis with the concurrence of the CNBV’s Board of Directors. - Legislation must authorize CNBV to approve investments or outsourcing of critical functions by all banks or financial groups, and the ability to examine these institutions on an enterprise-wide basis. - Principle 22 - Improvements needed in bank resolution when prompt corrective action has been undertaken by ensuring CNBV has full power to determine when a bank’s license must be revoked. - Delays caused by shareholders seeking court action should not be allowed to hamper CNBV efforts in revoking licenses. - Bank resolution legislation was approved by Congress in April 2006. - Principle 23 - Continue to formulate legislation for Congress to allow CNBV to supervise financial or nonfinancial institutions set up by Mexican individuals that form parallel banks in jurisdictions where CNBV has no authority. - When the foreign bank is owned by a holding company, CNBV has authority to request financial information to satisfy concerns. - Mexican banks performing data-processing functions for foreign subsidiaries, as well as outsourcing to entities outside of Mexico, should be subject to CNBV supervisory authority regardless of jurisdiction. - Further legislative improvements must give CNBV authorization to approve investments or outsourcing of all banks or financial groups and ability to examine them on an enterprise-wide basis. ### Observations on supervisory gaps and risks - Related-party lending: controls exist (monthly comparisons, Board approval), but parallel banking institutions create detection challenges. - Ownership/connected lending: recommendation to limit shareholder credit to the value of the shareholder’s investment to avoid capital deficiencies. - Consolidated supervision and enterprise-wide authority: recurring recommendation that CNBV be empowered to demand consolidated disclosure and approve cross-border outsourcing/investments. ### Legislative actions noted - Bank resolution legislation approved by Congress in April 2006. ### Numbered entries present in source (for reference) - Table and paragraphs reference Principles: 1, 5, 10, 20, 22, 23. - Document includes numbered paragraphs 17., 18., 19. in the Authorities’ response section. ### Implementation priorities implied - Achieve CNBV autonomy and budgetary control. - Enact LIC amendments to formalize investment approval authority. - Strengthen legal powers for licensing, revocation, consolidated supervision, and approval of outsourcing/investments. - Tighten limits and monitoring for related-party and shareholder lending. - Ensure prompt, unhindered license-revocation powers during bank resolution. ### Stakeholder coordination - Regular coordination and priority-setting meetings between CNBV and other supervisors recommended during transition to autonomy to minimize political interference and delays. ### Monitoring and enforcement tools - Monthly data comparisons for related-party lending versus peer group benchmarks. - Board of Directors’ approvals for related loans capped at 50 percent of bank capital (current practice). ### Capacity and scope expansion - Extend CNBV authority to supervise enterprise-wide activities including outsourcing and data-processing functions regardless of jurisdiction. ### Legal/operational constraints to address - Overcome limitations when Mexican banks provide services or outsourcing across borders where CNBV lacks direct authority. - Prevent court delays by shareholders from obstructing CNBV prompt corrective actions and license revocations. ### Outcome objectives - Continuous improvement of supervisory systems, examination procedures, and personnel. - Full CNBV ability to license/revoke, demand consolidated disclosure, approve investments/outsourcing, and conduct enterprise-wide examinations. ### Timeline markers in source - 2006 Financial Sector Assessment Program (assessment year referenced). - Bank resolution legislation approved in April 2006. ### Implementation status signals - CNBV currently issues opinions to SHCP on applicants and SHCP has historically followed CNBV’s opinion (de facto influence but not full formal authority). - Some legislative steps taken (bank resolution legislation), but broader autonomy for CNBV remains a priority. ### Risks to be mitigated - Capital deficiencies from undisclosed related exposures and parallel banking arrangements. - Supervisory blind spots from cross-border outsourcing and operations outside CNBV jurisdiction. ### Suggested legal reforms (summary) - Grant CNBV budgetary autonomy and single-agency status. - Amend LIC to confer formal investment approval authority to CNBV. - Legislate CNBV authority to supervise and examine on consolidated and enterprise-wide bases, including cross-border outsourcing. --- *Authorities’ response (paragraphs 17–19)* - 17. The financial authorities have willingly cooperated with the World Bank and the International Monetary Fund during the progress of the 2006 Financial Sector Assessment Program carried out in Mexico. In our opinion the assessment has been carried out in a highly professional manner. - 18. In connection with the assessment of compliance with the Basel Core Principles for Effective Banking Supervision, we consider that the report provides a fair appraisal of the implementation by the National Banking and Securities Commission (CNBV) of the principles. - 19. We will continue our efforts to strengthen our prudential framework and to incorporate new international best practices as they may arise. However, the broad challenge ahead remains the achievement of an autonomous status for the CNBV. Although the impending reallocation of powers among financial authorities will be a significant step forward, we must maintain our efforts in bringing proposals to the legislative branch that will ensure an independent supervisor in accordance with international best practices. *Source: _cr07172 - 1. Objectives, Autonomy, Powers, and Resources* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr07172.pdf_