Capacity Building in the Financial Sector – From Climate Risk Analysis to CBDCs

IMF News, March 14, 2023

Source details

Canonical URL: Capacity Building in the Financial Sector – From Climate Risk Analysis to CBDCs

Other formats

Bibliographic details

Published: March 14, 2023

Evolving approach to capacity development

Third annual IMF-BIS Symposium on capacity development in the financial sector; opening remarks by Tobias Adrian, IMF Financial Counsellor and Director of the Monetary and Capital Markets Department, March 14, 2023.
The Monetary and Capital Markets Department adapts and broadens work to emerging risks, employs or combines different delivery modalities, and enhances collaboration with stakeholders such as the BIS.
Core principle: capacity development is at the core of the Department’s work and supports membership over the long haul through sustained engagement.

Delivery modalities and lessons learned

Pandemic-driven adaptation led to expanded virtual delivery (webinars, virtual workshops, online training); in-person engagement is resuming.
Findings on virtual vs. in-person:
- Virtual/online engagements allow higher numbers of participants and access to a more diverse group of speakers and experts.
- Virtual activities are useful for short sessions and for laying foundational knowledge to be leveraged in country-based engagements.
- Virtual engagement cannot fully substitute for in-person capacity building: deeper interaction, stronger country ownership, effective peer-to-peer engagement, and participant focus are harder to achieve virtually.
- Anticipated delivery mix: a large part will include some level of online or virtual engagements, especially in preparatory stages, complemented by in-person engagements and long-term resident advisors.
Continued reliance on long-term resident advisors as trusted advisors and key enablers of the capacity development program.
Coordination with other capacity development providers (World Bank, African Development Bank, Macroeconomic and Financial Management Institute of Eastern and Southern Africa) to sequence capacity development and ensure increased absorption.

Cyber risk capacity building

Cybersecurity identified as a clear threat to financial stability due to tight financial and technological interconnections and an expanding attack “surface” with digitalization.
Survey evidence: a recent IMF survey among 51 countries found:
- Most central banks and supervisory authorities did not have a national cyber strategy that included the financial sector.
- More than 40 percent lacked dedicated cybersecurity regulations.
- 64 percent did not mandate cyber testing.
- 54 percent lacked a cyber incident reporting regime.
Implication: international effort and scaled technical assistance are required to address systemic cybersecurity vulnerabilities; IMF provides technical assistance initiatives to design and implement international best practices.

Climate-related financial risk capacity building

Climate change poses physical and transition risks to the safety and soundness of financial institutions, the sustainability of financial services, and macro-financial stability.
The IMF’s capacity development program includes strengthening financial sector supervision and frameworks for assessment of risks, including stress testing.
Recent initiatives:
- Developed methodologies for climate risk analysis shared via regional seminars and individual country engagements.
- Plan to help countries develop tools to identify and assess climate change–related risks and their potential impact on the financial sector.
- Leveraging a global network of Regional Capacity Development Centers to design and deliver regulatory and supervisory policy capacity building.
Demand expectation: awareness of climate risks to financial stability is growing and, given the lack of capacity—especially in emerging market and developing economies—demand for capacity development on climate risk analysis and supervision is expected to accelerate further.

Organizational and programmatic priorities

New institutional capabilities:
- Created a unit specializing in payment systems to broaden capacity development in fintech and CBDC.
- Developed a cyber risk supervision and regulation online course, adding to online courses jointly developed and delivered with the BIS on banking supervision and crisis resolution.
Programmatic approach to technical assistance: capacity development workplans are being designed with a medium-term outlook rather than singular engagements.
Emphasis on developing internal expertise in nontraditional disciplines (for example, in climate change) and robust dialogue with international institutions and country authorities to tailor capacity development delivery.

Funding, partnerships, and next steps

Donor funding has enabled expansion of work and hiring of additional long-term experts to meet growing demand for technical assistance.
Continued donor support is critical as needs grow to advance capacity development initiatives on emerging topics.
Commitment to think creatively about tailoring delivery and to re-evaluate practices to remain effective in a changing environment.

Source: "Capacity Building in the Financial Sector – From Climate Risk Analysis to CBDCs", IMF, March 14, 2023, https://www.imf.org/en/news/articles/2023/03/14/sp-capacity-building-financial-sector-climate-risk-analysis-cbdc