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Capacity Building in the Financial Sector – From Climate Risk Analysis to CBDCs
March 14, 2023
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IMF Communications Department
MEDIA RELATIONS
PRESS OFFICER:
Phone: +1 202 623-7100Email: MEDIA@IMF.org
March 14, 2023
PRESS OFFICER:
Phone: +1 202 623-7100Email: MEDIA@IMF.org
Good morning. It is a pleasure to welcome you to the third annual IMF-BIS Symposium on capacity development in the financial sector. I want to begin by thanking the BIS and particularly Fernando Restoy and his team for hosting us, as well as the distinguished panelists and participants for joining us over the next two days.
Let me particularly thank the staff of the BIS and the IMF for the superb organization that has made this event possible.
The approach of the IMF’s Monetary and Capital Markets Department toward capacity development continues to evolve to meet members’ needs by adapting and broadening our work to emerging risks, employing or combining different delivery modalities and enhancing collaboration with other stakeholders, such as the BIS.
For example:
We will be hearing later in the seminar about lessons learned from running these online courses. Let me also note that we are coordinating with other capacity development providers, such as the World Bank, African Development Bank, and the Macroeconomic and Financial Management Institute of Eastern and Southern Africa, to sequence capacity development to member countries to ensure increased absorption.
In our experience, increased risks to financial stability in our member countries translate into higher demand to develop capacity on financial sector issues. This requires us to continuously adapt and prioritize our capacity development delivery to best respond to the immediate needs of members.
Let me refer to some important steps we have taken in this regard:
Capacity development is at the core of the Monetary and Capital Markets Department’s work and reflects our belief and practice to support our membership in the long haul. While the pandemic initially impacted our capacity development work, the level of activity throughout the past three years tells a story of strong, continuous, and sustained engagement even in extraordinarily challenging circumstances.
We noticed priorities shifting quickly during the pandemic, but foundational work on building financial sector resilience never stopped.
The Fund quickly adapted to the virtual environment, with more intensive use of technology. Webinars, virtual workshops, and online training quickly became a key part of our delivery toolkit and continue to be so today, even as in-person capacity development has returned.
We have found that online training and virtual engagements can be an important component of capacity development. Virtual or online engagements allow higher numbers of participants from member countries to benefit from capacity building, and to provide access to a more diverse group of speakers and experts from across the globe.
We have learned that such activities are particularly useful for short sessions and can lay out foundational knowledge that can be leveraged in more focused, country-based engagements.
However, we have also learned that while virtual engagement facilitates and leverages, it cannot fully substitute for in-person capacity building and training. Building stronger country ownership of capacity development recommendations often requires deeper interaction with authorities. Furthermore, it is harder to ensure effective peer-to peer engagements in virtual engagements and focus of participants is diminished in virtual or online capacity development deliveries. Therefore, it remains our view that in-person delivery will still produce better outcomes.
That is why we continue to place great reliance on our long-term resident advisors, who are trusted advisors to country authorities and a key enabler of our capacity development work program. We will therefore continue to focus on our core capacity development areas aimed at strengthening financial sector resilience in our member countries, while better leveraging integration across different capacity development modalities. We anticipate that a large part of our delivery will include some level of online or virtual engagements, which can be especially useful in the preparatory stages.
Cybersecurity is a clear threat to financial stability. Tight financial and technological interconnections within the financial sector facilitate the quick spread of cyber-attacks through the entire system, potentially causing widespread disruption and loss of confidence. Greater vulnerabilities are to be expected in an increasingly digitalized world. As more systems and devices are connected and depend on computer software, the attack “surface” becomes wider. Fintech firms that rely heavily on new digital technologies can make the financial industry more efficient and inclusive, but also more vulnerable to cyber risks.
Among emerging market and developing economies, most financial supervisors haven’t introduced cybersecurity regulations or built resources to enforce them.
A recent survey conducted by the IMF among 51 countries found that 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, and 54 percent lacked a cyber incident reporting regime.
In the cyber world, the system’s strength is determined by its weakest link. With growing interconnections across the world, addressing risks comprehensively will require international effort. For its part, the IMF continues to help financial supervisors through various technical assistance initiatives that are aimed at designing and implementing international best practices as an urgent priority.
Climate change may result in physical and transition risks that could affect the safety and soundness of individual financial institutions, impact the sustainability of vital financial services, and carry broad macro-financial stability implications. As climate change increasingly influences financial risks and shapes institutional and sector-wide vulnerabilities, enhancement of the risk assessment and prudential frameworks is a critical component of policy responses necessary to ensure that financial institutions are well-equipped to weather climate-related shocks.
The IMF has had for many years a sizeable and (hopefully) impactful capacity development program that helps strengthen the financial sector supervision and frameworks for assessment of risks, including stress testing of its membership. Developing capacity on regulatory and supervisory policies to address climate-related financial risks is now part of this program, with design and delivery leveraging our global network of Regional Capacity Development Centers. Our plan is also to help countries to develop tools to identify and assess climate change-related risks and their potential impact on the financial sector.
As awareness of the importance of climate risks to financial stability grows—and given the lack of capacity on climate risk analysis and climate-related risk supervision, especially in emerging market and developing economies—demand for capacity development is expected to accelerate further in the coming years.
To advance on the key priorities I have outlined, we must think outside the box, and I am particularly interested to hear views on how we should re-think how to best tailor our capacity development delivery.
To remain effective in a changing environment, we need to constantly re-evaluate current practices and make the necessary efforts to adapt. This may include developing internal expertise in nontraditional disciplines, for example in climate change.
A robust dialogue with other international institutions and country authorities in developing such efforts is more important than ever to keep the dialogue on capacity development delivery as timely and meaningful as possible.
To conclude, I would like to recognize the contribution of our capacity development partners. The funding received from our donor partners have enabled us to expand our work. Specifically, we have hired additional long-term experts to cover the growing demand for technical assistance in individual countries. We are utilizing a programmatic approach to technical assistance, whereby capacity development workplans are designed with a medium-term outlook as opposed to a singular engagement.
We are also developing tools to deliver capacity development on emerging topics and exploring collaborations to enhance these topics. We remain thankful to financing partners for their support. Going forward, as the needs grow, donor support will be critical to advance CD initiatives.
Thank you very much and I am looking forward to having a productive exchange of views throughout the seminar.
