Financial Sector Assessment Program (FSAP)
Progress Reports on the Bank-Fund Financial Sector Liaison Committee (FSLC)
Offshore Financial Centers (OFCs): IMF Staff Assessments
Reports on Observance of Standards and Codes (ROSCs)
Guide to Progress in Strengthening the Architecture of the International Financial System
Financial Sector Reform and Strengthening
October 2002 Progress Report on
Prepared by the Bank-Fund Financial Sector Liaison Committee
The Committee's focus is primarily one of oversight of the wide range of financial sector work on which collaboration between Bank and Fund staff takes place. The Committee seeks to ensure that such collaboration at the staff level between the two institutions continues to strengthen and helps to resolve any differences of view that may occur. In particular, the Committee works to broaden the policy discussions between Bank and Fund staff on financial sector issues, facilitate coordination of financial sector work in the two institutions (thereby improving the efficiency of the use of resources and the consistency of the advice offered), and ensure that the Bank and the Fund contribute to the various international efforts pertaining to reform of the financial sector in a coordinated way. The FSLC thus helps to integrate various financial sector tasks assigned to the two institutions into a coherent joint work program. It also facilitates coordination with the work programs of other institutions.
The Committee's recent activities
Key issues where the Committee has taken the lead or has been involved in the period since the last progress report include: further development and oversight of the Financial Sector Assessment Program (FSAP); coordination of a range of work related to financial sector standards and codes, including preparation of a series of papers for the Executive Directors of the Bank and the Fund and the public on the experience gained through the FSAP with the assessment of international standards and codes, strengthening the quality and consistency of financial sector standards assessments, and developing an approach for assessing observance of financial sector standards where financial policies (banking, insurance, securities, pension, and payments systems) are, at least to an important extent, the responsibility of a supranational agency; and the establishment of FIRST (the Financial Sector Reform and Strengthening Initiative), a new multi-donor program that will support capacity building and policy development projects in the financial sectors in developing countries.
Financial Sector Assessment Program
The FSAP, initiated in April 1999, remains a principal instrument for Bank-Fund collaboration in financial sector work. The FSAP provides information and a common analytical platform for the Bank's development work, the Fund's surveillance over financial sector issues, and the financial sector technical assistance activities of both institutions. 4 It thus helps to ensure coordination by the two institutions in a wide range of their financial sector work.
While the Committee typically is not involved in the preparation of individual country assessments conducted under the FSAP, it has continued to be the body responsible for facilitating the program's development and implementation. This has occupied a significant proportion of the Committee's time due to the program's ambitious country coverage, the substantial resource commitment that it represents for both the Fund and the Bank and the steady stream of countries requesting participation (around half of the membership has now participated in the program or agreed to do so). This work also calls for a high degree of coordination as a result of the program's links with: the Article IV process in the Fund; the design of Fund-supported programs; a range of lending and non-lending activities in the Bank; technical assistance related to the financial sector by both institutions; the activities of major financial standard setting bodies; and a large number of cooperating official institutions that provide experts for the assessments. A detailed review of experience with the FSAP is forthcoming. This review will identify key lessons from experience and propose possible future modalities for the program.
Work in the recent period has focused on continuing to improve the quality and consistency of the FSAP as follows:
While assessments of observance of financial sector standards play an integral role in the FSAP, Fund-Bank work on financial sector standards extends beyond the FSAP context. Standards assessments serve as a key input into the overall assessments of financial system stability and the identification of development needs, and this has motivated much of the work in the Bank and the Fund in this area. However, this work also includes developing and refining financial sector standards and assessment methodologies, coordination of work on those standards which are integral to the FSAP with work on other standards through the Reports on Standards and Codes (ROSC) program, developing incentives to adopt such standards, and facilitating implementation through technical assistance.
The FSLC's role in encouraging collaboration has recently included increased attention to methodologies for assessing observance of a range of international financial sector standards and codes, and assessing supervisory cooperation and information exchange between supervisors in offshore financial centers and their counterparts in major countries. Since late 2001, the Committee has coordinated reviews of experience gained in the context of the FSAP with undertaking assessments of observance of International Association of Insurance Supervisors Insurance Core Principles, the Committee on Payment and Settlement Systems Core Principles for Systemically Important Payment Systems and the International Organization of Securities Commissions Objectives and Principles of Securities Regulation. 6 A similar review of experience with assessing observance with the Basel Core Principles for Effective Banking Supervision was undertaken in 2000 and an update of this review is forthcoming. These reviews have been presented to the relevant standard setting bodies as a means to foster continued improvements in the design of standards themselves and the related assessment methodologies.
Because assessment methodologies for financial sector standards are typically designed to be undertaken at the national level, it is not straightforward to assess standards in cases where supervision or implementation of financial policies is undertaken by a supranational agency. For example, monetary policy as well as banking and insurance supervision are the responsibility of supranational agencies in the West African Monetary Union. In these cases, it is necessary to assess the regulatory framework at the supranational level as well as the quality of implementation at the national level, which could in some cases vary by country. The FSLC has thus recently defined an approach to be used in assessing financial sector standards in these countries in the context of the FSAP.
In carrying out its role of enhancing collaboration among the people who work in the financial sector, the FSLC-as a group or its members individually-have been involved with various activities and issues as follows:
The Committee will maintain its focus on improving the effectiveness and flexibility of the FSAP. This will be informed by the outcomes of the Boards' discussions in connection with the upcoming reviews of the FSAP and the work in the Bank and the Fund on standards and codes.
In the coming period the Committee will focus particularly on further improving the coordination of financial sector technical assistance between the Bank and the Fund, as well as with other donors. In addition, the FSLC will encourage other joint activities outside its auspices.
Given mutual objectives and individual resource constraints, there are clear benefits from improving the existing coordination and cooperation in the financial sector work of the Bank and the Fund. The FSLC considers that efforts at better prioritization and delineation of assignments over the last year have been constructive and successful. The Committee intends to continue to promote closer coordination of financial sector work in the coming period. The next report on the Committee's activities will be provided in one year.
1 See Progress Report on the Bank-Fund Financial Sector Liaison Committee (FSLC), SM/01/295 and R2001-0175 for the previous report.
2 See Review of Bank-Fund Collaboration in Strengthening Financial Systems, SM/98/224 and SecM98-732, paragraph 28. The FSLC has six members, three senior staff from the Bank and three from the Fund. Each member also has an alternate. The Committee is co-chaired by V. Sundararajan from the Fund's Monetary and Exchange Affairs Department (MAE) and Larry Promisel of the Bank's Global Partnership Group. The other members include representatives of the Fund's MAE and Policy Development and Review (PDR) Departments, and the Bank's Poverty Reduction and Economic Management Department (PREM) and the Financial Sector Vice-Presidency (FSEVP).
3 See, for example, Strengthening the International Financial System and the Multilateral Development Banks-Report of G-7 Finance Ministers and Central Bank Governors, July 7, 2001, Rome, Italy, paragraphs 6, 17, 27 and 42.
4 See Financial Sector Assessment Program-A Review-Lessons from the Pilot and Issues Going Forward (SM/00/263 in the Fund and R2000-216 in the Bank). A general description of the FSAP was provided to the Boards of the Bank and the Fund in May 1999 (SecM1999-371 and SM/99/116, respectively); a report on early progress with the Program was discussed by the two Boards in September/October 1999 (SecM1999-639 in the Bank, and SM/99/226 and SM/99/226 Supplement 1, in the Fund); and a report on further progress with the FSAP, Financial Sector Assessment Program (FSAP)-Lessons From the Pilot Exercise and Next Steps (SecM2000-130 and SM/00/54, respectively) was discussed by the two Boards in the Spring of 2000.
5 The meetings findings have been captured in a report, "Technical Review: Strengthening the Assessment of Financial Sector Standards in the Financial Sector Assessment Program," May 2002. A series of notes with specific information on what to expect from the process of an assessment have prepared for potential assessors from cooperating official institutions and their country counterparts, and have been posted on the Bank's external website.
6 See Experience with the Insurance Core Principles Assessments under the Financial Sector Assessment Program (SM/01/266 and SecM2001-536), Financial Sector Assessment Program-Experience with the Assessment of Systemically Important Payment Systems (SM/02/124 and SecM2002-210) and Experience with the Assessments of the IOSCO Objectives and Principles of Securities Regulation under the Financial Sector Assessment Program (SM/02/121 and SecM2002-209).
7 See IMF Public Information Notice (PIN) No. 02/87, IMF Advances Efforts to Combat Money Laundering and Terrorist Finance, August 8, 2002.
8 Countries include the UK (Department for International Development-DFID), Canada (International Development Agency of Canada-CIDA), Switzerland (State Secretariat for Economic Affairs of Switzerland-SECO) and the Netherlands (Ministry of Foreign Affairs). Discussions are in progress with other donor institutions with the aim of expanding the scope of the initiative.