Presentation on theme: "1 The Rationale for Supervisory Integration in Latvia Uldis Cērps Chairman, Financial and Capital Market Commission, Latvia World Bank and International."— Presentation transcript:
1 The Rationale for Supervisory Integration in Latvia Uldis Cērps Chairman, Financial and Capital Market Commission, Latvia World Bank and International Monetary Fund conference "Aligning Financial Supervisory Structures with Country Needs"
2 Background of the Latvian Market Latvia: member state of the European Union since 2004 with a population of 2.4 million Intensive foreign ownership by West European banking groups(>50%) Banks account for over 95% of financial system assets Insurance market: dominated by West European insurance groups, but relatively small Modern, dematerialized, but very small stock market operated by OMX Financial Sector contributes over 4% to Latvia’s GDP
3 “Old” Regulatory Structure Before 2001 Banking supervision – Bank of Latvia Securities market supervision – Securities Market Commission (oversight by the Ministry of Finance) Insurance supervision – State Insurance Supervisory Inspection (oversight by the Ministry of Finance) Deposit guarantee system: Deposit Guarantee Fund Administration (a division of the Ministry of Finance)
4 “New” Regulatory Structure since 2001 FKTK: A single regulatory agency in charge of banking, insurance and securities market supervision and management of the Deposit Guarantee Fund and the Fund for the protection of the insured Managed by a 5 person board, all of which are professional appointments: 2 by the parliament, and 3 by the chairman of FKTK
5 Some Lessons Learned Lesson 1 Understand whether your country REALLY needs an FSA and put it on paper. There is NO single best model for supervising financial markets Try answering the questions of Tomasso Padoa-Schioppa: One supervisor or many? Inside or outside the central bank?
6 The Case for an FSA in Latvia Need to share the competence and experience accumulated in the banking supervision after withering the banking crisis of 1995 and 1998 Need for level playing field and consistent regulatory framework across sectors Need for a politically neutral and cost- efficient model to provide adequate financing for supervision of all financial market sectors Need to better manage cross-sector issues Need to enhance information flow among the regulators
7 The Case for the FSA in Latvia (cont.) Need to make sure that the supervisors have equivalent powers in all financial sectors Stop competing for the best talent among the supervisory authorities and create functional synergies FSA model worked convincingly well in Scandinavian countries There was some (albeit not much) academic debate on the issue which policymakers could study back in the year 2000
8 Lesson 2. Plan transition carefully One shall know who is (will be) in charge at the level of top management at the early stages of transition; uncertainty irritates everybody and spoils climate One must have at least a broad understanding on the proposed organizational structure of the FSA and it shall make sense Outsourcing certain services (e.g. IT, security, book-keeping etc.) greatly helps to minimize the burden of transition Have realistic deadlines (in Latvia, the real work on merging 4 institutions took circa 8 months)
9 Lesson 3. Think of your people Downsizing (often significant) is always accompanying mergers, even those of regulatory agencies People are prepared already. They just want to hear the truth. Make your values known to everybody and stick to them Employment decisions need to be made, as far as possible, at the initial stages of transition
10 Lesson 4. Formalize what can be formalized Document and make public all processes, procedures and “products” – who delivers what, when, who is involved, etc. Document and make public your annual work plan Document and make public your budget, preferably for at least 2 years ahead Consider introducing ISO quality standard – at minimum you will make sure that the FSA is not accused of lacking proper procedures
11 Lesson 5. Work closely with the industry Formalize consultation process with the industry Make use of consultative panels before adopting new regulatory measures Make sure the industry understands the need for your country to follow the best international practice in the financial services business
12 Lesson 6. If you happen to be the boss... Have a clear picture of your goals for the market, and your goals for the FSA Make sure the top management works as a team Just in case. Make a list containing conditions when you will have no other option but to leave
13 Final Remarks We in Latvia are generally very happy with the new model of a single regulatory authority It helps us to face new challenges common to all supervisors in Europe Relationship between home and host supervisors Harmonization of cross-sectoral regulation Dealing with complex models of Basel II Dealing with large cross-border financial groups
14 Thank you! Contacts: Financial and Capital Market Commission Kungu iela 1, LV 1050, Riga Latvia phone: +371 7774800, 7774801 www.fktk.lv