Featured Product

    IMF Issues Report on Financial Sector Stability Review of Costa Rica

    April 02, 2018

    IMF published the technical assistance report on the financial sector stability review (FSSR) of Costa Rica. The report presents key recommendations of the IMF mission to achieve the main strategic objectives. The key recommendations concern improvements in banking, insurance, pensions, securities, and macro-prudential supervision. The report also details the Technical Assistance Roadmap (including priorities and timelines) for Costa Rica and contains a table summarizing the proposed roadmap, which is further detailed in Annex III.

    Banking, insurance, securities, and pensions are supervised by dedicated agencies under the aegis of the Central Bank of Costa Rica (BCCR) and the authority and coordination of the National Council for the Supervision of the Financial System (CONASSIF). The financial system is highly dollarized and dominated by the banking sector (80% of financial system assets). The insurance sector opened in 2008, produces a premium of nearly USD 1.2 billion, and is dominated by the state-owned Instituto Nacional de Seguros (INS). Securities markets are dominated by the public debt market. The legal framework governing the financial sector is highly fragmented. General laws define the responsibilities for the central bank, the supervisory authorities, and participants in the market. Those laws coexist with a number of organic laws governing financial institutions, such as laws establishing state-owned institutions (banks, the systemic insurer, and some pension funds), financial cooperatives, and several “special regimen entities” in the banking, insurance, and pension sectors. This is a somewhat unbalanced situation, as not all entities are governed by the same rules. The legal framework is deep-rooted and to pass any legal change is not a simple process.

    The mission concludes that, despite progress, the financial stability framework in Costa Rica is not well-prepared to handle a potential systemic financial crisis. Supervision of the financial sector is becoming risk-based and intensive, but it lacks key legal powers, tools, and responsibilities for effective oversight of institutions and markets. Serious vulnerabilities in the pension sector, the secondary markets, and financial-crisis safety nets need urgent attention. Key recommendations made by previous missions remain unimplemented. Implementation of the pending 2008 FSAP recommendations and adoption of Basel III standards (gradually introducing capital requirements and liquidity standards) would improve the resilience of the financial system. Although the banking supervisor SUGEF has made progress in its capital adequacy framework on an individual basis, there are still gaps vis-à-vis Basel Committee standards. Regulations on the management of credit risk, country and transfer risks, and concentration risk have not yet been issued. While some progress has been made in several areas, the general framework under which banking supervision is conducted still has serious weaknesses. SUGEF is preparing a draft law on consolidated supervision to be submitted to CONASSIF for approval and subsequent submission to the Legislative Assembly. The draft law that was presented to the mission would address almost all current weaknesses related to consolidated supervision.

    The prudential regulation of the insurance and the pension sectors needs further development. The insurance capital regime contains important risk-sensitive elements and goes beyond Solvency I, but its calibration to meet the risk appetite of the insurance supervisor (SUGESE) is lacking. The solvency ratio is calculated using the risk capital that captures investment risk, operation risk, insurance risk, reinsurance risk, and catastrophic risk. The investment risk capital calculation is consistent with the banking sector methodology. The mission recommends that Costa Rica needs to improve its financial safety net by providing an effective lender of last resort process, implementing a deposit insurance fund for all banks, developing effective bank resolution mechanisms, and establishing crisis management protocols. To strengthen banking regulation and supervision, Technical Assistance is primarily directed to support regulatory developments, following the approval of current legislative projects. In the medium term, Technical Assistance can analyze the impact of Basel II/III standards and help implementation planning, depending on the priorities and readiness of the authorities. Furthermore, the development of the prudential regulation and supervision of the insurance and the pension sectors will benefit from external assistance.

     

    Related Link: Technical Assistance Report

    Keywords: Americas, Costa Rica, Banking, Insurance, Securities, Pensions, Basel III, Banking Supervision, FSSR, Solvency, Resolution Framework, Technical Assistance, Roadmap, IMF

    Featured Experts
    Related Articles
    News

    EU Amends IFRS 9 Rule, Changes Concern Interest Rate Benchmark Reforms

    EU published Regulation 2020/34 regarding the International Accounting Standard (IAS) 39 and International Financial Reporting Standards (IFRS) 7 and 9.

    January 16, 2020 WebPage Regulatory News
    News

    FDIC and OCC Issue Statement on Heightened Cyber Security Risk

    In response to the heightened cyber-security risk facing the financial services industry and other critical business sectors, FDIC and OCC issued an interagency statement on heightened cyber-security risk.

    January 16, 2020 WebPage Regulatory News
    News

    BoE and FCA Outline Next Steps for LIBOR Transition in 2020

    BoE, FCA, and the Working Group on Sterling Risk-Free Reference Rates (RFRWG) have published a set of documents that outline the LIBOR transition priorities and milestones for 2020.

    January 16, 2020 WebPage Regulatory News
    News

    BCRA Updates Regulation on Capital Requirements and Information Regime

    BCRA updated the rules on minimum capital requirements for financial entities and on certain aspects of the information transparency regime for quarterly and annual supervision.

    January 16, 2020 WebPage Regulatory News
    News

    BIS to Expand Central Bank Membership

    BIS is to expand its central bank membership base and to increase collaboration in its work as a forum for international cooperation and as a hub for central banks and other financial authorities.

    January 14, 2020 WebPage Regulatory News
    News

    EIOPA Issues Technical Specifications for Market and Credit Risk Study

    EIOPA published the technical specifications, including instructions, for the market and credit risk modeling comparative study for year-end 2019.

    January 13, 2020 WebPage Regulatory News
    News

    FED Publishes FAQs on Tailoring Rules for Banks

    FED released a letter announcing the publication of an initial set of frequently asked questions (FAQs) in response to questions from institutions.

    January 13, 2020 WebPage Regulatory News
    News

    IA of Hong Kong Publishes Stress Testing Scenarios in Relation to ORSA

    IA of Hong Kong published the prescribed scenarios for stress and scenario testing to be used by the authorized insurers conducting general insurance business.

    January 13, 2020 WebPage Regulatory News
    News

    FDIC Letter on Submission of Call Reports by End of January 2020

    FDIC, in a letter to financial institutions, announced that the Consolidated Reports of Condition and Income (Call Reports) for the December 31, 2019 report date must be submitted to the Central Data Repository of the relevant US agencies by January 30, 2020.

    January 13, 2020 WebPage Regulatory News
    News

    EBA Consults on Calculation of Own Funds Requirements for Market Risk

    EBA is consulting on the draft regulatory technical standards for calculation of the own funds requirements for market risk, under the standardized and internal model approaches of the Fundamental Review of the Trading Book (FRTB) framework.

    January 13, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 4489