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

    FSB Sets Out Effective Practices for Cyber Incident Recovery

    FSB finalized the toolkit of effective practices to assist financial institutions in their cyber incident response and recovery activities.

    October 19, 2020 WebPage Regulatory News
    News

    HKMA Urges Early Action for Adherence to IBOR Fallbacks Protocol

    HKMA urged authorized institutions to take early action to adhere to the IBOR Fallbacks Protocol, which ISDA is expected to publish soon.

    October 16, 2020 WebPage Regulatory News
    News

    FSB Sets Out Roadmap for Transition to Alternative Reference Rates

    FSB published a global transition roadmap for London Inter-bank Offered Rate (LIBOR).

    October 16, 2020 WebPage Regulatory News
    News

    HM Treasury Publishes Response to Proposal on BRRD2 Transposition

    HM Treasury published a document that summarizes the responses received from a consultation on the approach of UK to transposition of the revised Bank Resolution and Recovery Directive (BRRD2).

    October 15, 2020 WebPage Regulatory News
    News

    HM Treasury Publishes Response to Proposal on CRD5 Transposition

    HM Treasury published the government response to the feedback received on the consultation for updating the prudential regime of UK before the end of the Brexit transition period.

    October 15, 2020 WebPage Regulatory News
    News

    BoE Publishes Reporting Schedule for Statistical Returns

    In a recent statistical notice, BoE announced publication of the reporting schedule for statistical returns for 2021.

    October 15, 2020 WebPage Regulatory News
    News

    EC Welcomes Declaration by Member States on EU Cloud Federation

    EC welcomed the joint declaration by 25 EU member states on building the next generation of cloud in Europe.

    October 15, 2020 WebPage Regulatory News
    News

    PRA Updates Supervisory Statement on Counterparty Credit Risk

    PRA published the final policy statement PS22/20, which contains the updated supervisory statement SS12/13 on counterparty credit risk.

    October 14, 2020 WebPage Regulatory News
    News

    FSB Publishes Update on Work to Address Market Fragmentation

    FSB published an update on its work to address market fragmentation. FSB is working in this area in collaboration with the other standard-setting bodies.

    October 14, 2020 WebPage Regulatory News
    News

    EBA Proposes to Revise Guidelines on Incident Reporting Under PSD2

    EBA proposed revisions to the guidelines on major incident reporting under the second Payment Service Directive (PSD2).

    October 14, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5967