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

    APRA Consults to Standardize Submission Date for Quarterly Reporting

    APRA proposed to standardize quarterly reporting due dates for authorized deposit-taking institutions. The proposed standardized due date is 35 calendar days after the last day of the reference quarter, which will create a 14-calendar-day extension for credit unions and building societies.

    November 08, 2019 WebPage Regulatory News
    News

    EBA Single Rulebook Q&A: First Update for November 2019

    EBA updated the Single Rulebook question and answer (Q&A) tool with answers to two questions. The answers provide clarifications on topics related to own funds and strong customer authentication under the revised Payment Services Directive or PSD2.

    November 08, 2019 WebPage Regulatory News
    News

    FED Proposes to Extend Initial Compliance Dates Under SCCL Rule

    FED published a proposal to extend, by 18 months, the initial compliance dates for foreign banks subject to the single-counterparty credit limit (SCCL) rule.

    November 08, 2019 WebPage Regulatory News
    News

    EBA Publishes Technical Package on Reporting Framework 2.9.1

    EBA published a new release of the reporting framework 2.9.1. This release includes validation rules, Data Point Model (DPM) data dictionary, XBRL taxonomy, and other supporting documents. Additionally, the release fixes some modeling issues on COREP Liquidity and FINREP.

    November 08, 2019 WebPage Regulatory News
    News

    EBA Publishes Methodology and Draft Templates for Stress Tests in 2020

    EBA published a package for the 2020 EU-wide stress test exercise for banks.

    November 07, 2019 WebPage Regulatory News
    News

    EC Publishes Results of Fitness Check of Reporting Requirements in EU

    EC published results of the fitness check of supervisory reporting requirements in financial services legislation in EU.

    November 07, 2019 WebPage Regulatory News
    News

    BCBS Assesses NSFR and LE Rules in Argentina and China as Compliant

    BCBS published reports that assess the implementation of net stable funding ratio (NSFR) and large exposures, or LE, framework in Argentina and China.

    November 07, 2019 WebPage Regulatory News
    News

    FSB Publishes Summary of Plenary Meeting in Paris

    At the meeting, the Plenary reviewed vulnerabilities in the global financial system, fintech developments (including developments in the crypto-asset markets), ongoing work of FSB, and the work program for 2020.

    November 07, 2019 WebPage Regulatory News
    News

    HKMA Highlights Technology Initiatives at the Hong Kong FinTech Week

    HKMA co-organized, with InvestHK, the Hong Kong FinTech Week 2019, which was a five-day flagship fintech event that attracted thousands of attendees worldwide.

    November 06, 2019 WebPage Regulatory News
    News

    ECB Report on Fallback Provisions in Contracts Referencing EURIBOR

    ECB published a report, by private sector working group on euro risk-free rates, presenting recommendations for fallback provisions in contracts for cash products and derivative transactions referencing EURIBOR.

    November 06, 2019 WebPage Regulatory News
    RESULTS 1 - 10 OF 4119