June 05, 2019

IMF published its staff report under the 2019 Article IV consultation with the Kingdom of the Netherlands—Aruba. IMF Directors highlighted that banks in the area remain sound and liquid under a solid supervisory and regulatory framework. Financial sector oversight has been progressing. Over the years, the Central Bank of Aruba (CBA) has shifted to a risk-based approach to supervision, from a compliance-oriented one, thus allocating supervisory resources to institutions with the highest risk profiles.

  • The information to be provided by a third party seeking authorization to assess the compliance of securitizations with the STS criteria provided for in Securitization Regulation should enable a competent authority to evaluate whether and, to what extent, the applicant meets the conditions of Article 28(1) of the Securitization Regulation. An authorized third party will be able to provide STS assessment services across EU. The application for authorization should, therefore, comprehensively identify that third party, any group to which this third party belongs, and the scope of its activities. With regard to the STS assessment services to be provided, the application should include the envisaged scope of the services to be provided as well as their geographical scope, particularly the following:

    • To facilitate effective use of the authorization resources of a competent authority, each application for authorization should include a table clearly identifying each submitted document and its relevance to the conditions that must be met for authorization.
    • To enable the competent authority to assess whether the fees charged by the third party are non-discriminatory and are sufficient and appropriate to cover the costs for the provision of the STS assessment services, as required by Article 28(1)(a) of Securitization Regulation, the third party should provide comprehensive information on pricing policies, pricing criteria, fee structures, and fee schedules.
    • To enable the competent authority to assess whether the third party is able to ensure the integrity and independence of the STS assessment process, that third party should provide information on the structure of those internal controls. Furthermore, the third party should provide comprehensive information on the composition of the management body and on the qualifications and repute of each of its members.
    • To enable the competent authority to assess whether the third party has sufficient operational safeguards and internal processes to assess STS compliance, the third party should provide information on its procedures relating to the required qualification of its staff. The third party should also demonstrate that its STS assessment methodology is sensitive to the type of securitization and that specifies separate procedures and safeguards for asset-backed commercial paper (ABCP) transactions/programs and non-ABCP securitizations.

    The use of outsourcing arrangements and a reliance on the use of external experts can raise concerns about the robustness of operational safeguards and internal processes. The application should, therefore, contain specific information about the nature and scope of any such outsourcing arrangements or use of external experts as well as the third party's governance over those arrangements. Regulation (EU) 2019/885 is based on the draft regulatory technical standards submitted by ESMA to EC.

     

    Related Links

    Effective Date: June 18, 2019

    Press Release
  • Proposed Rule 1
  • Proposed Rule 2
  • Proposed Rule 3
  • Presentation on Regulatory Framework (PDF)
  • Presentation on Resolution Plan Rules (PDF)
  • The staff report highlights that banks enjoy healthy profits and interest rate margins remain sizable, which reflect, in part, weak competition among banks. The capital adequacy ratio (CAR) of 32% is double the regulatory minimum and stress tests by CBA reveal high capital resilience to severe shocks. Banks have liquidity buffers that largely surpass the regulatory requirements, continued to see declining non-performing loans (NPLs), and set loan-to-value ratios on mortgages at safe levels. While a high CAR mitigates financial-sector risks, it could indicate anemic demand or lack of viable business project; this is reinforced by the fact that banks are flushed with excess liquidity and credit growth is relatively modest. Discussions with the authorities and stakeholders suggest that high CAR partly a result of a lack of bankable projects outside the tourism sector and also relates to the CBA's large exposures rule, which requires banks to maintain high capital buffers in case of large exposures to a single debtor or connected group of debtors. The upcoming results from the financial inclusion survey could shed more light on possible issues and policy solutions.

     

    Related LinkStaff Report

     

    Keywords: Europe, Netherlands, Aruba, Banking, NPLs, CAR, Financial Stability, Stress Testing, Capital Buffers, Article IV, IMF

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