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June 20, 2018

IMF published a report on the detailed assessment of observance of the implementation of the Basel Core Principles for Effective Banking Supervision (BCPs) in Romania, under its Financial Sector Assessment Program (FSAP). Out of the 29 principles, Romania was found to be compliant with 11, largely compliant with 15, and materially non-compliant with 3 BCPs. The material non-compliance was with respect to the principles on country and transfer risks; transactions with related parties; and independence, accountability, resourcing, and legal protection for supervisors.

As an EU member state, Romania is subject and aligned to the EU common regulatory framework for banking supervision. The adoption of the Capital Requirements Regulation and Directive IV (CRR/CRD IV), which forms the Single Rule Book, was an important step toward stronger prudential regulation. Prudential regulations of the National Bank of Romania (NBR) are broadly aligned to the requirements of BCPs. As of 2017, NBR has identified 11 banks as "systematically important," of which 8 are supervised at group level by the Single Supervisory Mechanism. Some of the key IMF recommendations are as follows:

  • Devote further supervisory attention to risk models, including advanced approach for regulatory capital calculation.
  • Conduct a thematic review on the large exposure limit across banks and review the suitability of EUR 150 million as an absolute limit.
  • Review and amend the regulation on affiliated party transactions in a more prudent manner.
  • Improve the prudential reporting template on related party transactions for more effective monitoring and issue a guidance note/instruction that lays down more concrete requirements for monitoring and managing related party transactions.
  • Perform a periodic review of whether the prudential returns (required outside of European reporting framework) satisfy supervisory needs.
  • Update current regulation based on EU-wide regulatory amendment process reflecting new standards for IRRBB, which were published in April 2016.
  • Include explicit requirements in the regulation that banks include appropriate scenarios into their stress testing programs to reflect country and transfer risk analysis.
  • Expand the scope and required items of reporting on operational risk events to keep the NBR apprised of developments affecting operational risk.
  • Consider the opportunity to require, at least for significant banks, more frequent disclosure (than on an annual basis).
  • Introduce a legal provision protecting the NBR as an institution against lawsuits for actions taken and/or omissions made while discharging its duties in good faith.

 

Related Link: Detailed Assessment of BCPs

Keywords: Europe, EU, Romania, Banking, FSAP, BCP, CRR/CRD, IMF

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