MEFMI conducts Consolidated Supervision and Cross Border Investments Regional Workshop in Arusha

MEFMI’s Financial Sector Management Programme conducted a Consolidated Supervision and Cross Border Investments regional workshop in Arusha, Tanzania from 28 July – I August, 2014. The objective of the workshop was to provide participants with a comprehensive appreciation of the basic concepts of prudential supervision of financial conglomerates and the principles of consolidated supervision, as well as enlighten them on the essential implementation strategies (toolkits) to ensure competent formulation of a consolidated supervisory regulatory framework for their respective countries.

Consolidated supervision is a comprehensive approach that seeks to evaluate the strength of an entire financial conglomerate.  It takes into account all the risks that may affect a bank, regardless of whether these risks are carried in the books of the bank or a subsidiary across borders or related entities. The increasing trend towards conglomeration and cross boarder activities requires that MEFMI member states revisit their approaches to regulating and supervision of banking groups to a more amenable approach of consolidated supervision.

The workshop target group were middle-to-senior level officials from central banks involved in consolidated supervision. The workshop provided a good overview of consolidated supervision with regards to its concept, and international best practice. A major aspect of the workshop was the discussion on the available methods for group capital calculation, and the presentation of a theoretical roadmap for consolidated supervision. The contents presented contributed for the understanding of the way forward for the implementation of consolidated supervision in MEFMI countries.

Presenters were drawn from the region with experience in Consolidated Supervision. Mr. Le Roux of the South African Reserve Bankgave the participants an all-round insight into how the South African Reserve Bank (SARB) supervises financial conglomerate, especially approaches for assessing capital adequacy and conducting supervisory colleges meetings. In general the region has an interest in how SARB supervises banks on a consolidated basis; given that a number of South African banks have subsidiary operations in MEFMI countries.

Mr. Chiviri, a MEFMI Accredited Fellow from the Reserve Bank of Zimbabwe introduced the participants to key concepts and the financial landscape in the region where financial conglomerates have become a dominant feature in the financial services sector. The presentation also introduced various types of conglomerates, how they are organised and common challenges faced by supervisors’ citing examples from Kenya, Tanzania and Zimbabwe. He also took participants through the Legal Framework for Consolidated Supervision exploring the main provisions to be captured by laws, regulations, or guidelines in line with international standards and best practices related to consolidated supervision. The session also presented an opportunity for participants to discuss the legal challenges that are particularly relevant to the region. His presentation on the Roadmap for Implementing Consolidated Supervision covered preparation of a position paper, survey of financial institutions, issuance of consolidated supervision regulations, establishment of Memorandum of Understanding with other regulators, development of procedures for review and assessment of group information, as well as the implementation of procedures for consolidated supervision as part of risk-based supervision. This session was particularly important as it gave the participants a starting point on how to proceed with the implementation process.

The presentation by Mr. Ali from the Central Bank of Kenya focused on Supervisory Issues that are commonly associated with Financial Conglomerates.  The discussions mainly centered on intra-group transactions and exposures which are classified into Capital, Independence, Group Exposures and Supervisory Arbitrage. He shared, practical cases with the participants where Bank Supervisors face challenges in dealing with these issues as well as supervisory approaches taken in managing the relative risks. He also presented steps that the Central Bank of Kenya (CBK) took in planning for the colleges which it conducted in 2012 and 2013. This presentation was preceded by a presentation by Mr. Evert on Good Practice Principles for Supervisory Colleges. The participants were therefore able to evaluate and critic the approach CBK took, prior, during and after the college.

Ms Rebecca Obare from the IMF, is a regional expert in AML/CFT issues. She made a presentation on risks related to money laundering and financing of terrorism in Financial Conglomerates. Her presentations were comprehensive and they clearly illustrated the key AML concepts and how these issues become more relevant to the supervision of financial conglomerates.  

The workshop was attended by 28 participants from ten (10) MEFMI member countries. The Deputy Governor of the Bank of Tanzania, Mr. Lilla Mkilla officially opened the workshop. In his opening remarks he commended MEFMI for the sterling work the Institute is doing to encourage member states to move towards the implementation of consolidated supervision. He noted that the integration of financial markets in the region comes with the recognition that effective implementation of Consolidated Supervision is not the responsibility of one country alone but must be collectively assumed by the region.  He commended the efforts that have been made by some countries which have begun to put in place such measures as the signing of the Memorandum of Understanding that allows countries to share information of a supervisory nature for banks that operate across borders. He however, noted that a lot more still needs to be done especially in respect of financial aspect of consolidated supervision.  He implored the participants to utilize the workshop as an opportunity to gain the much needed knowledge from the workshop so that they can champion the move to the next stage in their respective countries. Mr Mkilla was accompanied to the official opening by the resident regional director responsible for Arusha Branch, Mr Said Musendo Chiguma.