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International Monetary Fund. Monetary and Capital Markets Department
The Financial Sector Assessment Program (FSAP) carried out a targeted evaluation of issues relating to the effectiveness of banking regulation and supervision in the United Kingdom. It leverages on the 2016 FSAP which concluded that the United Kingdom (U.K.) had a high degree of compliance with the 2012 Basel Core Principles (BCPs) with some shortcomings. The 2021 FSAP reviewed the progress in addressing them and examined the main supervisory and regulatory developments since the last FSAP. The FSAP evaluation also focuses on steps taken to minimize disruptions in the U.K. banking system at the end of the Brexit transition period, and on the regulatory and supervisory measures introduced to contain spillovers from the ongoing COVID-19 pandemic on the U.K. banking system.
International Monetary Fund. Monetary and Capital Markets Department
The regulatory framework for insurance supervision in the United Kingdom is sophisticated and the authorities are leaders in supervisory techniques. Observance with the Insurance Core Principles (ICPs) is very high compared to peers with 17 ICPs observed and only 6 out of 24 ICPs determined to be largely observed and 1 partly observed.
International Monetary Fund. Monetary and Capital Markets Department
The United Kingdom faces significant money laundering threats from foreign criminal proceeds, owing to its status as a global financial center, but the authorities have a strong understanding of these risks. The authorities estimated the realistic possibility of hundreds of billions of pounds of illicit proceeds being laundered in their jurisdiction. The money laundering risks facing the United Kingdom include illicit proceeds from foreign crimes such as transnational organized crime, overseas corruption, and tax crimes. Financial services, trust, and company service providers (TCSPs), accountancy and legal sectors are high-risk for money laundering, with also significant emerging risks coming from cryptoassets. Some Crown Dependencies (CDs) and British Overseas Territories (BOTs) have featured in U.K. money laundering investigations. Brexit and COVID pandemic have an impact upon the money laundering risks in the United Kingdom. The authorities nevertheless have demonstrated a deep and robust experience in assessing and understanding their ML/TF risks. Leveraging technology tools such as big data and machine learning to analyze cross-border payments may add further dimension to their risk assessments. This technical note (TN) will focus on key aspects of the United Kingdom’s anti-money laundering and countering the financing of terrorism (AML/CFT) regime: risk-based AML/CFT supervision, entity transparency and international cooperation.
International Monetary Fund. Monetary and Capital Markets Department
The U.K. financial sector is globally systemic, open, and complex. It has weathered the COVID-19 pandemic fittingly, thanks to the post-GFC reforms, a proactive macroprudential stance, and an effective multipronged response to maintain financial stability. Brexit uncertainties are being handled appropriately as the U.K. and EU authorities and the financial industry collaborate to prevent undesirable financial stability outcomes. The endpoint of the pandemic remains unclear, as does the actual impact on the financial system once support measures wane. At this juncture, therefore, financial stability conditions in the United Kingdom are being shaped by three key considerations: (i) the evolving U.K.-EU relationship on financial services; (ii) securing a sustainable and robust post-pandemic economic recovery; and (iii) successfully managing ongoing structural transitions.
Mr. Charles R Taylor, Christopher Wilson, Eija Holttinen, and Anastasiia Morozova
Fintech developments are shaking up mandates within the existing regulatory architecture. It is not uncommon for financial sector agencies to have multiple policy objectives. Most often the policy objectives for these agencies reflect prudential, conduct and financial stability policy objectives. In some cases, financial sector agencies are also allocated responsibility for enhancing competition and innovation. When it comes to fintech, countries differ to some extent in the manner they balance the objectives of promoting the development of fintech and regulating it. Countries see fintech as a means of achieving multiple policy objectives sometimes with lesser or greater degrees of emphasis, such as accelerating development and spurring financial inclusion, while others may support innovation with the objective of promoting competition and efficiency in the provision of financial services. This difference in emphasis may impact institutional structures, including the allocation of staff resources. Conflicts of interest arising from dual roles are sometimes managed through legally established prioritization of objectives or establishment of separate internal reporting lines for supervision and development.
International Monetary Fund. Monetary and Capital Markets Department
This technical note reviews the institutional arrangement and supervisory practices for the insurance and securities sectors in Malta, focusing on supervisory effectiveness. The legal powers and supervisory objectives of the Malta Financial Services Authority (MFSA) are clear and in line with international standards. The MFSA has adequate legal authority to discharge its supervisory responsibilities and to take the necessary preventive and corrective measures to protect the public interest. Clearly established legal gateways for information sharing facilitate supervisory coordination and cooperation between the MFSA and relevant supervisors/authorities, domestically and internationally. For the avoidance of doubt, the MFSA has proposed amending the MFSA Act to explicitly include the promotion of financial stability and financial market integrity as one of its key functions. Stable funding and full autonomy over the recruitment process are needed to support the MFSA’s operational and financial independence. Recognizing the scope for harmonizing and enhancing the current sectoral risk-based supervision frameworks (RBSF), the MFSA is developing an integrated RBSF.
International Monetary Fund. Monetary and Capital Markets Department
The paper assesses the stability of Namibia’s financial system. Macrofinancial vulnerabilities have built up over a period of rapid economic growth in Namibia, and the financial cycle has now turned down. The sovereign debt/GDP ratio has nearly doubled since 2014 which has reinforced the already strong bank-sovereign link. The rapid rise in housing prices and household debt, banks’ large exposure to mortgages, and banks reliance on wholesale funding are sources of concern. A major decline in real estate prices would adversely affect bank capital and profitability. Financial sector oversight has been strengthened significantly since the 2006 Financial System Assessment Program, but further upgrades are needed.
International Monetary Fund. Monetary and Capital Markets Department
This paper reviews observance of Insurance Core Principles in Indonesia. Insurance regulation and supervision have been remarkably improved since the establishment of the Financial Services Authority (OJK) and the enactment of the new Insurance Law. However, the assessment has identified a significant number of shortfalls in observance with the Insurance Core Principles. Some deficiencies are owing to the lack of effective group regulation and supervision of insurance groups. Although OJK has implemented regulations related with risk management and group capital, intragroup transactions are not well taken into account. It is recommended that OJK should improve the effectiveness of supervision. Thematic reviews of reserving practices will encourage more conservative reserving.