Appendix 1 Supervision Department: Organizational Structure, Key Responsibilities, and Deliverables
Blueprint for new tz organization
Appendix 2 Workflow Processes – Insurance
Appendix 3 Risk-Based Supervisory Framework
DRAFT for DISCUSSION
Risk-Based Supervisory Framework
Note: This draft Supervisory Framework is developed as a generic framework. It will need to be adjusted for use by a given supervisory agency in a country.
Prepared for the Caribbean Regional Technical Assistance Center by Naren Sheth, NAS Consulting Inc.
The RBS Framework is similar to the methodology developed and utilized by the Office of the Superintendent of Financial Institutions, Canada (OSFI, Canada).
Near term: < 12 months.
Curaçao and Sint Maarten––Back-to-Office Report on Staff Visit to Curaçao, January 11–22, 2021.
The CBvCSM did not request technical assistance (TA) from CARTAC on the development of its Risk-Focused Surveillance Framework and the new organizational structure of the supervision department. With respect to the current request for TA on the feasibility of introducing a harmonized risk assessment/rating sytem, the CBvCSM advised that they have not submitted a similar request for assistance from De Nederlandsche Bank (DNB) and will make appropriate use of or leverage from relevant TA provided by CARTAC and/or the IMF-HQ to strengthen regulatory and supervisory oversight of the financial sector. The CBvCSM has requested follow-up TA to review and provide feedback on several risk management guidelines to support Basel II/III-Pillar 2 implementation and other supervisory processes in mid-2021. During the mission team’s wrap-up meeting with the Deputy Director of Supervision on May 5, 2021, he advised that the CBvCSM will be requesting follow-up TA from CARTAC to implement the RBS framework proposed for consideration.
A PDF power point version (in Dutch) of the SWOT analysis report was provided to the mission team with the requirement that the content of the report should not be distributed or circulated. The version provided was machine translated by the mission team.
The sectoral approach provides for institutions to be supervised based on industry – e.g. banking, insurance; while the functional approach focuses on the essential elements of supervision – off-site monitoring, on-site inspections and other specialized functions. The portfolio approach incorporates elements of the sectoral and functional approaches by assigning each institution to one supervisor or examiner who is responsible for all elements of the supervisory process. This approach is evident at some supervisory agencies in the region including those transitioning to risk-based supervision. For a discussion on supervisory architecture, see “Financial Supervisory Architecture: what has changed after the crisis”; Daniel Calvo, Juan Carlos Crisanto, Stefan Hohl and Oscar Pascual Gutiérrez; Bank for International Settlements, FSI Insights on policy implementation, No 8; April 2018.
The CBvCSM advised that there are 8 financial groups operating in the jurisdiction. The groups are predominantly mixed-activity groups.
The CBvCSM reported a total of 22 “significant institutions” spanning the banking, insurance, pensions , and trust sectors. The CBvCSM defines an institution as “significant” based on the following criteria: the size of the institution, the market share, the number of customers , the products they offer and their relevance to the local financial system.
CAMELS : a traditional methodology used for assessing banks and non-bank institutions. It requires an assessment of capital, assets, management, earnings, liquidity, and sensitivity to market risk as well as a composite rating for the institution. Numerical rating of one to five are used for these assessments. The lower the numerical rating assigned the stronger the area being assessed
Copies of both presentations delivered by the mission team are attached at Appendix 4
A copy of the RBS Framework is attached at Appendix 3. Appendix 3 also includes copy of a TA Report prepared by CARTAC, which reviewed and assessed implementation of the RBS methodology across several member countries of CARTAC.
CAMELS: Capital, As sets , Management, Earnings, Liquidity, and Sensitivity to Market Risks; CARAMELS: Capital, Asset, Reinsurance, Actuarial, Management, Earnings, Liquidity, Subsidiaries. CARAMELS is currently utilized by the CBvCSM for the supervision of insurance companies. Neither CAMELS nor CARAMELS are inherently risk-based. The insurance supervisors at the CBvCSM currently utilize the STAMECERRR framework (Solvency, Technical Provisions, Assets, Management, Earnings, Compliance, Earnings, Reinsurance, Ratios, and Risks) to assess various areas of an insurance company’s operations. The framework reflects some elements of CARAMELS but is not risk-based.
Risk Assessment Framework for Federally Regulated Private Pension Plans; Office of the Superintendent of Financial Institutions Canada (https://www.osfi-bsif.gc.ca/Eng/pp-rr/rai-eri/Pages/default.aspx)
Appendix A Risk Matrix
Appendix B Categories of Inherent Risks and Rating Definations
Appendix C Operational Management, Corporate Oversight and Governance Functions Rating Categories
The following ratings categories are used for assessing the effectiveness of Operational Management, Corporate Oversight and Governance functions at the Significant Activity level:
Appendix D Overall Residual Risk in Significant Activities
The following rating categories are used to assess the Overall Residual Risk in an institution’s Significant Activities taken together.
Appendix E Earnings, Capital and Liquidity Definitions
The following rating definitions are used for assessing Earnings, Capital and Liquidity.
Appendix F Risk Profile Rating Definitions
The following rating categories are used to assess the risk profile of an institution.
Appendix G Guide to Intervention
The intervention guide outlines the types of actions that supervisors consider depending on the risk profile of the institution and the nature and significance of prudential concerns. It is important that interventions are proportionate to the desired outcomes. The actions indicated below are for a range of ratings as the intervention process needs to be flexible to enable supervisors to use interventions that are likely to be most effective in individual cases.
The actions indicated below are cumulative; i.e. actions indicated at lower levels of risk are implicitly included in actions that could be considered for institutions with a higher risk profile. Also, if circumstances warrant, actions can be taken at risk levels lower than that indicated in the guide.
Appendix H Overall Assessment of Corporate Oversight and Governance Functions
The following rating categories are used to assess the Corporate Oversight and Governance functions: