Finan Financial RIA Kn ial RIA Knowledge owledge Tran Transfer Program in Albania sfer Program in Albania Regulatory I m pact Assessm ent Regulatory I m pact Assessm ent - Main Findings and Policy Recommendations Main Findings and Policy Recommendations - - - Proposed Existing Guideline Proposed Existing Guideline BoA Guideline No. 49, dated Guideline No. 49, dated BoA 22.04.1999 “ “ On the Transparency of On the Transparency of 22.04.1999 ” the banking operations and services ” the banking operations and services Proposing Authority Proposing Authority Bank of Albania Bank of Albania Tirana Tirana April 18, 2008 April 18, 2008
W orking Group Com position W orking Group Com position W G# 2 W G Coordinator Bank of Bank of Bank of Bank of Albania Albania Albania Albania Ms. Erm ira Çurri Ms. Miranda Ms. Elvana Ms. Alba Ram aj Troqe Fagu Bank of Bank of Albania Albania Ms. Besiana Ms. Anila Bufi Kola Mr. Luigi Passamonti Facilitator Head of Convergence Program Mr. Riccardo Brogi Co-facilitator Senior Regulatory Economist, Convergence Program
I m pact Assessm ent Process I m pact Assessm ent Process 9. Policy Recommendation 8. Overall feedback and responses 7. Questions asked 6. Feedback goals 5. Stakeholders consulted 4. Proposed regulatory action 3. Statutory goals at risk 2. Problem identification 1. Regulatory Context
Main Findings Overview Main Findings Overview 9. Policy Final step Recommendation Banks and Bank of Albania share the sam e opinion that the 8. Overall feedback potential problem s are m anageable and costs are affordable and responses Focused m ainly on m arket and regulatory failures on bank transpa rency Focused m ainly on m arket and regulatory failures on bank transpa rency 7. Questions issues, costs and benefits on consum ers and banks as per the new issues, costs and benefits on consum ers and banks as per the new regulatory fram ew ork on enhancing bank transparency regulatory fram ew ork on enhancing bank transparency asked 6. Feedback Understanding: banks’ point of view s, im plem entation problem s, readiness to bear the costs goals 5. Stakeholders Banks, nonbank financial institutions, SCA and their unions consulted Updating the guideline “ “On the transparency of the banking operations On the transparency of the banking operations Updating the guideline and services” ” and the new regulation on and the new regulation on “ “Minim um requirem ents for Minim um requirem ents for 4. Proposed and services disclosure of inform ation by banks and foreign banks branches disclosure of inform ation by banks and foreign banks branches” ” regulatory action Consum er protection, financial stability and financial m arket 3. Statutory transparency and reputation goals at risk 2. Problem Market failure and regulatory failure identification 1. Regulatory “On bank transparency” Context
1 . Regulatory context ( bank client context ( bank client 1 . Regulatory transparency) transparency) � The project on reviewing (updating) the guideline � The project on reviewing (updating) the guideline No. 49, dated 22.04.1999 “ “ On the Transparency of On the Transparency of No. 49, dated 22.04.1999 : would provide : the banking operations and services” ” would provide the banking operations and services ► clearly defining of the m inim um inform ation ► clearly defining of the m inim um inform ation to be disclosed to the custom ers on banking to be disclosed to the custom ers on banking products; products; ► tackling m isleading inform ation given by ► tackling m isleading inform ation given by the banks, by determ ining basic criteria on the banks, by determ ining basic criteria on m arketing of banking products; m arketing of banking products; ► setting out a com plaint procedure to be ► setting out a com plaint procedure to be follow ed by the custom er and the bank . . follow ed by the custom er and the bank
1 . Regulatory context ( risk profile context ( risk profile 1 . Regulatory bank transparency) bank transparency) � The project on drawing up the new regulation on � The project on drawing up the new regulation on “ Minimum requirements for disclosure of information Minimum requirements for disclosure of information “ by banks and foreign banks branches” ” would by banks and foreign banks branches would provide: provide: ► disclosing the inform ation by banks on 6 ► disclosing the inform ation by banks on 6 broad categories: broad categories: � organization structures of the bank and their � organization structures of the bank and their m ain activities; m ain activities; � financial perform ance; � financial perform ance; � financial situation ( capital, solvency, liquidity) ; � financial situation ( capital, solvency, liquidity) ; � strategies and practices of risk adm inistration; � strategies and practices of risk adm inistration; � risk exposures ( credit risk, m arket risk, liquidity � risk exposures ( credit risk, m arket risk, liquidity risk, operational and legal risk, etc.) ; risk, operational and legal risk, etc.) ; � accounting policies. � accounting policies.
2 . Problem identification 2 . Problem identification As the transparency becom e m ore challenging and the scope of As the transparency becom e m ore challenging and the scope of banks’ ’ activities expanded over the years, there is a call for activities expanded over the years, there is a call for banks better transparency by regulators and public, investors, m arket better transparency by regulators and public, investors, m arket entities in Albania as w ell. entities in Albania as w ell. The introduction of this project would focus on the following: The introduction of this project would focus on the following: � Market failure � Market failure ► asym m etric inform ation betw een consum ers and banks; ► asym m etric inform ation betw een consum ers and banks; ► negative externalities ( m arket reputation) ► negative externalities ( m arket reputation) Findings: During the horizontal on- - site inspection on some site inspection on some Findings: During the horizontal on individual (6) banks of the system were depicted the problems individual (6) banks of the system were depicted the problems related to bank transparency throughout banking operations and throughout banking operations and related to bank transparency services to the clients as well as on the publication of financial al services to the clients as well as on the publication of financi position, risk profile and its management, policies and position, risk profile and its management, policies and strategies, etc. - - public disclosure. public disclosure. strategies, etc.
2 . Problem identification ( cont.) 2 . Problem identification ( cont.) � Regulatory failure � Regulatory failure ► Firstly, Firstly, the existing guideline was outdated, as it the existing guideline was outdated, as it ► has been effective since 1999 and the banks’ ’ has been effective since 1999 and the banks activities have become more complex and dynamic; activities have become more complex and dynamic; ► Secondly, Secondly, there was not a specific regulation on there was not a specific regulation on ► disclosing the information by banks on their activity, disclosing the information by banks on their activity, financial conditions, progress, risk profile and its financial conditions, progress, risk profile and its management, policies and their processes of management, policies and their processes of administration, as well as accounting policies for the administration, as well as accounting policies for the public and the market participants (the new Law “ “ On On public and the market participants (the new Law banking” ” and international standards impose these banking and international standards impose these requirements as well – –Pillar III Pillar III – – Basel II Accord). Basel II Accord). requirements as well
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