An FSVC Perspective on Changes to the Regulatory Framework Impacting Africa

1. An FSVC Perspective on Changes to the Regulatory Framework Impacting Africa J. Andrew Spindler President & CEO FSVC Prepared for FSI High-Level Meeting Cape Town, South Africa January 26, 2012

2. Presentation Outline • Background on FSVC • Key Regulatory Developments of Relevance to Africa • Banking Supervision: Needs and Challenges • Need for strengthened bank supervisory infrastructure • Need for strengthened implementation IV. Conclusions

3. I. Background on FSVC

4. Background on FSVC • FSVC’s mission is to help build the sound financial infrastructure required by countries seeking to develop transparent, market-based economies. • FSVC is uniquely positioned as: • Private-public sector partnership, • Not-for-profit organization, • Provider of unbiased, expert advice from active financial sector professionals serving as volunteers, and • Source of timely input on key financial sector issues, delivered through short-term technical assistance that is sequenced to achieve long-term impact.

5. Brief History • The organization was founded in 1990 by John Whitehead and Cyrus Vance at U.S. Presidential initiative. • FSVC has now operated for twenty-two years to deliver technical assistance. • Since its inception, FSVC has engaged over 8,000 experts from the financial, legal and regulatory communities on over 2,200 missions. • FSVC’s programs have reached over 34,000 counterparts in 50 countries. • The organization has delivered over $200 million in technical assistance byleveraging the pro bono service of volunteer experts.

6. Current Programs • During 2011, FSVC delivered 51 projects and programs in 18 countries • Albania • Angola • Azerbaijan • Burundi • Cambodia • Egypt • Haiti • Iraq • Kazakhstan • Kenya • Kosovo • Lebanon • Rwanda • Russia • Tanzania • Tunisia • Uganda • Vietnam

7. FSVC’s Work in Africa • FSVC is increasing its presence in Africa • Major new FSVC programs are focused on East Africa • Program to promote financial integration of East African Community (EAC) member states • Program to strengthen anti-money laundering (AML) and combat financing of terrorism (CFT) in Kenya • Current work to promote AML/CFT regulation that is compatible with financial inclusion • Continuing work to strengthen capacity at selected commercial banks • Angola • Tanzania

8. Establishment of FSVC regional office in Nairobi Financial Center

9. Recent Regulatory Developments and Other Trends that Have Affected Africa’s Regulatory Environment

10. Regulatory Effects of the Global Financial Crisis • Strengthening of global capital standards • New emphasis on “macroprudential” risks and their supervision • Greater concern for cross-border coordination among supervisors • Continued concern for “subprime” origins of the crisis

11. Broader Trends • Growing awareness of importance of financial integrity as foundation for a sound banking/financial sector • New attention to the complex interaction among financial integrity, financial inclusion objectives, and effective banking/financial market supervision

12. The Growing Focus on Financial Integrity

13. Financial Sector Supervision in Africa: Needs and Challenges

14. Two Broad Categories of Needs A. Infrastructure B. Resources for Implementation

15. A. Infrastructure Needs in Africa • Higher capital requirements are NOT a pressing concern • But moving to risk-based system of supervision is one

16. Infrastructure Needs (cont’d) Strengthening banking regulatory framework generally is NOT a pressing concern • Laws and regulations are largely in place • Exception: legal frameworks in many countries need to be amended to give supervisors expanded corrective and remedial powers to intervene in failing banks

17. Infrastructure Needs (cont’d) There is a growing need to focus on macroprudential issues: • African financial markets are generally concentrated and thin • Central banks are well-placed to assume greater role in this area

18. Infrastructure Needs (cont’d) There is also an urgent need to focus on financial integrity issues: • Global and local concerns about money laundering and terrorist finance are on the rise • Many African countries lack a Financial Intelligence Unit (FIU) and a full set of laws and regulations for anti-money laundering (AML) and combating the financing of terrorism (CFT)

19. Need for improved coordination among regulators • Within a country • Between a country and its neighbors • Between a country and parent jurisdictions of international banks operating in the country

20. Need for more emphasis on financial inclusion • A matter of not just social equity but also economic growth • Are financial inclusion objectives embedded in legislation? • How do these objectives fit together with effective financial sector supervision?

22. B. Resources for Implementation in Africa • Urgent need for continued capacity building • Financial infrastructure alone won’t address problems, and lack of capacity is often a bigger challenge

23. Need for qualified staff and appropriate analytical tools - Training of staff in bank supervisory authorities in: • Fundamentals of on-site exams and off-site analysis • New products and innovations

24. Need for staff and analytical tools (cont’d) Financial innovations can help promote social equity and economic growth, as well as foster development of small and medium-sized enterprises (SMEs) and job creation Banking authorities that are resistant to innovation are not serving their countries’ broader interests

25. Implementation Issues (cont’d) • There is also a widespread need for more data and improved reporting processes • However, costs of most of these improvements are beyond the means of many African countries at this time

26. IV. Conclusions

27. Conclusions • Focus on building foundation for sound banking supervision, and NOT on developing more complex oversight schemes • Regulatory framework needs to enhance both stability and appropriate access to financial services

28. Conclusions (cont’d) (3) Financial inclusion objectives can and should withstand fallout from the global financial crisis (4) The case for access to financial services is not only a matter of social equity but also of economic growth – including development of SMEs and creating jobs

29. Conclusions (cont’d) • Risk-proportionate supervision must be implemented; this supervisory approach flows from careful risk assessments • Will help ensure scarce resources are used effectively • Will help promote financial inclusion objectives (6) Quality of governance arrangements is critical

30. Conclusions (cont’d) (7) Consumer protections, as well as standards of disclosure and transparency, have to be developed and enhanced (8) Supervisors need to facilitate innovation, as well as realize that today some financial services providers may not be banks

31. Thank You! FSVC Contacts: J. Andrew Spindler Silas Karuku President & CEO Country Director, Kenya jspindler@fsvc.orgskaruku@fsvc.org Financial Services Volunteer Corps 10 East 53rd Street, 36th Floor New York, U.S.A. Tel. + 1 (212) 771 1412 Fax + 1 (212) 421 2162 www.fsvc.org