Role of Central Bank Oversight on Credit Reporting

1. Role of Central Bank Oversight on Credit Reporting General Principles for Credit Reporting Up-scaling the Credit Markets in East Africa Nairobi, Kenya July 7-8, 2011

2. Rationale for CRS regulation and oversight • The growing recognition of credit reporting activities as a core function in any modern financial market has also become a catalyst for the oversight of these activity. • Oversight function ensures a safe, reliable and effective national credit reporting system • Several tools are available (regulation, moral suasion, provision of the service) • Regulation of credit reporting activities usually focuses on: • registering or licensing of credit reporting service providers, • imposing responsibility for data accuracy, collection and disclosure, • consumers having access to their information and being able to have erroneous information corrected, compliance monitoring, and enforcement. 2

3. But also … CRS are useful for Banking Regulation and Banking supervision* • CRS support and improve banking sector regulation and supervision by: • Allowing to look at the universe of credits in a detailed and readily way. • PCR databases contain individual credit information on borrowers and their credits which makes it possible to implement advanced techniques that measure banks’ credit risk exposure. • Allows optimizing prudential regulation ensuring that provisioning and capital requirements are properly calibrated to cover expected and unexpected losses respectively. • Permits validating banks’ internal rating systems, performing stress tests and informing macro-prudential surveillance. * M.Gutierrez Girault & Jane Hwang: “Public Credit Registries as a Tool for Bank Regulation and Supervision”, World Bank Policy Research WP 5489 3

4. Recommendations for Effective Oversight of Credit Reporting Systems (CRS)* • Rec. A: Regulation and oversight of CRS • Rec. B: Regulatory and oversight powers and resources • Rec. C: Disclosures of objectives and policies with respect to CRS • Rec. D: Application of the General Principles for CRS • Rec. E: Cooperation among authorities * The World Bank: “General Principles for Credit Reporting” 4

5. Recommendation A: Regulation and oversight of CRS • CRS should be subject to appropriate and effective regulation and oversight by a central bank (CB), a financial supervisor (FS), or other relevant authorities. It is important that one or more authorities exercise the function as primary overseer • Key considerations: • Identify credit reporting systems that should be subject to regulation and oversight using publicly disclosed criteria. • Central Bank or other relevant body should be entrusted to oversee the national CRS. • One authority should be appointed as primary overseer and establish a collaborative agreement with other relevant authorities. 5

6. Recommendation B: Regulatory and oversight powers and resources • CBs, FSs, and other relevant authorities should have the powers and resources to carry out effectively their responsibilities in regulating and overseeing CRS • Key considerations: • Powers or other capacity consistent with their relevant oversight responsibilities, including the ability to obtain information and induce change. • Sufficient resources to fulfill their regulatory and oversight responsibilities 6

7. Recommendation C: Disclosure of objectives and policies with respect to CRS • CBs, FSs, and other relevant authorities should clearly define and disclose their regulatory and oversight objectives, roles, and major regulations and policies with respect to CRS. • Key considerations: • Define  to set clear expectations for credit reporting systems and facilitate compliance with applicable policy requirements and standards. • Disclose  to provide accountability in the exercise of regulation and oversight of credit reporting systems 7

8. Recommendation D: Application of the General Principles for CRS • CBs, FSs, and other relevant authorities should adopt, where relevant, the General Principles for CRS and apply them consistently. • Key considerations: • To establish key minimum standards, authorities should adopt the General Principles for CRS, providing a consistent regulatory and oversight framework within and across national and regional jurisdictions. • Authorities should ensure that the General Principles and related roles are applied consistently to all CRS participants 8

9. Recommendation.E: Cooperation among authorities • Central banks, financial supervisors, and other relevant authorities, both domestic and international, should cooperate with each other, as appropriate, in promoting the development, safety and efficiency of CRS. • Key considerations: • Authorities should cooperate with each other, as appropriate, to support more efficient and effective regulation and oversight of credit reporting systems. • Authorities should adopt current and evolving best practices on international cooperative arrangements. 9

10. Conclusions • The Role of the Central Bank is crucial when designing CRS oversight • Overseers should use all relevant tools to ensure their goals and objectives • Collaboration and cooperation with CRSPs users and other authorities involved • Cooperation with overseers at international level

11. Thank you !