2019 BANKING REGULATION AND SUPERVISION EXPECTATIONS IN THE AMERICAS - Mexico City, Mexico
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BANKING REGULATION AND
SUPERVISION EXPECTATIONS IN
THE AMERICAS
Mexico City, Mexico
2019
Banking Regulation and Supervision
Expectations for 2019 in the Americas
2019
Board of Directors of the Association of Supervisors of
Banks of the Americas
Chairman:
Mr. Paulo Sérgio Neves de Souza, Banco Central Do Brasil
Vice Chairman:
Mr. Jorge Alexander Cataño Gutiérrez, Superintendencia Financiera de Colombia
Directors:
Mrs. Ingeborg Geduld-Nijman, Central Bank van Suriname
Mrs. Ethel Deras, Comisión Nacional de Bancos y Seguros from Honduras
Mr. Juan Pedro Cantera Sención, Banco Central de Uruguay
Mr. Marco Antonio López Pérez, Comisión Nacional Bancaria y de Valores from México
Mrs. Socorro Heysen Zegarra, Superintendencia de Banca, Seguros y AFP from Perú
Secretary General:
Mr. Pascual Ramón O'Dogherty Madrazo, Association of Supervisors of Banks of the Americas
Chairman of the Technical Committee:
Mr. Luis Figueroa de la Barra, Superintendencia de Bancos e Instituciones Financieras from CHile
@ASBAnews Tel. +52 (55) 5662 0085, Fax +52 (55) 2615 5603 ASOCIACIÓN DE SUPERVISORES
asba@asbasupervision.org BANCARIOS DE LAS AMÉRICAS
Banking Regulation and Supervision
Expectations for 2019 in the Americas
2019
Banking Regulation and Supervision Expectations
for 2019 in the Americas
Working Group:
Marcos Fabián, Research and Implementation, ASBA
Antonio Pineda, Research and Implementation, ASBA
Darío Trujano, Research and Implementation, ASBA
revised by:
Pascual O’Dogherty, Secretary General of ASBA
Luis Figueroa de la Barra, Chairman of the Technical Committee of ASBA
We appreciate the participation of the following Institutions:
Superintendencia de Bancos e Instituciones Financieras de Chile, Banco de España,
Superintendencia Financiera de Colombia, Banco Central del Uruguay, Superinten-
dencia de Bancos de Guatemala, Superintendencia de Bancos de la República Domini-
cana, Banco Central de la Reserva de El Salvador, Banco Central Do Brasil, Comisión
Nacional de Bancos y Seguros de Honduras, Autoridad de Supervisión del Sistema
Financiero de Bolivia, Superintendencia del Sistema Financiero de El Salvador, Super-
intendencia de Bancos de Panamá, Banco Central del Paraguay, Superintendencia de
Banca Seguros y AFP del Perú, Central Bank of Bahamas, Cayman Islands Monetary
Authority, Financial Services Commission Turks and Caicos Islands, and Eastern Ca-
ribbean Central Bank
All rights reserved. Reproduction of the material contained in this publication is authorized only for educatio-
nal, research, or other non-commercial purposes without prior authorization of the Association of Banking
Supervisors the Americas, provided the source is acknowledged. The information contained in this publication
has been compiled by the Association so that no representation is made on its relevance or certainty.
Picacho Ajusco 238 Oficina 601, Col. Jardines en la Montaña, Ciudad de México, México C. P.14210
@ASBAnews Tel. +52 (55) 5662 0085, Fax +52 (55) 2615 5603 ASSOCIATION OF SUPERVISORS
asba@asbasupervision.org OF BANKS OF THE AMERICAS
Banking Regulation and Supervision
Expectations for 2019 in the Americas
2019
Terms and Abbreviations Used
Association of Supervisors of the Americas ASBA o Association
Advanced Economies AE
Survey of Banking Regulation and Supervision Expectations for 2019 in the Americas Survey
Financial Institutions FI
International Financial Reporting Standard IFRS9
Economic Policy and Financial Stability EP & FS
Financial Soundness Indicators FSI
International Monetary Fund FMI
Anti-Money Laundering and Combating the Financing of Terrorism AML/CFL
Finanacial Action Task Force GAFI
Distributed Ledger Technology DLT
Eastern Caribbean Central Bank ECCB
Application Programming Interface API
@ASBAnews Tel. +52 (55) 5662 0085, Fax +52 (55) 2615 5603 ASSOCIATION OF SUPERVISORS
asba@asbasupervision.org OF BANKS OF THE AMERICAS
Banking Regulation and Supervision
Expectations for 2019 in the Americas
2019
Contents
Terms and abbreviations used...............................................................................................4
I. Introduction ........................................................................................................... 6
II. Results .................................................................................................................. 7
1. Revelants Methods .................................................................................................... 7
2. The Financial System Features ..................................................................................... 10
3. Legal or Regulatory Changes ...................................................................................... 12
4. Risks .................................................................................................................... 15
5. Lines of Business and Activities .................................................................................... 18
6. Technological Innovation .......................................................................................... 22
7. Supervisory Review Process ......................................................................................... 26
III. Concluding Remarks ................................................................................................. 29
IV. References ............................................................................................................. 31
@ASBAnews Tel. +52 (55) 5662 0085, Fax +52 (55) 2615 5603 ASSOCIATION OF SUPERVISORS
asba@asbasupervision.org OF BANKS OF THE AMERICAS
Banking Regulation and Supervision
Expectations for 2019 in the Americas
2019
Introduction
Introduction
I. Introduction
In recent years, the financial authorities of the The third section explains the intention that
Americas have faced significant changes in the motivates authorities to introduce or update laws,
business models of the financial institutions under norms or regulations applicable to financial
their responsibility as well as in the manner in institutions, as well as possible changes in the
which they regulate and supervise them. In structure, manuals and internal processes of
addition, the attention of these authorities is in a regulatory and supervisory institutions. The fourth
highly dynamic stage due to the variety and section discusses the authorities' expectations
complexity of the issues that must be addressed. regarding the risks that will be faced by both the
As a result, since 2016, ASBA decided to conduct financial institutions and the regulatory and
the Survey of Banking Regulation and Supervision supervisory institutions. The fifth section analyses
Expectation in the Americas from among its the prospects for the development of certain lines
Associate Members. The purpose of the survey is of business and financial activities, paying
Results
to ascertain the expectations of regulators and attention to the credit activities of retail and
supervisors in the region regarding the impact of corporate banking.
the global and regional situation on the financial The sixth section investigates the level of
system. This information has enabled ASBA to penetration of some business models and
adjust its technical discussion and training services technological financial products that are
to topics of interest and relevance to the area of innovative in the region's financial systems. The
financial stability. seventh section elaborates on the priorities that
During 2019, on one hand, uncertainty is expected the authorities will place on the implementation
to affect the development of global and regional of some points related to the supervisory review
financial markets, accentuated by certain political process. Finally, the eighth section presents a
and economic decisions that may arise, such as synthesis of the information that has been
the normalization of advanced economies, trade compiled and provides some final remarks and
tensions and political transitions in some member comments.
countries. On the other hand, the development of
Concluding Remarks
new financial technologies and the entry of new Sections
actors into the financial sector continue to bring
about an important change in the environment, 1. Relevant Events
and still generate regulatory and supervisory
challenges that are currently the focus of the 2. The Financial System Features
authorities' attention.
3. Legal or Regulatory Changes
At this economic juncture, ASBA has published the
fourth edition of the Report of Banking Regulation 4. Risks
and Supervision Expectation in the Americas. The
document's index is integrated by the following 5. Lines of Business and Activities
sections: the first section explores the most
6. Technological Innovation
relevant economic and political events that could
have an impact on financial stability from the 7. Supervisory Reviews Process
perspective of supervisors. The second section
analyzes the authorities' expectations regarding
the evolution of basic indicators of financial
References
soundness.
6
Banking Regulation and Supervision
Expectations for 2019 in the Americas
2019
Introduction
II. Results
1. Relevant Events
This section provides a review of the most
relevant events among the regulators and The Implementation of Stan-
supervisors in the region. This approach has been dards will be the most relevant
proposed in each edition of the Survey since 2017 event for the authorities.
in order to monitor the evolution of the
authorities' interest in issues concerning
economic policies and financial stability (Figure The Technological Innovations
1). In addition to the aforementioned, in past acquired greater relevance in
editions there have been references to new fields the last two years.
such as: New Payment Methods (previously also
Results
included in New Technologies), Cyberattacks on
Financial Institutions, Retail Banking, Resolution There have been events that, despite remaining
of Financial Institutions and New Competitors. All on the supervisors' interests, have lost strength
this, with the intention of being as up to date as when compared to previous consultations. This is
possible on issues of interest for regulation and the case of the monetary policy normalization in
supervision in the region of the Americas. Advanced Economies (AEs) and De-risking, but
For a second consecutive year, the most relevant which remain, in an important way, in the
event for supervisors was the Standards authorities' interest. On the contrary, other
Implementation. This is partly due to the topics, such as Tax Deficit, Exchange Rate (USD)
conclusion of the final Basel III package which is and Intra-Regional Policies have fallen to the last
leading to an intensive process of analysis, positions after having occupied high relevance in
adaptation and implementation of some past surveys. However, it should be stressed that
elements of the framework. On the other hand, none of these events is ruled out since they may
by 2019 the events related to technology (New return with a momentum in future consultations.
Concluding Remarks
Technologies; New Payment Methods and Finally, the emergence of new events has
Cyberattacks), have been placed among the most resulted in heterogeneous positioning. On one
important, some showing an increase in interest hand, there are the novel events that have been
since 2017. This interest is attributable to the located at the top of the list, such as the New
importance of technology in the supervisory Methods and Channels of Payment and the
agneda due to the structural changes that are Cyberattacks on Financial Institutions. On the
likely to be generated in financial systems in the other hand, the rest of the new events have had
short- and medium-term. a rather discreet impact, such as: Retail Banking,
Other events not related to technology, but Resolution of Financial Institutions and New
which have climbed up the rankings or Competitors in the Financial System. The new
maintained their level of importance are the variables will allow us to see their evolution in
following: protectionist policies, political the discussion of supervisors and regulators over
transitions, development of a shadow banking time for later comparisons.
system and volatility in commodities’ prices.
Although these issues are not at the top of the
discussion list, they will be on debate throughout
References
the year.
7
Banking Regulation and Supervision
Expectations for 2019 in the Americas
2019
Introduction
FIGURE 1. Change in
Relevant Events
Results
In addition to analyzing the evolution of these issues In this regard, it is important to mention that some
during the last few years, events that could impact countries face risks that could delay the
financial systems throughout 2019 were examined. implementation of such standards. Such is the case
In this edition, relevant events for regulators and of organizational changes within regulatory and
supervisors were separated into two sets in order to supervisory institutions, as well as the political
provide a more detailed analysis. The first of them, transitions that the region is going through as a result
shown in figure 2, ranks the most relevant items of electoral processes that have taken place and will
Concluding Remarks
related to events and impacts affecting Financial take place within the next few years.
Institutions. The three main categories in this Under the heading of New Technologies,
classification, sorted by relevance to supervisors, technological innovation continues to transform the
were as follows: Standards Implementation; New traditional way of offering financial services at an
Technologies and New Methods of Payment. accelerated pace. User information is an increasingly
Regarding Standards Implementation, supervisors valuable input for several banking activities thanks
have indicated that they will focus on some changes to the economic value generated by its processing
of prudential regulation and the resolution through tools such as: Machine Learning, Big Data
framework that is being discussed globally (these analysis and development of artificial intelligence
issues are addressed in further detail in the third applications.
section of this document). The finalization of the
Basel III standards and the priority that the regional
authorities will give to the implementation of IFSR 9
accounting standards, have led to a generalized long
-term implementation process in the Americas.
Although some studies suggest that this process may
References
have significant impacts on the banking business in
the short term, its conclusion will be necessary to
enhance stability and balance the competitiveness of
the international banks.
8
Banking Regulation and Supervision
Expectations for 2019 in the Americas
2019
Introduction
Today, the relationship between traditional particularly in the Caribbean and Central
financial institutions and technology providers American countries.
seems more collaborative than competitive. Within the events related to Economic Policy and
However, it is not clear whether this is due to a Financial Stability (EP and FS), shown in Figure 3,
natural process of vertical integration between the three main categories that supervisors
the services offered by technology companies indicated as relevant, ordered by level of
and traditional banking, or to the existence of importance, are the following: Advanced
regulatory entry barriers that hinder Economies (AE) monetary policy normalization,
competition. Anyhow, in this collaborative establishment of protectionist policies and
context, the outsourcing of services could volatility in the prices of commodities. The
present operational risks if the necessary controls following is a brief analysis of these issues and
their possible effects on the region.
are not put in place. Likewise, the insertion of
Bigtech companies and Open Banking schemes Within the events related to Economic Policy and
may lead to significant strategic risks in the Financial Stability (EP and FS), shown in Figure 3,
Results
financial system in the years to come. the three main categories that supervisors
Nevertheless, in addition to the risks already indicated as relevant, ordered by level of
identified by supervisors through the adoption of importance, are the following: Advanced
new technologies, the surveyed members also Economies (AE) monetary policy normalization,
recognize some of their benefits, such as the use establishment of protectionist policies and
of safer and more versatile technologies such as volatility in the prices of commodities. The
block-chain and the new methods of digital following is a brief analysis of these issues and
payment. their possible effects on the region.
Interest rate normalization is the most relevant
FIGURE 2. Events Related to issue in EP and FS for the supervisors in the
Financial Entities region. This is due to the correlation between
interest rates among the Advanced Economies
and other macroeconomic variables relevant to
1
emerging economies. Among the macroeconomic
Concluding Remarks
variables that can be affected are: interest rates
in local economies, exchange rate volatility and,
as a result, an impact on the balance of
payments in some countries due to a lower
dynamism in their exports, especially from
exporting countries.
As to protectionist policies, the main ones
emerge from the global trade tensions that have
surfaced during the last year and that exacerbate
the global uncertainty and therefore the
uncertainty of the region. This event has become
very important for most of the countries in the
Americas due to their high degree of exposure to
Possible impact on the Financial System for external factors as they are predominantly open
the following year and small economies.
This might lead to higher prices in goods and
References
Although the most relevant topics were the services transactions, pressures on the exchange
Implementation of Standards and New rate, an increase in inflationary expectations and
Technologies, some authorities also indicate as a slowdown in the growth of the region's
priorities issues related to the implementation of economies.2 Also, global trade tensions can have
Anti-money Laundering and Terrorist Financing consequences on the trading and sale of
standards, as well as their relationship with the commodity-linked financial instruments.
persistence of the De-risking problem,
1 Iacoviello and Navarro, “Foreign effects of higher U.S. interest rates, 2018, https://www2.bc.edu/matteo-iacoviello/research_files/IACNAV.pdf
2 Bank for International Settlements, “Global market structures and the high price of protectionism”, August 2018, https://www.bis.org/speeches/sp180825.pdf
9
Banking Regulation and Supervision
Expectations for 2019 in the Americas
2019
Introduction
In the third place of priority is the topic of the
decline in raw material prices. If this event occurs, 2. The Financial System Characteristics
it could have an important impact on the region
since most of these countries have an economy
based on the exportation of agricultural and The authorities do not expect sig-
energy products. And insofar as its causality is nificant variations in their Sys-
concerned, this fall in prices could be due to a tems’ Financial soundness indica-
slowdown in the global external demand for raw tors
3
materials, in addition to the further effects of
protectionist policies and the increase in the
interest rate in the Advanced Economies This section explores the expectations that
mentioned above. regional supervisors have over the set of basic
Financial Soundness Indicators (FSIs) proposed by
Similarly, the electoral processes and political 4
the IMF. Basic FSIs measure the current health and
Results
transitions that are taking place in the region will soundness conditions of a country's financial
be of great relevance for the development and institutions through five indicators: asset quality,
stability of the financial system. And according to capital adequacy, income and profitability,
the replies of the authorities, this will happen in liquidity, and price changes in financial markets.
those transitions that imply a radical change of In this matter, the surveyed authorities were
political tendency. In this regard, one of the most asked to express their expectations regarding the
important risks mentioned was the possible loss of performance of the indicators in each of the five
continuity in the implementation of policies and in areas discussed above.
the processes of regulation and supervision as a
consequence of potential changes in high-level As can be seen in Figure 4, in the last survey there
positions in public institutions. was an increase in the proportion of authorities
that consider that the variables considered here
will not undergo major changes when compared to
FIGURE 3. Events Related to the previous year. In other words, in general, no
Economic Policy and
Financial Stability significant deterioration or improvement can be
Concluding Remarks
expected in the basic indicators of financial
soundness.
For the authorities that responded that some kind
of change is expected in the performance of these
categories, a larger proportion of them consider
that there will be improvements in asset quality
indicators, followed by capital adequacy, incomes
and profitability, real estate prices, and liquidity
(Figure 4).
On a year-to-year comparison of responses, we
expect asset quality to decline more slowly in
2019 than was expected for 2018. On the other
hand, a very reduced increase was observed in the
expectation of deterioration in the real estate
market and liquidity categories. Similarly, a slight
References
Possible impact on the Financial System improvement in bank revenues and profitability is
for the following year expected. As for the other indicators, there was a
decrease in the expectation of improvement, but,
in the same indicators, the expectation of non-
change also increased.
3 International Monetary Fund, “Actualización de Perspectivas de la Economía Mundial”, January 2019, https://www.imf.org/es/Publications/WEO/Issues/2019/01/11/weo-update-january-
4 International Monetary Fund, , “Indicadores de solidez financiera: Guía de Compilación”, May 2019, https://www.imf.org/external/pubs/cat/longres.aspx?sk=17654.0
10Banking Regulation and Supervision
Expectations for 2019 in the Americas
2019
Introduction
FIGURE 4. Financial Sector
Characteristics
Results
General Financial Indicators
According to the responses received, the Honduras by the CNBS (National Commission on
expectation of improvement in asset quality Banking and Insurance); Resolution SBS N° 975-
indicators may be due, for the most part, to the 2016 in Peru: Subordinated Debt Regulation,
economic recovery experienced in the region over which modified the requirements that
the past two years. This recovery has triggered subordinated debt must meet in order to be
more favorable conditions for the granting of considered in the calculation of effective equity
credit and the ability to pay, which has resulted in and which uses a mechanism that acts as a proxy
a slowdown in the past-due portfolio and non- for capital deductions for intangible assets and
performing loans in several countries in the deferred tax assets. In the case of Peru,
Concluding Remarks
5
region. implementation began in 2017, so an
On the other hand, regarding the expectations of improvement is expected each year.
improvement in capital adequacy, in some In contrast, it is also expected that the
countries, this will be the result of some implementation of the same regulations that
regulations that were implemented last year. By improve capital adequacy ratios, in combination
means of example, it is worth mentioning the with the implementation of IFRS 9 accounting
cases of the regulation promulgation in Colombia standards (provisioning), will have an impact on
and Chile, which establish solvency requirements banks' profitability in the short term, although
aligned with the international standards of Basel they would be adjusted in the long term. But in
III (Decree 1477 and new requirements in the the future, this trend might be offset by a greater
General Law of Banks, respectively). And that was efficiency in the provision of financial services
also the result with the gradual constitution of the thanks to the support of technological
capital conservation buffer established in innovations.
References
5 Among the countries that mentioned an expectation of improvement in asset quality for these reasons are: Colombia, Brazil, Paraguay, Cayman Islands, Turks and Caicos and the ECCB. Most
of the participating countries do not expect significant changes in asset quality indicators.
11Banking Regulation and Supervision
Expectations for 2019 in the Americas
2019
Introduction
3. Legal or Regulatory Changes
laundering, detection of illicit transactions in
authorities expect regulatory banking systems, efficient allocation of resources
changes in terms of data and supervisory staff and development of
reporting, anti-money regulatory frameworks for the use and issuance of
digital currencies. The foregoing is consistent with
laundering and cybersecurity the introduction of a risk-based supervisory
requirements framework aligned with FATF recommendations.
In the case of Spain, greater coordination and
This section outlines the intention of the cooperation is being sought at European level with
authorities to introduce or update laws, norms or the relevant authorities in this area.
regulations for financial institutions in different
areas, as well as to investigate possible changes in
Results
the structure, manuals and internal processes of
regulatory and supervisory institutions in Latin FIGURE 5. Legal or Regulatory
America and the Caribbean. Changes
In Figure 5 it is clear that, in an aggregate level,
the main changes in regulatory matters for
financial institutions will be reflected in new
regulations established in the following four fields:
data reporting, the introduction or strengthening
of regulations for anti-money laundering and
counter terrorism financing, the elaboration of
new regulations for cybersecurity risk
requirements and new accounting requirements,
in particular the introduction of IFSR 9 standards.
The main improvements expected by the
Concluding Remarks
authorities in terms of data reporting procedures
by financial institutions will emerge from the
implementation of new normative and even legal
requirements that will modify or introduce new
templates and data collection systems that will be
in line with the compilation guidelines issued by
various international organisms. On the other
hand, some authorities also mentioned the
Financial Institutions
incorporation of new digital tools to streamline
data reporting processes in order to avoid
excessive use of paper.
With regard to the implementation of standards
for anti-money laundering and financing of
terrorism (AML/CFT), many of the authorities that
participated in the survey indicate that they are
References
currently discussing or have already drawn up
draft amendments to the law and regulations in
the following areas: Prevention of money
12Banking Regulation and Supervision
Expectations for 2019 in the Americas
2019
Introduction
It is important to point out that a significant supervisory information through cloud services.
number of financial authorities in the region Although some of these decisions are still under
consider the cybersecurity to be a priority issue in evaluation, the expectation is, that in some
terms of regulatory action in 2019. In the last two jurisdictions, migrations will begin during 2019 and
editions of this report, cybersecurity in the will be implemented gradually over the next few
financial sector was already the focus of the years.
authorities' attention. However, only a small In a second instance, over half of the respondents
number of countries in the region had reacted in a mentioned that they expect changes within the
practical manner to address this risk. In other supervisory structure in terms of the number of
words, the transition from a phase of concern to a staffs assigned to these activities. Most authorities
phase of action has begun. Thus, some who expect changes in this area, expressed their
jurisdictions already plan to issue regulations expectation that the number of hiring will be
related exclusively to cybersecurity risk, while higher due to the increase in the size and
other authorities have opted to include this issue complexity of the financial institutions under their
Results
within a broader risk management framework supervision. The exception case is the Brazilian
comprising information security and other supervisory authority, which expects a reduction
operational risks. of approximately 10% in its staff resulting from
A smaller proportion of the authorities surveyed, retirements, fewer hires and a more intensive use
nearly half of the participants in this exercise said of technologies for supervisory activities.
they expect the following five legal or regulatory
changes in the areas of service outsourcing,
corporate governance, fintech capital
requirements, consumer protection, and FIGURE 6. Changes on the
modifications to their general banking law. Supervisory Authority
Interestingly, the proportional implementation of
prudential recommendations was found to be
outside of regulatory priorities in this year's
survey.
Figure 6 shows the main internal changes
Concluding Remarks
expected in regulatory and supervisory
institutions. First of all, it is noteworthy the new
rules or guidelines for the outsourcing of services.
In this sense, two perspectives on this matter were
mentioned. The first is that some authorities have
recently issued or will shortly issue regulations
that provide for a more detailed guidance on
outsourcing of services by financial institutions,
particularly on the use of cloud computing. This
trend will require the authorities to acquire
knowledge and skills to perform supervisory
activities.
The second perspective on the topic of service
outsourcing is that some of the authorities are
considering the modification of certain processes
References
of collection, storage, processing and analysis of
13Banking Regulation and Supervision
Expectations for 2019 in the Americas
2019
Introduction
In another set of priorities are the introduction of for the future of this trend will be of great
supporting technologies for supervision activities, importance. The use of innovations will generally
modifications to on-site and off-site supervision allow the supervisor to delegate routine activities
processes, and renewals in training processes. to technological tools, in order to concentrate his
Clearly, compared to supervised institutions, efforts on developing proactive and prospective
financial regulators and supervisors have shown a skills considering aspects beyond that of prudence,
lag in the use of technological innovations. And which will enhance his judgment and field of
this trend has led, in some cases, to surpass the action.
supervisor by the amount of information they On the other hand, changes in supervisory
receive, which cannot be processed with the processes (on-site and off-site) are mainly
current tools and frameworks. attributed to the prudential and non-prudential
In this sense, some authorities mentioned that regulatory changes expected next year, the
they will begin, or continue, with important implementation of risk-based supervision in
Results
processes of introducing new technologies to assist various jurisdictions and the introduction of new
in supervisory activities. These innovations include supporting technologies.
the modernization of data collection systems, Although a small number of the surveyed
automation and standardization of some on-site authorities anticipate a change in the
and off-site supervision processes (e.g. risk organizational structure of their institution, for
profiling, planning, reporting, and monitoring), ASBA it is relevant to know what kind of changes
software for inter-institutional and supervised in terms of mandate, attributions and
entity communication, data integrity-analysis, and responsibilities can be expected. This knowledge
even the incorporation of Big Data processing will guide technical support, training and
techniques and Machine Learning methods. horizontal cooperation among Associate Members.
Although, in general, the role and responsibilities As such, Table 1 shows the institutional changes
of supervisory authorities may not change in this mentioned by the participants.
new technological environment, the implications
Concluding Remarks
TABLE 1. Institutional Changes in the Region
Institution Institutional Modifications
Integration of the banking supervisory authority with the securities
Superintendency of Banks
and insurance authority (current Commission for the Financial Mar-
and Financial Institutions of
ket - CMF). The final structure is not yet fully determined, so both
Chile
institutions will work in parallel until the integration is completed.
New appointments in the top management of the Central Reserve
Central Reserve Bank of El
Bank and the Superintendence of the Financial System were includ-
Salvador
ed.
The organizational structure of supervision is in the process of
change in order to make the most of the resources that allow for the
References
Central Bank of Brazil intensification of remote (off-site) inspection processes and the seg-
mentation of the entities supervised by their degree of risk, with
proportional allocation of resources.
14Banking Regulation and Supervision
Expectations for 2019 in the Americas
2019
Introduction
TABLA 1. Institutional Changes in the Region
Projections are made for changes related to the monitoring of off-
site supervision, implementation of the integral risk matrix that in-
corporates a new evaluation methodology, classification and risk
Central Bank of Paraguay measurement mechanisms. In addition, the constitution of general
supervisors and specialists for in-site supervision is foreseen, classifi-
cation of entities according to their systemic importance, which will
demand differentiated supervision efforts.
Since 2016, the Monetary Council of the ECCB agreed that the Bank
would assume full responsibility for AML/CFT regulation over all li-
Eastern Caribbean Central
censed institutions. Currently, the ECCB is in a collaborative process
Bank
of reviewing relevant amendments to the legislative frameworks and
Results
supervisory structures of the various member jurisdictions.
The Central Bank's Financial Services Commission expects to intro-
duce, among its responsibilities, the supervision of cooperatives and
Turks & Caicos Central Bank
credit unions, as well as the inclusion of macro-prudential aspects to
supervision.
The creation of a Macroprudential Authority in Spain is planned,
which will mean the assignment of new macroprudential powers and
tools to the Bank of Spain. This Financial Stability Authority will be
Bank of Spain
under the responsibility of the Ministry of Economy and Business
(although with functional autonomy) and will be integrated by repre-
sentatives of the said ministry, the Bank of Spain and the CNMV.
Concluding Remarks
4. Risks
Regarding the financial authorities of the region,
Most important risks for au- first, it is evident that reputational risks are the
thorities are those related to most relevant (Figure 7). Those risks that may
reputational issues. affect the reputation of the authorities due to
cyber-attacks, both towards financial institutions
and the authorities. At the same time, they also
This edition explores expectations about risks in
mentioned the risks arising from misconduct by
the financial sector as perceived by supervisory
financial institutions over consumers, and the
and regulatory authorities from two perspec-
lack of accountability of the reputational aspect
tives: i) risks that could be faced by the regulato-
of corporate governance in the supervisory agen-
ry and supervisory authority; and ii) risks for the
cy.
financial institutions as perceived by the authori-
References
ties. Both perspectives complement the risks
overview in the region.
15Banking Regulation and Supervision
Expectations for 2019 in the Americas
2019
Introduction
On the other hand, given the proliferation and therefore, have a negative impact on the market
expansion of communication channels, public and on the reputation of the supervisor and the
opinion is currently having a major impact on financial institutions. Clearly, all of this would
the functioning of the financial system. The generate inconveniences in the supervisory
public usually believes that it is the financial processes.
authorities' responsibility to protect the At the next level of importance are the risks
consumer, although this is not true in all related to legal and operational deficiencies. In
jurisdictions. Therefore, reputational risks this regard, the shortcomings of independence,
arising from cyberattacks or misconduct can budget, legal framework and personnel were
significantly impact confidence in the sector and mentioned. It should be stressed, that the lack
amplify other risks, such as the legal ones. of legal protection for supervisors is the most
The second point made by the surveyed important legal risk, being placed at the same
authorities was the high relevance of risks level as the risks related to information. Some
Results
related to confidentiality, availability and quality authorities mentioned that their jurisdiction
of information. On one hand, it is essential to does not have a legal mechanism to avoid
maintain the confidentiality of the information spurious lawsuits against the Superintendent of
received from financial institutions and the Banks and supervisors. And while institutions are
information generated as a result of supervision, already working to close these gaps, poor legal
given that it is sensitive information. On the coverage can hinder some of the supervisor's
other hand, the lack of availability and quality of activities and even delay some important
information could lead to erroneous reports and, decisions for financial stability.
FIGURE 7. Relevance of the Risks for
Regulatory and Supervisory Authorities
Concluding Remarks
References
16Banking Regulation and Supervision
Expectations for 2019 in the Americas
2019
Introduction
The most relevant risks for compared to the 2018 survey. On the other hand,
financial institutions are cre- there was a renewed focus on liquidity risk and
reputational risk against the consumer. In terms of
dit, technology and integrity the lowest priority risks, the entry of new
(AML / CFT) competitors remains historically low, finding
themselves by 2019 alongside the environmental
In terms of risks to financial institutions (Figure 8),
risk, the excess of regulatory burden and the
credit risk has consistently been the highest
loosening of regulations that were recently added
priority. This stems from the fact that, in general,
in this survey.
the region does not have sophisticated financial
markets and, therefore, credit is the main asset of The method for determining the ranking of risks
the region's financial institutions and the main was the same as for determining the relevance of
source of risk. Some authorities point to risk events: the average of responses per risk was used
aspects related to the volume and quality of credit to establish the ranking. However, this year's
Results
survey asked directly about the priority of the risks
portfolios and their historical evolution. The latter
and not about the probability of their
is explored in more detail in Section 5. materialization. The comparison between the
Subsequently, the technological and cybersecurity surveys from the past three years was made
risk remained after its increase in 2018, followed possible because last year's report recognized the
by the AML-CFT risks that ranked third. Moreover, strong relationship between the probability of
operational risk has also been mentioned materialization and the importance of the risks.
repeatedly since 2017, although this year it For this reason, for this year's survey it was decided
to change the question and make the comparison
dropped to fourth place, as did reputation in the under a larger time frame.
international market and market risk, which fell
FIGURE 8. Change in Risks for
Financial Institutions
Concluding Remarks
References
17Banking Regulation and Supervision
Expectations for 2019 in the Americas
2019
Introduction
Thus, for a more accurate display of the and the gradual decline in the priority given by
priorities that appear in this year in Figure 9, a respondents to the three risks that follow in
distribution of member assessments was importance. Operational risk is the first with
prepared for the four highest priority risks. This respect to which a relative majority of
presentation provides evidence of the respondents considered it as a medium priority;
importance of credit risk for most respondents on the other hand, none of these risks was
FIGURE 9. Most Important Risks Regulatory
and Supervisory Authorities
Results
Concluding Remarks
5. Lines of Business and Activities
As in the 2018 edition, this report explores the
credit cards services and credits expectations of the region's financial authorities
for durable goods for households regarding the lines of business and activities of
will require more attention. the financial sector that could be impacted by
the economic and political conditions that prevail
throughout the year. Figure 10 shows the
Credits to agriculture and trading business lines and activities that will receive the
will be in the focus of the authori- most attention from the authorities this year.
References
ties in some jurisdictions The three activities with the highest priority are:
Corporate Banking, Retail Banking and
Investment Banking. A brief analysis of these
services is presented below.
18Banking Regulation and Supervision
Expectations for 2019 in the Americas
2019
Introduction
Firstly, Corporate Banking and Retail Banking FIGURE 10. Business Lines
were identified as the services that will and Activities
require special attention in view of the
conditions expected by supervisors during
2019. This expectation corresponds to the fact
that the traditional banking industry is the
financial activity with the highest volume of
operations, a cornerstone in the control of
systemic risk of financial systems and, in
addition, a sector in constant change as a
result of the processes of implementation of
international standards and technological
innovations. Consequently, their continuous
Results
monitoring is always a high priority for the
authorities.
Overall, the Survey found a favorable outlook
6
for the Latin American banking industry.
However, performance for each country Services that could be impacted by the econo-
mic and political conditions of 2019
varies according to its own conditions.
Consequently, according to what was
reported in the 2019 Expectations Survey, expected that investments will fall due to
some supervisors have detected that in their the political uncertainty prevailing in the
countries there is a decrease in the quality of region.7
credit granted combined with a greater Finally, within the lines of business that
acceleration of credit portfolios. The analysis are of relevance to supervisors and were
Concluding Remarks
on the credit topic is deepened at the end of not mentioned in the survey there are
the section. four main ones: Complementary Services
For its part, activities related to Institutions (Self-Service Pawnshops and
investment banking, in particular: the Remittances), unregulated microfinance
sale and negotiation of financial assets institutions, digital currencies and
and corporate services (mergers, offshore banking.
acquisitions, securitizations, among
others) present a lower priority.
However, the possibility that they may
return to a higher relevance during the
year is not ruled out. On the other hand,
based on the current context, global
tensions have exacerbated
7 the risk of a
trade war that could deteriorate investor
confidence, increase risk aversion in
References
markets and limit global direct
investment flows in many countries in the
region. In addition to the above, it is also
6 Moody's, “Favorable economic conditions support stable outlook for Latin America banks”, December 2018, https://www.moodys.com/research/Moodys-Favorable-economic-
conditions-support-stable-outlook-for-Latin-America--PR_392968
7BBVA, “Situación Latinoamérica Tercer trimestre 2018”, October 2018, https://www.bbvaresearch.com/wp-content/uploads/2018/07/Situacion_Latam_3T18.pdf
19Banking Regulation and Supervision
Expectations for 2019 in the Americas
2019
Introduction
indicator that reflects the joint perception of
FIGURE 11. Impact on Household portfolios that could present a problem during the
and Corporate Credit
year 2019 was developed. In this regard, it is
worth mentioning that most of the authorities that
participated in the exercise do not expect major
variations in the credit categories considered and
the analysis is oriented to the cases in which some
type of change is expected.
Figure 11 shows the expectations of supervisors
with respect to the degree of exposure to impacts
derived from economic and financial conditions
during the year. In this presentation it can be
observed, firstly, that within the household
portfolio, credit cards and loans for the acquisition
Results
of durable goods are those that present the
greatest exposure to impacts. Then, according to
the surveyed authorities, real estate and mortgage
loans (which have recovered in various sub-regions
in recent years) and loans deducted from payroll
were considered next in rank. And finally, student
and overdraft loans are not considered as major
concerns.
On the corporate portfolio side, the focus was on
loans to agriculture and commerce, followed by
electricity, water gas, and services. In particular,
the attention on credit to agriculture may derive
from the increased likelihood of occurrence of
the "El Niño" weather phenomenon, which mainly
Since the financial intermediation activities of
Concluding Remarks
affects the countries of the Andean region and
retail and corporate banking account for most of the Southern Cone.8 In contrast, according to
8
the operations in the region's financial systems, supervisors, no significant changes are expected
the perception of supervisors towards different in portfolios for mining, construction,
categories of credit to households and companies transportation and corporate real estate.
was explored in detail. Even though a more
In general, these expectations are in line with the
precise data analysis would be necessary to
findings in ASBA's Current and Emerging Risks
determine the risk represented by a specific
Report and in some of the financial stability
sector, the criteria and intuition of supervisors can
reports from different jurisdictions. However, it
provide some relevant information in this regard,
must be made clear that there are specific cases
given their constant interaction with supervised
per country that are not reflected in the previous
entities
analysis. Table 2 shows some particularities
As part of the survey, the authorities were related to credit to households, which has been
consulted about their perception of some reported in some of the countries that
categories of credit in two areas: acceleration and participated in this Survey. Results were compared
portfolio quality. With this information, an with their respective financial stability reports.
References
8 BBC, “El Niño: la alerta sobre el regreso del fenómeno meteorológico en los próximos 3 meses”, November 2018. https://www.bbc.com/mundo/noticias-45479060
20Banking Regulation and Supervision
Expectations for 2019 in the Americas
2019
Introduction
TABLE 2. Impact on Household Credit
Impacto en el Crédito en Hogares
Panama Republic. In relation to the data provided by supervisors, Panama reports a low perfor-
mance in three areas of Credit in the household sector which are: credits for real estate and
mortgages, credit cards and other revolving debt and personal credits for durable goods (except real
estate and mortgages). The above, due to an increase in the acceleration of its portfolio and, in pa-
rallel, a decrease in its quality, as reported by supervisors in our Expectations Survey.
On the other hand, in its Banking Activity report, Panama indicates that total domestic credit in-
creased by 5.3% compared to the same period in 2017. The sectors that drive this higher growth in
absolute value are associated with personal banking products, especially in the mortgage (5.4%) and
personal loans (8.7%) sectors, as well as public sector financing which rose by 33.9%. In the area of
Results
quality, the portfolio of the International Banking Center, delinquent credit represents 1.6% (30 - 90
days) and past-due credit 1.7% (greater than 90 days). Regarding the component of the Banking Sys-
tem, non-performing loans represent 1.7% (30 - 90 days) and past-due loans 2.0% (greater than 90
days). The regulatory framework demands that banks conduct an exhaustive analysis of the debtors'
cash flow capacity and take prudential measures in order to create specific reserves that reflect the
real value.9
Dominican Republic. In specific, for the results of the Household credit category, the Dominican
Republic reports: Credit cards and other revolving debt, an increase in the acceleration of the port-
folio at the same time as a decrease in its quality. According to the analysis of its supervisors, they
expect a greater expansion in the granting of credit cards in a nominal way, since according to sta-
tistics this product has experienced a significant growth in its different presentations, as shown be-
low:
Concluding Remarks
Commercial Loan Portfolio:
Fleet Business Credit Card: year-on-year growth of 25.58% (Sept. 2017-2018).
Business Credit Card: year-on-year growth of 16.62% (Sept. 2017-2018).
Coorporate Credit Card: year-on-year growth of 16.06% (Sept. 2017-2018).
Consumer Loans:
Golden Personal Credit Card: year-on-year growth of 7.28% (Sept. 2017-2018).
Business Credit Card: year-on-year growth of 19.20% (Sept. 2017-2018).
Platinium Personal Credit Card: year-on-year growth of 12.54% (sept. 2017-2018).
They mention that due to the nature of the increase in cards and their gradual growth, a slight dete-
rioration is expected in the quality of the portfolio used to grant credit cards, so banks should pre-
10
vent possible risks in this sense. (growth in nominal value).
Spain. Like the dynamism reported by the Dominican Republic in the area of Credit Cards and oth-
er revolving debt, Spain has an increase in the acceleration of the portfolio while presents a de-
crease in its quality. According to the Bank of Spain's Financial Stability Report, the increase in cred-
References
it card issuing has been a trend for a couple of years now. Meanwhile, the perception of greater
credit risk in sovereign debt has also led to a downward revision of credit quality-in a step up to
Baa3 by Moody's agency-and the emergence of a country-risk component in the cost of financing for
the rest of the economy's agents, especially those whose activity is concentrated in their own coun-
11
try .
9 Superintendencia de Bancos de Panamá, “Informe de Actividad Bancaria”, November 2018, https://www.superbancos.gob.pa/superbancos/documentos/financiera_y_estadistica/
reportes_estadisticos/2018/IA/IAB_2018_1.pdf
10
Superintendencia de Bancos de la República Dominicana. “Estadísticas porta web SIB. Cartera de Crédito. Serie de Tiempo”, 2018, http://www.sib.gob.do/transparencia/estadisticas-institucionaes
11Banco de España, “Informe de Estabilidad Financiera”, November 2018, https://www.bde.es/f/webbde/INF/MenuHorizontal/Publicaciones/Boletines%20y%20revistas/ 21
InformedeEstabilidadFinanciera/IEF_Noviembre2018.pdfBanking Regulation and Supervision
Expectations for 2019 in the Americas
2019
Introduction
Among the regulatory approaches in the region for
digital methods of payment and the use of Innovations in payment sys-
cryptoassets, the following stand out: Modelo tems and deposit and credit
Perú, Fintech Law in Mexico, the regulation for services will occupy the at-
Societies Specialized in Electronic Payments and tention of the authorities by
Deposits in Colombia, and a series of laws and 2019
regulations in Brazil, which approach the subject
15
from different perspectives.
It is also worth noting the attention paid by In this regard, it should be noted that most
regulators and supervisors to banking services authorities have focused their attention on
using mobile technology. This is because it is the incremental innovations since the entry of
second topic with the strongest presence and is disruptive innovations has been moderate and
well above other services in the deposits and loans their impacts have been isolated and, in general,
segment. In turn, credit scoring assessment is in a controlled. It is reasonable to think that prudential
Results
similar situation to other investment management regulation can be (or has been) transferred or
services. easily adapted to incremental innovations.
Likewise, given the low incidence and absence of
From the data obtained through the Survey,
significant impacts on the system, disruptive
technical discussion forums, and other analysis
innovations are not receiving the same level of
documents, it can be observed that the regulatory
15
attention from regulatory authorities.
activity regarding these issues in the region has
not been exhaustive. In the countries where On the other hand, it is clear that both types of
greater progress has been made, the common products and services (incremental and disruptive)
factors addressed in the regulation are related to face similar challenges in operational terms. And
cybersecurity, outsourcing of services, information this fact has occupied the attention of the
security, possible channels for money laundering authorities for the most part. This is the case in
and the financing of terrorism. effect of the risks posed by cybersecurity,
outsourcing of services, information security,
For the time being, matters related to capital
possible channels for money laundering and
requirements by type of risk (such as credit and
Concluding Remarks
financing of terrorism, and ownership of customer
market) for fintech actors are not among the
information. All of them seem to be common
regulatory priorities. It should be noted that this
factors to be addressed by regulation. It is
issue may be important for certain business
indisputable that this type of risk deserves special
models related to crowdfunding, P2P platforms, In
attention by the authorities since it could have a
order to gain context and develop the previous
significant impact on the reputation of the
point, through a Working Group composed of
regulatory institutions, financial institutions and on
expert supervisors from the region, ASBA is
financial stability in general. However, issues
already working on a project about regulation and
related to capital requirements for new players
supervision of financial innovations. Within the
may become an important topic of discussion in
corresponding analyses, a distinction was made
the next few years.
between incremental products (which do not
modify the underlying financial service but amplify
the channels and their scope) and disruptive
products (which appear abruptly and substantially
modify business models or introduce new ones).
In this sense, most of the innovations in the
References
payments segment (except those linked to
cryptoassets) and banking services through mobile
technology were classified as incremental.
15Americas Market Intelligence, “Pagos En Tiempo Real En América Latina: El Potencial Para Una Disrupción Masiva”, Dicember 2018. https://www.aciworldwide.com/-/media/files/
collateral/trends/aci-worldwide-pagos-en-tiempo-real-en-america-latina.pdf ;The Law Library of Congress, “Regulation of Cryptocurrency in Selected Jurisdictions”, June 2018. https://
www.loc.gov/law/help/cryptocurrency/regulation-of-cryptocurrency.pdf
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