Upload
lara
View
23
Download
0
Tags:
Embed Size (px)
DESCRIPTION
The Single Supervisor, the Hungarian Case. László Balogh, Hungarian Financial Supervisory Authority Conference at the World Bank, Washington D.C, December 4-5, 2003. Agenda. Introduction Specificities of Hungary Aims of Supervisory Integration Steps taken Results - Unresolved items - PowerPoint PPT Presentation
Citation preview
The Single Supervisor,The Single Supervisor,the Hungarian Casethe Hungarian Case
László Balogh,
Hungarian Financial Supervisory Authority
Conference at the World Bank, Washington D.C,
December 4-5, 2003
5 December, 2003 Washington D.C.
HFSA 2
AgendaAgenda
IntroductionSpecificities of HungaryAims of Supervisory IntegrationSteps takenResults - Unresolved itemsPractical challengesConclusions
5 December, 2003 Washington D.C.
HFSA 3
IntroductionIntroduction There is no optimal and
exclusive structure
A single structure is not an aim itself, rather a tool to achieve effective consolidated supervision
While harmonizing supervision, sectoral specificities should be treated
Clear strategy and good managerial skills are important to handle the transition
Legal, cultural, and historical environment should not be disregarded
5 December, 2003 Washington D.C.
HFSA 4
Features of the Sector in Features of the Sector in HungaryHungary
Open financial markets Substantial foreign participation
70% foreign capital in banking sector 80% in the insurance sector less than 15% public sector participation
Universal banking, since 1999 Dominance of financial groups (cca. 80%) Expansion of cross-sectoral products
5 December, 2003 Washington D.C.
HFSA 5
Historical BackgroundHistorical Background in Hungary in Hungary No long lasting supervisory history, starting the late 1980’s Central Bank has never had a banking supervisory function 3 predecessor institutions since 1990’s:
– Banking and Capital Market Supervision - through the merger of (1996):
Banking Supervision Securities and Exchange Supervision
– Insurance Supervision – Pension Fund Supervision
5 December, 2003 Washington D.C.
HFSA 6
Features of Supervision before Features of Supervision before 19991999
Fragmented supervisory structures Diverging level of operative independence Different approach and regulatory background to off-site
and on-site examinations Poor and slow supervisory co-operation among institutions Low impact on regulation – MoF responsibility Low international profile – low level of co-operation Supervision remained on solo basis untill the end of the
1990’s
5 December, 2003 Washington D.C.
HFSA 7
Aims of Supervisory Integration
KEY OBJECTIVE: TO PROMOTE EFFICIENT CONSOLIDATED SUPERVISION
Conditions thereof:
good and rapid information exchange, good co-operation among supervisors, approximating supervisory approach, appropriate legal background improved operative independence
5 December, 2003 Washington D.C.
HFSA 8
Aims of supervisory integration (2)
Channelling all available information into one supervisory body
Grouping all supervisory knowledge at one place
Making benefit of synergiesConsolidated supervision of groupsFollowing evolving market structureExpected economies of scale
5 December, 2003 Washington D.C.
HFSA 9
Aims of supervisory integration(3)
Strengthening the operative independence of all three former supervisory structures
More in line with relevant international standards and tendencies
Prepare the supervision for the EU roleTo avoid market captures
5 December, 2003 Washington D.C.
HFSA 10
Setting up the Single SupervisorSetting up the Single Supervisor
Policy decision in September 1999Government decision in October 1999Relevant law adopted in December 1999Interim management of the transitionEstablishment of the merged supervisory
authority in April 2000
5 December, 2003 Washington D.C.
HFSA 11
Functional set-upFunctional set-up
S ectoral Chief A dvisers
banking, insurance,
pension f unds, secur it ies
Consumer Pr ot ect ion S er vice
S uper visor y D ir ect or at e
(O ff - s it e and on- s it e)
L ic ens ing and E nf or c ement M et hod ology, A nalys is and I nt ' l A ff air s I T
P resid en t S uper visor y Counc il
A d visor y r ole
5 December, 2003 Washington D.C.
HFSA 12
International road mapInternational road map
Permanent International Monitoring/ Compliance Permanent International Monitoring/ Compliance with standardswith standards– IMF-World Bank FSAP: pilot project (2000 and 2002)– Basle Core Principles: self-assessment exercise– IAIS: self-assessment exercise– IOSCO: self-assessment exercise– OECD:Regulatory Reform Project (2000)
Country Review, Structural Chapter (2001)– EU: Peer Review (2001 and 2003)
5 December, 2003 Washington D.C.
HFSA 13
IssuesIssues
Financial groups, consolidated supervision Improving effective supervision Harmonizing supervisory approach Improve regulatory responsivness Upgrading supervision vs.industry groups – to
avoid industry capture Better cost efficiency Independent regulatory agency – new type of entity EU perspectives
5 December, 2003 Washington D.C.
HFSA 14
New place for the supervisory New place for the supervisory institutioninstitution
INSTITUTIONAL AUTONOMYINSTITUTIONAL AUTONOMY
Growing level of overall independence– President elected by the parliament for fixed six
year term (nomination) - renewable– Supervisory decisions are final, they cannot be
appealed at higher administrative body– Right of appeal with the court only
5 December, 2003 Washington D.C.
HFSA 15
New place for the supervisory New place for the supervisory institution 2institution 2
INSTITUTIONAL AUTONOMYINSTITUTIONAL AUTONOMY – HFSA cannot be instructed, it should only act
under rules and regulations– Ring-fencing of daily supervisory
responsabilities vis-avis the possible political influence
– Internal operational rules are not approved any longer by the Minister of Finance
5 December, 2003 Washington D.C.
HFSA 16
New place for the supervisory New place for the supervisory institution 3institution 3
BUDGETARY AUTONOMY – Key issueBUDGETARY AUTONOMY – Key issue– No contribution from Governement Budget– Self financing authority - fees paid by the industry
BUT: Fines cannot be used for covering operational costs!
– Fees to be paid by the sector: established by law– The HFSA’s budget: part of the public finances– HoweverHowever: autonomy in deciding the allocations of
expenses according to needs– The budget cannot be centralised by the Ministry of
Finance
5 December, 2003 Washington D.C.
HFSA 17
New place for the supervisory New place for the supervisory institution 4institution 4
ADMINISTRATIVE AUTONOMYADMINISTRATIVE AUTONOMY– Supervisors are civil servants– Supervisory liability is with the President of the
Authority– Income level of the staff is over civil servants’ but
much lower than the market level – limits the power of the HFSA to obtain the best experts on the market!
– New stepNew step: getting closer to the market in income level, some exemptions from civil service payment scheme
5 December, 2003 Washington D.C.
HFSA 18
New place for the supervisory New place for the supervisory institution 5institution 5
REGULATORY AUTONOMYREGULATORY AUTONOMY– Individual supervisory decisions are enforceable– Sanctioning power is ensured– Secondary regulations issued by the Government or
the Minister of Finance in the form of decrees– Active involvment of the HFSA– Process is slow, rigid, burdensome– Supervisory Guidelines are issued -legally not
binding, but followed by the industry– UnresolvedUnresolved: Power for the Supervision to regulate!
5 December, 2003 Washington D.C.
HFSA 19
New place for the supervisory New place for the supervisory institution 6institution 6
ACCOUNTACCOUNTAABILITYBILITY AND TRANSPARENCY AND TRANSPARENCY– Accountability to the Government– Controll by the State Audit Office– Regular reporting to the Government– New New Step:Step: Regular reporting to the competent
parliamentary commission– Establishment of the Supervisory Council –
Advisory body for the President
5 December, 2003 Washington D.C.
HFSA 20
New place for the supervisory New place for the supervisory institution 7institution 7
ACCOUNTABILITY AND TRANSPARENCY
– Accountability to the industry – dialogue!– Individual supervisory resolutions are made
public – matter of policy– Reporting back to the industry- market analysis
reports etc.– Supervisory recommendations for the industry– Predictability- sanctioning policy is published
5 December, 2003 Washington D.C.
HFSA 21
Practical ChallengesPractical Challenges
Managerial skills for transitionIdentification of the new institution
– Mission statement – Elaborated widely within the institution
Positioning within the public institutionsCommunication to market participants
about renewed supervisory policy
5 December, 2003 Washington D.C.
HFSA 22
Practical Challenges 2Practical Challenges 2
Financing the supervisory institution – from the market
Retaining experienced staffSalary levels – close to market levelsDilemma:
– Strict prudential rules versus – International competitivness
Co-operation with the Central Bank - systemic stability
5 December, 2003 Washington D.C.
HFSA 23
Practical Challenges 3Practical Challenges 3
Raising public awarnessTransposition of int’l supervisory standardsBuilding international networkUnification of IT systemsFinding a single headquarterRevision and redefinition of supervisory policyRevision of sectoral regulatory framework
5 December, 2003 Washington D.C.
HFSA 24
ExperienceExperienceBetter overview of the industryBetter overview of regulatory deficiencies and
inconsistenciesBetter positioned to initiate legislative
modificationsBetter level of consolidated supervisionMore interaction between sectoral expertsBetter understanding of cross sectoral market
attitude and risksOver time: in function of results improving
investment climate
5 December, 2003 Washington D.C.
HFSA 25
ConclusionsConclusions Well prepared decision is needed Once decision is made, quick implementation Appropriate time needed, not an overnight Determined, devoted and skillful managment
of transition Timing is key – a relatively stable period Sequencing of steps
5 December, 2003 Washington D.C.
HFSA 26
Conclusions 2Conclusions 2 Clear, upgraded, convincing objectives
– For the staff– For the market– For the public, for the politicians
Public communication and awareness raising No perfect, predefined development track Need of flexibility, reevaluation during the process Learning by doing Cross fertilization of divergent supervisory
experience
5 December, 2003 Washington D.C.
HFSA 27
Conclusions 3Conclusions 3
IT system integration – good opportunity to reassess overall data quality and data need
International experience sharing– Bilateral– „Clearing houses”
Effective implementetion builds up credibility internally and internationally
Contributes to good investment climate
5 December, 2003 Washington D.C.
HFSA 28
Possible ConflictsPossible Conflicts
– Larger independence, butIndependence is not automatic!One has to live with and protect it!„De jure” and „de facto” independenceIndependence and accountability hand in
hand!
– Overdominance of banking, to counterbalance!
5 December, 2003 Washington D.C.
HFSA 29
Possible Conflicts 2Possible Conflicts 2
Eventual overlooking of sectoral aspectsLack of regulatory power
– Continueos professional debates with the MoF– Rigid, time consuming, inefficient regulatory
responsesHarmonising data provision Focusing data provision Streamlining data provision
5 December, 2003 Washington D.C.
HFSA 30
Instead of a Happy End…Instead of a Happy End…After 4 years: reassassment of the HFSA by policy
makers – new restrictive legislation is underway
Independence substantially cut back Accountability to be replaced by direct ministerial controll Early removal of top management in the middle of their tenure Non observance of:
– internationally recognized supervisory standards – World Bank - IMF FSAP recommendations
Salary scales to be pushed back to civil service level Consequences…..?