Association of Supervisors of Banks of the Americas

The role of bank supervision is evolving to meet the challenges of a rapidly changing financial landscape. Supervisors are increasingly focused on sustainability, technology, and risk.

Banks play a crucial role in financing the transition to a low-carbon economy. Supervisors are working to ensure that banks have the necessary tools and capabilities to manage the risks associated with climate change and other sustainability issues.

Technology is transforming the banking industry at an unprecedented pace. Supervisors are working to keep pace with these changes and ensure that banks manage the associated risks effectively. This includes risks related to cybersecurity, fintech, and crypto assets.

Banks face various risks, including credit, market, and operational risks. Supervisors are working to ensure banks have robust risk management frameworks to identify, assess, and mitigate these risks.

The 72nd edition of the Journal of the Banking Supervisor highlights some of the key regulatory developments that have taken place in the Americas in recent months, including New Requirements for Disclosure of Sustainability-related Financial Information and Climate-related Disclosures, New capital requirements for banks exposed to crypto-assets;  Enhanced liquidity requirements for systemically important banks; Revised stress testing guidelines; New consumer protection regulations for digital financial services; Enhanced anti-money laundering and counter-terrorist financing regulations; and New regulations for open banking.

In addition to the articles featured in this edition of the Journal of the Banking Supervisor, the Members of the Association of Supervisors of Banks of the Americas (ASBA) also shares news and information on prudential and non-prudential financial regulations issued in their jurisdictions during the second quarter of 2023. Also, publications, technical reports, and other information that they consider relevant. This compilation is an effort to broaden communication and understanding among the countries of the Americas on the approaches used to address various issues of joint interest in financial regulation.

The 72nd edition of the Journal of the Banking Supervisor provides a comprehensive overview of the latest developments in the banking sector. It highlights the importance of collaboration and information sharing among regulators and supervisors in the Americas.

Association of Supervisors of Banks of the Americas

The outlook for global economic growth is deteriorating, and by 2030, the world economy's "speed limit" will reach its lowest level in three decades. The driving forces behind progress and prosperity in the past are diminishing, leading to a decline in potential growth. This decline will have significant consequences for addressing pressing challenges like poverty, income inequality, and climate change. To reverse this trend, it is crucial to implement policies that encourage work, enhance productivity, and promote investment. Therefore, the new challenge for bank supervisors is to design policies that foster sustained, robust, and inclusive growth, specifically tailored to tackle the region's unique challenges.

In this context, the 71st edition of the Journal of the Banking Supervisor presents a series of recommended readings that compile regulatory changes, risks and supervisory agenda topics that will be important for supervisory bodies in Latin America and the Caribbean. A series of publications related to the economic outlook on economic recovery, financial stability, and supervision are also included. The research and analysis section shares papers related to bank resolution, climate risk, and sustainability, technology, and payment systems.

Finally, in the last section, members share news and information on prudential and non-prudential financial regulations issued in their jurisdictions during the first quarter of 2023. This compilation is an effort to broaden communication and understanding among the countries of the Americas on the approaches used to address various issues of joint interest in financial regulation.

Emerging markets and developing economies are facing a number of adverse factors, amid widespread high inflation and a rapid slowdown in global growth. Growth forecasts for the short to medium term have deteriorated in all regions, in part due to the implementation of restrictive policies aimed at curbing high inflation and over indebtedness. Nevertheless, financial authorities in the region maintain a specific shared vision of stability in their expectations regarding the economic, financial, social, and political events that could take place during 2023.

During 2023, it is expected that the development of global and regional financial markets will be affected by the uncertainty derived from the normalization process of monetary policies in advanced economies, trade and geopolitical tensions in Euro-Asia, and volatility in commodity prices. The regulatory and supervisory authorities of the region must, among other things, focus on restoring consumer confidence and supporting the implementation of strategies that promote a scenario of sustainable recovery. Some of the methods employed by financial authorities have been financial innovation and environmentally responsible investments.

In this context, this new edition of the Journal of the Banking Supervisor presents a series of recommended readings that compile the most current guidelines and principles related to the evaluation of the reforms and the effectiveness of the implementation of Basel III, best practice guidelines on prudential regulation of crypto-assets, and new resolution frameworks on resolvability. In addition, a series of readings related to macro-financial expectations for 2023 and relevant topics on the technical agenda of supervisors are recommended: inflation, low growth, sustainability, and the impact of non-bank institutions on the world's financial systems. The research and analysis section of this edition of the Journal shares documents related to the regulation of digital innovation, macro-financial risks, and sustainable finance.

Finally, in the last section of the Journal, Members share news and information on prudential and non-prudential financial regulations issued in their jurisdictions during the fourth quarter of 2022. This compilation is an effort to expand communication and understanding among the region about the approaches used to address different topics of joint interest in financial regulation.

Author: Association of Supervisors of Banks of the Americas

The slowdown in economic activity is an effect occurring in all regions of the world and is limiting the outlook for recovery expected in the short term.

Likewise, inflation has risen well above central bank targets, and the Latin American and Caribbean region has been no exception. Financial pressure on households led the region's central banks to increase reference rates, reaching record highs in some countries and reducing the growth of monetary aggregates. Despite a decrease in inflation expectations and a stabilization in growth rates for 2023, uncertainty due to the war in Ukraine, the downward outlook for growth in China, and a tighter global financing environment could change expectations for 2023.

For their part, Regulatory and Supervisory Authorities should focus on restoring price stability and mitigating the adverse effects of a possible economic contraction in the most vulnerable sectors. On the fiscal front, public debt levels will remain high in a large number of countries. In the context of increased demands for public spending and high-interest rates, the authorities will have to strengthen their fiscal measures to avoid generating a sovereign debt risk that could be transmitted to the financial system. In general, the region is again facing a complex environment where fiscal, monetary and financial policy tools will be essential to counteract a possible adverse shock in the world economy while simultaneously being the precursors through public policies to generate a favorable scenario for recovery. 

In this context, the 69th edition of the Journal of the Banking Supervisor recommends different documents that compile the different global expectations and those of the Latin American and Caribbean (LAC) region for 2023. It also highlights updates, issues, and priorities in regulatory and supervisory matters from different international organizations. In addition, the research and analysis section shares documents on monetary and fiscal issues in the region, as well as an extensive analysis of the region's progress in environmental, social, and corporate governance (ESG) factors.

Finally, in the last section, associate members share news and information on prudential and non-prudential financial regulations issued in their jurisdictions during the third quarter of the year. This compilation is an effort to broaden communication and understanding among the countries of the Americas on the approaches used to address various issues of joint interest in the area of financial regulation.

Las instituciones financieras se encuentran en la primera línea de riesgo de ser utilizadas como instrumentos para la comisión de los delitos de LA y FT. La variedad de servicios ofrecidos por éstas, el uso de nuevas tecnologías y el dinamismo que presenta el sector, son factores que las hacen atractivas para el lavado de activos. Sumado a ello, las metodologías de lavado utilizadas son cada vez más complejas y difíciles de detectar. El resultado es que las instituciones financieras se ven expuestas a un riesgo elevado de ser utilizadas para la comisión de estos delitos que, en muchas ocasiones, termina por hacerse efectivo.

Es en este aspecto que los supervisores deben cumplir un rol fundamental, orientando sus esfuerzos para que las instituciones financieras logren el mayor grado posible de cumplimiento de los estándares internacionales, de la adopción de mejores prácticas y del perfecciona­miento continuo de su normativa interna.

Para que el supervisor pueda cumplir el mencionado rol es necesario que en sus jurisdic­ciones existan condiciones previas de naturaleza exógena al mismo, sin las cuales éste no podrá desarrollar sus actividades de seguimiento y control en forma ade­cuada. Las precondiciones comprenden un marco jurídico adecuado, compromiso político de alto nivel y políticas de prevención de LA y FT basadas en riesgo. Dadas estas precondiciones, el supervisor debe dotarse de una estructura legal acorde a su rol. Se le deben asignar potestades y recursos (humanos y materiales) que permitan el desarrollo de su actividad de forma eficiente.

En el presente trabajo se desarrollarán los aspectos antes mencionados. Se describirán las precondiciones mínimas con que cada jurisdicción debe contar, el marco regulatorio básico aplicable a un supervisor en la materia, y se detallará un proceso de supervisión basado en riesgo, desarrollando sus etapas y las actividades a realizar en cada una de ellas.

Russia's invasion of Ukraine and its effects on commodity markets, supply chains, inflation and financial conditions have intensified the slowdown in global growth. Prior to the war, the world economy had embarked on a strong recovery, albeit heterogeneous across regions and more so across countries. The countries in the region have been affected by the rise in commodity prices, which is increasing inflationary pressures and contracting income and spending in real terms, further hampering the recovery and creating new risks that are escalating in the supervisory spotlight.

Due to the deterioration of economic conditions, prudential regulation, as well as the regulatory agenda of the different jurisdictions and international organizations, has undergone important adjustments, such as relaxations, extensions and, in its minor cases, updates. The role of financial authorities is crucial to cope with this new post-covid reality. A strong and comprehensive policy response is needed to boost growth, strengthen macroeconomic frameworks, reduce financial vulnerabilities and support vulnerable groups.

In this context, the 68th edition of the Journal of the Banking Supervisor presents relevant texts on advances in regulatory issues that have been made in the region. Two documents published by the Association are highlighted: (i) General Considerations for Cross-Border Memoranda of Understanding between Supervisory Authorities and (ii) the Report on the Implementation of Regulatory and Supervisory Standards 2022. The economic outlook section contains current views on the most important challenges and risks for the second half of 2022. The research and analysis section highlights the topics of regulation and supervision of financial technologies, and the latest developments in cryptoasset regulation. Finally, the latest financial regulations of our Associate Members are included, as well as research papers and reports on topics of interest for our Members that were published in the second quarter of the year.

The report is divided into three sections. The first section provides a general perspective on regulation, including the main Basel framework on which regulation is based in the different jurisdictions and how the region applied proportionality in regulation. The second section examines the standards’ implementation status corresponding to Pillar 1 of the Basel standards. That is, the definition of regulatory capital, capital requirements for risk coverage, and leverage. Finally, the third section analyzes the implementation of the four main principles that comprise Pillar 2 of the Basel standards.

El reporte se divide en tres partes. La primera parte ofrece una perspectiva general de la regulación. Esto incluye, el principal marco de Basilea en el que se basa la regulación en las distintas jurisdicciones, y cómo la región implementa enfoques de proporcionalidad en la regulación. La segunda parte examina el estado de implementación de los estándares correspondientes al Pilar 1 de Basilea. Es decir, definición de capital regulatorio, requerimientos de capital por cobertura de riesgo, y apalancamiento. Finalmente, la tercera parte analiza la implementación de los cuatro principios del Pilar 2 de Basilea.

Global financial markets performed relatively well in 2021, despite some volatility leaps linked not only to the pandemic, but also to the increasing uncertainty about the inflation outlook and the likely reduction monetary stimulus worldwide.

However, according to the IMF’s World Economic Outlook, the world enters 2022 with global baseline risks tilted to the downside. Elevated inflation is expected to persist for longer than anticipated with ongoing supply chain disruptions. Furthermore, the conflict in Eastern Europe put important pressures to the world and to the region. Particularly, high commodity prices might spur inflation in Latin America and the Caribbean, which already faces an 8 percent average annual rate across five of the largest economies: Brazil, Mexico, Chile, Colombia, and Peru.

Moreover, the combination of global circumstances have raised important regulatory interest in terms of technology adoption in the financial sector. While the pandemic accelerated the adoption of digital financial technologies, the raise of novel instruments such as cryptoassets, and the appearance of new players, they also have increased the attention in the operational risk of entities and the systemic risks of the financial system, in general. What is more, as the conflict in Eastern Europe advances, there are heightened concerns about the cybersecurity risks and their spillovers throughout the globe.

In this context, the 67th edition of the Journal of the Banking Supervisor presents some relevant texts on adjustments, guidelines and concerns in banking regulation. The first section highlights some guidelines and principles recently published by ASBA that provide an overview of the lessons learned from the regulatory facilities implemented in the region's financial sector to address Covid-19 and a reference for the Association members on general considerations for cross-border memoranda of understanding. The second section, on the economic outlook for the region, includes some references to the topics of economic performance expectations for 2022 and progress in the implementation of international standards.

The research and analysis section shares documents on regulation and analysis of the payment infrastructures of some countries in the region, as well as the incorporation of technological issues in the central supervisory activities. Finally, in the last section, associate members share news and information on prudential and non-prudential financial regulation issued in their jurisdictions during the first quarter of the year. This compilation is an effort to broaden communication and understanding among the countries of the Americas on the approaches used to address different issues of joint interest in the area of financial regulation.

In this context, the ASBA Technical Committee considered it to be appropriate to develop a series of principles and recommendations that could serve as a reference for ASBA members when updating their “memoranda of understanding” (MoU) or signing new ones with other jurisdictions with which they have not yet done so.

To this end, a specific working group was convened to identify the core elements that should be considered for inclusion in an arrangement between financial supervisory agencies, in line with the latest developments and needs of ASBA members. The purpose is to procure that ASBA members consider the use and/or adaptation of these guidelines in accordance with their legal frameworks and particular circumstances for the negotiation of bilateral or multilateral agreements.

The document covers the following topics: information sharing, confidentiality, and data protection; licensing and authorizations; ongoing supervision; on-site inspections; and cooperation during crisis situations. Additionally, depending on the scope and mandates, the participating authorities may evaluate including the supplemental principles and recommendations that address specific elements regarding cybersecurity, anti-money laundering and countering the financing of terrorism, and resolution planning and resolvability assessment.

The pandemic has made it clear that BRSA face formidable challenges, in debt management, budget policies, central banking and structural reforms, as they try to ensure that this global recovery gains traction and lays the foundation for strong growth and development in the long term, while protecting the most vulnerable people and sectors.

In this context, the Association of Supervisors of Banks of the Americas (ASBA) developed the research document: "L Lessons Learned from the Regulatory Measures Implemented to Face the COVID-19 Emergency." The document aims to provide an overview of the potential implications and lessons of the regulatory facilities implemented in the financial sector by countries in the region to deal with COVID-19.

La pandemia de COVID-19 ha inducido a la región de las américas a una de las mayores contracciones económicas que se tengan registro. Sin embargo, en medio de la incertidumbre y turbulencia financiera de estos dos últimos años, las Autoridades de Regulación y Supervisión (ARS) han sido una fuente de resiliencia. Gracias a las importantes reformas posteriores a la crisis de 2007-2009, los bancos de la región se encuentran mejor capitalizados y más líquidos por lo cual no sufrieron de estrés inmediato, al contrario, en acompañamiento de las medidas regulatorias y supervisoras, el sector bancario ha sido participe en apoyar las necesidades de financiamiento del sector real y aminorar los impactos económicos relacionados al COVID-19.

La pandemia ha dejado en claro que las ARS se enfrentan a desafíos formidables, en gestión de la deuda, políticas presupuestarias, banca central y reformas estructurales, mientras intentan garantizar que esta recuperación mundial gane tracción y sienta las bases para un crecimiento y desarrollo sólidos a largo plazo, al mismo tiempo que se protege a los más vulnerables.

Bajo este contexto, la Asociación de Supervisores Bancarios de las Américas (ASBA) desarrolló el documento de investigación: “Lecciones sobre las Medidas Regulatorias Implementadas para Enfrentar la Emergencia del COVID-19”. El documento tiene por objetivo proporcionar una visión general sobre las implicaciones potenciales y las lecciones de las facilidades regulatorias implementadas en el sector financiero por países de la región para hacer frente al COVID-19.

Moreover, headline inflation rates have risen rapidly in the United States and some emerging markets. There is considerable uncertainty surrounding the inflation outlook, mainly due to the uncertainty of the pandemic's trajectory and the duration of disruptions to supply chains.

The COVID-19 pandemic has affected Latin American and Caribbean countries the most because of their levels of inequality and informality, particularly among vulnerable populations. These characteristics also put the region at a disadvantage in the face of increasingly frequent and aggressive extreme weather events. Challenges for the future include an economic recovery with an inclusive approach and greater attention to managing social and environmental risks.

Against this background, the 66th edition of the Journal of the Banking Supervisor presents a set of documents that may be helpful to regulators and supervisors. The first section highlights some recently published guidelines and principles by international bodies on outsourcing risks in securities markets, as well as recommendations on sustainability and remuneration. In addition, it includes the Core Principles for the Development of Effective Bank Supervision Capacity Building Programs prepared by an expert working group of ASBA members.

The Economic and Market Outlook section includes some texts on the global economic outlook and for the region. Also, papers discussing possible scenarios regarding unemployment and inequality levels and recommendations on how fiscal policies could contribute to the recovery of the countries in the region.

Finally, the Research and Analysis section shares papers on financial resilience and stability; some considerations on the adoption of technology, mainly artificial intelligence tools in the financial sector; the progress of some central banks in the development and implementation of digital currencies for cross-border use; and socio-environmental risks, among others.

The Knowledge and Skills Training Curriculum is based on the document entitled: “Core Principles for the Development of Effective Bank Supervision Capacity Building Programs,” as well as on the best practices observed in training areas within banking supervision agencies that comprise the Association of Supervisors of Banks of the Americas. This document defines the tools and the ways in which inspectors will acquire this knowledge (training, experience, and practical application.

The document is divided into three sections. The first section outlines nine core principles that can act as a reference tool for bank supervisory institutions seeking to develop new or strengthen existing training programs. The second mentions the organizational pre-requirements that the banking supervisory agencies must observe to implement the principles successfully. Furthermore, the third section presents a description of these core principles’ characteristics.

The questionnaire had the goal of finding what the regulating and supervising authorities were expecting to be the effects on the financial systems of the current global and regional situation.

The document offers a brief analysis on the risks for the financial sector that have been enhanced or created anew as a result of the Covid-19 pandemic. It also includes the macroeconomic perspectives, financial panoramas and considers the changes and adjustments that were made to the usual methods of supervision of financial entities. Finally, the expectation for banking supervision and regulation for 2021.