Regulation & Supervision Offshore Banking

Question 1

Outline role of GIFCS

Answer 1

Group of International Finance Centres Supervisors

Formerly known as offshore group of banking supervisors (established oct 1980) / name change reflects wider scope of activities

Concerned with supervision of banks banks offshore & related services

• condition memberships must demonstrate clear commitment to implementing core principles
• IFM assess jurisdictions observance of these principles

Question 2

Outline BCBS

Answer 2

Basel Committee on Banking Supervision

Global standard setter body on all aspects of banking regulation & supervision

Formulates supervisory standards & guidelines of best practice / how to implement

No legal force / authority

Functions;

• enhance banking stability
• provide forum for cooperation on supervision
• global standards for regulation
• strengthen regulation, supervision & practice of banks worldwide

Best known for;
International standards on capital adequacy (BASEL CAPITAL ACCORD)

Core Principles of effective banking supervision (CORE PRINCIPLES)

Question 3

Outline the global financial crisis

Answer 3

• banks packaged bad debt into mortgage
• sold them
• private commercial companies offered rate AAA interest
• customers offered mortgage at 2% (2 years) and increased to 5% (10 years)
• rise in unemployment/ unable to pay banks
• banks became sub prime (crisis)
• banks required supervision / Basel Capital Accord set

Question 4

Outline the Basel Capital Accord

Answer 4

BI - implement credit risk management framework (monitor income & outcome)

BII - 3 pillar approach

• minimum capital requirements
• supervisory reviews of internal controls & capital adequacy
• effective disclosure to strengthen market discipline

BIII

• improve banking sector to absorb shock arising from economic stress
• improve risk management & governance through ongoing regulation
• strengthen transparency

Question 5

Outline framework aims for B2 & B3

Answer 5

B2

• strengthen soundness & stability of banking system
• establish closer alignment of regulatory requirements & economic needs
• maintain consistent capital adequacy / ensure unequal competition between banks

Regulators in Channel Islands worked together to harmonise & implement B2/ make it easier for banks operating in both & avoid regulatory arbitrage

B3
-response to 2008 financial crisis / BCBS developed global standards to address systematic risks

-comprehensive set of measures to strengthen regulation, supervision & risk management of banks

Question 6

Outline the Core Principles of effective banking supervision

Answer 6

Based on precautions;

• appropriate level of systematic protection
• clear framework for crisis management, recovery & resolution
• effective market discipline
• sound & sustainable macro economic policies
• well established framework for financial stability
• well developed public infrastructure

Question 7

What do the core principles address

Answer 7

Voluntary framework of minimum standards for found & effective supervision

Universally applicable / authorities can implement supplementary measures to achieve in own jurisdiction

Principles address supervisory powers, responsibilities, expectations of banks (corporate governance, risk management & compliance with standards)