CB, SEC and IRCSL efforts on consolidated supervision
The country’s three premier regulators are set to revive the effective consolidated risk-based supervision which they undertook over two years ago.
The Central Bank (CB) entered into a Memorandum of Understanding (MoU) with the Securities and Exchange Commission of Sri Lanka (SEC) and the Insurance Regulatory Commission of Sri Lanka (IRCSL) in December 2018 at the CB, to conduct effective consolidated risk-based supervision and for the CB to be the lead supervisor in this regard.
“The three institutions are discussing the elements of what can be shared between them,” a source told Business Times. He added that issues on improvement of effectiveness and efficiency of supervision of insurance, banking and securities markets continue to remain important as they are influenced by ongoing social changes, developments in the global economy, convergence of supervised financial markets, duplication of functions carried out by supervisory institutions etc. He said the discussions on the modalities of how to go about this are still at a preliminary stage.
“Consolidated supervision is an essential tool for supervising financial groups. The consolidation of activities of financial supervision institutions is basically to create the system of supervision, which is common for all financial markets and which is run by one supervisory authority. In this case CB will lead the way,” he explained.
He added that consolidated supervision will assess group-wide risks that spring up from relationships among members of a corporate group operating across different financial sub-sectors.
Sri Lanka has many of these. “This is why consolidated supervision of such institutions is necessary as it evaluates and assesses contagion and reputation risks posed by them to the financial system and to contain systemic risk. This is practiced the world over,” the source explained.