STRENGTHENING SUPERVISION CAPACITIES OF THE ALBANIAN FINANCIAL SUPERVISORY AUTHORITY: FOCUS ON CAPITAL MARKET DEVELOPMENT
PROPOSED DEVELOPMENT OBJECTIVE
The development objective of the project is to support AFSA in strengthening its capacities to supervise the Investment Funds sector, and the Corporate & Municipal Bonds issuance. SECO funding is expected to cover two specific areas:
Area 1: Develop capacities of AFSA to supervise and regulate Investment Funds sector;
Area 2: Develop capacities of AFSA to prepare for corporate bonds & municipal bonds issuance;
Strengthening Supervision Capacities of the Albanian Financial Supervisory Authority: Focus on Capital Market Development Project, seeks to support AFSA in strengthening its capacities to supervise the Investment Funds sector, and the Corporate & Municipal Bonds issuance. The project supports specifically the intended objective “Restore fiscal sustainability and maintain financial stability” of the WB Country Partnership Framework. A stronger and better supervised investment funds sector will be a relevant contributor to the country’s financial and economic stability. The project will finance the diagnostic reviews of the legal and regulatory framework in effect in Albania with regard to investments fund industry and corporate and municipal bonds issuance, and improving it to comply with the EU Directives and IOSCO principles. In addition, it will strengthen supervisory capacities for both areas through training and developing supervisory tools.
The project’s expected results, grouped under two components and five subcomponents are:
Component 1: Develop capacities of AFSA to supervise and regulate Investment Funds sector;
Subcomponent 1: Perform an assessment of the supervisory needs of AFSA with regard to the rapidly developing Investment Funds sector.
Subcomponent 2: This subcomponent will assist AFSA to (i) develop the investment funds sector supervision methodology, manuals and tools; (i) prepare the necessary legal acts and amendments related to the upgraded supervision methodology; (iii) upgrade its ability for crisis scenarios management.
Sub-component 3: Develop Professional and Human Resources capacities of AFSA.
Component 2: Develop capacities of AFSA to prepare for corporate bonds & municipal bonds issuance;
Subcomponent 1: Perform a review of current corporate & municipal bonds regulatory and supervision framework and recommend changes.
Subcomponent 2: Provide capacity building to AFSA to increase knowledge on debt instruments and markets.
The assistance under this project aims to support AFSA in strengthening its capacities to supervise the Investment Funds sector, and the Corporate & Municipal Bonds issuance to cover two specific areas:
Area 1: Develop capacities of AFSA to supervise and regulate Investment Funds sector Under this area the following Technical Assistance will be delivered:
Component 1: Perform an assessment of the supervisory needs of AFSA with regard to the rapidly developing Investment Funds sector, in terms of:
· Current local legal framework (law & bylaws), and existing supervision arrangements;
· Current and expecting EU regulatory and supervisory development, as well as applicable IOSCO principles
· Current and expected local industry development
· Current and prospective staffing functions and requirements (quantity & quality)
· Overall fitting of investment fund supervision with the other supervisory directions of AFSA (ie, insurance, private pensions, other capital market activities)
The outputs of this assessment will include a medium term strategic development plan for supervision of the Investment Fund sector, and a detailed time-bound roadmap for implementation (which could be transposed into a log-frame). This will be the basis for development of institutional capacities and supervision arrangements under this TA support. It will include among others proposals for staffing requirements (number of staffing and profiling) and expected training needs, as well as outline the supervision approach. This assessment will make use and leverage on the enhanced independence provided by the Parliament to AFSA through the recent AFSA law amendments. Following the appointment of new board and management in the autumn 2014, the AFSA will make use of added independence and ability to approve its own structure and remuneration arrangements to improve its institutional set up as well as attract/maintain new professional staff.
Component 2: Develop the investment funds sector supervision methodology, manuals and tools. At least the following would be expected:
§ Proposal of the on and off-site supervision methodology for Investment funds sector that takes into consideration the current and expected medium term market development
§ Development of off-site documents and tools, including:
· Market participants licensing regulation and toolkit
· Investment Funds Prospectus evaluation toolkit
· Reporting templates for market participants
· Off-site analysis manual
§ Development of the draft of on-site inspection manual for investment funds sector
Component 3: Develop Professional and Human Resources capacities of AFSA. Based on the identified needs and on the supervision approach for investment funds, this component is expected to provide support along three lines:
§ On-job training – a resident advisor will be established at AFSA to provide on-job regulatory and supervisory training and guidance to AFSA for a one year period, subject to possible extension. This experienced advisor will work hand by hand with the AFSA management staff, in implementing and making functional outputs of components 1 and 2, as well as advise on policy and supervisory decisions and actions of AFSA.
§ Gaining expertise and experience through trainings hosted at/by (a) supervisory agency (ies) selected among European countries with relevant and positive history and capacities. Such exchange might also be extended into field/practical case support by the foreign supervisory agency through short time assignments of its experts, and provision of secondment opportunities for AFSA staff.
§ Fund AFSA staff submitting exams and acquiring recognized investment knowledge certificates. Supporting AFSA staff to acquire professional certificates will help to motivate them (both new and existing staff) and to also to acknowledge their learning progress :
· For more junior staff, “lighter” programs might be considered, such as the Claritas Investment Certificate of CFA Institute (www.cfainstitute.org/claritas)
· For staff of more advanced knowledge and experience funding of CFA Certification Program attendance might be considered (www.cfainstitute.org/cfaprogram)
Both CFA designation and Claritas certificate are awarded by CFA Institute, world’s most prestigious investment management organization, upon absorption of a comprehensive body of knowledge. Candidates submit rigorous exams to test their knowledge.
Area 2: Develop capacities of AFSA to prepare for corporate bonds & municipal bonds issuance
Component 1: Perform a review of current corporate & municipal bonds regulatory and supervision framework and recommend changes in two levels:
§ Quick fixes in AFSA bylaws that would enable it to adequately and properly handle applications for bonds private or public offers in the near to medium future;
§ Long term changes to the legal, regulatory and supervisory framework to bring it in line with the evolved local and EU legislation, and international standards. Implementation of long term changes would be tackled at a later stage and it will not be part of this SECO funding application.
Component 2: provide capacity building to AFSA to increase knowledge on debt instruments and markets.
§ Activities would include specific tailored training sessions to AFSA staff on topics such as debt instruments, risk factors, issuance, trading, as well as approach from supervisor’s perspective.
§ Additional training activities will be needed to handle in practice bond offers applications at AFSA. The resident advisor (selected under component 3, Area 1) will allocate part of its time to train AFSA staff on this topic. The cooperation with the selected supervisory agency (ies) will include as needed exchange of experience on handling bond issuance applications.
This component is strongly links withthe capacity building activities envisaged under the Investment Funds support (component 3, Area 1) due to the wide overlapping of bodies of knowledge. AFSA staff receiving training on general capital market issues, and also participating in certification examinations, will also as a by-product increase their knowledge on debt instruments and markets.