Financial Crime World

Andorra’s Financial System Proves Resilient Amid Banking Crisis

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Despite S obanca, Andorra’s oldest and largest bank, failing, leaving the country’s banking system on shaky ground, the remaining banks have stepped up to honor their liabilities, preserving confidence in the system.

Andorra’s banks have traditionally maintained high levels of liquidity and capital, a testament to their prudent behavior in the absence of regulation and supervision. This prudence has continued even after the implementation of regulations and supervision, ensuring the stability of the financial system.

Assessment of Compliance with International Standards

In 2002, an assessment was conducted on Andorra’s compliance with international standards for banking supervision and anti-money laundering (AML)/Combating Financing of Terrorism (CFT). The report concluded that supervision in Andorra was generally adequate, with a high level of compliance with the Basel Capital Accord (BCP) and AML/CFT standards.

Key Findings

  • 95% of all financial sector activities comply with the BCP
  • High level of compliance with international standards for AML

Recommendations for Improvement

To further improve compliance with international standards, the assessors recommended several steps:

  • Clarify responsibilities and strengthen the autonomy of INAF (the authority responsible for bank supervision)
  • Improve cooperation and exchange of information with home supervisors of subsidiaries of foreign banks

Progress Since 2002 Assessment

Since the 2002 assessment, Andorra has made significant progress in implementing recommendations for improvement. The country’s financial authorities have:

  • Strengthened INAF’s independence by establishing it as the authority responsible for the Andorran financial system and suppressing the role of CSF as a superior authority
  • Improved cooperation and exchange of information with home supervisors of subsidiaries of foreign banks

Andorra’s Financial System

Overview

  • Dominated by banks, producing 15% of GDP and employing around 1,523 people (3.6% of all jobs in Andorra)
  • Highest-paying sector in the Andorran economy, with average salaries above twice the national average

Key Players

  • Seven banking institutions
  • One specialized financial credit institution
  • Seven collective investment entities
  • Four wealth management companies
  • 28 insurance companies (15 are branches of foreign insurance companies authorized to operate in Andorra)

Conclusion

Despite the setback caused by S obanca’s failure, Andorra’s financial system has proven resilient, thanks to the country’s prudent banking practices and efforts to improve compliance with international standards. The authorities’ commitment to strengthening INAF’s independence and implementing recommendations for improvement will help ensure the stability of the financial system in the years ahead.