Andorra’s Financial Sector Lacks Effective Supervision, Non-Cooperation with Onshore Regulators
A recent assessment by international experts has revealed that Andorra’s financial sector is plagued by inadequate supervision and a lack of cooperation with onshore regulators.
Basel Core Principles for Effective Banking Supervision (BCP)
Andorra is largely compliant with the BCP, but there is significant room for improvement. The assessment, conducted by Saul Carpio from the Office of the Comptroller of the Currency, USA, and Michael Moore from MAE, found that Andorra is non-compliant with two key BCP principles.
Supervisory Authority
The country’s financial sector revolves around eight banks, five of which are controlled by Spanish banks. However, the supervisory authority, INAF, lacks independence and resources to effectively regulate them.
Deposit Insurance and Lender of Last Resort Mechanism
The experts also identified concerns about the lack of deposit insurance and a lender of last resort mechanism in Andorra. While there is a guarantee fund administered by INAF, its purpose and operation are unclear, leaving investors and depositors at risk.
Securities Legislation
Furthermore, the assessment highlighted the need for stronger securities legislation to protect investors and promote market transparency. The current laws governing the financial sector are inadequate, and INAF lacks the mandate to effectively supervise non-bank investment firms.
Recommendations
To address these issues, the experts recommended that Andorra:
- Strengthen the autonomy of INAF
- Increase its funding and staffing resources
- Formally assign it responsibility for supervising the insurance sector
- Pass new securities legislation that provides for stronger investor protections, market transparency, and effective enforcement powers
Conclusion
The assessment’s findings are a wake-up call for Andorra’s financial authorities, which must take immediate action to address these critical issues and ensure the stability of the financial system.