Financial Crime World

Mongolia Strengthens Financial Sector Regulation and Governance

Ulaanbaatar, Mongolia - The Mongolian government has taken significant steps to strengthen its financial sector regulation and governance framework, aiming to enhance the stability and efficiency of the country’s economy.

Key Reforms

The reforms, implemented under the Financial Regulation and Governance Program, have introduced several key measures to improve the supervisory structure, enhance investor protection, and promote financial intermediation. These include:

  • Enhanced Enforcement: Higher penalties for non-compliance with prudential regulations to ensure stronger enforcement and deterrence
  • Streamlined Supervision: Consolidated supervision to streamline regulatory oversight and reduce duplication of efforts
  • Improved Bank Resolution Framework: An improved bank resolution framework that clearly defines the roles of the conservator and liquidator, ensuring a more efficient and effective process in times of financial distress
  • Protected Bank Supervisors: Legal protection for bank supervisors to safeguard their independence and impartiality
  • Clear Definition of “Group of Connected Parties”: A clear definition of “group of connected parties” to better capture related-party transactions and prevent regulatory arbitrage

Strengthening the Financial Regulatory Commission (FRC)

The FRC, established in 2006, has played a crucial role in implementing these reforms. The FRC is responsible for regulating and supervising the non-bank financial sector (NBFS), which includes non-banking financial institutions, securities companies, collective investment funds, and insurance companies.

Capacity Building

Under the program, the FRC’s capacity was strengthened through the development of an information technology-management information system (IT-MIS) to improve data collection and processing. Additionally, the program supported the assignment of self-regulatory functions to the Mongolian Stock Exchange (MSE), which is expected to enhance market discipline and investor protection.

Development of the Mongolian Stock Exchange (MSE)

The MSE, which listed 336 companies in 2010, has been a key driver of capital market development in Mongolia. The stock exchange’s growth was primarily driven by an increase in share prices rather than significant volumes of initial public offerings. However, the local stock market remains small, with several large Mongolian companies listed abroad.

Insurance Industry Development

The insurance industry in Mongolia is still in its infancy, but the recently enacted Law on Driver Insurance is expected to support market development through introducing mandatory insurance for car owners and drivers of heavy machinery.

The Financial Regulation and Governance Program has also focused on strengthening the legal framework, with revisions to the securities market law aimed at improving clarity, investor protection, and providing a legal basis for the development of collective investment funds. The program has also supported the adoption of regulations under the Insurance Law, including licensing and prudential requirements.

Expected Outcomes

The reforms are expected to enhance financial stability, increase confidence in the financial system, and promote economic growth in Mongolia.