Financial Crime World

Title: El Salvador’s Journey Towards Compliance with Basel Core Principles for Effective Banking Supervision

Overview

El Salvador, a small Central American nation, is working on strengthening its financial regulatory framework to ensure effective banking supervision. In this article, we’ll discuss the findings of a World Bank report assessing El Salvador’s level of compliance with the Basel Core Principles for Effective Banking Supervision (BCP).

Evaluation of El Salvador’s Regulatory and Supervisory Framework

The 329-page document evaluates El Salvador’s regulatory and supervisory framework focusing on areas such as:

  1. Risk management
  2. Legal and regulatory framework
  3. Internal control systems
  4. Corporate governance

Areas of Focus

Risk Management

  • Progress in implementing risk-based supervision
  • Need for further improvements in risk weighting and operational risk handling
  • Strengthened regulatory requirements for liquidity management and stress testing
  • Significant progress in developing legal frameworks
  • Challenges in implementing and enforcing regulations due to resource constraints and limited enforcement capacity
  • Absence of specific laws regarding intangible assets and transfer of ownership creates ambiguity

Internal Control Systems and Corporate Governance

  • Improvements in establishing risk management policies, setting up internal control systems, and strengthening corporate governance regulations
  • Challenges in effective implementation and enforcement

Cooperative Banks

  • Limited regulation and enforcement capacity
  • Lack of supervisory capacity and political interference
  • Urgent need for improvement in supervisory capacity and establishment of a stronger supervisory staff

Challenges Ahead

Despite progress, El Salvador still faces challenges in achieving full compliance with the BCP. The document emphasizes:

  1. Effective cooperation and coordination between stakeholders
  2. Addressing issues related to banking supervision promptly and proactively

Importance of Strong Regulatory Frameworks

El Salvador’s commitment to strengthening its financial regulatory framework is crucial for risk mitigation and financial stability. The report provides valuable insights and recommendations for improving regulatory frameworks that can benefit other countries facing similar challenges.