Palau’s Financial Institutions Commission Faces Criticism Over Lack of Independence

Koror, Palau - The Financial Institutions Commission (FIC) has been criticized for its lack of independence and limited powers to regulate the banking industry in Palau.

Appointment Process Raises Concerns

The FIC’s Board members are appointed by the President of Palau from among candidates proposed by the Palau Chamber of Commerce. This process gives the banking industry a dominant role in the selection, raising concerns about potential conflicts of interest and the commission’s ability to act independently.

Limited Powers and Regulations

• The FIC’s regulations require approval from both chambers of Parliament and the President before they can take effect, which has delayed the commission’s effective operations.
• The lack of legal immunity for commission members and staff is a major concern.
• The FIC’s Executive Commissioner is appointed by the Board, which represents largely the banking industry and business community, raising questions about its operational independence.

Concerns Over Compliance and Enforcement

• While the FIC can issue warnings and cease-and-desist orders, it must seek approval from the Supreme Court for issuance of the latter, limiting its ability to act decisively.
• The commission’s powers to address compliance with laws and safety and soundness concerns have been criticized.

Positive Development: Amendments to Financial Institutions Act

Palau officials have announced plans to amend the Financial Institutions Act (FIA) to provide legal protection for supervisors, which would align with international best practices.

Concerns Remain

• The FIC’s ability to share information and protect confidentiality is a concern.
• While the commission is required to cooperate with public authorities, there are concerns that nonpublic confidential information may be disclosed or used for personal gain.

International Monetary Fund Assessment

The IMF has identified several areas of concern in its assessment of Palau’s financial regulatory framework, including the lack of independence of the FIC and limited powers to regulate the banking industry. The IMF has called on Palau to address these concerns to strengthen its financial stability and resilience.

Conclusion

==========

In light of these concerns, it remains to be seen whether Palau will take steps to reform its financial regulatory framework and ensure the effective operation of the Financial Institutions Commission.