Financial Crime World

Central Bank of Samoa’s Supervision Lacking, Says IMF

IMF Criticizes CBS’ Supervisory Practices

The International Monetary Fund (IMF) has released a report criticizing the Central Bank of Samoa’s (CBS) supervisory practices, stating that they are not up to date with international standards.

Off-Site Supervision and Lack of Guidance

According to the report, the CBS’ supervision of domestic banks is primarily off-site, with limited on-site inspections. The bank also lacks detailed guidance for domestic banks, relying on nine “Prudential Statements” issued between 1995 and 1999.

  • Off-site supervision has limitations in identifying potential risks
  • Limited on-site inspections do not provide a comprehensive view of bank operations
  • Lack of detailed guidance for domestic banks creates uncertainty and increases risk

Risk-Based Supervision Approach

The IMF highlighted concerns about the CBS’ risk-based supervision (RBS) approach, stating that there are gaps in implementation.

  • RBS requires effective follow-up to close out issues raised during inspection cycles
  • Review of on-site inspections conducted in 2013 revealed instances where this was not achieved
  • Gaps in implementation increase risk and undermine the effectiveness of RBS

Authority to Effect Changes in Bank Management

The IMF criticized the CBS for lacking authority to effect changes in a bank’s board and senior management, which it said is a serious omission.

  • Lack of authority to change bank management increases risk and undermines supervision
  • FIA statute sets out significant deficiencies, including:
    • Large exposure limit that has been waived without legal capacity
    • Lack of definition of “significant shareholder”
    • Lack of authority to require deduction of related parties’ exposures from capital

Supervision of International Banks

The IMF assessed the CBS’ supervision of international banks and found it to be minimal.

  • No prudential guidance from the Samoa International Financial Authority (SIFA)
  • Supervision is limited to receipt and filing of quarterly reports
  • Minimal supervision increases risk and undermines financial stability

Conclusion

The report comes after a 2007 assessment found that compliance had improved since the previous assessment. However, the IMF said that subsequent developments have highlighted ongoing challenges in the CBS’ supervisory practices.

  • The Central Bank of Samoa has not commented on the report
  • Sources close to the bank say it is working to address the concerns raised by the IMF

The IMF’s criticism highlights the need for the CBS to strengthen its supervisory practices and ensure compliance with international standards.