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Samoa’s Financial Sector Supervision: Progress and Challenges

The Samoa Financial Authority (SFA) has made significant progress in strengthening its financial sector supervision, particularly since the addition of two new staff members in early 2014. The organization is working towards expanding its supervisory responsibilities to ensure effective oversight of the country’s financial institutions.

Progress Made by the Central Bank

According to a report by the International Monetary Fund (IMF), Samoa’s Central Bank (CBS) has implemented some measures to strengthen its supervision, including:

  • Use of a portfolio approach to supervision
  • Conduct of on-site inspections

However, the report also highlights several challenges that need to be addressed.

Challenges Identified

One of the main areas of concern is the CBS’ infrequent on-site inspections of domestic banks. While the organization has conducted on-site inspections in recent years, these have been limited to specific issues such as anti-money laundering and combating the financing of terrorism (AML/CFT). The IMF report recommends that the CBS conduct more frequent and comprehensive on-site inspections to ensure that domestic banks are complying with prudential standards.

Another area of concern is the lack of detailed guidance for domestic banks. While the CBS has issued nine “Prudential Statements” since 1995, these statements do not provide sufficient detail or prescriptive quality to guide banks in their operations. The IMF report recommends that the CBS update its prudential standards to bring them in line with international best practices.

Risk-Based Supervision Challenges

The CBS also faces challenges in implementing risk-based supervision (RBS). While the organization aims to conduct RBS, there are still gaps in implementation, including:

  • Lack of effective follow-up on issues raised during inspections
  • Limited resources and capacity to implement RBS

The IMF report recommends that the CBS improve its follow-up procedures to ensure that banks address identified issues in a timely manner.

In addition, the IMF report highlights several legal and regulatory deficiencies that need to be addressed, including:

  • Limitations on the CBS’ authority to effect changes in bank boards and senior management
  • Deficiencies in the definition of “significant shareholder” and related party exposures

Supervision of International Banks

The SFA is also responsible for supervising seven international banks operating in Samoa. However, the IMF report finds that supervision and regulation of these banks is minimal, with:

  • Limited Prudential Guidance from the Samoan International Financial Authority (SIFA)
  • No on-site inspections conducted in recent years

Conclusion

Overall, while progress has been made in strengthening financial sector supervision in Samoa, there are still several challenges that need to be addressed. The SFA and CBS will need to work together to implement reforms and improve the effectiveness of their supervision.