Financial Stability: Making it Work in Seychelles
Maintaining financial stability is crucial for economic growth and development in an increasingly interconnected global economy. To achieve this, Seychelles has embarked on a journey to establish a robust financial stability governance framework.
A Robust Governance Framework Crucial for Financial Stability
A well-articulated governance framework outlines the overall objective and responsibilities of stakeholders to better manage expectations. In December 2023, the country took an important step by enshrining its financial stability governance framework in law through the Financial Stability Act.
The Act clearly articulates the objective and mandate of the Financial Services Commission (FSC) as a public body responsible for the financial stability oversight of the country with the aim of promoting a stable financial system.
Prudential and Regulatory Frameworks
A robust prudential and regulatory framework is essential to enhance the financial soundness of individual institutions and strengthen the resilience of the overall financial system. The implementation of international standards, such as the Basel Core Principles (BCP) and relevant risk-based frameworks, reinforces the foundation of the domestic financial system.
- Regulatory authorities are working towards adopting a more targeted approach to supervision and regulation through the implementation of risk-based frameworks.
- This will enable them to better identify potential risks and vulnerabilities in the financial system.
Financial Safety Nets
Effective mechanisms for crisis preparedness and management, as well as financial safety nets, are crucial to minimize the adverse effects of systemic shocks and reduce the burden on the economy and taxpayers. Regulatory authorities are required to have in place frameworks to detect emerging stress in financial institutions and markets, including adequate contingency planning and intervention arrangements.
- Work is ongoing in enhancing the financial safety nets of Seychelles, including the banking sector resolution framework and CBS’ lender of last resort function.
- Once completed, it is envisioned that the domestic financial system will be better placed to manage and minimize the impact of financial stability shocks.
Inter-Agency Cooperation
Inter-agency cooperation is key to preventing and managing systemic events, including other contributing factors such as early intervention, transparency and communication, and continuous evaluation. Regulators maintain a proactive stance, identifying and addressing potential risks prior to escalating into systemic threats. Regular communication channels between regulators, financial institutions, and stakeholders ensure timely dissemination of information.
Risk and Vulnerabilities
The early identification of risks and potential sources of vulnerabilities in the financial system is essential to safeguarding financial stability. Establishing early warning mechanisms, including regular and systematic assessments of vulnerabilities, increases the effectiveness of mitigating measures.
- Work is underway to enhance the tools available for assessing risks to the domestic financial system, including the development of effective quantitative and qualitative analytical tools and models.
- These instruments will enable the identification and monitoring of risks across the domestic financial system and assist with addressing deficiencies in the current frameworks.
By establishing a robust financial stability governance framework, Seychelles is taking proactive steps to ensure financial stability and promote economic growth and development.