SSF Urged to Strengthen Oversight Amid Gaps in Regulatory Framework
San Salvador, El Salvador - The Supervisory Authority of Financial Institutions (SSF) has been advised to enhance its oversight capabilities and address gaps in the regulatory framework to ensure the stability of the financial system.
Lack of Authority and Incomplete Capital Adequacy Framework
According to a recent report, the SSF lacks authority to oblige banks to raise provisioning levels beyond those required by regulation. Despite a tightening of asset classification and provisioning rules contributing to an improvement in the management of problem assets, this limitation hinders effective risk management. Additionally, the agency’s capital adequacy framework is not fully aligned with international standards due to liberal treatment of intangible assets.
Need for Standards on Key Risk Categories
The report highlights the need for the SSF to issue standards on key risk categories, including:
- Credit risk
- Liquidity risk
- Corporate governance
These standards are essential to ensure compliance with regulations and maintain financial stability.
Upgrading Supervisory Practices and Human Capacity
The report emphasizes the importance of upgrading supervisory practices and building human capacity to assess the quality of risk management in banks. This includes developing expertise in areas such as:
- Risk assessment
- Prudential supervision
- Consumer protection
Organizational Challenges and Resource Constraints
The SSF has been criticized for its lack of resources and organizational issues, which have hindered its ability to effectively supervise banks. The agency’s Supervisory Department is resource-constrained due to increased consumer protection responsibilities, diverting attention away from prudential supervision.
Recommendations
To address these challenges, the report recommends that the SSF:
- Prioritize upgrading its supervisory capacity, both quantitatively and qualitatively
- Strengthen its powers of supervision, including the ability to take preventive action at an early stage to address inadequate practices or vulnerabilities
- Address gaps in accounting and disclosure requirements, with a view to conforming to international standards
Urgent Action Required
“In light of these findings, we urge the SSF to take immediate action to strengthen its oversight capabilities and address gaps in the regulatory framework,” said another official. “The stability of the financial system depends on it.”