Financial Crime World

CONASSIF Plays Key Role as Decision-Making Board for Costa Rican Financial Sector

San José, Costa Rica - The Costa Rican financial sector faces several challenges, including a fragmented legal framework and weaknesses in public safety nets, according to a recent report by the International Monetary Fund (IMF).

Importance of CONASSIF

The report highlights the importance of CONASSIF, the Council of Financial Stability, which serves as a decision-making board for the financial sector without administrative functions. Established under Title X of Law 7732, CONASSIF’s composition and functions are regulated by the securities markets law.

Challenges in Costa Rican Financial Sector

However, despite its key role in promoting financial stability, Costa Rica still has a significant presence of state-owned financial institutions, with large banks and insurance companies dominating the market. This has led to competitive distortions and challenges in creating a level playing field for all market participants.

  • The legal framework governing the financial sector is highly fragmented, with general laws defining the responsibilities of central bank, supervisory authorities, and market participants, while organic laws govern specific financial institutions.
  • Public safety nets need strengthening, as state-owned banks enjoy explicit government guarantees, while other deposit-taking institutions have no protection.
  • There are weaknesses in crisis management decision-making, with no formal protocols in place.

Macrofinancial Vulnerabilities

The IMF has identified several macrofinancial vulnerabilities that pose significant risks to the financial sector, including:

  • High dollarization, which generates systemic risks and undermines the quality of credit portfolios.
  • High household leverage, particularly given high unemployment levels.

Recommendations for Costa Rican Authorities

In light of these challenges, the IMF has called on Costa Rican authorities to take steps to strengthen public safety nets, promote competition, and improve the legal framework governing the financial sector.