Financial Crime World

CENTRAL BANK OF TUNISIA LAUNCHES CONVERGENCE FRAMEWORK TO STRENGTHEN BANKING SECTOR

Introduction

The Central Bank of Tunisia (CBT) has announced the relaunch of its convergence framework to strengthen the country’s banking sector. The initiative aims to ensure full compliance with Basel standards by 2023.

Convergence Framework Overview

The CBT’s convergence framework involves a three-cycle approach:

  • Cycle 1 (2011-2015): Focused on implementing specific frameworks for treating banks in difficulty, revising sanction systems, and establishing a bank deposit guarantee fund.
  • Cycle 2 (2016-2020): Introduced operational risk capital requirements.
  • Cycle 3 (2020-2022): Has seen the introduction of market risk capital requirements, regulatory reporting overhaul, and stress testing exercises.

Progress Towards Basel Standards

The CBT has made significant progress in adopting International Financial Reporting Standards (IFRS):

  • Published circulars defining the prudential scope of consolidation, IFRS macro impact studies, and micro impact studies on IFRS 9.
  • Aim to complete the adoption of IFRS by 2023.

Implementing Basel Standards

The CBT is working towards implementing other Basel standards:

  • Countercyclical capital buffer
  • Definition of equity
  • Calculation of risk-weighted assets for credit risk
  • Revised requirements for market capital, operational risk framework, leverage ratio, systemic important banks (SIB) and domestic systemically important banks (D-SIB), internal rate risk in the banking book (IRRBB), liquidity management, net stable funding ratio, and large exposure.

Importance of Convergence Framework

The CBT’s Deputy Governor emphasized the importance of this convergence framework: “The implementation of Basel standards is crucial for ensuring financial stability and protecting depositors’ interests.”

Disclosure Practices

The bank has committed to enhancing its disclosure practices, publishing key metrics such as:

  • Capital adequacy ratio (CAR)
  • Tier 1 capital composition
  • Internal rate risk in the banking book (IRRBB)

Expected Outcomes

The convergence framework is expected to enhance the CBT’s supervisory capabilities, ensuring a more robust and resilient financial system in Tunisia.