Financial Sector Development in Africa: Opportunities ... - World Bank

174 Fuchs, Losse-Mueller, and Witte
Financial Reporting Standards, adopting contingency planning and bank
resolution frameworks, and supervising microfinance institutions ranked
high on supervisors’ list of priorities. Although some of these efforts may
follow a political rather than an economic rationale or may even be
donor-driven, it is striking that African supervisors often deal with a much
broader reform agenda than their counterparts in developed countries.
The breadth of the reform agenda documented in the focus groups is a
challenge for the already constrained capacity of supervisors; many supervisors
felt overwhelmed with the demands on them.
The focus group discussions also indicated that some African supervisors
already take a very pragmatic, building block–like approach to the implementation
of international standards. Some regulators have decided to
introduce risk-based supervision without implementing the entire Basel
II framework, while others focus on macro-prudential supervision as their
priority. There is a strong consensus among African supervisors that a
more systematic approach to identifying regulatory priorities was
required to focus the reform agenda. In identifying reform agendas, international
standards should not be viewed as a blueprint for sequencing
reforms.
Based on the discussion in this chapter, it is suggested that African
regulators adopt a “risk-based approach” to identifying building blocks
and developing country-specific roadmaps for regulatory and supervisory
reforms. In doing so, policy makers and their partners need to move
beyond the classic assessment framework for financial stability and
develop a roadmap diagnostic framework that aids decision makers in
prioritizing certain building blocks of the reform agenda over others.
Any roadmap needs to be grounded in a set of basic supervisory conditions
and requirements (for example, the availability of data, sound
accounting practices, minimum staffing and resources, independence and
authority of the supervisor) that will need to be in place before it makes
sense to concentrate on other supervisory aspects or variations of the
capital adequacy regime. These preconditions form a necessary foundation
for implementing country roadmaps.
The choice of focus areas for reform should be based on an assessment
of (the gaps in) existing regulations and supervisory capacity and the
specific risk drivers in each country, for example, prevalent risk concentrations,
or risks inherent in the financial structure and the structure of
the economy. National authorities should choose those building blocks
that will have the greatest immediate impact on strengthening the effectiveness
of financial supervision and safeguarding financial stability.