Background

Although Armenia's economy has made relatively good progress over the past decade, its financial sector remains underdeveloped. The banking system alone accounts for 90% of financial sector assets and is regulated by a strong and well staffed Central Bank (CBA). The remainder of the financial sector comprises of a small but growing insurance industry with no compulsory insurance classes and with total premiums of less than US$10 million. The Stock Exchange of Armenia has some listed securities but activity is negligible. The debt market is illiquid save for a small secondary market of government treasury bills. There have virtually been no new initially public offerings (IPOs), collective investment or private pension schemes for social security protection. There is also the absence of a comprehensive, cross sector approach to risk management and weak corporate governance.

To address these concerns, the Government of Armenia and the CBA has published a vision for the financial sector that aims to engender growth in financial market liquidity, instruments, market players and products as well as greater stability within the financial system. The CBA has made clear the importance it attaches to the creation of a unified supervisory body within its own structure to improve financial sector supervision and business / investor confidence within a developing financial market.

The World Bank is keen to assist the CBA with the setting up of a unified regulator and has approached FIRST to provide support in this area. This mini project will assess the depth and breadth of the Armenian financial sector and the suitability of various unified regulator models for Armenia, with an end to recommending a modus operandi and complementary TA for establishing an appropriate unified regulation and supervision system for Armenia's financial markets.

Project

The GOAL of this project is to develop a stronger and more appropriate regulatory framework for the financial sector.

The PURPOSE of this project is to identify appropriate steps necessary for establishing a unified regulator.

OUTPUTS. The key output for this project will be a report that (i) comments on the appropriateness of the processes being followed in Armenia to select, design and implement a new regulatory architecture and identify issues that should be considered as the process develops; (ii) outlines TA projects needed to help establish and facilitate the transition to a system of unified regulation and supervision; and (iii) provides suggested Terms of Reference for the proposed TA projects.

ACTIVITIES. The consultant will: (i) Conduct a brief and preliminary assessment of the current and future potential of the Armenian financial system through meetings with, inter alia, the CBA, Stock Exchange, the insurance supervisor, representatives of the insurance industry and the resident World Bank mission; (ii) Discuss with the CBA the preconditions necessary for and various models for unified regulation and supervision and their appropriateness and applicability to Armenia; (iii) Assuming a unified regulator model is appropriate, discuss the design and implementation issues that will need to be considered when moving forward; and (iv) Draft time bound and input output outcome correlated Terms of Reference for follow-up TA to assist in the implementation of measures to introduce a unified regulation and supervision system in Armenia.

Project Documents

Project Completion Report Summary
(85KB)