Strengthening Supervision of Conglomerates in Colombia
Project Development Objective (PDO)
This project aims to address the identified gaps in the 2012 Financial Sector Assessment Program (FSAP) related to consolidated supervision of conglomerates. Specifically, the project will improve consolidated supervision capacity by equipping the Central Bank of Colombia (BR, Banco de la República) and Superintendencia Financiera de Colombia (SFC) with tools and methodologies to monitor and supervise systemic and liquidity risks faced by financial conglomerates (FCs).
The global financial crisis and recent changes to the structure of the Colombian financial sector have exposed the need to enhance regulatory and supervisory standards for the financial sector. Increased market concentration through conglomeration; mergers and acquisitions; and the increased internationalization of the Colombian financial conglomerates, mainly in Central America, pose substantial challenges. The structure of the conglomerates operating in Colombia generates complexities that limit the supervisor’s abilities to effectively take action. Despite some improvements of the SFC on this topic, important gaps remain in the definition of financial conglomerates and the scope and conduct of consolidated supervision that do not allow supervisors to fully “capture” an economic group and supervise diverse risks.
In addition, given recent challenges, FSAP recommends strengthening consolidated supervision. There is a need to clarify the definition of financial conglomerates to (a) give a broader legal authority to the SFC in this area, (b) adopt regulations that extend supervisory and regulatory powers to holding companies of financial institutions, and (c) adopt guidelines to force changes in a group’s structure.
The project team is recommending changes to current regulations and new regulations that the SFC could implement. Those changes include (a) regulations to consolidate liquidity risk for individual entities, (b) regulations to consolidate country and transfer risk and interest rate risk on the banking book, and (c) consolidated capital requirements for financial conglomerates.
The project team is recommending monitoring financial conglomerates to identify systemic, foreign, and liquidity risks and the measures the BR and SFC need to take. The project team is also developing a regulation that BR should adopt for foreign currency and its liquidity risk that the financial conglomerates face. Last, the project team is conducting training workshops and disseminating knowledge that will continue for the life of the project.
The expected outcomes of the project at each level are as follows:
Outcomes at Financial System Level
1. More effective supervision of FCs and improved oversight of the financial sector
2. FCs to comply with new prudential regulations and standards to limit distress and maintain
Outcomes at Enabling Environment Level
1. Regulations established for FCs to give BR, SFC, and supervisors the legal power to (a) impose
prudential standards, (b) consolidate supervision effectively, and (c) to redress the risks as
2. Supervisors to have the tools and analytical capacity to assess risks posed by FCs
3. Foreign currency and liquidity risks regulations to guide FC standards in place