Banking supervisors of the Arab region convene to discuss global and regional supervisory priorities

14th High-level Meeting for the Arab region: global banking standards and regulatory and supervisory priorities, Abu Dhabi, United Arab Emirates, 11-12 December 2019

Discussions by more than 240 participants, including representatives from the private sector, focused on current issues facing banking supervisors during the 14th High-level Meeting on Banking Supervision. The Arab Monetary Fund (AMF), the Basel Committee on Banking Supervision (BCBS) and the Bank for International Settlement's Financial Stability Institute (FSI) jointly organised the meeting.

In his opening address, HE Mubarak Rashed Al Mansoori, Governor of the Central Bank of the United Arab Emirates, highlighted the importance of continuously reinforcing the importance of prudent defences by regulators against "traditional" risks in the financial industry. At the same time, he stressed the expected new threats and risks to the financial sector stemming from technological development, where supervisors need to cooperate and collaborate, further leveraging the work by multilateral organisations and supporting their work.

In his keynote address, HE Mohammad Yousef Al-Hashel, Governor of the Central Bank of Kuwait, acknowledged the progress that has been made under Basel III reforms in fixing the fault lines exposed by the GFC. He reminded participants that as the new rulebook is mostly in place, supervision needs to play its due role, which would require flexible and agile bank supervisors. Moreover, as the role of technology deepens from a mere support function to a platform central to everything that banks do, banks should improve their operational resilience by strengthening their ability to respond to and recover from cyber-attacks. He also discussed climate induced physical and transition risks and their implications for the financial sector as well as for the broader economy, stressing upon the need for closer cooperation among all the stakeholders.

With the Basel III regulatory reforms already in place, it is time for supervision to step up to ensure timely and consistent implementation as well as to help maintain financial stability at large.

HE Mohammad Yousef Al-Hashel, Governor, Central Bank of Kuwait

Special attention was devoted to issues of particular interest to supervisors in the region. These included combating cyber risk, emerging supervisory priorities and other regional priorities in banking supervision and payment systems, the evolution of Pillar 2 and the supervisory review process in a post-crisis world, and the latest global developments in fintech.

Supervisory priorities were related to technological innovations and their implications for the financial sector. Cyber risk appears to be at the top of the list of concerns for many supervisors. The list also includes challenging macroeconomic and financial conditions, credit risk, issues related to anti-money laundering and combating the financing of terrorism, effective implementation of international standards, and adapting regulatory approaches and supervisory processes to technological innovation.

In the area of cyber security, discussions highlighted the paradigm shift currently under way from protection and detection to response and recovery. The cyber security ecosystem has expanded to include the need to understand both the risks stemming from supply chains, and the resilience of single institutions and the financial system as a whole. With the emergence of fintech, financial sector authorities face new challenges traditionally not within their remit, highlighting the need for closer coordination and cooperation with other authorities.

After the Great Financial Crisis, we are all working on the elements of an integrated inflation targeting monetary policy framework that combines monetary and macroprudential policies, and in some cases interventions in FX markets, to smooth volatility. This combination aims to strengthen policies and achieve both macroeconomic and financial stability.

Luiz Awazu Pereira da Silva, Deputy General Manager of the BIS

The discussions also shed light on the role of proportionality in the Basel Framework. The BCBS recognises that non-Basel Committee member jurisdictions may wish to implement some or all of the Basel III framework. The framework includes a number of standardised approaches that are, in principle, meant to be simpler to operate and implement; there is no expectation that banks must use internally modelled approaches. The proportionality principle was also discussed in the context of adapting supervisory tools to different types of bank, in particular for the purposes of implementing Pillar 2 of the Basel Framework.