Financial Sector Assessment Program (FSAP)

The Financial Sector Assessment Program (FSAP) is a joint program initiated by the IMF and World Bank in May 1999, with the aims to (1) identify the strengths and weaknesses of a country’s financial system, (2) assess a country’s compliance with the international best practices, (3) promote the financial system’s development as well as provide technical assistance needed, (4) specify risk management strategy and (5) help prioritize policy responses and strategic plans.

FSAP covers assessment of various issues in the financial sector, for example, banking, securities, insurance, monetary and financial policy transparency, payment and settlement systems, and anti-money laundering. The assessment comprises three main components, namely, (1) financial sector analysis, including analysis of efficiency, competitiveness, concentration, and liquidity, (2) macroprudential analysis, including stress testing, scenario analysis, and analysis of financial soundness indicators and macrofinancial linkages, and (3) assessment of observance to international standards and codes.

The assessment framework varies among countries depending on the size and risks of each country.  The program assesses the quality of the supervisory guidelines and practices in each sector against relevant international standards and codes, and provides recommendations to rectify the weaknesses.

The international standards used in the FSAP program include the Basel Core Principles for Effective Banking Supervision (BCP), the International Organization of Securities Commissions’ Objectives and Principles for Securities Regulation (IOSCO), International Association of Insurance Supervisor’s Insurance Supervisory Principles (IAIS), the Core Principles for Systemically Important Payment Systems (CPSIPS), the Code of Good Practices on Transparency in Monetary and Financial Policies (MFP Code), and the AML/CFT Financial Action Task Force (FATF’s Recommendations 40+9).

FSAP assessors use various methodologies, including review of documents, and interview with supervisors and stakeholders both in private and public sectors. For example, in assessment of the banking sector, the assessors meet with banks’ senior management, external auditors, law firms, and various government agencies involved.

The assessment results are in the form of the Financial System Stability Assessment (FSSA) report, which the authorities may choose to publish on the IMF website.

As part of quality assurance, the IMF and World Bank conduct a peer review to ensure consistency in the assessment results since not all assessors are IMF/World Bank staff, but are experts temporarily recruited from various supervisory authorities for one to two months.

Thailand participated in the FSAP program in 2007, and is in the process of finalizing the report.

In addition, there are assessments of compliance to other international standards and codes (Reports on Observance of Standards and Codes -- ROSCs).  The authorities can choose to participate in these programs separately from FSAP (i.e. standalone ROSCs); areas of assessment include Data Dissemination, Fiscal Transparency, Corporate Governance, Accounting, Auditing, and Insolvency and Creditor Rights.  Thailand had already been assessed in two areas, namely, Data Dissemination and Corporate Governance. Their reports can be found on the IMF website.