Thursday, May 07, 2020
Pandemics and Financial Inclusion (Part 3)
Gain insights on how financial supervisors and regulators can help to mitigate the impact of COVID-19 on the financial system and preserve the gains that have been made in financial inclusion. This episode features:
- John Rwangombwa – Governor, National Bank of Rwanda
- Conor Donaldson – Head of Implementation, IAIS
Full transcript
May 7, 2020
Babak Abbaszadeh:
Hello, everyone. Good morning. Good afternoon. Good evening. Welcome to Toronto Centre's Webinar
on Pandemics and Financial Inclusion. I am Babak Abbaszadeh, President and CEO of Toronto Centre for
Global Leadership and Financial Supervision. Since our establishment in 2000, sorry, 1998, we have
trained more than 13,000 mid and senior-level supervisors and this was from 190 jurisdictions. More
than 1.7 billion people worldwide remain un-banked, and the majority are women. Therefore, financial
inclusion is very important for the achievement of SDGs plus crisis such as this one, this pandemic
disproportionately affect the poor.
Babak Abbaszadeh:
In today's episode, we sit down with two prominent experts to cover financial sector regulation
supervision as well as the financial inclusion dimensions of the current challenge. We circulated their
bios to you in advance. The Honorable John Rwangombwa is the governor of the National Bank of
Rwanda. He's also the former Minister of Finance and Economy of Rwanda. In 2015, he was voted
Governor of the Year for the Sub-Saharan Africa Region, and represents this country at the World
Economic Forum, and many other distinguished entities. Conor Donaldson is the Head of
Implementation of the International Association of Insurance Supervisors. He's well-connected to
various high level international forum cooperation on standard setting and he's a member of Toronto
Centre's Insurance and Pensions Advisory Board.
Babak Abbaszadeh:
Welcome to both of you, gentlemen. Thank you for joining us today.
Honorable John Rwangombwa:
Thank you.
Babak Abbaszadeh:
Welcome.
Conor Donaldson:
Thanks very much, Babak, here.
Babak Abbaszadeh:
Thanks. Finally, I would like to thank our funders, Global Affairs Canada, Swedish Sida, the IMF, USAID,
Jersey Overseas Aid, and Comic Relief, without whom we could not achieve our global mission. Also a
big nod to the Demet Canakci and Diana Bird of our office who work tirelessly to make these webinars
possible. Thank you.
Babak Abbaszadeh:
Before we start, I know that many of our viewers have questions for these two experts. We have
allotted time to deliver your answers. Please type your questions in the Q&A tap on your zoom which
you will find below the video screen. We will answer as many as time allows. So please do not use the
chat function, use the Q&A. It's already there.
Babak Abbaszadeh:
Governor, the first question goes to you. Crisis matters. Over the past decades, World Bank research has
highlighted that financial crisis can throw millions back into poverty. We all still have fresh memories of
the 2008 financial crisis as well as other global and regional crises. But this one feels different. In your
view, what's different this time?
Honorable John Rwangombwa:
Yeah. Thanks, Babak, and thanks to the Toronto Centre for the invitation to this webinar. Yeah, we've
gone through different crises across the globe. But I'll say this particular crisis is different from the 2008,
'9 crisis made from three angles. One is the 2008 crisis was really a financial crisis and focused on issues
to deal with economy.
Honorable John Rwangombwa:
So across the globe, efforts were focused on storm lighting the economy. So at least resources were
pushed in one direction. While this particular crisis started with a healthcare crisis, sort of the opposite.
Now, people are looking down economies to try and deal with the health issues brought about by this
pandemic. That, in effect has impacted negatively on different economies. So one is in what kind of crisis
we are dealing with, this is really different.
Honorable John Rwangombwa:
We have had a crisis that has created an economic crisis. That's a bit complex to deal with. Number two,
in terms of the magnitudes in 2008, 2009, yes, the economy, the global economy crashed, but we expect
the crash this time to be more significant. When we look at the numbers, I think that time 2009, we had
the global economy growing by negatives 0.1%. As you heard from the IMF this year, the economy is
projected, the global economy is projected to shrink, let me not use grow, to shrink by negative 3%. So
the magnitude or the negative impact on the global economy is really big.
Honorable John Rwangombwa:
That is in terms of the numbers, but this one is also now affecting almost every country across the globe.
When 2008, 09, some of our country that were underdeveloped are not really linked to the global
financial system, where this shielded from the crisis. So we, for example, talk about Rwanda, we didn't
feel much about the 2008, 2009 crisis. But now we are being hit. We expected the developing countries
expected to be hit harder than even developed countries. So take an example in Rwanda, that time our
economy grew by 6.2% in 2009. This time, the preliminary numbers we have, we are revising down the
original projections. We had an 8.1% by the beginning of this year for 2020 and revising that down to
2%, assuming all things go well.
Honorable John Rwangombwa:
It's different in terms of the magnitude, in terms of the geographical impact. Then the third and even
more difficult one is that that time in 2008, 09, authorities had policy options, we had tools to use to
deal with a financial crisis. In a monetary policy, they had room to adjust monetary policy then. From the
fiscal policy point of view, countries went to borrow to invest in infrastructure projects and different
other sectors to stimulate the economy. Today, countries are heavily indebted and linked to the '08
crisis. So the room to borrow and stimulate the economy is now very limited. The banks, the central
banks, the monetary policy is completely limited, other the tools were used to deal with the financial
crisis. Most of the banks are zero percent policy reps, so you can't go any farther. We've gone into nontraditional
policy choices by central banks. It really hit us when we are in a difficult situation and with
limited policy actions. So it might take time to really deal with the economic impact that comes with this
crisis. Thank you.
Babak Abbaszadeh:
Thank you. Well, thank you very much, Governor. You connected the dots very well. It's interesting and
also kind of anxiety inducing to hear that the bullets have already been fired. Maybe we need to go grab
a baseball bat or some other weapon to deal with this. Another observation is that in 2008, 2009 banks
and insurance companies some were the culprits. Now, everybody seems to be a collateral damage and
we're all in it together. So you connected them very well as I mentioned. Just a quick mention that we
have more than 200 participants. I think reaching close to 250 from countries ranging from Albania to
Zimbabwe. So we have all the letters of alphabet covered today, and from all the major continents
Africa, Asia, Latin America, Europe, and North America of course, and friends from Malaysia and
Indonesia.
Babak Abbaszadeh:
So no time zone has stopped people from listening to you. So no pressure for you, Conor but moving on
to you. Emerging markets and developing economies face higher economic risks and hardships for the
vulnerable populations due to a lack of resources during the COVID-19 crisis and economic disruptions.
From your vantage point. What are the implications for the insurance sector and supervisors, please?
Conor Donaldson:
Thank you very much, Babak. There's a lot to unpack in that question. So first and foremost, what I
would say is that it's crises like these that remind us why insurance is an essential service. It provides
critical protections to individuals, families, and businesses. In this time, what we are reminded, and it is
unfortunate that insurance penetration rates remain quite low across emerging markets and developing
economies. In light of the situation, it is, I think, important to note that we stand as insurance
supervisors in a position to really I think reflect on some of the challenges facing the industry and facing
supervisors.
Conor Donaldson:
Ultimately, our number one objective is policyholder protection. Only today, the IIS did put out an
important statement dealing with prudential and financial stability considerations and how to balance
those, of course, with fair treatment of customers and policyholder protection. It's clear that for
insurance, the crisis really hits companies in two ways. So one, of course, on the asset side, the wild
swings and valuation and some of the assets that insurance companies are holding onto.
Conor Donaldson:
They're subject to those swings. That can have a very detrimental effect on their investments and on
their assets. Secondly, also on the liability side, and so thinking about the potential liabilities associated
with COVID-19, I suspect causes a lot of stress amongst insurance company executives because I know
that it causes a lot of stress amongst insurance supervisors. So right now, working through the crisis, it's
very important that we continue to support policyholder protection. We continue to support the fair
treatment of customers. I would say that when we think towards the future, and the ultimate impact
that this crisis has on the insurance sector, and particularly on the potential for increasing confidence in
the insurance sector, and hopefully increasing insurance penetration rates, I hope that we're able to
look back, and think, and reflect on the fact that insurance companies really stepped up and supported
their policyholders, clearly communicated with them, and took it as an opportunity to build trust and
confidence in the sector.
Conor Donaldson:
Hopefully, as a result, we're able to demonstrate the value of insurance, hopefully also, to build an
appreciation for the valuable protections that insurance can provide. So I think overall, we'll have to see
how the crisis evolves and what it means for insurance companies and how the insurance industry
comes out of it. But I do hope that this crisis does become an opportunity to further build confidence
and trust within the insurance sector and hopefully help to improve some of those very low insurance
penetration rates in the developing world.
Babak Abbaszadeh:
Conor, well said, insurance and protection is so critical. Times like these when you really need it more
so. Governor, back to you. National Bank of Rwanda regulates and supervises all sectors audit and
security. So insurance, pensions banking, with the COVID-19 pandemic spreading globally, what
supervisory measures have you taken to mitigate its impact on the financial sector in Rwanda? I should
mention to our participants, that I think prior to the crisis, by many indicators, many measures, Rwanda
had been regarded as a success story for rapid growth in Africa. So therefore, whatever you're doing
here to protect would be very interesting for us to know. Thank you.
Honorable John Rwangombwa:
Yeah, thanks. Thanks, Babak. I think, as I said earlier, this crisis started with the health crisis, then
governments, like our government took measures to curb the spread of the virus. Therefore, we had to
close most of the activities, economic activities. So from the central bank point of view, I think our first
analysis was how was this going to affect the economy or the financial sector, the businesses. Number
one, we had to allow the special restructuring by banks to their customers, normally as we'd rate as
now, we limit on the number of restructuring banks can do for their customers.
Honorable John Rwangombwa:
So we had to allow a special window to for restructuring for loans that will be hit by this crisis. So one,
that's step number one we took. Then in the first three weeks, banks had almost 25% of their customers
applying for the structuring of their loans. That together with the fact that the economic activities were
now almost non-existent, we expected that the banks would face liquidity challenges. So we had to
introduce two measures to support banks with their liquidity. One, we reduced our reserve
requirements from 5% to 4%. That's allowed them some good liquidity that we use to deal with the
challenges that we're in. But we also put up a special fund, standby credit facility or liquidity facility for
banks, that they can assess a central bank rate and can avoid for up to a maximum of one year to do
with the challenges of liquidity that would come from their customer that are not able to service their
loans, but also with limited finance, clinical activities that we didn't expect much depos to be coming to
the banks.
Honorable John Rwangombwa:
So those were the two main measures taken to deal with any challenges of liquidity. Of course, as a
regulator, we are concerned with the stability of the banks. So we had to follow up how they were
implementing their business continuity plans to ensure that we didn't have any big challenges within the
industry, and mainly focusing on banks because we had big issues that could ... Banks to put to some
extent, we bring in microfinance institution but we also supervise. Then beyond dealing with that shortterm
measures, we engage and we worked with government. The government has now introduced an
economic recovery fund of 100, plus about 200 million to start with. That supports farms from two
angles. One, we know that the hospitality industry has been hit hard, and that is one of our main sectors
in this country. So we know that hotels will take long to open because of the widespread crisis across
the globe. So government will be supporting hotels to deal with their exposure in banks, indirectly also
protecting banks against credit risk of these institutions.
Honorable John Rwangombwa:
Then number two, another window is to facilitate different farms to get cheap working capital for them
to start their businesses. We started soft opening of the lockdown this week. So if all goes well, we
expect things, business to resume normally over the next one or two, three months. So we expect farms
were hit and therefore, need some soft lawns to start their businesses. We expect that we have to kick
start the economy again. These were the main measures taken by the Central Bank and to an extent
working with the government again, but also worked with the payment industry and moved almost
digital.
Honorable John Rwangombwa:
So maybe we might come back to that, as we continue discussing, but we worked with the banks, with
the telecom companies to make it easy for citizens to transact using digital channels to avoid any and
transmission of this virus through handling of cash.
Babak Abbaszadeh:
Very interesting. So sounds like I mean, you mentioned a couple of interesting points, handling of cash,
which is becoming very challenging, and also self-reopening and the measures may be taking. I'd like to
ask my colleague Diana to put up a notice that we are promoting for a program. Another program, it's
actually another webinar we're doing which is on supervising the new normal because, governor, what
you and others talking about reopening, in some ways, we have to look at it in the context of the new
normal, like we're not really going back to the normal-normal until as we all know there's a vaccine of
some kind.
Babak Abbaszadeh:
So the lead speakers are going to be Governor Stefan Ingves of the Central Bank of Sweden. Many of
you know him as the former Chair of the Basel Committee. He's also the Chair of Jonas Center, and Dr.
Navarro, David Navarro from the WHO. We also have a third speaker which we're hoping to confirm
soon. This series will really talk more about the challenges there. So please tune in and perhaps you,
Governor and Conor, at a later date can come back and help us with that series as well. So thank you.
Going back. Thank you, Diana. going back to Conor now. Conor, as a global insurance supervisory
standards setter, how is the IAIS responding to this crisis to support its members in order to develop and
maintain fair, safe and stable insurance markets for the benefit and protection of policyholders please?
Thank you.
Conor Donaldson:
Thanks. Thanks, Babak. Returning to one of the points that the governor made at the very beginning,
which was the fact that we're dealing now with a crisis that's very different than the 2008 financial crisis.
We're dealing with the crisis that is now having very significant effects on the financial sector. But these
effects are cross sectorial in nature, they're not affecting banking, they're not affecting insurance.
They're not affecting securities markets. They're affecting all of us in very similar and very significant
ways. So many of the issues that we're facing in response to COVID-19 do require a cross sectoral
response.
Conor Donaldson:
So we have been working very closely with our colleagues at the Basel Committee, and IOSCO, the
security's regulation organization, and with the Financial Stability Board, as well as the Committee on
Payments and Market Infrastructure to really understand some of the cross sectoral implications of it,
but also, to the extent possible, work collaboratively to address some of the issues, monitor the
developments, and respond appropriately. In terms of our work, I think it can be broadly captured in
sort of three streams. So first and foremost is on the risk assessment side. So looking at the global
insurance market, understanding some of the vulnerabilities beats within the global insurance market,
and hopefully bringing an insurance perspective to some of the global forums that are talking about the
impact of COVID-19 on the financial sector.
Conor Donaldson:
Now, it's clear that we have to look at this from the perspective of really what is the effect, as I
mentioned before, on the asset side of the balance sheet for insurance companies, and then we also
have to look at some of the solvency implications of some of the coverage. Business interruption
insurance, it's been one of the issues that I think has gotten a lot of attention in the media recently. The
question around to what extent insurance companies have provided explicitly or implicitly protection,
and to what extent are insurance companies being put in a position by various initiatives around the
world to encourage insurance companies to retroactively cover some of these risks? These were risks
that potentially weren't actually priced into the premiums that were paid by businesses. So ultimately,
insurance companies could face a fairly significant solvency hit, if indeed some of these initiatives were
to come to bear and actually require payment from insurance companies.
Conor Donaldson:
The second piece that we've been working on is really on the information sharing side. It's clear that
jurisdictions around the world have taken a number of measures to support the financial sector, to
support the broader economy and the real economy. So ultimately, what we've been trying to do is to
work with our members to understand what insurance supervisors in particular have been doing, to
share that information and give access to our membership, the wealth of data and information that we
as a global organization can pull together and put into the hands of our membership, particularly who
were looking at what steps they should take, what has been the impact of some of the steps that other
supervisors have taken, what consideration should be given in terms of the effect of certain measures.
Conor Donaldson:
So I think this information exchange piece is a is a real important value that the IAIS can bring in that
we've been focusing extensively on over the past two months. A third component is really on the
coordination and cooperation. So now, as I mentioned before, working closely with our peers in the
standard setting bodies, making sure that we understand how these issues are filtering through
different aspects of the financial sector and potentially forecasting where there could be an impact on
the insurance sector but also making sure that our colleagues and the other standard setting bodies and
in other organizations that have a interest or mandate to monitor financial stability, that they're
informed of some of the impacts on insurance.
Conor Donaldson:
Then we've also been working very closely with our stakeholder community, really working to
understand how different companies are responding, consumer groups, and I think helping to ensure
that there is an ongoing dialogue between the supervisors, stakeholders at the regional and global level
and the extent to which IAIS can support that. Lastly, I would just highlight that discussions like this, we
also see as being critically important for the IAIS, reaching out to supervisors directly, having the
opportunity for us to share what the IAIS is doing, but also having the opportunity to hear directly from
supervisors who are at the front line OF dealing with this crisis. What are some of the issues that they're
facing? So I think overall, those three areas of work really encapsulate what the IAIS has been doing in
response to COVID-19 and how we've, I think, successfully reoriented ourselves to respond to the crisis
and bring value to our membership.
Babak Abbaszadeh:
Thank you very much. It's actually refreshing to hear what you're saying because it underscores the
importance of global cooperation because we're not getting a lot of good messages from several world
leaders about the importance of global cooperation. So to have organizations like you that are there
leading the charge, is very comforting to know that things are working. So thank you for that. Thank you
for all your sleepless nights, I'm sure over the past several weeks, making sure all of these pieces come
together.
Babak Abbaszadeh:
Governor, if I may turn to you, you refer to aspects of this question. So you may want to make your
answer possibly a little bit more concise, so we can do other questions as well. In the wake of COVID-19,
can we now take a look at the inside of your institution? How have your staff been affected? Have you
activated your business continued plan or any other crisis management arrangements? Thank you.
Honorable John Rwangombwa:
Yeah, yes. Okay. I think the first point I want to make is we are happy that none of our staff has been
directly affected by the violence at least we've done tests for almost a third of our staff, and they're all
negative. So we are happy with that. But then when this crisis started to enforce the distancing principle
that was advised across the world, we had to move to working from home. We are lucky that we have
been undergoing a journey of automating our positions and processes.
Honorable John Rwangombwa:
So by the time it happened, we are ready to move dicto. In fact, at the bank, we tend about 17. In fact,
less than 17, about 13 out of about 404 total stuff we have in the bank. These were people dealing
directly with the withdraws of banks, this accounts management team only, and then QIT staff that we
are managing centrally the use of the system. So all the payments, all the payments were that between
banks of banking, banks banking with us, government operations, all that are done online. So we didn't
have any problem with that. It was being processed by our staff from home. Movement of documents,
signing of documents, we're doing that online. So we immediately really started implementing our
business continuity plan. We haven't really had any big problem during the crisis, because we are lucky
that we had automated most of or operations.
Babak Abbaszadeh:
Conor, this next question may start off by appearing to be a bit of a commercial for IIS from us. So a bit
of a humble bragging for our partner here, but there's a real punchline at the end, so bear with me for a
second. So in 2019, you really accomplished a lot, IIS, substantially revised the set of ICPs, insurance core
principles, the adoption of conferring, the first global framework for the effective and globally consistent
supervision of internationally active insurance groups, the adoption of the holistic framework for
assessing and mitigating systemic risk in the global insurance sector, just to name a few. So the
punchline is this. How is IIS making sure that implementation of insurance reforms will not fall behind
for its members due to this COVID disruption we're all facing? Thank you.
Conor Donaldson:
Thank you very much, Babak. I appreciate the opportunity, of course, to highlight that 2019 was indeed
a very significant year for the IIS, we made progress on all of the key policy initiatives we had taken on
post 2008 global financial crisis and to bring those to a close towards the end of 2019 was a great
accomplishment on the part of our membership to come together and agree on some fairly significant
reforms. So I don't think that anyone could have predicted in 2019 that we were about to head into the
scenario that we find ourselves in now.
Conor Donaldson:
But I can say that within the IIS, of course, we have been very mindful of the need to provide operational
relief to our member supervisors and to insurance companies at this time. Our stakeholders in particular
insurance companies, we rely on extensively, in terms of the implementation of our supervisory material
and the reforms that we adopted in 2019 are no different. We require, of course, their active
participation in ensuring comprehensive and consistent implementation.
Conor Donaldson:
So in March, our executive committee took a number of, I think, very important decisions to provide
operational relief. But at the same time, to state unequivocally, that this would not mean delay in
implementation. We would continue to go ahead as planned in terms of implementation, but
recognizing some of the tools that we had for implementation, both in terms of the monitoring of the
implementation of the insurance. Capital standard, as well as the holistic framework, so the policy
measures that are part of that framework and the implementation of those policy measures by
supervisors, there would be no delay to the timelines.
Conor Donaldson:
However, what we did say was that we would, recognizing the challenges associated with COVID-19,
that we would extend some of the deadlines on our data collection work that goes along with
supporting our work with the holistic framework. Secondly, with the insurance capital standard, so we
would extend the timelines for data submission on the part of our members and the information that
they were collecting from insurance groups within their jurisdictions. In terms of what I think is the most
important tool that we as a global standard setting body have to really, I would say, drive
implementation of the policy measures that we develop by our member supervisors, our assessment
tools, we made a decision to continue with our assessment of the implementation of the policy
measures that are part of this holistic framework for identifying and mitigating systemic risk in the
insurance sector.
Conor Donaldson:
So we are continuing with our assessment, we have extended the timeline, so jurisdictions have to
respond in this assessment. We anticipate that we will continue our assessment activities in 2021, 2022
building off this initial assessment. So from my perspective, I think we've taken a very measured and
balanced approach in terms of recognizing the implications of COVID-19 on the capacity of our members
and our stakeholders. But at the same time, unequivocally saying that implementation remains priority,
and that we would continue our efforts to support implementation of the reforms that we adopted in
2019.
Babak Abbaszadeh:
Thank you, thank you for that. Governor, I wanted to take a different tack, bring technology into the
question and impact on the poor. So digital financial services powered by FinTech have the potential to
lower costs by maximizing economies of scale, increase the speed, security and transparency of
transactions and to allow for more tailored financial services that serve the poor, particularly in Sub
Saharan Africa. How are supervisors using technology to monitor financial institutions more effectively, I
guess in our language, Suptech? Is this making a difference in broadening financial inclusion in
jurisdictions such as yours please?
Honorable John Rwangombwa:
Yeah, thank you, Babak. Yes, as you said, we expect digital financial services. We need to press control in
improving financial inclusion and making financial services more accessible and affordable and also
improving economic or financial conditions, this could be a turnaround of economic transactions using
digital financial services is going to be really high speed and that will have a positive impact on the on
the economy.
Honorable John Rwangombwa:
From our end as the central bank, in fact, we play an active role in promoting not just overseeing the
payment system through digital financial services, but we have a department that actively works with
different stakeholders to drive the growth of financial, digital financial services within our country. One,
it makes it easy for us from even a monetary policy point of view that we'll have the resources outside,
then people's pockets to be in the formal sector. Therefore, we're able to manage financial resources
within the economy in general. But also when we talk of Suptech like today, with implemented an
electronic data warehouse where we receive all the data from our financial institution that we would get
directly from the source.
Honorable John Rwangombwa:
We are able to on time to analyze what's happening within banks. Now, we've been taking that into
consideration with this crisis we are in. So we are able to monitor what is happening across the financial
institution because for them, they continued working, we took it as essential service within the country,
so they continue working. We're able to monitor we're able to receive reports while we are at home.
We are able to interact with them while we're at home, and we are able to at least to ensure that
nothing unusual happens without our knowledge during this crisis. Also even going forward, we're able
to have full information that is required and makes the work of the financial institution of regressor
institutions easier to deal with us because the regressor really costs down. So we think it's really key that
we move dicto one in terms of economic transactions, but also as regulators. We support that. We make
it easy for innovators to bring onboard new products. We are able to follow that up and encourage
more products come on board because we know the benefits of this. It's helping us as regulators as well.
Babak Abbaszadeh:
Excellent. Governor, as you were talking, it's just dawned on me, I mean, you put the points together
about as you are improving your system, greater access is becoming possible and then you have real
time access to information to be able to supervise. This brings to my attention the fact that it's for me,
very frustrating the dichotomy between financial stability and financial inclusion for some people, as if
you do one and then you do the other. But the two are in intricately interconnected. I mean, IMF
research suggests that risk of financial stability increase when access to credit is expanded without
proper regulation and supervision. Again, IMF goes on. "Therefore, investing in high quality supervision
can pay big dividends as financial inclusion expands." This dovetails well with the mission of Toronto
Centre.
Babak Abbaszadeh:
That's where our interest comes in. We don't really see much of a dichotomy between the two, we see
them as interrelated system. I think the comments you made are a corroboration of that. Conor, let me
ask you their final question. And then I'm very anxious to get to the question from the audience because
we have excellent questions from them. So insurance supervisors have a significant role to play in
facilitating innovation for greater societal benefits while ensuring prudent, fair and responsible use of
technology in the interests of policyholders. How should supervisors respond to supervising in the
digital era? What do you see a role for an organization like Toronto Centre who's on the ground? What
can we do to help in this area? Thank you.
Conor Donaldson:
Perfect. Maybe I'll take the question in two parts. So I'll deal with the first part of the question, and then
I'll come back to where I see the Toronto Centre in a strong position to be able to contribute to effective
supervision. So in terms of the digital transformation that we're seeing within the insurance industry, it's
very clear that developments are moving ahead. This crisis actually could even accelerate some of those
trends. So even greater reliance on digital technology across the entire lifecycle of the insurance
business.
Conor Donaldson:
So first and foremost, from our perspective, it's important that supervisors recognize the importance of
building up capacity and expertise in the area of data, data sciences, and really the fundamental
technologies that are supporting some of these innovations. Secondly, it's very clear they have to
continue with the ongoing, fundamental supervisory skills. Just because it's a new technology, doesn't
mean that the principles of fair treatment of customers or Sound Prudential Regulation don't apply. I
think it's very important to recognize that to be supervising these new entrants into the field, you still
need to build off a foundation of sound knowledge of the core tenets of supervision and regulation.
Conor Donaldson:
The second piece that I would add, I mean, the third piece that I would add is really adapting a
supervisory environment or building a supervisory environment for innovation. What we've seen in a
number of jurisdictions is that it is a bit of a challenge for new entrants to come in to the market in the
same way that a traditional service provider would come into the market. There's a variety of reasons,
but I think there is sort of incumbent bias within a lot of regulatory frameworks. Recognizing that new
technologies do need an opportunity to be tested to be able to determine if they work, if they can
deliver services and still maintain a high level of policy work protection.
Conor Donaldson:
There needs to be an opportunity to look at those innovations and how they could come to the market
and different approaches by different supervisors, sandboxes, innovation hubs, etc. But it's clear that
the existing regulatory framework may not be the optimal one for encouraging innovation, and then
steps can be taken by supervisors to find different avenues for new entrants come into market. The last
piece, fundamentally, as I mentioned, we have to treat these new entrants as we would other entities
that are coming into the market in terms of making sure that customers are treated fairly, making sure
that they're subject to sound, prudential regulation.
Conor Donaldson:
But I think we also need to be mindful that some of the key correct concepts around insurance
supervision could change quite fundamentally in the coming years. Some of the trends that we're seeing
in terms of big techs coming into financial services spaces and some of the ways in which they're
changing the business model, certain financial services, we've seen as I think quite significantly on the
payment side. Ultimately, the entire game of supervision could change quite significantly in the coming
year. So being mindful of what we're seeing and some of the trends that we're seeing. I think
supervisors need to be continuously looking to the horizon in terms of the what does this really mean
for how I go about my day to day job of supervision?
Conor Donaldson:
In terms of how the Toronto Centre can support supervisors who are going through this journey, the
Toronto Centre has a storied history of being able to train leaders in the financial services regulatory
space. I think, ultimately, good leadership is going to be a core component of making sure that
supervisors are well-prepared and are continuing along the pathway of understanding and responding
to some of these trends that we're seeing in terms of innovation. The second piece instead, I would say,
I think we've seen a demonstrable impact where we have supervisors who have taken a forward stance,
a forward look in terms of what skills and experiences they need to bring into the supervisory authority.
Two examples that jump into my mind. Not sure if my friends from Kenya or my friends from Ghana are
on the call. But these are two supervisory authorities that I think have recognized the value of upskilling
within their staff, and then also bringing in new talent and new experiences, who can work with some of
the people who are in a position to bring technology and the positive impact of it to financial services.
Conor Donaldson:
So I do think that the Toronto Centre could play a very important role in terms of helping supervisory
authorities to map out where they can upskill how they can go about developing their supervisory staff
both in the fundamentals of supervision, but also in terms of bringing in the right people in terms of
understanding technology and the impact it can have on the financial sector. I think these two areas are
where the Toronto Centre is very well positioned to be able to contribute.
Babak Abbaszadeh:
Thank you very much, Connor. This is very consistent with our view of how to get involved. Also I highly
recommend to the viewers to visit our website, take advantage of our Toronto Centre notes, TCNs on
Suptech, FinTech, everything that's available there. We are working on a project with USAID on sexdisaggregated
data and regulatory technology and Suptechs. So we hope to be able to make that
possible to the supervisory community. Yeah, pilot countries from Africa and Latin America are
participating in this, and plus other the programs that we have in Asia. So thank you for that.
Babak Abbaszadeh:
Let me move to the audience questions. I'm very encouraged by the large number of questions we
received. First, a big shout out to Gloria Igueh from Abuja, Nigeria and for Ademollah Abia from Lagos,
Nigeria, so I already have two nods from Nigeria here. So welcome, everyone. Going to the Q&A, and I'm
going to try to assign as many as I can. So let's do some rapid answers to really, really good question. So
it's not a justice to the questioner. It's very easy during and after a crisis that we as regulators and
supervisors could reach over our responsibilities. What advice could be given to regulators and
supervisors regarding their roles when dealing with this crisis and how they regulate and supervise their
institution? So obviously, it's a huge, huge question. But the idea is how do we not overreach?
Governor, can ask you to take a stab at this one?
Honorable John Rwangombwa:
Maybe Conor would be the right person to answer that, but I think it's true. Difficult times like this one
might create challenges and regulators may ease their grip on the regression. At the end of the day, you
might have challenges. But what I would say, it's very important that we always have in mind, the fact
that stability remains the most important thing, the stability of the financial sector that we do regret. So
as I said, while we took measures to support the business firm that we're having challenges with the
banks, but we have clear guidelines on how this is going to be done, not to compromise any principles of
financial stability. Despite the challenges we are going through, we are keeping an eye of what is
happening within the financial sector through different channels. In fact, we engage and talk to the
COOs of their financial institutions. So I totally agree with that statement. We have to remain focused
and engaged on the ultimate goal of long-term financial stability as we try to solve short term
challenges.
Babak Abbaszadeh:
Yeah, good point and also underscores the point that for some stakeholders out there, they think the
contribution of supervisors and regulators during crisis sometimes to get out of the way so that stability
of the system can be brought in. But at the same time, there's a very important mission and mandate as
supervisors and regulators play. It's very, very important for everyone to understand. I think our
supervisory audience understands they never get a positive press release about what they do, but they
always get a finger blame pointed at them when something goes wrong. So it's a tough balancing act
here. Conor, the next question is sort of like, I guess as in relation to this question. So let me just go right
to you. What change, if any, do you see the pandemic have on financial stability going forward, perhaps
for Conor, so you're actually mentioned in your question. Do you see any changes and revision to
international standards going forward?
Conor Donaldson:
So I'll take the first question and just to say that it's hard to predict with any level of certainty what the
long term impact of this crisis is going to be on the financial sector. I think ultimately, supervisors taking
proven steps to contribute to financial stability are critically important, and will continue to support our
members in working through some of the challenges and the evolving nature of this crisis. I would also
just add, one of the key things for supervisors particularly for insurance supervisors is never lose track of
the key objectives. I think ultimately, that's how you prevent overreach. So I just wanted to add that as
an addendum to the governor's answer on the first question.
Conor Donaldson:
In terms of our standards, do I see any changes? No, no, I think at this moment, what we're seeing is
that actually the standards that we've worked so hard on have contributed to the resilience of the
financial sector. But I'll offer a personal view as well, just because my time with the IIS will come to an
end at some point in the not too distant future when I hit my statutory maximum here/ I feel
empowered to offer a personal perspective. What I would say is that I think that one of the benefits that
could come from this crisis is that there will be a more systematic view on how solvency and conduct
risks interact. This is particularly important in insurance, where we are seeing some of the challenges
around policyholder protection and prudential supervision. So I do hope that one of the benefits that
come from this really tragic crisis is the fact that supervisors, particularly insurance supervisors, can
never do think of how these two areas of risk interact so that we can have a more integrated view on
conduct and potential regulation.
Babak Abbaszadeh:
Thank you for that, Conor. Just reflecting on you saying that you'd be leaving, I hope the statutes are
revised because we need you at IIS and other international forum. Anyway, the governor, the next one is
for you. Also before I do that, I think Nelson from Kenya likes the discussion. So thanks, Nelson, and I
really appreciate getting a positive comment from you. Back to the governor. I thank you for this panel. I
would like to ask the governor to specific measures taken for the microfinance sector, as these financial
institutions don't usually have access to central bank money and so are not target of central bank
importance in response to this pandemic. Do you have any views on this at all, Governor?
Honorable John Rwangombwa:
Yeah, interesting. This is something we've been discussing over the last maybe one month. Finally
settled to providing some resources to the microfinance institutions, looking at our mandate of financial
stability mandate. There's the emergency facility that we can use in this case for the financial institutions
we are overseeing. Yes, so we are providing some resources, short-term liquidity for any financial, any
microfinance institution that is stable, that is sound that has securities, even government securities or in
bank depots that can support them to get this financing from ourselves. So as I said, we are in
unprecedented times. So we are trying to look for solutions to support our financial institutions to go
through this crisis. So yes, we are providing something.
Babak Abbaszadeh:
Good difficult times. I have a question here from one of our Toronto Centre trainers. This is a question
for Conor, you mentioned possible impacts on insurance companies' assets and increase claims. Any
concerns on insured people and companies to pay premiums? What is the role of the insurance
supervisors to deal with this aspect during the cisis?
Conor Donaldson:
Thank you. It's a great question. So ultimately, we haven't seen, I think, the full impact on the real
economy, which is definitely going to have an impact on people's ability and capacity to continue to
make payments to insurance companies to pay premiums. But I do think that it's important that
insurance supervisors do implement measures that can provide greater flexibility for insurance
companies in terms of the different types of payment that insurance companies can receive, how
premiums can be collected how insurance contracts can be executed.
Conor Donaldson:
So I think that there's a number of steps that insurance supervisors are taking working with the industry
to provide greater flexibility for insurance companies and hopefully respond to some of the challenges
that insured people are facing currently, but also the sort of medium term horizon could continue to
face. I think that flexibility that insurance supervisors are taking and the steps that insurance companies
are taking to support insured people, premium payers to manage in this social distancing and lockdown
situation I think, hopefully that will mitigate some of the worst effects but we won't see the longer term
impact of the crisis on the real economy and then consequentially on how it affects premium payments
over the medium to longer term horizon for quite a while.
Babak Abbaszadeh:
Yeah, interesting point. That's why, for us, this reopening sounds much more optimistic than it is. We
kind of look at it as new normal. Right. So supervising the new normal. So essentially, what you talked
about is very much relevant to that and fits well with that. Governor, this next question, strikes me as a
business continue to talk about an area. So what critical data and information should financial regulators
and supervisors make sure they're getting from their regulated institutions that are frequent in the wake
of COVID-19? So you probably thought about that in the context of all the disruptions.
Honorable John Rwangombwa:
Yeah, I think maybe the most frequent data requesting from our financial institutions now is for
example, we talked about the borrowers having challenges to finance their or to service their loans. On
a weekly basis, we are getting data on the demands for restructuring, what kind of restructuring has
been done, what does it mean on the overall loan book for the financial the banks and down to the
microfinance institutions. We are looking at of course, we follow what's what the banks are doing in
terms of their business continuity to be sure that there are no disruptions that could cause long-term
challenges to the stability of the financial institutions.
Honorable John Rwangombwa:
Of course, we follow up liquidity levels and that we are able to see if there are any challenges that could
affect the the capital base of the company so we are looking at the main indicators financial stability,
more close to end than before. We are seeing challenges, but also really looking at the possible sources
of problems, which is the customers of these financial institutions. So we see for liquidity how, as we
said, business entities are having challenges so before liquidity, do we have any challenges of random
financial institutions, people withdrawing their money? We didn't follow up anything that would create
instability within the financial institutions.
Babak Abbaszadeh:
Conor, I wonder if I can ask you to address this one. If you think that's appropriate for you, what do you
foresee will be changed in respect to IFRS 17 in view of the effects of this pandemic?
Conor Donaldson:
Yeah, IFRS 17, a topic that only a couple months ago was occupying actually a significant amount of our
time, which is I think, somewhat been overshadowed as of late. But I think from our perspective, it's
important that there be a realistic view in terms of implementation. It's clear that there's going to be a
lot of challenges in terms of implementation, even in a best case scenario. So not in a crisis situation, in
a best case scenario in terms of making sure that the capacity exists within the market, within insurance
companies, within the supervisory authorities, within other regulatory authorities that of course, are
going to have a role in this.
Conor Donaldson:
So when you think about the transition and implementation of IFRS 17, I think the delays in terms of
implementation are positive. I think also that supervisors and other organizations that are involved in
the implementation of IFRS 17 take a look at a realistic view in terms of what they can do and the
timelines that they have. Frankly, Babak, this is actually another area where I think the Toronto Centre is
very well-positioned to work with the industry and with supervisors in terms of addressing some of the
challenges that exist in different markets, in terms of actually going through the process to implement
IFRS 17.
Babak Abbaszadeh:
Conor, yeah, it's something that we actually done some work on this for sure. Governor, the next
question for you. I recall from reading your bio, if I'm not mistaken, you were a very senior official at the
Revenue Commission of your country prior to becoming a minister of finance, so it's appropriate for you.
Hopefully, I'm not throwing a hot potato at you. It's not about Rwanda, but maybe you can have some
insights into this. Can central bank supervision of digital financial transaction in the informal sector lead
to increasing official control, i.e. taxation etc. which could dampen the vitality of this sector increasing
poverty and even threatening survival in these times of COVID that are that are beyond the normal?
Honorable John Rwangombwa:
Yeah, it's interesting that question is asked because that's one of the stumbling blocks to bring digital in
most of the business entities here or even across different countries because it really increases formality
and of course, the taxman eye is always open. I think as authorities that want to promote long term
successes of formal economies, I think we have to structure our tax policy in a way that doesn't
discourage me from moving digital. So that's very key.
Honorable John Rwangombwa:
But again, I wouldn't talk want people to look at that as a negative issue without looking at the positive,
the benefits of going digital because these informal sector organizations or micro finances, micro
businesses, if they're good digital, they move into the formal sector, they're able to deal with a financial
institution, they're able to raise financing to grow their businesses, they're able to benefit a lot by going
far more than the small fear that the taxman will hit them hard on the head. Because at the end of the
day, a good tax policy will not tax out of their businesses. So the tax policy is the key to avoid tax liquid
out of businesses, but the benefits of going digital and therefore going formal are much more bigger
than any fear of taxation.
Babak Abbaszadeh:
Very good points. Also interesting pickle we're in, right? Because cash during COVID is a dirty entity. You
don't want people to carry cash, touch cash, deal with cash. Yet for many poor people, that seems to be
one aspect of what they have. So you don't want to throw the baby out with the bathwater. Hope there
was a better analogy than that. But I think you handled that question very well.
Babak Abbaszadeh:
We've come to the close. I need to apologize to our viewers for not being able to read all of your
questions, questions were great. The ones that have not been read are not lost. We have a record of all
of them, and we will deal with them one way or another either by responding to you directly or
incorporating into our training programs and publications. A huge thanks to our speakers. You were very
kind and thoughtful with your time, but also a big compliment to you, you had a wide range. I mean,
there are actors out there like Jack Nicholson or Russell Crowe can only act in one way, but you were like
one of these other superstars who really could answer a wide range of questions in different ways. So
thank you so much. You did extremely well. We are very grateful to you. Than you. Thank you. Thank
you again, everyone, bye.
Honorable John Rwangombwa:
Thank you, thank you again for the invitation.
Conor Donaldson:
Thank you very much, Babak. Thank you, Governor.
Honorable John Rwangombwa:
Thanks to the audience for the interactive questions.
Babak Abbaszadeh:
Thank you.
Conor Donaldson:
Yeah, absolutely. It was, again, another great Toronto Centre Program and look forward to the next
opportunity to contribute.
Babak Abbaszadeh:
You'll be back. The two of you will for sure will be back. Thank you. Bye bye.
Honorable John Rwangombwa:
Thank you, thank you.
Conor Donaldson:
Bye bye.