NAIC Completes Self-Assessment Against International Standards
Analysis Shows Wide Observance of IAIS Core Principles
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Last Updated 12/20/16
Issue: The Financial Sector Assessment Program (FSAP), jointly established by the International Monetary Fund (IMF) and the World Bank in 1999, is a comprehensive and in-depth analysis of a country's financial regulatory sector. The IMF and World Bank launched the FSAP in response to the financial crises of the late 1990s to assess members’ financial systems. Financial systems include virtually all financial institutions, such as banks, asset managers, insurance companies, and the financial markets themselves (e.g., securities and foreign exchange). The FSAP also includes an assessment of the payments system and the regulatory, supervisory, and legal framework that underlie the operations of the financial institutions and markets. Currently, 29 major jurisdictions are selected by the IMF to undergo an FSAP review every five years. The most recent FSAP review of the U.S. financial sector was completed in 2015. The previous FSAP review of the U.S. financial sector took place in 2010.
Overview: Supported by experts from a range of national agencies and standard setting bodies, the FSAP has the following aims: (i) to identify the strengths and vulnerabilities of a country’s financial system in order to reduce crises; (ii) to determine how key sources of risk are being managed; (iii) to ascertain the financial sector’s developmental and technical assistance needs and (iv) to help prioritize policy responses.
FSAP reviews have two main components: the financial stability assessment and–in developing and emerging market countries–the financial development assessment. In jurisdictions with financial sectors deemed by the IMF to be systemically important, financial stability assessments under the FSAP are mandatory and are supposed to take place every five years. Each individual country’s FSAP concludes with the preparation of a Financial System Stability Assessment (FSSA).
To assess the stability of the financial sector, FSAP teams examine the soundness of the financial sectors; conduct stress tests; rate the quality of bank, insurance, and financial market supervision against accepted international standards; and evaluate the ability of supervisors, policymakers, and financial safety nets to respond effectively in case of systemic stress. For insurance, the ICPs developed by the IAIS form the basis for the assessment of regulators’ observance of international standards.
U.S. 2015 FSAP
The 2015 FSAP concluded on July 7, 2015 with the publication of the Financial System Stability Assessment (FSSA) and technical notes on resolution, stress testing, and systemic risk oversight. These reports followed the publication of the Detailed Assessment Report (DAR) in early April 2015 which indicated an overall level of observance by U.S. insurance regulators of the International Association of Insurance Supervisors (IAIS) Insurance Core Principles (ICPs), being designated as “observed” or “largely observed” for 21 out of 26 ICPs.
Documents related to the 2015 FSAP review of the United States can be found here.
Status: The NAIC International Insurance Relations (G) Committee is charged to coordinate the NAIC’s participation in the FSAP, including the referral of specific issues for consideration by other NAIC committees, task forces and/or working groups.