FINANCE, COMPETITIVENESS & INNOVATION GLOBAL PRACTICE SEOUL CENTER for FINANCIAL SECTOR DEVELOPMENT Annual Report 2018 Republic of Korea © 2019 The World Bank Group 1818 H Street NW Washington, DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org All rights reserved. This work is a product of the staff of The World Bank Group. The World Bank Group refers to the member institutions of the World Bank Group: The World Bank (International Bank for Reconstruction and Development); International Finance Corporation (IFC); and Multilateral Investment Guarantee Agency (MIGA), which are separate and distinct legal entities each organized under its respective Articles of Agreement. We encourage use for educational and non-commercial purposes. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Directors or Executive Directors of the respective institutions of the World Bank Group or the governments they represent. 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Any queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: pubrights@worldbank.org. Photo Credits: World Bank Group Library and Shutterstock.com Table of Contents Acronyms and Abbreviations III Highlights of 2018 1 About Seoul Center and the Partnership 5 SECTION I. Seoul Center Activities in 2018 9 SECTION II. Detailed Results of KTF-Funded Operations in 2018 23 SECTION III. Seoul Center Plans for 2019-2020 53 ANNEX 1. New Formal Partnerships in 2018 57 ANNEX 2. Feature Story: World Bank Group Partners with KAMCO to Promote Financial Stability in East Asia and Pacific 58 ANNEX 3. Seoul Center Korea-Based Team 60 The Seoul Center 2018 Annual Report has been prepared by Youjin Choi (Financial Sector Specialist) and Sameer Goyal (Program Manager, Seoul Center) with inputs from FCI EAP task teams for the projects support by the Korean trust fund. The report also benefited from support from Ryo Sun Jang (Consultant) and was prepared under the overall guidance of Irina Astrakhan, Practice Manager for FCI EAP. SEOUL CENTER FOR FINANCIAL SECTOR DEVELOPMENT ANNUAL REPORT 2018 I Acronyms and Abbreviations AML/CFT Anti-Money Laundering and Combating the Financing of Terrorism ASEAN Association of Southeast Asian Nations BOK Bank of Korea BOL Bank of the Lao PDR BOM Bank of Mongolia BSP Bangko Sentral ng Pilipinas (Central Bank of Philippines) CBM Central Bank of Myanmar CIFC Center for International Financial Cooperation (Korea) CLMV Cambodia, Laos, Myanmar, and Vietnam DICOM Deposit Insurance Corporation of Mongolia DPO Development Policy Operation EAP East Asia and the Pacific EFI Equitable Growth, Finance and Institutions Vice Presidency FCI Finance, Competitiveness & Innovation Global Practice FinSAC Financial Sector Advisory Center FIU Financial Intelligence Unit FRC Financial Regulatory Commission (Mongolia) FRD Financial Regulatory Department (Myanmar) FSAP Financial Sector Assessment Program FSC Financial Services Commission (Korea) FSS Financial Supervisory Service (Korea) GP Global Practice SEOUL CENTER FOR FINANCIAL SECTOR DEVELOPMENT ANNUAL REPORT 2018 III KAMCO Korea Asset Management Corporation KDIC Korea Deposit Insurance Corporation KoDIT Korea Credit Guarantee Fund KoFIU Korea Financial Intelligence Unit KSD Korea Securities Depository KTF Poverty Reduction & Socio-Economic Development Trust Fund II M&E Monitoring and Evaluation MEF Ministry of Economy and Finance (Cambodia) MOEF Ministry of Economy and Finance (Korea) MOF Ministry of Finance (Vietnam) MOJ Ministry of Justice (Lao PDR) MOJHA Ministry of Justice and Home Affairs (Mongolia) MOLISA Ministry of Labor - Invalids and Social Affairs (Vietnam) MOPF Ministry of Planning and Finance (Myanmar) MOU Memorandum of Understanding MSME Micro, Small, and Medium Enterprises NBC National Bank of Cambodia NBFI Non-Bank Financial Institution NPS National Payments Strategy/System PA Programmatic Approach PDIC Philippine Deposit Insurance Corporation PNG Papua New Guinea RBS Risk-Based Supervision SFI State-Owned Financial Institution SME Small and Medium-sized Enterprise SOB State-Owned Bank SOE State-Owned Enterprise SSC State Securities Commission (Vietnam) TA Technical Assistance VSS Vietnam Social Security Fund IV ABBREVIATIONS AND ACRONYMS Highlights of 2018 Country and region-specific operational work support through KTF •• Seven country/regional programs that had started in Seoul Center 1.0 (SC1.0) were completed and the remaining two programs (Cambodia and Philippines) are scheduled to be completed by mid-2019. •• Grants funds totaling $3,042,296 delivered financial sector development related work in 10 EAP countries to support diagnostics/reports/notes, upgrade of laws/regulation, strategic TA and capacity building. •• FSAP work (dialogue for initiation, follow-up work, etc.) was supported by the grants in Philippines, Mongolia, and Vietnam, and background work for a lending operation ($20 million) was supported in Lao. •• International standards upgrading in Lao and Vietnam relating to conduct of National Risk Assessment. •• Two high-profile publications were launched bringing attention to Basel II implementation and de-risking in banking services (the latter was launched on sidelines of WBG-IMF Spring Meetings 2018). •• Capacity building/knowledge exchange workshops conducted in Cambodia, Lao, Mongolia and Myanmar •• 2018 was the first full year of operation in Seoul Center 2.0 (SC2.0) and three new KTF proposals were approved for Mongolia, Lao PDR, and Myanmar to build on the ongoing work delivered through grants. Leveraging Korean expertise and institutional capacity through partnerships •• Seoul Center (SC) team continued to strengthen the partnership network which at the end of 2018 totaled over 30 Korean financial sector related institutions. Together the teams have completed over 40 knowledge exchanges as of the end of 2018. •• Formal MOU with partners reached 10, a new MOU being signed with the Korea Asset Management Corporation (KAMCO) this year. SEOUL CENTER FOR FINANCIAL SECTOR DEVELOPMENT ANNUAL REPORT 2018 1 •• New Korea-based secondment initiative was Operations of Seoul Center for launched in 2018 to better leverage Korean partner Financial Sector Development expertise, strengthen knowledge transfer and build bilateral capacity. The KAMCO secondee in the •• Seoul Center team continued integration into World Bank Korea Office joined in January 2019 country operations in the Philippines as team lead and is focusing on client and thematic support on or team members preparing reports and technical NPL resolution. notes for the clients on agriculture finance and SME finance. •• Three knowledge exchanges to learn about Korea’s development experience were organized •• The Seoul Center team also continued to provide for Government delegations from Lao PDR technical inputs for country program design as (guided insolvency and debt enforcement reform), well as implementation support by identifying and Vietnam (bond markets regulations upgraded), and connecting appropriate Korean partner institutions Cambodia (supported strategy on Early Warning for several of our client countries. SC team led/ Systems). The study tours were organized by SC supported related knowledge exchanges mentioned team in partnership with country teams and Korean above. partner institutions. •• Dedicated website for the Seoul Center was launched, which introduces the partnership with MOEF and provides information on country programs, profiles of key Korean partners, and showcases results. •• EAP macro-financial monitoring work continues to be supported to assist management with a high- level perspective and provide teams better ability to dialogue with clients bringing in the regional context. •• Preliminary work for knowledge generation has been initiated in consultation with FCI and WBG Korea CMU and teams (especially focusing on financial technology/fintech, innovative products of Korean development banks for SME finance, etc.). •• Seoul Center team continued to manage the partnerships and reporting, and also participated in several partner technical workshops and events (provided resource speakers). 2 Highlights of 2018 Key Outputs of KTF-Funded Operations in 2018 The table below highlights the key outputs of the KTF-funded operations that were delivered in 2018. Please refer to the main text of the report for details. Country Key Outputs Cambodia •• Technical Note on Deposit Protection Framework prepared to guide reforms •• TA initiated on developing a 5-year Cambodia National Payment System (NPS) Strategy •• MEF Early Warning System study tour to Korea – informed country strategy Lao PDR •• Laotian authorities officially requested $20 million IDA financing to strengthen the Deposit Protection Fund based on KTF grant supported work •• BOL Law approved in June 2018; the Commercial Banking Law in the final stages of drafting – KTF funding allowed technical assistance •• Insolvency and Debt Enforcement related study tour to Korea, headed by MOJ Vice Minister – informed related reforms and built technical capacity •• AML/CFT National Risk Assessment successfully completed Mongolia •• Amendments to Deposit Insurance Law and Banking Law ratified by the Parliament in February 2018 (TA provided with KTF) •• BOM issued a regulation on electronic money in April 2018 (background work/TA supported with KTF) •• Ongoing support to revise the Bankruptcy Law Myanmar •• Ongoing support to modernize banking sector laws and regulations •• National Payment System Strategy (NPSS) drafted and provided to CBM •• Workshop on Enhancing Financial Capability and Inclusion in Myanmar launched •• In the first week of 2019 the MOPF announced to open the insurance market Philippines •• Technical notes on agriculture finance and SME finance preparation work and missions •• Dialogue and workshop delivered on financial sector assessment followed by government’s request for an FSAP in 2019 •• Just-in-time assistance on (i) payment systems regulatory and oversight frameworks, and (ii) consolidation of credit guarantee schemes continued on next page SEOUL CENTER FOR FINANCIAL SECTOR DEVELOPMENT ANNUAL REPORT 2018 3 Country Key Outputs Vietnam •• Resolution 28/2018 on pension reform approved •• New Decree 95/2018 on government debt instruments was issued; two circulars implementing the new Decree were issued •• New Decree 163/2018 was issued to provide a new framework for the development of corporate bond market •• MOF bond market study tour to Korea – supported further regulation reform and guided implementing rules •• AML/CFT National Risk Assessment completed: related capacity strengthened bringing Vietnam closer to international best practices and standards Seoul Center •• 2-year staff secondment from KAMCO to Seoul Center agreed, to start in Jan 2019 •• Three study tours to learn from Korean institutions organized primarily by the Seoul Center team • Lao PDR MOJ insolvency study tour (July 2018) • Vietnam MOF bond market study tour (Aug 2018) • Cambodia MEF Early Warning System study tour (Dec 2018) •• Seoul Center website launched •• EAP financial monitoring work outputs included • East Asia and Pacific Financial Sector Monitor (Q1-Q4, 2018) with special focus on issues such as ‘banking sector vulnerabilities’ and ‘risks arising from private sector credit growth’ • EFI Macro-Financial Review (Spring and Annual meetings) – EAP financial sector issues section • EAP Economic Update (Spring and Annual meetings) – Financial sector issues section and related special focus write-up •• Seoul Center partnership and KTF management, administration and reporting •• As part of WBG-MOEF working group, Seoul Center team successfully supported WBG Korea Office phase 2 discussions and finalization 4 Highlights of 2018 About Seoul Center and the Partnership Overview of the Partnership The Ministry of Economy and Finance (MOEF)1 of the Republic of Korea and the World Bank Group’s then Financial and Private Sector Development (FPD) Department2 agreed on October 11, 2011 to establish the Seoul Center for Financial Sector Development (Seoul Center) partnership. To support the partnership MOEF provided a trust fund to be governed by an Administration Agreement signed with the World Bank on June 25, 2012. The first phase of the KTF, Seoul Center 1.0, was supported by Korean trust funds of approximately $16 million for five years (June 2012–August 2017) under the management of the WBG’s then Finance & Markets (F&M) Global Practice (GP). The Seoul Center started as a virtual center in Washington DC and took presence in the WBG Korea Office since July 2015. In May 2017 the trust fund end-disbursement date was extended to December 31, 2018 to allow for continuity between Phase 1 and Phase 2 of the trust fund. In December 2017, the partnership with the Korean government was extended to allow for a second phase, Seoul Center 2.0, supported by Korean trust funds of $9 million over 3 years (December 2017–December 2020), under the management of the WBG’s Finance, Competitiveness & Innovation (FCI) GP. Seoul Center also receives approximately $1 million over 3 years (May 2018–April 2021) from the Korea Office TF for 60% of Korea Office-based Seoul Center staff costs. The objective of the Korean Trust Fund is to improve and develop financial sectors in the East Asia and Pacific (EAP) region by delivering better technical assistance and advisory services. The second phase of the trust fund provides financing for activities clustered around the following themes: (i) Monitoring and addressing systemic risk and vulnerabilities; (ii) Building resilient financial institutions and financial infrastructure; 1 The Ministry was formerly named Ministry of Strategy and Finance (MOSF), until the English name was changed to Ministry of Economy and Finance (MOEF) as of August 1, 2018. 2 The WB Financial and Private Sector Development Department was reorganized as the Finance & Markets Global Practice in 2014, and reorganized as the Finance, Competitiveness & Innovation Global Practice as of January 1, 2018. SEOUL CENTER FOR FINANCIAL SECTOR DEVELOPMENT ANNUAL REPORT 2018 5 Seoul Center for Financial Sector Development Seoul Center 1.0 Seoul Center 2.0 2012 – 2017 2017 – 2020 $15.8 mn ($3.16 mn / year) $9 mn ($3 mn / year) + 60% of Korea-based staff cost (Korea Office TF) antage rative Adv s on Compa NEW! Focu Financial Stability and SC KTF SC 1.0 SC 2.0 Korea Soundness Focus Based NEW! Increase Knowledge Generation Agreed 15.8 9.0 Global Partnerships Partnerships Knowledge Received 15.8 4.0 Initiated Enhanced NEW! Increase Local Technical Presence + int - fees - 0.4 + 0.1 (secondees, ST colleagues) Allocated - 15.3 - 3.1 Technical Technical Assistance Assistance Balance = 0.1 = 0.9 to EAP Country to EAP Country (as of December 31, 2018) Programs Programs (iii) Aligning legal, regulatory, and supervisory Leveraging Seoul Center to frameworks with international standards; Support Financial Sector (iv) Improving resolution regimes and policies, enhancing crisis preparedness and Development in EAP strengthening financial safety nets; In the EAP region, FCI’s priorities are: (i) enhancing the stability of financial systems, (ii) improving (v) Supporting financial integrity initiatives; financial inclusion and infrastructure, and (vi) Fostering capital markets and other long-term (iii) supporting long-term finance for development, to finance; and address the region-specific challenges in the financial (vii) Promoting innovative financial products and sector. services. The Seoul Center team, with 2 technical staff and The chart above summarizes the two phases of 1 short-term consultant as of end-2018, continues the partnership and the new components added to build on the FCI portfolio, participating more in Phase 2: (i) a focus on Financial Stability and extensively in ASA programs. The following chart is Soundness, which is an area of competitive advantage a summary of the technical and operational support for Korea’s financial sector, (ii) increased knowledge that the Seoul Center provides to the country/regional generation to add more value to the FCI agenda and programs. operations, and (iii) increased local presence in Korea by leveraging secondees and short-term support staff. 6 About Seoul Center and the Partnership Seoul Center’s technical/operational support for country/regional programs Preparation • Peer review and technical input for program design • Facilitate KTF funding application and approval through close communication with donor Implementation • Provide direct technical/operational support as team leads or members • Identify and connect appropriate Korean partners to add value to the advisory work • Proactively manage trust fund resources to ensure effective and efficient use Monitoring & Evaluation/Communication • Collaborate with team to disseminate lessons learned (feature stories, blogs, lessons notes) • Support with M&E set-up, tracking, and reporting The Seoul Center team has also been strengthening the partnerships between the WBG and the Korean counterparts in the financial sector to support country programs and client-demanded engagements in the EAP region by sharing knowledge, expertise, and lessons from Korea’s successful development experience. The Korean partnership activities are described in detail in the following section. SEOUL CENTER FOR FINANCIAL SECTOR DEVELOPMENT ANNUAL REPORT 2018 7 8 About Seoul Center and the Partnership SECTION I. Seoul Center Activities in 2018 Trust Fund Financial Summary PHASE 1 Status (as of December 31, 2018) In USD Total Contributions Received (2012-2016 inclusive) 15,867,052 (+) Investment Income 226,546 (-) Administrative Fees3 688,982 Allocation to Country/Regional Projects and Seoul Center (-)  15,378,951 Operations Balance 25,665 PHASE 2 Status (as of December 31, 2018) In USD Total Contributions Received (2017-2018 inclusive) 4,000,000 (+) Investment Income 80,791 Allocation to Country/Regional Projects and Seoul (-)  2,116,000 Center Operations Balance 1,964,791 Three new programs received additional funding from Phase 2 to support financial sector reforms: In 2018, three new programs were approved by MOEF to receive additional funding for a combined trust fund allocation of $1,966,000 for Mongolia, Myanmar, and Lao PDR. Please refer to the next chapter for details of each program. Focus on delivering and completing Phase 1 technical assistance programs: Seven of the trust-funded country/regional programs came to closure during this year and two programs are planned to be completed within FY19. Accordingly, a total of $3,042,296 was disbursed in 2018. The chart and table below show the disbursements by calendar year. 3 Until CY2015, the TF administrative fees were equal to a one-time set-up fee of $35,000 plus 5% of the funds received from the donor. From CY2016, as the new Bank Directive “Cost Recovery Framework for Trust Funds” applies to existing and new trust funds, the administrative fees (“TF indirect rate”) are charged as 17% of all staff and consultants salaries and benefits (except for extended assignment benefits) on an ongoing basis as the personnel expenses are disbursed. SEOUL CENTER FOR FINANCIAL SECTOR DEVELOPMENT ANNUAL REPORT 2018 9 KTF Disbursements by Calendar Year 5,000,000 • Disbursement and 4,000,000 implementation of KTF-funded activities became 3,000,000 significantly higher after Seoul Center became operational 2,000,000 in Korea in the second half of 2015 1,000,000 • Staff and Consultant fees 0 account for 78% of CY13 CY14 CY15 CY16 CY17 CY18 total expenses Staff Costs Travel Expenses Overhead Costs Consultant Fees Media Workshop Contractual Services Expense Categories CY2013 CY2014 CY2015 CY2016 CY2017 CY2018 Staff Costs 512,401 487,818 279,918 2,904,391 2,369,570 1,647,617 Consultant Fees 74,029 775,844 344,736 600,871 1,059,171 725,100 Travel Expenses 144,730 234,635 99,087 872,255 964,057 482,683 Media, Workshop 40,775 3,428 7,072 89,626 98,018 74,798 Overhead Costs 7,368 7,633 5,068 64,735 111,112 96,343 Contractual Services 1,994 112 91 13,317 23,306 15,755 Total 781,297 1,509,469 735,973 4,545,195 4,625,233 3,042,296 10 SECTION I. Seoul Center Activities in 2018 KTF – Financial Status by Project – PHASE 1 (as of December 31, 2018) Project Grant Outstanding Available Project Name Country Disbursements Closing Amount Commitments Balance Indonesia Crisis Simulation Indonesia 3/7/2014 314,063 314,063 Framework China Financial Reform China 2/13/2014 469,715 469,715 Strategy Report China Financial Consumer Protection and Financial China 8/31/2015 456,756 456,756 Literacy Thailand: Solvency Modernization and Risk Thailand 5/15/2015 399,282 399,282 Based Capital TA to the Implementation of Papua New PNG Financial Competency 11/30/2015 474,661 474,661 Guinea Survey Mongolia Capital Market Mongolia 12/31/2015 366,321 366,321 Development TA East Asia Regional Region 10/16/2015 385,115 385,115 Financial Integration Evaluation System for Consumer Financial China 12/31/2015 217,183 217,183 Education National Risk Assessment Region 12/31/2018 608,000 602,575 5,425 - ASEAN Basel II Pillar 2 Practice Region 6/30/2018 305,807 305,807 - - Study Myanmar: Scaling Up Financial Services for the Myanmar 12/31/2018 3,652,400 3,603,894 14,729 33,777 Poor Cambodia: Financial Sector Cambodia 6/30/2019 1,442,600 1,140,756 53,446 248,398 Development TA Mongolia: Financial Sector Development Support Mongolia 10/31/2018 1,920,000 1,919,008 930 62 Program Vietnam: Capital Markets Vietnam 8/31/2018 1,435,867 1,435,867 - - and NBFI Development PH Financial Development Philippines 3/31/2019 550,000 404,977 8,427 136,596 and Inclusion Lao PDR: Financial Sector Lao PDR 10/31/2018 800,000 800,000 - - Development Case Studies in De-Risking Region 8/31/2018 142,371 142,371 - - Seoul Center Operations Korea 12/31/2018 1,438,811 1,428,582 4,735 5,494 and Knowledge Total 15,378,951 14,866,933 87,693 424,326 SEOUL CENTER FOR FINANCIAL SECTOR DEVELOPMENT ANNUAL REPORT 2018 11 KTF – Financial Status by Project – PHASE 2 (as of December 31, 2018) Project Grant Outstanding Available Project Name Country Disbursements Closing Amount Commitments Balance Mongolia: Financial Sector Mongolia 6/30/2019 486,000 122,600 33,560 329,840 Development Support Program Myanmar: Scaling Up Financial Myanmar 12/31/2019 1,000,000 - - 1,000,000 Services for the Poor Lao PDR: Financial Sector Lao PDR 12/31/2020 480,000 188,007 62,011 229,983 Development Seoul Center Program Korea 12/31/2020 150,000 61,923 16,476 71,601 Implementation Seoul Center – Financial Sector Korea 12/31/2020 - - - - Advisory and Partnerships Total 2,116,000 372,530 112,046 1,631,424 KTF Cumulative Allocations by Recipient Country 7.3% 3.1% 8.2% 6.5% 2.7% 8.2% 2.3% 1.8% 8.2% Indonesia Vietnam Thailand East Asia and Pacific 9.1% Papua New Guinea Cambodia 26.6% Philippines Korea 15.8% China Mongolia Laos Myanmar 12 SECTION I. Seoul Center Activities in 2018 KTF SUPPORT – EAP COUNTRY AND REGIONAL OPERATIONS Summary •• A total of 20 KTF proposals for country or regional support have been approved over Phase 1 and Phase 2, as of the end of 2018. This represents 10 countries and 4 regional initiatives. Out of the 20 programs, 15 are completed and the other 5 are under implementation. •• Since 2015, the WBG FCI has been responding to client demand through multi-year Programmatic Approach (PA) programs which allow for more strategic and comprehensive country engagements. Accordingly, the funding requests for KTF support have been more comprehensive and spanning longer timeframes (thus also larger in amount). This has responded well to MOEF’s recommendation to develop larger proposals addressing strategic reforms and aiming for stronger impact in EAP countries. SEOUL CENTER FOR FINANCIAL SECTOR DEVELOPMENT ANNUAL REPORT 2018 13 BY PROGRAM Project Country Grant (USD) Objective Timeframe To contribute to the promotion of a sound and Crisis Simulation stable financial sector in Indonesia through Mar 2013 – Indonesia 370,000 Framework improved capacity of financial authorities to Mar 2014 prevent, manage, and resolve financial crises To design and implement far-reaching and Financial Reform Mar 2013 – China 470,000 fundamental financial reforms to China’s Strategy Report Feb 2014 financial system Financial To support the Chinese authorities in setting Consumer May 2013 – China 490,000 up an effective Financial Consumer Protection Protection & Aug 2015 & Financial Literacy system in China Financial Literacy To assist the financial authorities to improve Solvency risk-based supervision and dynamic solvency Modernization Jul 2013 – Thailand 420,000 regimes for insurance, including the legal/ & Risk-Based May 2015 regulatory framework, tools, and market Capital practices TA to the Implementation To assist the PNG financial authorities to Papua New Jul 2013 – of Financial 475,000 develop a baseline for understanding the Guinea Nov 2015 Competency financial capability of the PNG population Survey Capital Market To support the Mongolian authorities in Sep 2013 – Mongolia 370,000 Development TA developing robust deep capital markets Dec 2015 To support economic growth and poverty East Asia reduction through the expansion of Dec 2013 – Regional Financial Regional 475,000 investments and financing under the ASEAN Oct 2015 Integration agenda of financial integration Evaluation To assist the Chinese financial authorities System for to develop a system for evaluating the Mar 2014 – Consumer China 250,000 effectiveness of consumer financial capability Dec 2015 Financial programs Education National Risk To help ASEAN countries improve the Apr 2015 – Assessment Regional 608,000 effectiveness of detecting and preventing Dec 2018 ASEAN financial crimes and illicit financial flows To develop a study for the use of banking Basel II Pillar 2 supervisors based on a sample of client Oct 2015 – Regional 310,000 Practice Study jurisdictions to understand the effectiveness Jun 2018 of their Basel II implementation continued on next page 14 SECTION I. Seoul Center Activities in 2018 Project Country Grant (USD) Objective Timeframe To help increase access to financial services by the poor in Myanmar through a wide range Scaling up of advisory services Sep 2015 – Financial Services Myanmar 4,652,400 •• Phase 1: $3,652,400 (Sep 2015 – Dec ongoing for the Poor (PA) 2018) •• Phase 2: $1,000,000 (Dec 2018 – Dec 2019 Financial Sector To support the Cambodian financial Jan 2016 – Development TA Cambodia 1,442,600 authorities in core areas of financial sector ongoing (PA) modernization and reform To support building a sound, diversified, Financial Sector and inclusive financial system for Mongolia through a wide range of advisory services Apr 2016 – Development Mongolia 2,406,000 ongoing Support (PA) •• Phase 1: $1,920,000 (Apr 2016 – Oct 2018) •• Phase 2: $486,000 (Sep 2018 – Jun 2019) To support the Vietnamese financial Capital Markets authorities to leverage capital markets and Sep 2016 – and NBFI Vietnam 1,460,000 Non-Bank Financial Institutions for economic Aug 2018 Development (PA) development Financial To support the Philippines’ development of Sep 2016 – Development and Philippines 600,000 the financial system and financial inclusion ongoing Inclusion (PA) To promote the development of a more stable and efficient financial sector in Lao PDR Financial Sector through advisory services Sep 2016 – Lao PDR 1,280,000 Development (PA) ongoing •• Phase 1: $800,000 (Sep 2016 – Oct 2018) •• Phase 2: $480,000 (Oct 2018 – Dec 2020) To document the effects of de-risking on Case Studies in local communities and work with partners Mar 2017 – Regional 145,000 De-Risking to develop solutions for those affected to Aug 2018 maintain access to financial services SEOUL CENTER FOR FINANCIAL SECTOR DEVELOPMENT ANNUAL REPORT 2018 15 STRENGTHENING KOREAN One new MOU was signed in 2018, with Korea Asset Management Corporation (KAMCO). The details of PARTNERSHIPS this MOUs can be found in Annex 1. An important objective of the WBG and MOEF partnership is to leverage the expertise and capacity While the partnerships relied on formal MOUs during of Korean institutions to support country needs and the time the trust fund was operated from the WBG enhance/deepen the delivery of assistance to the client headquarters in Washington DC, the staffing of the countries. At the end of 2018 the WBG had formal Seoul Center team in Korea since the second half of MOUs with 10 key Korean institutions in the 2015 has enabled more direct, frequent, and effective financial sector, which have added value to the FCI interactions and communication with Korean partners teams and client countries in their respective areas of on the ground. Much progress has been made with all expertise. These key partners are noted in the chart the formal and informal partnerships (30+ partners below. and connections so far) to connect these institutions with specific country needs in the EAP region. Seoul Center and Korean financial sector partners 16 SECTION I. Seoul Center Activities in 2018 CONNECTING KOREAN partners to support WBG client countries in EAP. Over 3.5 years (July 2015–December 2018), Seoul Center PARTNERS WITH FCI COUNTRY built partnerships with over 30 Korean institutions OPERATIONS and organized and/or facilitated over 40 knowledge The infographic below shows the partnerships and exchanges and capacity building activities to add connections made and progress in leveraging these value to FCI’s ASA operations in each country. SEOUL CENTER FOR FINANCIAL SECTOR DEVELOPMENT ANNUAL REPORT 2018 17 The figure below highlights key partnership activities supported by Seoul Center team in 2018. Learning from Korea’s Successful Experience—Seoul Center Partnership activities in 2018 Please refer to the table below for more details on one the Seoul Center work with key Korean financial sector partners. Where appropriate, the project code is noted to make the link to country operational engagement that the activity is supporting. Partner Partnership Activities •• Global: Provided speaker for GFRID co-organized by WB and other institutions (May 2018) •• Vietnam: Provided a session on Repo regulation for Vietnamese Ministry of Finance and others as part of bond market study tour in Korea (Aug Financial Services 2018) [P162226] Commission •• Seoul Center team supported the succession of the FSC secondment program to WB HQ (discussions and support during Feb–Dec 2018) •• Senior management meeting between WBG President Kim and BOK Governor Lee (May 2018) •• Cambodia: Provided a session for Cambodian Ministry of Economy & Finance and National Bank of Cambodia as part of Early Warning System study tour in Korea (Dec 2018) [P160713] continued on next page 18 SECTION I. Seoul Center Activities in 2018 Partner Partnership Activities •• Cambodia: Provided a session for Cambodian Ministry of Economy & Finance and National Bank of Cambodia as part of Early Warning System study tour in Korea (Dec 2018) [P160713] •• MOU signed (Apr 2018) •• Vietnam: Provided a session on NPL resolution for Vietnamese Ministry of Finance and others as part of bond market study tour in Korea (Aug 2018) [P162226] •• Asia: Provided a speaker for Forum on Asian Insolvency Reform held in Bangkok (Sep 2018) •• 2-year staff secondment to Seoul Center agreed (Dec 2018) •• Vietnam: Provided a session on bond clearing & settlement for Vietnamese Ministry of Finance and others as part of bond market study tour in Korea (Aug 2018) [P162226] •• Seoul Center team presented at CIFC’s annual workshop (May 2018) •• Seoul Center team did a written interview for CIFC’s biannual report (Aug 2018) •• Seoul Center team presented at CIFC’s international conference (Dec 2018) •• Several discussions on joint research •• Cambodia: Provided a session for Cambodian Ministry of Economy & Finance and National Bank of Cambodia as part of Early Warning System study tour in Korea (Dec 2018) [P160713] Korea Center for International Finance (KCIF) •• Global: Provided senior executive participant for FCI’s workshop to launch global community for secondary mortgage market institutions (May 2018) •• Vietnam: Provided a session on bond markets for Vietnamese Ministry of Finance and others as part of bond market study tour in Korea (Aug 2018) [P162226] •• Each had an information-sharing meeting with FCI staff and Seoul Center team on SME finance (Mar 2018) continued on next page SEOUL CENTER FOR FINANCIAL SECTOR DEVELOPMENT ANNUAL REPORT 2018 19 Partner Partnership Activities •• Lao PDR: Each provided a session on insolvency for Lao Ministry of Ministry of Justice Justice and Supreme Court as part of insolvency study tour in Korea (Jul 2018) [P160715] Korea Restructuring and Insolveny Practitioners’ Association (KRIPA) •• Vietnam: Provided a session on bond markets for Vietnamese Ministry of Finance and others as part of bond market study tour in Korea (Aug 2018) [P162226] SEOUL CENTER ACHIEVEMENTS profiles of key Korean partners, select outputs and other related materials supported by the Korean trust fund. The Annual Reports of Seoul Center provide Launch of Seoul Center Webpage further details on specific country programs as well as Working closely with FCI’s Communications team, highlight the yearly progress. the Seoul Center team successfully launched a dedicated webpage in December 2018. The team will further populate the webpage with partnership activities with each Korean partner, https://www.worldbank.org/en/programs/seoul- highlights from the ongoing work supported by center-for-financial-sector-development the Seoul Center partnership, as well as results and The Seoul Center webpage has information about the outcomes from past Korean trust fund grants. partnership with MOEF, country programs supported, 20 SECTION I. Seoul Center Activities in 2018 Knowledge Generation and Sharing Macro-financial monitoring In addition to the country programs and partnership The Seoul Center provided financial support for FCI’s activities described in the previous sections, the Seoul financial stability monitoring work, which comprises Center team also supported smaller-scale initiatives of the following activities: and work programs for FCI, to generate and share knowledge. Team Leader Aviles, Ana Maria Team Members Choi, Youjin; Ren, Jiemin; (in alphabetical order) Song, Jiyoung; Sourrouille, Diego; Tatucu, Radu SEOUL CENTER FOR FINANCIAL SECTOR DEVELOPMENT ANNUAL REPORT 2018 21 Quarterly Financial Sector Monitor: FCI has a developments and take into consideration the spill- platform in place, jointly developed with the IFC, over impact and risks for the rest of the region. to produce the ‘Quarterly Financial Sector Monitor’ The key outputs of EAP financial monitoring work series for the EAP region (issued in January, April, included July and October). This monitor aims to have candid presentation of the recent macro-financial •• East Asia and Pacific Financial Sector Monitor developments and short-term prospects in financial (Q1-Q4, 2018) with special focus on issues such as sectors across the EAP countries. At such, it has a ‘banking sector vulnerabilities’ and ‘risks arising confidential nature and is intended for WBG internal from private sector credit growth’ purposes. It includes a regional “Special focus” note, •• EFI Macro-Financial Review (Spring and Annual which have included topics such as ‘banking sector meetings) – EAP financial sector issues section vulnerabilities’, and ‘risks arising from private sector credit growth’. •• EAP Economic Update (Spring and Annual meetings) – Financial sector issues section and EFI macro-financial initiative: FCI carries out a related writeups semi-annual integrated assessment of major financial sector trends and themes that may pose systemic challenges to stability and development in EAP. This Case study: Banking on Technology - serves as input for a confidential publication on global Intellectual Property-Based Finance in macro-financial issues led by the offices of the EFI Korea VP. This publication is internally circulated ahead of Spring and Annual meetings to Senior Management Team Leader M. Gutierrez, Eva in the WBG. It includes a “Special focus” note, Team Members Choi, Jiyoung; Choi, Youjin which in the past has included inputs from EAP on (in alphabetical order) ‘the evolution, impact and policy implications of blockchain applications’ and on ‘sovereign-bank Following informational meetings in March 2018 nexus in emerging markets.’ between FCI and Korea’s three development banks (Industrial Bank of Korea, Korea Development Bank, EAP Regional Update: FCI produces input on Korea Eximbank) to learn about their SME finance financial sector issues for the EAP Regional Update practices and lessons, the FCI secondee from MOEF that is published by the office of the Chief Economist and the Seoul Center team produced an in-depth case for Spring and Annual Meetings (April, October). study on Korea Development Bank (KDB)’s ‘Techno FCI contributes a box to the publication for which Banking’. This is seen as an innovative product that the topics included in recent issues are ‘intraregional provides finance for technology-oriented SME firms banking trends in EAP’, and ‘vulnerabilities in EAP’s based on their intellectual property. The case study banking sector’. gathered interest among WBG staff working on SME China stability call: FCI participates in monthly calls finance and was recommended by management to be on macro-financial issues in China, providing updates published for a broader audience; however, the team on financial sector developments and risks. Given the did not proceed with publishing as KDB preferred it regional and global systemic importance of China, to remain an internal document for the WBG. it is important to be up-to-date on macro-financial 22 SECTION I. Seoul Center Activities in 2018 SECTION II. Detailed Results of KTF-Funded Operations in 2018 Results and Progress of KTF Programs under Implementation ASEAN — National Risk Assessment Grant amount: USD 608,000 Project duration: April 2015–December 2018 Team Leader Yikona, Stuart Bartlett, Nigel; Bostwick, Lisa; Da Silva Pereira, Team Members Maria; Duarte, Rideca; Emini, Leonora; Hassan, (in alphabetical Syed; Malik, Priyani; Park, Seunghwan; Phounvixay, order) Vidaovanh; Pop, Laura; Tanaka, Kiyotata; Viehweg, Keesook Context With the expansion of ASEAN membership to the Mekong countries (Cambodia, Laos, Myanmar, and Vietnam, “CLMV”) in the 1990s, ASEAN now encompasses high-, middle-, and low-income countries. Among them, the CLMV countries are at significant risk of money laundering and financing of terrorism (ML/FT) issues and the abuse of their economies threatens sustainable growth in the future. Their regional environment and the weaknesses of their legal system constitute substantial concerns and make them susceptible to proceed generating criminal activities. Cambodia and Myanmar have already asked for the technical assistance of the WB, and early WB engagement with Lao and Vietnam is taking place. This project is part of a broader collaboration with the ASEAN countries on issues related to anti-money laundering and combating the financing of terrorism (AML/CFT). SEOUL CENTER FOR FINANCIAL SECTOR DEVELOPMENT ANNUAL REPORT 2018 23 Project Objective completed its national risk assessment in 2015. The Philippines completed the first national risk assessment The project helps improve the effectiveness of some in 2016. It then followed this up with an update in 2017 of the countries in the ASEAN region to detect illicit that included the assessment of the Casino sector. In the financial flows, investigating and prosecuting financial case of the Philippines, it is noteworthy that the update by crime such as corruption, tax evasion, and fraud. The the authorities was done without the hands-on advisory results/indicators for the activity will be measured by support of the World Bank Group. The only role Bank the following: (1) Some of the ASEAN countries have staff played was in reviewing the quality and consistency a detailed and comprehensive report that identifies of the update report. This demonstrates that the impact and analyzes the proceeds of crime in the country and of the training provided by the World Bank during the identifies the key vulnerabilities of law enforcement first national risk assessment did indeed result in an agencies to investigate and prosecute financial crime; (2) enhancing of skills of the Philippine officials enabling Some of the ASEAN countries officially adopts concrete them to carry out the 2017 update on their own. time bound action plan that is endorsed by the government through appropriate processes such as a national In 2018, the remaining two countries—Lao PDR and coordination committee on anti-money laundering and Vietnam—successfully completed their national risk terrorism financing or at cabinet level.; and (3) 50-60 assessments. key experts from the judicial, law enforcement, financial regulators and senior policy makers are trained on how Lao PDR to identify the money laundering and terrorism financing risks and vulnerabilities facing some of the ASEAN The risk assessment process began in July 2017 and was countries. successfully completed in August 2018. Moreover, the Government of Lao PDR recently approved the national risk assessment. In delivering this advisory support, the Progress World Bank Group organized an interim workshop in For the past 4 years the Korean Trust Fund has provided January 2018. This mid-course intervention was critical support to some ASEAN countries in conducting and and ensured that the authorities were able to complete successfully completing their national risk assessments on the work successfully. money laundering and terrorism financing. Cambodia 24 SECTION II. DETAILED RESULTS OF KTF-FUNDED OPERATIONS IN 2018 The second (interim) workshop showed that good Following the completion of the national risk assessment, progress had been made by the working groups, and that Lao PDR asked for follow up assistance from the WB to they had gathered all available data, and were able to develop a risk-based framework for AML supervision move forward writing up the sector analyses, to enable (This follow up work to the national risk assessment the compilation of the single NRA report. was launched in February 2019 to be delivered over 18 months, funded by the European Union Delegation). The third and final workshop held in August 2018, comprised approximately 120 participants. They were representatives from a range of institutions, including Vietnam law enforcement, customs and border management, The second and final workshop was held in June 2018. regulators and supervisors for banking, credit unions, One of the key outputs was a visual presentation of the insurance, securities and other financial institutions. It results of the risk assessment in the form of a sectoral also included representatives from the Ministry of Public heat map. The officials that worked on the national risk Security, Ministry of Finance, Ministry of Planning and assessment analysis and findings were able to match the Investment, Ministry of Home Affairs, and Ministry of threats and vulnerabilities faced by each of the sectors Industry and Commerce. assessed. However, as at the preparing of this annual report, the authorities had not indicated whether the One key lesson learned from the Lao PDR engagement national risk assessment report has been approved by was the benefit of having a face to face interim workshop the Cabinet. Furthermore, Vietnam has not indicated following the first workshop and the gathering and whether they have plans to have follow up work to analysis of data. Such an interim engagement served as a implement the action plan arising of the risk assessment way of refining and refocusing the preliminary analysis completed. conducted by the working group members. Moreover, it also served to deepen the skills and understanding of conducting an effective risk assessment. SEOUL CENTER FOR FINANCIAL SECTOR DEVELOPMENT ANNUAL REPORT 2018 25 EAP: Basel II Pillar 2 Practice Study Grant amount: USD 340,000 Project duration: October 2015–June 2018 Aviles, Ana Maria (current); Ard, Laura A. (former); Team Leader Krishnamurti, Damodaran (former) Team Members Chatain, Pierre-Laurent; Chung Yee, Brian Kwok; Dohotaru, Matei; Han, Koo; (in alphabetical Pailhé, Cristina; Park, Sang Man; Ren, Jiemin order) Context Progress The Basel Committee on Banking Supervision The WB conducted a country-based study of Pillar 2 (BCBS) issued a comprehensive revised capital practices in selected countries to obtain information adequacy framework in 2004 (known more popularly about their implementation of international capital as Basel II), which was designed to be more risk- standards. As a basis for the work, the WB designed a sensitive than the Basel I framework. Basel II has three questionnaire, with contribution from the secondee pillars: Pillar 1 – prudent capital regulation; Pillar 2 – from Korea’s FSS, to: supervisory review, and Pillar 3 – market discipline. (i) Collect information regarding how the ICAAP Pillar 2 involves two main steps – (a) requiring banks has been approached by supervisors and the to maintain an internal capital adequacy assessment expectations they have therein; and process (ICAAP) and complying with the internal targets; and (b) supervisory evaluation of how well (ii) Understand how supervisors consider and banks are assessing their capital needs relative to all respond to bank-submitted reported ICAAP risks incurred by the bank. Pillar 2 implementation is documents (the SREP). mandatory and critical to the effective implementation of Basel II. Within Pillar 2, some jurisdictions have Twelve countries were surveyed and ten responded: progressed on part (a) above, but very few have Republic of Korea, Argentina, Colombia, Croatia, progressed on implementation of part (b). This offers Morocco, Nigeria, Peru, Poland, Thailand, and a vast potential for providing technical assistance in Turkey. A technical note was produced based on this specialized area to client authorities. the responses to the country surveys. The document presents an analysis of countries’ responses aiming at helping supervisors identify common practices, Project Objective challenges, and lessons from Pillar II implementation. The objective of this project is to undertake a study As a by-product, it can contribute to constructive of Basel II Pillar 2 practices in selected countries supervisory discussions with the banks regarding to assist jurisdictions in their goal towards further their direction and progress in implementing implementation of international capital standards. standards. It also indicates, at a high level, the range of practices and nuances therein. The paper builds on 26 SECTION II. DETAILED RESULTS OF KTF-FUNDED OPERATIONS IN 2018 responses provided by the surveyed jurisdictions and Public Disclosure Authorized information was cross-checked with the legislation and with documents provided by the respondents. The technical note, after an internal review meeting chaired by the management team, was recommended to be published. The final document was completed Public Disclosure Authorized and published in June 2018. Subsequently the report was disseminated through workshops in the WBG HQ and Malaysia (hub for the Development Economics group) and is uploaded on the WBG and Seoul Center website for public use. Public Disclosure Authorized http://documents.worldbank.org/curated/ en/324521532116297922/Basel-II-pillar-2- practice-study FINANCE, COMPETITIVENESS & INNOVATION INSIGHT | FINANCIAL STABILITY & INTEGRITY Public Disclosure Authorized BASEL II Pillar II Practice Study SEOUL CENTER FOR FINANCIAL SECTOR DEVELOPMENT ANNUAL REPORT 2018 27 MYANMAR: Scaling Up Financial Services For the Poor Grant amount: USD 3,652,400 Project duration: September 2015–December 2018 Team Leader Wagh, Smita (current); Wong, Sau Ngan (former), Drees-Gross, Alexandra (former) Alba Prado, Carlos; Anantavrasilpa, Ratchada; Annamalai, Nagavalli; Arsana, I Gede Putra; Bell, Simon C.; Borgonovo, Alfred Jean-Marie; Bufton, David Rex; Chen, Nancy; Chien, Jennifer; Choi, Youjin; Christova Hollanders, Luchia Marius; Corazza, Carlo; De Luna-Martinez, Jose; Delort, Dorothee; Devi, Chaw Su; Dias, Team Members Denise Leite; Eh, Naw Khu; Endo, Isaku; Eris, Mete Can; Fabling, Christopher (in alphabetical Robert; Gonulal, Serap; Htay Htay, Nang; Kikeri, Sunita; Mahadevan, Balakrishnan; order) Mason, Andrew McEwen; Merican, Latifah Osman; Mortimer-Schutts, Ivan Daniel; Mylenko, Nataliya; Natarajan, Harish; Nguyen, Hang Thi Thu; Nicoli, Marco; Oo, Khin Saw; Poonprasit, Piathida; Rischall, Neal Howard; Sirois, Bonnie Ann; Song, Jiyoung; Srinivas, Gynedi; Swami, Rajeev Kumar; Tanaka, Kiyotaka; Trieu, Viet Quoc; Vijayakumar, Pammi; Wickramasinghe, Jiwanka B.; Yankey, Frederick Context Progress Financial inclusion is a key priority in Myanmar’s The Myanmar KTF Programmatic Approach development agenda. At present, over 70 percent (PA) concept was approved on January 2015, of adults do not have access to credit, savings, and complementary to the World Bank IDA credit of deposits. The Government of Myanmar has formulated $100 million for financial sector development which a Financial Inclusion Roadmap 2014-2020 that aims provided for disbursement-linked indicators for the at increasing the percentage of adults with access to achievement of outcomes that are reflected in the basic financial services from 30% in 2015 to 40% by KTF PA. Hence, the TA delivered under the KTF was 2020. instrumental in paving the way for the scaling up of activities related to financial sector development in Project Objective Myanmar. The Development Objective of this program is to The following are the various activities carried out help increase access to financial services by the poor under the KTF PA in 2018: in Myanmar, to be achieved through the provision of technical assistance and advisory services in relation Banking Regulatory Modernization to strengthening the legal and regulatory framework; With the passage of the Myanmar Financial Institutions modernizing the payment systems; strengthening Law (“FI Law”) in 2016, TA has been provided to the the supervisory and regulatory framework for Central Bank of Myanmar (CBM) in the drafting of microfinance; and enhancing the capability of the subsequent regulations. The TA has adopted a financial sector authorities to identify and manage multi-pronged approach in Myanmar’s low-capacity risks through financial sector development. environment and has included policy discussions, and capacity training. In this regard, three major events took place after the enactment of the FI Law — one 28 SECTION II. DETAILED RESULTS OF KTF-FUNDED OPERATIONS IN 2018 for stakeholders and donors and other for CBM and 2019. Furthermore, policy advice on the interest rate the Financial Regulatory Department (FRD). liberalization has been provided to the CBM and the lending rate instruction and housing loans instructions Following the FI Law 2016, CBM issued 4 key are successfully issued by the CBM. prudential regulations on Capital Adequacy, Liquidity Ratio Requirement, Asset Classification and Provisioning, and Large Exposure Regulation in July National Payments Strategy 2017. In addition, directives on dividends, banking A draft of National Payment System Strategy hours and asset revaluation were also issued prior to (NPSS) was provided to CBM in August 2018. At July 2017. The new regulatory framework, especially the request of the CBM, this NPSS has been designed the capital adequacy ratio and asset classification to guide the establishment of a modern and inclusive requirements, have exposed longstanding problems national payments market in Myanmar over the and vulnerabilities in the banking system related to period 2019-2024 and it is also built on the previous capital, non-performing loans and large exposures. achievements and initiated reforms and is aligned Therefore, in 2018 CBM made some adjustments in with Government of Myanmar strategic objectives for the grace period for compliance in relation to the financial sector and social development. Asset Classification and Provisioning Regulations As part of TA program, capacity building on Bank relating to the rollover of overdraft facilities to term Resolution and Prompt Corrective Actions was loans in consultation with the industry. conducted in March 2018. Feedback from CBM Additionally, ongoing advice on several policy issues regarding TA delivery on the above has been very has been provided to CBM on the implementation of positive and CBM has expressed its appreciation of the FI Law including the drafting and finalization WB’s contribution through the above activities. In of 5 regulations on the Substantial Interest, External October 2018, TA support was provided for the study auditors, Board of Directors of Banks, Subordinated visit for 3 senior officials from the CBM and they had Debt and Fit and Proper. Out of which, the Directive learned the Bank of Thailand’s onsite supervision, on the Subordinated Debts was issued in January offsite monitoring and MIS system of the BOT. SEOUL CENTER FOR FINANCIAL SECTOR DEVELOPMENT ANNUAL REPORT 2018 29 Expanding the Depth of the Financial Sector Insurance Sector Reforms and Promoting Responsible Finance The Technical Note on Myanmar Insurance Market Much has been achieved in building and exchanging Liberalization was delivered to the FRD in February financial knowledge with FRD of MOPF. In 2017 and it was submitted to the Union Government September 2018, Workshop on Enhancing for the adoption. After that, explanatory discussions Financial Capability and Inclusion in Myanmar were continuously conducted with FRD and it was (A Demand Side Survey) was launched and adopted in September 2017. Finally, in the first honorably presented by the Union Minister and week of 2019 the MOPF made the announcement on Deputy Minister of the MOPF. This workshop for the opening the insurance market in Myanmar based on dissemination of a nation-wide survey report focused the policy advice provided by the WB. on the financial capability, inclusion and consumer In addition, in November 2018, a Preliminary protection. The main finding from the survey is that Assessment of Myanmar Insurance (MI) was presented savings and borrowing behavior is far wider spread to the state-run insurance company. The assessment than channeled by the formal financial system and that report provides recommendations for MI’s potential in practice there are gaps in the understanding basic restructuring in order to assess potential options for concepts like interest rate, making the case for scaling the future of the company in light of full liberalization up financial literacy and consumer protection reforms. of the insurance market. Simultaneously, TA support on risk-based supervision and risk-based capital, guide the resident adviser and FRD supervision teams on RBS and RBC was conducted in June 2018. 30 SECTION II. DETAILED RESULTS OF KTF-FUNDED OPERATIONS IN 2018 CAMBODIA: Financial Sector Development TA Grant amount: USD 1,442,600 Project duration: January 2016–June 2019 Team Leader Anantavrasilpa, Ratchada Team Members Annamalai, Nagavalli; Luchia Marius; Endo, Isaku; Gonulal, Serap; Zainal Abidin (in alphabetical Mohd; Kong, Lyden; Mel, Sokim; Orbeta, Cristina; Phim, Runsinarith; Poonprasit, order) Piathida; Yankey, Frederick Context The following activities are proposed for this TA: The Ministry of Economy and Finance (MEF) •• Pillar 1: Enhancing and maintaining financial and the National Bank of Cambodia (NBC) have stability: (i) strengthening prudential regulation and requested the assistance of the WBG to modernize supervision in the banking sector; (ii) Strengthening the financial system with the ultimate goal of building capacity for financial crisis prediction and a sound, efficient and inclusive financial system to management; (iii) Anti-Money Laundering and underpin economic growth and poverty reduction in Combating Financing of Terrorism (AML/CFT) Cambodia. The financial system provides all citizens •• Pillar 2: Increasing system efficiency: (i) Supporting with the opportunity to save, invest, and get credit the development of a National Payments Strategy from financial institutions to cover their consumption (NPS) and a payments system oversight framework; needs or meet unexpected expenses. Furthermore, a (ii) Strengthening the accounting and auditing larger and more dynamic financial system is needed to system in financial system support the financing needs of economic actors, from micro-entrepreneurs, small and medium enterprises •• Pillar 3: Promoting inclusion and consumer (SMEs) to large corporations and government protection: (i) Supporting the deepening and institutions. Recognizing the importance of these strengthening of non-bank financial institutions; objectives, MEF and NBC have reached out to the (ii) Promote consumer protection framework in WBG for TAs in a number of areas of financial sector financial system development. Progress Project Objective During the past 3 years, WB has provided several WBG TA activities aim to support the MEF and workshops/trainings in financial stability, risk-based NBC in core areas of financial sector modernization supervision (RBS), AML/CFT, payment system, and reform to build a stable, efficient and inclusive audit quality, and insurance to the MEF, NBC, and financial system to underpin economic growth and Security and Exchange Commission of Cambodia poverty reduction. The beneficiaries are financial (SECC) officials. In term of advisory services, the sector policymakers, regulators and market players in WB conducted a diagnostic assessment of the existing Cambodia. This program is designed to establish the RBS, deposit protection framework, and payment fundamental components for an effective and efficient system. After the completion of the diagnostic, the financial system in Cambodia and for a financial team officially submitted the Technical Note on sector that will support economic stability and growth RBS, DPF, and payment system for the authorities with inclusion goals of the country. to address the gaps and recommendations identified in the Technical Note. In addition, the WB provided a Technical Note on amendment to the Micro- SEOUL CENTER FOR FINANCIAL SECTOR DEVELOPMENT ANNUAL REPORT 2018 31 Insurance Sub Decree for their promulgation. Under Pillar 1, the WB team continued providing Concurrently during the implementation period, the TA supports on financial stability by providing WB together with Cambodia financial regulators technical comments on the terms of reference of consulted key stakeholders, both public and private, the National Committee on Financial Stability before finalizing these Technical Notes. In 2018, the and advising on the structure of the national level WB finished and delivered consumer protection work Financial Stability Committee in Cambodia. In and audit quality assurance work with the authorities’ order to ensure that the financial sector facilitates satisfaction. In 2019-2020, the WB will focus its effort economic growth and poverty reduction and becomes in financial stability areas including establishing a immune to future financial crisis, the financial sector functioning deposit protection fund (DPF), enhancing development and crisis management committee is risk-based supervision for both banking and insurance introduced with detailed role and responsibilities; in sectors, setting up a functioning National Payment addition to the macro prudential committee. System, and enhancing AML/CFT compliance. 32 SECTION II. DETAILED RESULTS OF KTF-FUNDED OPERATIONS IN 2018 In the area of Early Warning System (EWS) in Under Pillar 2, WB has continued our TA on payment financial sector, nineteen MEF and NBC officials system by conducting a capacity building program visited Korea in December 2018 to learn and obtain on Payment Oversight Framework and on the first-hand experience from Financial Supervisory Principles for Financial Market Infrastructure Service (FSS), Korea Center for International (PFMIs). Concurrently, the WB discussed how Finance (KCIF), and the Bank of Korea (BOK). international standards and good practices for central As stated in the MEF’s appreciation letter, “through banks payment oversight can be implemented in the this (study visit) experience, the MEF will be able to NBC. It is agreed that the WB will continue supporting lay down the foundation for the implementation of the NBC to draft an Oversight Policy Framework Cambodia’s Early Warning System.” document to be published in line with international best practices. In addition, WB has initiated the In the area of Anti-Money Laundering and Combatting TA on developing the 5 years Cambodia National Financing Terrorism (AML/CFT), the WB has Payment System (NPS) Strategy. The drafted NPS continued technical assistance by arranging a Strategy identifies gaps and suggesting actions to training on codes of conduct for public servants improve the payment ecosystem in Cambodia. and conflict of interest regimes. The training was well attended by key officials in the Anti-Corruption Unit Under Pillar 3, WB has agreed to continue our support (ACU) and several related agencies. The success of to promote insurance products to the untapped this training has demonstrated the enhanced awareness population. With our success in the TA on Micro- in codes of conduct and conflict of interest among Insurance sector, the MEF has an additional request public servants. In addition, the WB has provided in other areas of insurance sector. It is agreed that advisory support to the MEF and Cambodia Financial the WB will continue providing TA on restructuring Intelligence Unit (CAFIU) on AML/CFT compliance Motor & Motor Third Party Liability Insurance legal in the casino sector by conducting an extensive framework and its market practice, and on insurance workshop on a risk-based approach to the AML/ strategy to enhance insurance access and literacy in CFT regulation and assisting in the development 2019-2020. of internal guidelines for compliance activities in the casino industry. SEOUL CENTER FOR FINANCIAL SECTOR DEVELOPMENT ANNUAL REPORT 2018 33 MONGOLIA: Financial Sector Development Support Program Grant amount: USD 1,920,000 Project duration: April 2016–October 2018 Team Leader Lohmus, Ulle Anvari, Farid; Bartlett, Nigel Marc; Batbold, Batmunkh; Benton, Jonathan Paul; Cervone, Elisabetta; Cheah, Kim Ling; Choi, Youjin; Christova Hollanders, Luchia Marius; Cohen, Michael; Damdinjamts, Mongoljingoo; Di Benedetta, Pasquale; Endo, Isaku; Goyal, Sameer; Hertzberg, Robert Steven; Hua, Xiaofeng; Kikeri, Team Members Sunita; Koltko, Olena; Kotlyar, Dmytro; Lai, Jinchang; Majlessi, Mohammad (in alphabetical Shervin; Mc Guinness, Elizabeth Emily; McGuire, Claire Louise; Milyutin, Andrey; order) Mocheva, Nina Pavlova; Mullineux, James Lionel; Mundy, Shaun; Nicoli, Marco; Nolte, Jan Philipp; Pindaru, Ionut; Pop, Laura; Tamir, Amarsaikhan; Tatucu, Radu; White, David John; Wong, Lai Ying; Wong, Sau Ngan; Woo, Yip Kei; Xu, Yangguang; Zottel, Siegfried Context The program has been designed in two phases: Phase I from May 2016 to December 2017; and Phase II from Natural-resource rich countries face extra financial January 2018 to June 2019 (different from the funding stability risks as well as constraints to developing phases). The key elements of the program are noted financial systems, stemming from the “Dutch disease” below. effects and higher macroeconomic volatility. The slowdown in China, the main export destination (i) Strengthen financial sector oversight; crisis for Mongolia, and the declining global commodity preparedness and financial safety nets; prices have transmitted to the real economy, and consequently, to the financial sector. The Mongolian (ii) Design and implement a policy framework for Authorities are acknowledging that a sound financial the state-owned financial institutions and state- sector is essential for sustainable growth of the owned enterprises; Mongolian economy which is inherently subject to Strengthen the regulation and supervision of (iii) the commodity price swings and aim at developing capital markets and insurance sector; an internationally competitive, efficient, inclusive and balanced financial system. Improve the national payments system and (iv) expand access and use of payment services; Project Objective (v) Improve the legal and regulatory framework The Development Objective (DO) of the Program is for financial consumer protection and foster to support building a sound, diversified and inclusive financial literacy; (vi) reform the insolvency financial system for Mongolia. The Program is system; and focused on strengthening financial system stability, Strengthen the effectiveness of the asset (vi) including through strengthening the banking sector; declaration system and the capacity of Mongolian developing capital markets and the non-bank financial institutions to trace, freeze, confiscate and return sector; improving financial infrastructure and financial stolen assets. literacy, and creating better conditions for recovery of stolen assets. 34 SECTION II. DETAILED RESULTS OF KTF-FUNDED OPERATIONS IN 2018 Progress institutions. Such information sharing is essential to DICOM’s effectiveness in preparing for a potential The KTF supported the delivery of the following payout of insured deposits and understanding the activities during 2018: future risks to its fund from possible bank failures. Supporting Banking Sector Soundness •• Signed a funding agreement with the Ministry of Finance (MOF) to provide for back-up funding The WB team actively supported the preparation in the case of need. This is consistent with good and delivery of the Special Review on the Quasi- practice which requires that deposit insurers have Fiscal Activities of the Bank of Mongolia (BOM), ready access to funding in case of need. conducted by KPMG Audit LLC. This Review is one of the prior actions for the second Development Policy framework for SFIs and SOEs Policy Operation (DPO). The Review was disclosed at the BOM website in December 2018. The WB team supported the preparation and delivery of the Financial Diagnostics of the Development Bank of Mongolia (DBM), conducted Link to the Review by the PricewaterhouseCoopers Audit LLC. This https://www.mongolbank.mn/.../documents/ Diagnostics was completed in December 2018 and ENG_QFPA%20Review%20BOM%20Final%20 is one of the prior actions for the second DPO. The report_v2.0.pdf findings of the diagnostics suggest that the DBM’s In cooperation with the IMF team, the WB team credit risk and collateral management as well as key supported the work on amending the Deposit corporate governance matters need to be significantly Insurance Law and the Banking Law. Both improved. This Diagnostics provides the grounds amended laws were ratified by the Parliament in for developing and implementing the DBM reform February 2018. agenda, aimed at making the DBM an independent, profitable and financially sound state financial Following the assistance from the WB team, institution. the Deposit Insurance Corporation of Mongolia (DICOM): Stronger asset declaration and recovery •• Signed a cooperation agreement with the BOM The enactment of new criminal procedure code and to allow for information sharing on member the outcome of the FATF AML/CFT mutual evaluation SEOUL CENTER FOR FINANCIAL SECTOR DEVELOPMENT ANNUAL REPORT 2018 35 process saw priorities renewed in this area of TA. and will enable the BOM to identify and prioritize any In early 2018, support was provided through the reforms to be implemented in this area. desk-based review of draft guidance documents prepared by the Mongolian authorities, which Financial capability was followed by an in-country workshop in May The WB team conducted several workshops on to further develop guidance. At this same time, Monitoring and Evaluation (M&E) and supported a review was undertaken on the current state of the the BOM with the development of a M&E implementation of the asset declaration system which framework, as well as M&E tools and trackers identified further areas of focus for ongoing work — to aid the monitoring and reporting of Mongolia’s e.g. roll out of digital signatures, expanding red-flag National Program on Financial Literacy progress. A testing across all 40,000 declarants. finalized M&E report, including tools and trackers In October, two training workshops on Financial was shared with BOM in May 2018 and it was based Investigations were conducted with participants on international best practices. for the FIU, IAAC, General Police Agency, PGO, With WB support, the financial capability program General Customs Authority, General Taxation for rural dwellers was initiated. The BOM signed a Authority and General Intelligence Agency. The focus joint MOU with the Microfinance Fund of the MOF of the first workshop was putting in place the building as well as the National Center for Lifetime Learning blocks so that participants would be well placed to (NCLL). This provides for the Microfinance Fund to undertake the more advanced courses within this support the training of NCLL trainers while BOM — broader program. The second strategic management with WB team support — is expected to provide the of financial investigations workshop was attended financial education content to be delivered to residents by 15 senior staff from these same agencies with the living in rural parts of the country. overall objective of this workshop to discuss what was necessary to build and enhance the effectiveness of a financial investigations function. Insolvency reform The IFC team continued to assist the project Payment system strategy implementation counterparts in revising the Bankruptcy Law (the Law) which resulted in the progressively newer The WB team continued to support the BOM in the and better versions of the draft legislation. Based implementation of the National Payments System on the previous work with the Ministry of Justice and Strategy through one field mission (in May 2018) Home Affairs (MoJHA), the latest version includes all and ongoing correspondence. In April 2018, the main elements necessary for the smooth functioning BOM issued a regulation on electronic money and of a modern insolvency regime. The draft Law has the WB team provided inputs to further enable the been favorably regarded by the international experts development of e-money in the market. Following and has also been shared with the IMF team. the suggestion of the WB, the BOM is also working to consolidate some of the implementing regulations The Working Group (WG) for the Law represents of the National Payments System Law into one main a diverse range of stakeholders (judicial officials, regulation, thereby reducing the risk of inconsistency lenders, academics, businesses, etc.) and convened and arbitrage and developing a regulatory framework several times during the year to debate in detail on all that would be easier to navigate for all parties: this aspects of the Law. In 2018, a total of 80 participants new regulation is expected to be finalized in mid-2019. joined the WG meetings. In line with NPS Strategy #11, the WB completed Three rounds of technical comments were provided an assessment of the market for international on the revised law by IFC experts; and a detailed remittances in Mongolia against the WB-CPMI discussion between the IFC experts and the WG General Principles for International Remittance members was held in Ulaanbaatar on September Services. The assessment was delivered in July 2018 26, 2018. The purpose was to explain in detail the 36 SECTION II. DETAILED RESULTS OF KTF-FUNDED OPERATIONS IN 2018 technical comments and to answer questions from Just in time Policy Advice the WG members. Among others, more contents The WB team provided significant TA on were provided on personal insolvency framework, reforming the Housing Mortgage Program (HMP). commercial restructuring process, capacity building The WB team helped the MOF and BOM to draft the of the future insolvency professionals, etc. Degree for the Restructuring of the HMP, aimed at The team continued to participate in the discussion of supporting affordable housing in a more cost-effective the IMF-led NPL (non-performing loan) resolution way, with a time-bound plan for the BOM to fully exit and legal review process and coordinated closely with the Program. This is one of the prior actions for the other donors interested in the debt resolution issues second DPO. on the ground. The WB team conducted two field missions (in The Law drafting process is now at its final October and November 2018) to continue support stage. During 2019, the team will organize with the to the Authorities on restructuring the HMP and to project counterparts’ wider consultations on the draft initiate the securitization legal and regulatory reform legislation to reach out to the stakeholders outside to reduce initial and ongoing transaction costs, the WG. It will then be submitted to the higher- including establishing a Mortgage Securitization level government Authorities for approval as soon Working Group. The inaugural meeting for the latter as possible before it is transmitted to the Parliament took place on November 23, 2018 in Ulaanbaatar and for consideration. Under the current Mongolian included representatives from MOF, BOM, Financial legislative process, the Parliament staffers and its Regulatory Commission (FRC), and Mongolia relevant Committees will also review the submitted Mortgage Corporation (MIK). The WB team and law and can make further changes to the text. In the MIK delivered 3 presentations on the mortgage meantime, the team plans to conduct some technical securitization status quo and proposed reform trainings on the NPL management for the lenders in directions. the Mongolian market. A learning trip for the key stakeholders to Korea is also likely to be organized. SEOUL CENTER FOR FINANCIAL SECTOR DEVELOPMENT ANNUAL REPORT 2018 37 VIETNAM: Capital Markets and NBFI Development Grant amount: USD 1,460,000 Project duration: September 2016–August 2018 Team Leader Alatabani, Alwaleed Fareed Abels, Miglena; Bui, Nga Thi Phuong; Carpenter, Richard John; Carson, John Wright; Choi, Youjin; Davis, Richard Mark; D'Hulster, Katia; Gonulal, Serap; Hunt, Team Members Robert Milton; Jain, Himanshi; Jansen, Jan Barend; Kask, Priit; Kusuma, Ketut (in alphabetical Ariadi; Nguyen, Hang Thi Thu; Price, William Joseph; Raghavan, Indhu; Randle, order) Antony; Rischall, Neal Howard; Salomao Garcia, Valeria; Vu, Thu Hang; Wiener, Mitchell Context complementary segments in appropriate sequence to support long term growth and development. Key Vietnam has achieved remarkable economic discrete activities under this engagement will include: performance since the start of its transition in 1986 including rising levels of formal financial 1) Insurance: (i) Design an information system to intermediation and deepening. However, several capture insurance supervisory information required challenges remain to be addressed as noted in the for a modern smart-RBS; (ii) Review the insurance 2012 Financial Sector Assessment Program (FSAP) law and regulations and supervisory framework report. As Vietnam strives to move towards a higher and identify gaps and determine needed changes middle-income country, it is facing higher demands for a smart-RBS; (iii) Provide training as needed for sustainable long-term financing and a diversified in all activities and specific training focusing on financial system. Capital markets and NBFIs remain using IT and data management for effective smart- in the early stage of development and are not yet RBS. able to relieve the pressures on a very bank centric 2) Pension: (i) Support the Ministry of Finance financial system for long-term financing. To address (MoF) to develop the private pensions market these challenges in the NBFI sector and also the and to ensure safe and productive investment of vulnerabilities in the banking sector, the Vietnamese pension assets; (ii) Support the Vietnam Social financial authorities have requested technical Security Fund (VSS) and stakeholders to develop assistance from the WBG, to which F&M has a clear governance structure and investment responded by developing a multi-year Programmatic strategy for the fund; propose legislative and/ Approach (PA). or regulatory amendments required for safe and efficient investment of public pension assets; (iii) Project Objective Provide capacity building/training for the MoF, The overall objective of this PA activity is to leverage the VSS, and related stakeholders regarding global capital markets and NBFIs for the growth and good practice on the investment and governance of development of Vietnam. Developing capital markets public pension funds. is not an easy task, as it involves a large number of 3) Government bond market: (i) Review the players and institutions, as well as complex building implementation of Vietnam Bond Market blocks, to ensure the efficiency and safety of their Development Roadmap (2012) and its results operations. The key stakeholders in this market and support the MoF to prepare the next phase include, banks, insurance funds, pension funds, of implementation; (ii) Strengthen the legal securities market as well as the bond markets. The framework for a better functioning and more liquid engagements under this pillar will develop these government bond market and to make government 38 SECTION II. DETAILED RESULTS OF KTF-FUNDED OPERATIONS IN 2018 borrowings more market-based and transparent; considerable progress in advancing the pension (iii) Develop policies to increase demand and reform agenda through the elevation of the dialogue broaden the investor base for government bonds; to the higher levels of government in a multi- (iv) Develop policies to improve supply and support disciplinary approach and in close collaboration development of new, relevant bond products that with SPJ and MTI GPs. The team has produced a cater to the needs of institutional investors; (v) policy note on strategic pension reform to inform Develop policies to improve the secondary market the dialogue. This was also used by the GoV operation. to inform their Politburo’s drafting of a major 4) Securities: (i) Support legislative reform of resolution on pension reform including reform to the Securities Market Law and prepare for the the fund’s investments which later was approved promulgation of the next generation of Securities in Resolution 28/2018 by this highest political body Law; (ii) Provide on-site training programs for the in the country. As part of bringing this important State Securities Commission (SSC) and prepare resolution into life, a formal request from Deputy internal operating manuals. Prime Minister Hue was received by the WB for further support including on improvement of VSS Progress investments. VSS liabilities assessment: Despite challenges in Pension data collection for PROST modelling, the WB The pension team had two missions in 2018 to work team supported the GoV in developing a liability with VSS, MoF and Ministry of Labor - Invalids and profile of the VSS funds under the existing legal Social Affairs (MOLISA) on public pension and with regime and analyzed different scenarios and their the MOF on private pensions development. implications on the fiscal sustainability of the fund. On public pension, efforts were focused on (i) The team also supported the development of pension assessment of the Vietnam Social Security Fund liability modeling capabilities among key government (VSS) fund liabilities, (ii) improvement of the agencies to inform policy and decision making on VSS’s investment strategy and operations, and pension system reform through delivery of two rounds (iii) development of private pensions. There was of training with over 10 detailed training sessions on SEOUL CENTER FOR FINANCIAL SECTOR DEVELOPMENT ANNUAL REPORT 2018 39 the PROST model to government staff from the VSS, MoLISA and MoF. To institutionalize these capabilities, a manual and process for data collection for PROST modeling has been developed with the VSS for future valuations of the fund’s liabilities. VSS investment capacity: A technical note on assessments of the fund governance against the International Social Security Association standards and of the fund investments were shared to inform future changes to current policies and practices. VSS staff have completed training on investment including on investment analytics and operations, government bonds and how to develop a long- term pension fund investment strategy, using multiple international comparisons. Advice was also provided to the VSS in developing In February 2018, a 3.5-day training workshop internal investment operations guidelines. titled “Effective Oversight of Capital Markets: Inspections, Investigations, and Prosecutions of On private pensions, support was provided to the Securities Fraud” was organized jointly by SSC, MoF in reviewing Decree 88 and development WB, and the US SEC. Case studies from the US and of new circular, particularly on tax treatment and other markets were discussed. In addition, key issues international experience, supervisory framework for related to SSC’s investigation and enforcement scope, private pensions and pension fund operations. It was power, and mechanisms were also discussed during recommended to the MoF that a robust supervisory the workshop. This discussion was relevant for the framework and capacity be put in place to ensure the drafting process of the new Securities Law. safe launch of first pension funds. Meanwhile, the drafting process of the new Securities Law entered the next phase in the Insurance: first half of 2018, with a new draft circulated for A mission was conducted in 2018 to deliver the discussion with the Ministry of Finance. The project following products: (i) a review of the current team prepared a set of comments and conducted a insurance supervisory framework and international mission in June 2018 to deliver and discussed the experience and approach for risk-based supervision comments in the following areas: (i) SSC powers, (ii) to inform ISA’s future approach for supervision. public offering of securities, (iii) listing, (iv) private A review of international experience on IT system offers and exempt offers, (v) public companies, (vi) development for supervisory purposes and detailed corporate disclosures, (vii) corporate governance, and recommendations for business processes and IT (viii) securities firms. Eventually, a new draft was system design has been developed with ISA. These circulated for public comments between October and will help inform the upcoming reform of the law December 2018. and regulations and establishment of IT tools for supervision. Bond Market Following the important results achieved in 2017, Securities Market:In 2018, the work was focused in particular the establishment of the Bond Market on delivering the last module of the Securities Market Development Roadmap 2020 with vision to Supervisory Capacity Building, namely Module 5: 2030 (Government Decision 1191/2017) and the Investigation and Enforcement. enactment of new Public Debt Management Law, 40 SECTION II. DETAILED RESULTS OF KTF-FUNDED OPERATIONS IN 2018 the project team continued supporting the Vietnam MOF in establishing a modern framework for government bond market regulation under the new Law. Particularly, a new Decree 95/2018 on issuance registration, depository, listing and payment of government debt instruments was issued with support from the project team during the drafting and consultation process. In addition, two circulars implementing the new Decree were drafted with project team’s support. Meanwhile, the discussions on a new decree to replace Decree 90/2011 on corporate bond issuance continued during 2018. It is important to note that, due to the anticipated project’s conclusion in mid-2018, the activities under this component were gradually transferred to a new Bond Market Development program To further support these efforts, the team worked within the World Bank Group. Eventually, at the with the Seoul Center team to organize a knowledge end of 2018, a new Decree 163/2018 was issued exchange with Korean partners on Korea’s bond to replace Decree 90/2011, providing a new market development. Eleven government officials framework for the development of corporate bond from MOF, SBV, the two stock exchanges (Hanoi and market in Vietnam. In addition, the two circulars Ho Chi Minh), and other related institutions visited drafted during early 2018 were also issued, namely: Korea during August 21-23, 2018 and met with Korea’s Circular on Buyback and Switch of Government Debt Financial Services Commission, Korea Exchange, Instruments, and Circular on Issuance and Settlement Korea Financial Investment Association, Korea of Government Bonds in the domestic market. The Securities Depository, Korea Asset Management earlier activities funded by the KTF established a core Corporation, and a Primary Dealer Firm (Mirae Asset foundation for these new regulations. Daewoo). SEOUL CENTER FOR FINANCIAL SECTOR DEVELOPMENT ANNUAL REPORT 2018 41 PHILIPPINES: Financial Development and Inclusion Grant amount: USD 600,000 Project duration: September 2016–June 2019 Team Leader Endo, Isaku (current); Goyal, Sameer (former), Mylenko, Nataliya (former) Team Members Chen, Rong; Choi, Youjin; Mcnulty, John E.; Ono, Toshiaki; Santos, Griselda G.; (in alphabetical Sberro, Rachel; Varangis, Panayotis N. order) Context Pillar I: Financial inclusion The Philippines’ financial system is dominated by (i) Monitoring and measurement system and the banking sector and appears to be stable and mechanism for NSFI implementation highly liquid. Growth of the banking system and (ii) Assessment of data gaps in cooperative sector abundant liquidity, however, are not translating into and enhancement of Cooperative Development greater access to financial services. Access to basic Authority capacity in cooperative oversight financial services for the lower 40% (by income) of the population increased from 10% in 2011 to 18% Stock taking and developing a systematic (iii) in 2014 but remains low. Lack of access to basic approach for the implementation of financial savings, payment and credit services for low income education programs and policies across agencies population and MSMEs limits their ability to fully participate in the broader economy, exacerbating (iv) Identification of specific reforms and instruments inequality and poverty in the Philippines. Lack of (guarantees, special purpose funds) to improve effective insurance and retail finance mechanisms also access to finance for SMEs means that financial assistance and risk mitigation for natural disasters cannot be delivered efficiently to the Pillar II: Financial stability and soundness affected populations. To address these challenges, the (i) Implementation of the enhanced bank resolution Philippines financial authorities launched a National framework and improving the deposit insurance Strategy for Financial Inclusion (NSFI) in 2015, capacity which the WBG had helped design. Following the launch, the authorities have also requested WBG’s Progress support in the implementation of the NSFI. WBG Finance and Market’s team has developed a multi- Pillar I: Financial inclusion year Programmatic Approach (PA) to respond to the Most of the outputs for this pillar relate to the previous client request. support for the National Strategy for Financial Inclusion (NSFI). Technical notes were provided to the Project Objective clients under this NSFI subtask to help better design The overarching objective of the PA is the development and implement the NSFI. These notes were intended of the financial system of the Philippines and increased to inform and stimulate the policy dialogue with the financial inclusion through: counterparts and relevant stakeholders in Philippines’ financial inclusion space. During the implementation period, the team had several discussions and provided face to face advice in the areas of the notes as well as other technical areas related to the NSFI as 42 SECTION II. DETAILED RESULTS OF KTF-FUNDED OPERATIONS IN 2018 requested by the client. The notes were not intended There is also a technical note on SME finance that to be published as formal reports. The technical started preparation in 2018 and is scheduled to be notes, however, led to agreements on additional completed in 2019. activities which are currently under design to be continued over the next couple of years under new Pillar II: Financial stability and soundness programmatic arrangements. The work under this pillar faced delays due to In particular, the Korean Trust Fund associated with uncertainties around leadership changes in key these activities supported missions during FY18 and counterpart agencies including Philippine Deposit FY19 to support the agriculture finance study and a Insurance Corporation (PDIC), Department of report was prepared on the government schemes Finance (DOF), and the Central Bank (BSP). This to support agriculture finance in Philippines. A activity was proposed as there was strong interest more comprehensive report on agriculture finance from PDIC for WB support for the implementation in the Philippines is being prepared jointly with the of the enhanced bank resolution framework approved Agriculture GP and scheduled to be completed in as part of PDIC charter amendments as well as other early 2019. support to strengthen their institutional capacity. The WB team continues to provide ad hoc advice (for The team also discussed potential support for the instance, in the second half of 2018, the team provided consolidation of the credit guarantees in Philippines feedback and advice to PDIC relating to their strategy approved by the President in the 2nd half of 2018. On for disposing repossessed assets). the latter, at the Treasurer of Philippines’s request, a presentation on best practices relating to The support to the counterparts in the area of stability partial credit guarantee schemes was made to the also included contributions to regular regional and technical working group for the consolidation of Philippines economic updates, inputs and dialogue the state guarantee programs in April 2018. on enhancement of Anti-Money Laundering Act SEOUL CENTER FOR FINANCIAL SECTOR DEVELOPMENT ANNUAL REPORT 2018 43 and inputs on the Islamic finance bill. Dialogue support the Financial Sector Forum to facilitate the with the Financial Sector Forum and BSP over development of the Philippines’ first financial sector the past 6 months led to new technical assistance development blueprint post-FSAP in 2020. requests to support the government on several areas and is guiding the next phase of WBG support such Just-in-time assistance as institutionalizing the crisis simulation, FinTech Just-in-time assistance on payment systems Deep Dive Technical Note, Capacity building and regulatory and oversight frameworks was delivered regulatory reforms of capital market, money services to support BSP’s preparation for an implementing business and payment systems. regulation for the new National Payment System The dialogue on the financial sector development Law (signed by President Duterte in October 2018, and a need for a sector strategy led to the effective December) and to support the newly created workshop on the Financial Sector Assessment Payment Systems Oversight Department (PSOD). A Program (FSAP). The WBG team organized an workshop was delivered by WBG global payment FSAP workshop in September 2018, hosted by system experts and legal expert, to provide BSP with participation from 36 members from capacity development training to BSP staff in the the Financial Sector Forum (BSP, Securities and Payment Systems Oversight Department, Payment Exchange Commission, Insurance Commission, and and Settlement Office, Core IT Specialists Group, PDIC), IMF, and WBG. The workshop focused on and the Office of General Counsel. The workshop an overview of the FSAP — objectives, components, provided the conceptual framework of payment process and outputs. Following the workshop, the systems oversight and regulation. The workshop Philippine authorities made an official request to the supported BSP in preparing for the implementing WB and IMF to undertake a full FSAP for the country regulations for the new law. for the first time since 2009. The WB is requested to 44 SECTION II. DETAILED RESULTS OF KTF-FUNDED OPERATIONS IN 2018 LAO PDR: Financial Sector Development Grant amount: USD 800,000 Project duration: September 2016–October 2018 Team Leader Corlett, Michael (current); Tanaka, Kiyotaka (former) Annamalai, Nagavalli; Bell, Simon C.; Booth, Charles D.; Delion, Marie Lily; Fabling, Christopher Robert; Kwok Chung Yee, Brian; Lorenzo, Laura Maria; Team Members Mocheva, Nina Pavlova; Mortimer-Schutts, Ivan Daniel; Nolte, Jan Philipp; Omany, (in alphabetical Vonglatda; Orbeta, Cristina; Pankov, Alexander; Panyanouvong, Duangchay; order) Phomsouvanh, Sakhone; Phonvisay, Alina; Phounvixay, Vidaovanh; Poonprasit, Piathida; Sakonhninhom, Sourignahak; Salomao Garcia, Valeria; Sitorus, Djauhari; Sombounkhanh, Souksavanh; White, David John; Wong, Sau Ngan Context AML/CFT National Risk b. Assessment (separate regional KTF code) A more stable and efficient financial sector is essential to promote economic growth and shared prosperity in c. Deposit Insurance (moved from Pillar 3 in Lao PDR. The modernization of Lao PDR’s financial July) system is one of the ten strategic areas that the WBG has decided to support in the upcoming years. This (ii) Pillar 2: Upgrading the Legal and Regulatory concept note outlines the WBG’s Financial Sector Framework Development TA program designed to achieve a. Legal and Regulatory this goal, utilizing a Programmatic Approach (PA) that will allow the WBG to operate on a multi-year b. Accounting and Auditing (partly Malaysia- timeframe and address problems in a comprehensive office funded from FY18) manner though coordinated and properly sequenced c. Insolvency and Creditor Rights (moved from projects. Pillar 3 in July) (iii) Pillar 3: Just-in-time Technical Assistance Project Objective The development objective of this Programmatic Progress Approach is to promote the development of a more stable and efficient financial sector. This will be This proposal was approved in September 2016, achieved through the provision of TA to enhance the coinciding with a window of opportunity in Lao capabilities of financial sector authorities, and assist in PDR’s willingness to reform its financial sector the aligning of laws, regulations and practices with key and engage international partners. The Bank of international standards. This TA program involves a Lao (BOL)’s 2016-2025 Strategy, approved in late coordinated, sequenced and comprehensive approach, 2016 is particularly ambitious. BOL also took the with a consistent impact monitoring framework, based initiative to compile their TA requests to the WBG on the following three pillars: for 2017 and 2018 into one document, aided by the Bank’s coordinated approach, which was received in (i) Pillar 1: Enhancing Financial Stability February 2017, and further requests in 2018, which a. Financial Stability Monitoring are noted below. SEOUL CENTER FOR FINANCIAL SECTOR DEVELOPMENT ANNUAL REPORT 2018 45 Pillar 1: Enhancing Financial Stability mandate, suitable instruments, the ability to collect on a. Financial Stability Monitoring debt, and good governance. BOL noted that Lao PDR has undergone SOB reforms in the past, and like in the This activity’s main counterpart is the BOL Banking successful international examples, is also in the process Supervision Department. In continuation of of strengthening the banking supervisor, and Basel technical assistance initiated in 2016, in 2018 BOL II compliance by commercial banks. The Chair (the began to publish Financial Soundness Indicators Director General of Banking Supervision) concluded (FSI) on its website. Financial stability indicators by noting they would like to explore how the WBG (of which the IMF’s Financial Soundness Indicators could be engaged further. Next Steps: Discuss specific (FSIs) are the archetype) are indicators of the current areas for further sharing of international experiences. financial health and soundness of the financial institutions in a country. FSIs are calculated and b. AML/CFT National Risk Assessment aggregates are disseminated (by over 100 countries) This TA is KTF-funded but provided through the by IMF to support macroprudential analysis. regional “National Risk Assessment (NRA) ASEAN” WBG TA on calculating FSI was delivered in 2016, (P152092, TTL: Stuart Yikona, Dec 2014–Aug 2018). and in 2017 resulted in BOL agreeing to the quarterly As noted above, the final NRA report and action publication of seven core aggregated FSIs as part of plan was approved by NCC in December 2018, the Green Resilient Growth DPO 2. BOL will therefore having benefitted by multiple rounds of comments by publish Q4 2017 FSIs by March 2018, increasing to the WB team. Furthermore, AML-IO has requested nine core indicators for Q2 2018. further support in Risk Based Assessment Capacity Building involving 8 modules over two years. Aside from supporting FSIs, the World Bank conducted a half-day workshop in February 2018 c. Deposit Insurance (moved from pillar 3) on State Owned Bank (SOB) reforms, attended In response to earlier crises, the BOL Depositor by BOL Banking Supervision Department and Protection Fund (DPF) was established by a decree SOB management. The presentations introduced a in 1999. It however still has capacity constraints on SOB reform framework, and examples from South multiple fronts, including funding, IT (depositor data Asia, Indonesia, and Myanmar, featuring financial is on 6 stand-alone PCs), and institutional coordination and technical support from the WBG. The seminar (no back-stop agreement with MOF), so is unable to emphasized the need for: a thorough diagnostic enhance financial sector stability as intended. (financial, operational and institutional), a clear 46 SECTION II. DETAILED RESULTS OF KTF-FUNDED OPERATIONS IN 2018 During 2018, the WBG TA continued to support TA on these key laws as well as related laws and the strengthening of DPF capacity, focusing regulations. on (i) addressing weaknesses identified in the In 2018, legal experts from the WBG conducted International Association of Deposit Insurers missions in February, March, August and November (IADI)’s Core Principals self-assessment, which DPF to continue working with the BOL legal teams on the completed in 2017 with WBG TA support financed BOL Law and the Commercial Banking Law. Due under KTF; and (ii) implementing the new Deposit to their importance, the submission to the National Insurance Decree, which issued in October 2017, Assembly of international standard central banking also benefitting from extensive WB support financed and commercial banking laws are prior actions of under KTF. The decree is a marked improvement on the Green Resilient Growth DPO 2 due in late 2018 the 1999 decree but requires significant follow-up TA (delayed until mid-2019) and DPO 3 due in early to implement. 2020 respectively. In 2018, the World Bank delivered the following The BOL Law was approved by the National TA: (i) business process review on major areas of DPO Assembly on June 19, 2018, and greatly benefitted operations: (premium collection, monitoring of deposit from extensive WB TA. data, monitoring and analysis of financial condition of banks, deposit reimbursement, fund management); As of end-2018, the Commercial Banking Law is (ii) workshop on Corporate Governance; (iii) Update in the final stages of drafting, having benefitted on the compliance with Core Principles and proposed from multiple rounds of comments by the WB action plan; Deposit Insurance Reimbursement System team, including missions in March and August 2018. (DIRS); (iv) Workshop on Deposit Reimbursement Previous WB advice on corporate governance, risk Simulation Exercise. management, Board of Directors and increase in minimum capital requirements seem to have been The generous support provided by the Korean Trust well received. The law is scheduled to be presented to Fund is greatly appreciated by Laotian authorities, the National Assembly in the upcoming session. who have officially requested IDA financing to strengthen the financial and institutional capacity Decree on Resolution Powers: The details of the of DPF. Project preparation is underway and expected decree were discussed. Again, the comments provided delivery is end 2019. The project is the result of the in August on the draft decree was reiterated. BOL successful collaboration built under the TA provided was keen to understand the issues related to mergers under the KTF. Finally, KTF financed the attendance and acquisitions and the mission provided a learning of the Deputy Director General of DPF to the FDIC session on the foregoing. 101 training in Washington October 2018. WB has also been providing Legal TA on Decisions relating to: Dormant Accounts, Asset Foreclosure, Pillar 2: Upgrading the Legal and Regulatory Large exposure, capital adequacy, liquidity, Bank Framework resolution, corporate governance, merger and a. Legal and Regulatory acquisition and consolidated supervision. During the November 2018 mission, BOL requested additional The current financial sector legal framework is TA to address the following: (i) Basel II-disclosure; outdated and inadequate; e.g. the Commercial Bank (ii) Net open position; (iii) ICAP and ILAP assessment; Law falls short of many Basel Core Principles, (iv) PCA framework; and (iv) Early warning system. requirements of the ASEAN integration framework, the Key Attributes for resolution and most of all its Securities Law: The World Bank continued to provide appropriateness for the Laotian banking system. support with the development of a new Securities law. Similarly, the BOL Law suffers from serious gaps During 2018, WBG provided comments on various including governance, accountability and its role and iterations of the draft law, and two missions were function vis a vis the banking sector, the government conducted in March, August and November 2018. and other regulators. BOL has therefore requested SEOUL CENTER FOR FINANCIAL SECTOR DEVELOPMENT ANNUAL REPORT 2018 47 The law is expected to be finalized in mid-2019, and curriculum for certified public accountants, adjust the World Bank continues to provide support. auditing requirements for national and international firms, strengthen the Lao Chamber of Professional The mission met with the Bankruptcy Law drafting Accountants and Auditors (LCPAA) and related committee of the MOJ and discussed the below institutions. laws. The Deputy Director General that the mission met with is also on the drafting committees of the During 2017, the WBG team worked closely with Enforcement Law and Economic Dispute Resolution LCPAA and the Malaysian Institute of Accountants to Law. Bankruptcy, dispute resolution and enforcement conduct an IFRS Gap Analysis, which was accepted are all part of the Doing Business Indicators (below). by the IFRS Steering Committee chaired by MOF, presented at a regional IFRS conference in Vientiane Bankruptcy Law: The mission discussed TA based in December 2018, which was jointly-organized by on the timeline that has been approved by the steering the WBG. committee. The plan is for submission to the National Assembly in November 2018 for initial comments and On April 24, 2018, the Vice Minister, Ministry re-submission of the final draft law for endorsement in of Finance formally approved the final IFRS April 2019. Gap Analysis Report and requested World Bank support for the next stage of the transition project. Enforcement Law: At the MOJ’s request the WBG The gap analysis will now inform the drafting of provided two rounds of comments on the existing a transition plan for the three sectors regulated Enforcement Law. The plan is for submission to the by BOL, MOF (Insurance) and Lao Securities National Assembly in October 2019, and a drafting and Exchange Commission Office. The World committee chaired by MOJ’s Court Enforcement Bank delivered a workshop in July 2018 with the Department has been appointed. The UNDP is following objectives: (i) to provide an overview and providing some TA under its program on the Legal key matters for consideration when preparing the Sector Master Plan. IFRS Transition Plan; (ii) to identify the key cross b. Accounting and Auditing sectoral issues that can best be dealt with through a collaborative approach between MOF, regulators The WBG is providing TA to revise and strengthen and the accounting profession; (iii) to agree on the Lao PDR’s accounting and auditing standards to preparation and finalization of the overall draft IFRS ensure they are more consistent with international Transition Plan to be overseen by the IFRS Steering best practices. This will particularly help Lao Committee; and (iv) to discuss TA required to assist PDR adopt IFRS, revise training programs and the 48 SECTION II. DETAILED RESULTS OF KTF-FUNDED OPERATIONS IN 2018 with implementation of the IFRS Transition Plan aggressive timeline has been agreed on with the WBG. once it has been approved. The next steps include: (i) Other activities during 2018 included: (i) Workshop A final draft of an overall IFRS Transition Plan will for stakeholders March 2018; (ii) Vice Minister study be submitted to the IFRS Steering Committee; (ii) a tour to Korea July 2018; (iii) comments on First draft of dissemination workshop would then be held to run Bankruptcy Law July 2018; (iv) INSOL International through the draft plan and explain to public interest conference and Thailand Study Tour September 17– entities how they should prepare their own entity 20, 2018; (v) Second round of comments on Judgment specific IFRS Gap Analysis and IFRS Transition Plan Enforcement Law October 2018; (vi) WB delivered a for submission to their regulator. Note specifically on SME Insolvency October 2018. c. Insolvency and Creditor Rights (moved from The study tour to Korea was jointly organized by the Pillar 3) team and the Seoul Center with Korean partners on Korea’s insolvency system. Ten representatives from According to WBG’s Doing Business report, Lao the Lao Ministry of Justice led by the Vice Minister, is joint-last in the world for the ease of resolving the People’s Supreme Court, the Ministry of Industry insolvencies. This lack of creditor rights places a and Commerce, and the Bank of Lao PDR visited severe cost on lenders’ ability to lend, ties up capital Korea during July 16-17, 2018 to meet with Korea’s in zombie firms, and reduces the incentives for Ministry of Justice, Seoul Bankruptcy Court, Judicial entrepreneurs to innovate. The Ministry of Justice Research and Training Institute, Judicial Policy (MOJ) has requested TA to better understand the Research Institute, and Korea Restructuring and situation and reform the Bankruptcy Law, now due Insolvency Practitioners Association. Korea, ranking for submission to the national assembly in April 2019. third in the Doing Business 2018 for resolving During 2018, the WBG provided comments on insolvencies, and having a separate insolvency regime the current bankruptcy law in May, as well as on for SMEs, shared its rich experience and lessons with the related draft civil code due in April and the the Laotian authorities. Law on Enforcement in February 2018. Seven representatives from the Ministry of Justice, People Supreme Court, Ministry of Industrial and Commerce, and BOL were sponsored to the Forum for Asian Insolvency Reform held in Hanoi, Vietnam. A supreme court judge was also sponsored to an insolvency legal learning event in Sydney. Progress has been slow pending the formal approval of the drafting committee, but now it is in place, and an SEOUL CENTER FOR FINANCIAL SECTOR DEVELOPMENT ANNUAL REPORT 2018 49 Pillar 3: Just-in-time Technical Assistance in-time pillar has been especially helpful for WBG Lao PDR’s financial sector is in the early stages of its to responsively build relationships that lead to new development, and the capacity of the financial sector opportunities for reform. authorities is low. The authorities often do not know An example of activities covered under this pillar what assistance they need ahead of time. The financial this year include timely training opportunities for key sector authorities therefore benefit from being able counterparts, e.g. Deputy Director General of Deposit to request small but timely TA, and this facilitates Protection Office attended the FDIC 101 course in a dialogue on high-priority reform areas. The just- Washington DC in October 2018. 50 SECTION II. DETAILED RESULTS OF KTF-FUNDED OPERATIONS IN 2018 EAP: Case Studies In De-Risking Grant amount: USD 145,000 Project duration: March 2017–June 2018 Team Leader Chatain, Pierre-Laurent Team Members Abel, Donald Bremner; Aviles, Ana Maria; Celik, Kuntay; Eckert Sawoski, Sue Ellen; (in alphabetical Endo, Isaku; Goyal, Sameer; Malik, Priyani order) Context Progress Correspondent banking is an essential component At the request of the G20 and with the support of the of the global payments system, especially for cross- Financial Stability Board (FSB) and the Committee border transactions. De-risking, the termination of on Payments and Market Infrastructures (CPMI), correspondent banking services for clients perceived the World Bank Group carried out two fact-finding to be “high risk” has the potential to reverse some projects on de-risking. These projects confirmed the of the progress made in reducing remittance prices trend that correspondent banking relationships had and fees, as well as in the prices of other financial been restricted or terminated, affecting especially instruments and services. The WBG and the Money Transfer Operators (MTOs), small and international community have been giving increasing medium domestic banks, and small and medium attention to the significance of de-risking. The exporters. Following subsequent discussion and proposed project aims to respond to this phenomenon stakeholder dialogue between relevant global entities with more information on possible knock-on effects it was recommended that “further work should be of de-risking and on informing policy decisions at undertaken to identify and quantify the negative both local and global levels. effects on the economies of smaller jurisdictions (trade finance and remittance dependent individuals/ Project Objective families) to strengthen the case for public intervention/ concern.” The objective is to gather information on the effects of de-risking on local communities and to work To respond to this call for more granular analysis, the with private and public sector partners to develop World Bank Group initiated a project in 2017 to solutions to ensure that the affected organizations conduct 8 country studies to better understand the maintain access to financial services. This country- effects of de-risking at the local level, considering specific pilot study intends to shed more light on the local banks, MTOs, and the final customers receiving way the withdrawal of correspondent banking and de- remittances, using trade finance and benefiting from risking activities in the remittance market are affecting other services. The KTF supported research in 4 of the specific categories of customers. It will also discuss countries—Bangladesh, The Philippines, Kingdom of not only the negative impacts of de-risking but also Tonga and Samoa—on the impacts of the withdrawal the positive ones. of correspondent banking relationships (CBRs). The objective of these studies was two-fold: (i) to collect qualitative and quantitative data covering a number of issues, including trends in correspondent banking (closure of accounts of domestic banks and SEOUL CENTER FOR FINANCIAL SECTOR DEVELOPMENT ANNUAL REPORT 2018 51 MTOs) and (ii) to assess potential impact on specific officials, regulators and supervisors, international and categories of clients, products and services. The case local banks, money transfer operators, chambers of studies benefitted from interviews with government commerce, and inter-institutional commissions for financial inclusion. The findings of the individual country studies were used to prepare a summary paper which offers further insight into the debate through the prism of these eight emerging market economies in East Asia and Pacific (EAP), Latin America and the Caribbean (LAC), South Asia (SA), and Sub-Saharan Africa (SSA). Overall, in the eight countries covered in this study, the macro- economic impact of de-risking appears limited. In a few countries, the net loss of CBRs has been marginal and the impact has remained contained. Banks have been able to cope with the situation by dealing with fewer correspondent banks or establishing new ones. The study shows however that the impact of de- risking has been felt at the micro-level, sometimes intensively, especially in two jurisdictions surveyed under the KTF assistance. On a few rare occasions, banks nearly lost their access to the international financial system. The final output was published by the World Bank Group in April 2018 on the sidelines of the WBG-IMF Spring Meetings. The link to the final report is given below. http://documents.worldbank.org/curated/ en/552411525105603327/pdf/125422-replacement. pdf 52 SECTION II. DETAILED RESULTS OF KTF-FUNDED OPERATIONS IN 2018 SECTION III. Seoul Center Plans For 2019–2020 SEOUL CENTER 2.0: Enhanced Knowledge Generation and Partnerships The Seoul Center team proposes to expand its activities to implement the FCI - Korean Government partnership in line with the partnership agreement with the Government of Korea. The primary objective of these activities is to support financial sector development in EAP client countries by leveraging Korean expertise and knowledge. The deliverables will be organized as follows: Seoul Center Korea Based Team — Work Program Focus on Financial Stability and Soundness KTF Management, KTF-Funded FCI Research and Partnerships and Visibility, Country Programs Knowledge Generation Knowledge Exchange Communication •• Technical/operational •• Global/regional •• Strengthen •• Donor work (ASA): SC team diagnostics and collaboration through communication joins and provides research on financial continued joint and reporting, TF technical input as team stability and soundness missions, study management leads or members (incl. EAP macro- tours, conferences, •• SC webpage: financial analysis and workshops •• Facilitate approval of information/news/blogs/ monitoring) funding for country •• Korean secondees publications programs through •• Lesson notes/case onboarding and •• KTF branding close communication studies on Korean leveraging guidelines for country with donor experience (focusing •• Partnership event engagements and on stability, innovation) •• Identify and connect (Q4 2019) events appropriate Korean •• Technical/policy •• Regular smeetings, •• Maintain database for partners for country notes on priority maintaining partner results monitoring & programs areqas (for EAP or profiles & news evaluation globally) •• Joint events with other hubs (Vienna- FinSAC, Malaysia Hub, Chile Hub) (e.g. NPL resolution event in KL in April) SEOUL CENTER FOR FINANCIAL SECTOR DEVELOPMENT ANNUAL REPORT 2018 53 Research and Knowledge Generation Partnerships and Knowledge Exchange This is a new type of activity for the Seoul Center This is a continuation of what the Seoul Center has been to more actively distill knowledge and lessons from focusing on from the very beginning. The activities Korea and add more value to the WBG operations. will focus on strengthening the network of partners The activities will comprise conducting diagnostics in Korea, continuing to leverage Korean partners to and research as well as preparing notes on lessons support technical inbound and outbound activities from Korea’s successful development experience. such as topical training/workshops; working jointly The deliverables will be developed by teams led by with other FCI hubs (e.g. collaboration with Malaysia the Seoul Center with participation of FCI and other Hub and FinSAC team on upcoming NPL conference experts from the WBG as well as appropriate partners in KL); and other opportunities to share knowledge from the Korean financial sector. The outputs will with our EAP clients in their areas of interest/priority. be topical briefs, working papers, lessons notes, etc. The work will be led primarily by the Seoul Center Potential topics for the deliverables include: (a) Non- team in cooperation with EAP teams and possibly performing loans (NPL) in EAP with focus on use of teams in other regions. The actual deliverables will Public AMCs; (b) Technology and financial services include study tours, training workshops, presentations innovations in Korea (including possibly case study at partner/WBG events, etc. on Internet-Only Banks and the crypto currency- related issues in Korea); (c) Korea lessons notes (e.g. innovative products for asset/NPL management, TOWARDS SEOUL CENTER 3.0 capital markets and long-term finance, financial In response to MOEF’s earlier (2016-2017) interest inclusion evolution in Korea, etc.) in stronger technical presence in Korea to expand operational support out of the WBG Korea Office, EAP macro-financial monitoring: Consists of a the Seoul Center had proposed to establish a center systematic assessment of financial sector stability of excellence in the office, housing global technical issues and development trends in EAP. This is also expertise in financial stability and soundness. Such a continuation of the work that was supported by the an approach would allow the Seoul Center to better Seoul Center KTF since last year and is led by a team respond to: (i) growing concerns on vulnerability based in the HQ. Knowledge of vulnerabilities at the in the region and globally; (ii) strong demand for country, regional and global level is an important support in the area of financial stability and soundness foundation for engaging with countries, developing (evidenced from the focus areas of the previous appropriate programs to strengthen financial systems phases); (iii) growing interest in learning from Korea’s and providing active support for reforms/capacity experience in this area of comparative advantage. building. This project will support and complement several high priority engagements relating to EAP This proposal was endorsed in principle by both financial sector. The deliverables will be periodic MOEF and the WBG but was not materialized in the EAP-focused reports and notes such as the Quarterly second phase of the partnership as it was not a good Financial Sector Monitor, contributions to the EFI timing for budget expansion. The Seoul Center and Macro-Financial Initiative and EAP Economic FCI management, while continuing to deliver what Update, and China Stability Calls. has worked well in the first and second phase, are eager to discuss with MOEF what thoughts/plans they have for the third phase of the partnership. 54 SECTION III. Seoul Center Plans For 2019–2020 The following can be part of Seoul Center 3.0 •• Broader mandate in line with FCI priorities and discussion (in no particular order and could be Korea Office strategic direction: considered together or independently): The Finance, Competitiveness and Innovation Global Practice was formed after the signing of the •• Expanding outreach of Seoul Center to countries Phase 2 Seoul Center agreement. The current focus beyond EAP: of the Seoul Center is financial sector development Consideration could be given to expanding the grant since the initial agreement was made with the coverage under Seoul Center partnership beyond Finance and Markets GP. With establishment of EAP (could be to another region, e.g. South Asia, or the FCI GP (financial sector and private sector select priority countries) development), consideration may be given to •• Korea-based FCI Center of Excellence focused expand the mandate of the partnership with Korea on Financial Stability and Soundness: to include competition, technology and innovation As discussed during the preparation of Seoul themes. This could be aligned with the current Center 2.0, technical staffing could be strengthened priorities of FCI—Digital Economy, Fintech, in WBG Korea office to focus on Korea’s areas Maximizing Finance for Development, Jobs and of comparative advantage (financial stability and Economic Transformation—as well as the current soundness or similar theme) which would not only thinking of having innovation and technology as the enhance the partnership work but also allow for focus for the Korea Office. richer and more substantive knowledge work and technical support to client countries. SEOUL CENTER FOR FINANCIAL SECTOR DEVELOPMENT ANNUAL REPORT 2018 55 ANNEX I. New Formal Partnerships in 2018 KOREA ASSET MANAGEMENT CORPORATION (KAMCO) •• MOU signed on April 16, 2018 (virtual signing) •• The prospective modes of collaboration under this •• KAMCO was established by the Act on the MOU would include: Efficient Disposal of Non-Performing Assets, etc. a. Technical assistance on the policy areas listed of Financial Companies and the Establishment of above to national and sub-national authorities in Korea Asset Management Corporation in 1962. the East Asia and the Pacific region, as well as KAMCO has supported households, corporations, other regions, to assess and implement necessary financial institutions, and the government as initiatives to strengthen the financial sector and the nation’s economic safety net. As a quasi- markets, which in turn will foster efficient real governmental entity, KAMCO is mandated to sector growth. purchase and resolve non-performing loans b. Knowledge sharing and capacity building for of financial institutions, execute corporate member countries of the World Bank Group restructuring, help restore the creditworthiness through training, workshops/seminars, and other of the financially underprivileged, manage and knowledge transfer activities. develop national properties, and collect delinquent taxes. As the perpetual restructuring organization, c. Strengthening the partnership and institutional KAMCO is committed to the development of the capacity of each Party through staff exchange nation’s economy and its financial institutions, and opportunities as appropriate. strives to maximize government revenues. •• The prospective policy areas of collaboration under this Memorandum MOU would be to support: a. Promoting financial stability, enhancing crisis preparedness, and strengthening financial safety nets; b. Improving distressed asset resolution regimes and policies; and c. Building resilient financial institutions and financial infrastructure SEOUL CENTER FOR FINANCIAL SECTOR DEVELOPMENT ANNUAL REPORT 2018 57 ANNEX II. Feature Story Photo: Stanislas Fradelizi / World Bank WORLD BANK GROUP PARTNERS WITH KAMCO TO PROMOTE FINANCIAL STABILITY IN EAST ASIA AND PACIFIC http://www.worldbank.org/en/news/feature/2018/05/10/world-bank-group-partners-kamco-promote- financial-stability-east-asia-pacific-region May 10, 2018 – The World Bank Group and Korea Drawing on KAMCO’s experience and the World Asset Management Corporation (KAMCO) have Bank Group’s knowledge and convening power, the committed to increasing their cooperation to promote partnership will scale up technical assistance and financial stability, enhance crisis preparedness, capacity building support to national and sub-national and strengthen financial safety nets in developing authorities, particularly in the East Asia and the Pacific countries. A memorandum of understanding (MOU) region. The partnership will be facilitated through signed by the parties in April 2018 formalizes the joint the Seoul Center for Financial Sector Development, commitment of both parties to work with countries to established at the World Bank Group Korea Office build their capacity to address distressed assets and to with the generous support from the Korean Ministry of strengthen their policy frameworks to boost overall Strategy and Finance. The center works to strengthen financial stability. financial systems in World Bank client countries in East Asia and the Pacific. KAMCO, established in 1962, played an important role during the Asian Financial Crisis in the resolution “Non-performing loans (NPLs) and other financial of distressed assets in Korean financial institutions vulnerabilities have long weighed heavily on the and has continued to support stability in the financial financial system development in several countries system. It focuses on the purchase and resolution of in East Asia and the Pacific and have constrained non-performing loans, restructuring corporations, their growth potential,” said Sameer Goyal, assisting in the restoration of credit-worthiness of the Program Manager of Seoul Center for Financial financially-underprivileged, management of state- Sector Development. “Countries have expressed owned properties, collecting overdue taxes as a quasi- strong interest in learning from Korea’s experience governmental entity, and management of Korea’s in resolving NPLs. KAMCO’s know-how and “On-Bid, On-line Public Property Disposal System.” experience will help the World Bank enhance its 58 ANNEXES support to countries to strengthen NPL resolution Aside from KAMCO, the Seoul Center maintains regimes and contribute to strengthening financial strong partnerships with more than 10 core financial safety nets in general.” institutions in Korea. The Center recently signed MOUs with the Korea Deposit Insurance Corporation (KDIC), the Financial Services Commission (FSC), “Non-performing loans (NPLs) and other and the Korea Financial Intelligence Unit (KoFIU), financial vulnerabilities have long weighed and has long-standing partnerships with the Bank heavily on the financial system development of Korea (BOK), the Financial Supervisory Service in several countries in East Asia and the (FSS), Korea Securities Depository (KSD), Korea Pacific and have constrained their growth Credit Guarantee Fund (KoDIT), Korea Institute potential.” of Finance (KIF), Korea Capital Market Institute (KCMI), and the Council on International Financial — Sameer Goyal, Program Manager of Seoul Center Cooperation (CIFC). for Financial Sector Development SEOUL CENTER FOR FINANCIAL SECTOR DEVELOPMENT ANNUAL REPORT 2018 59 ANNEX III. Seoul Center Korea-Based Team Sameer Goyal Kyung Kyun Park Program Manager Senior Financial Sector Specialist •• Seoul Center program and partnership management •• Secondee from KAMCO •• EAP financial sector advisory services and analytics •• EAP financial sector advisory services and analytics focusing on Non-Performing Loans and insolvency Soyoun Jun Ryosun Jang Youjin Choi Team Assistant Consultant Financial Sector Specialist •• Seoul Center operational and •• Seoul Center website and •• Seoul Center partnership administrative support communication materials design management and activities •• Trust fund administration •• Operational support for •• EAP financial sector advisory Seoul Center knowledge and services and analytics partnership activities •• Trust fund administration 60 ANNEXES SEOUL CENTER FOR FINANCIAL SECTOR DEVELOPMENT ANNUAL REPORT 2018 61 Republic of Korea