CONTENTS HIGHLIGHTS OF 2016 .............................................................................................................................. 1 KEY OUTPUTS OF KTF-FUNDED OPERATIONS IN 2016............................................................................... 2 ABOUT SEOUL CENTER AND THE PARTNERSHIP ....................................................................................... 3 TRUST FUND FINANCIAL SUMMARY ........................................................................................................ 5 KTF SUPPORT – EAP COUNTRY AND REGIONAL OPERATIONS.................................................................... 8 STRENGTHENING THE PARTNERSHIPS.................................................................................................... 29 SEOUL CENTER WORK PROGRESS AND PLANS ........................................................................................ 33 ANNEX 1. STRENGTHENED COMMUNICATION WITH MOSF .................................................................... 40 ANNEX 2. RESULT CHAIN OF KTF-FUNDED PROJECTS.............................................................................. 41 ANNEX 3. SAMPLE PROJECTS FOR THE STABILITY AND SOUNDNESS FOCUS............................................. 46 ANNEX 4: LEARNING FROM KOREA: THE STORY OF KOREA’S CREDIT GUARANTEE AGENCY...................... 49 List of Acronyms and Abbreviations AML/CFT Anti-Money Laundering and Combating the Financing of Terrorism MOF Ministry of Finance ASEAN Association of Southeast Asian Nations MOJ Ministry of Justice BOK Bank of Korea MOSF Ministry of Strategy and Finance (Korea) BOL Bank of the Lao PDR MOU Memorandum of Understanding BOM Bank of Mongolia MSE Mongolia Stock Exchange BPNG Central Bank of Papua New Guinea MSME Micro, Small, and Medium Enterprise CBM Central Bank of Myanmar NBC National Bank of Cambodia CBRC China Banking Regulatory Commission NBFI Non-Bank Financial Institution CIFC Center for International Financial Cooperation (Korea) NPS National Payments Strategy / System CLMV Cambodia, Laos, Myanmar, and OIC Office of Insurance Commission Vietnam (Thailand) DO Development Objective PA Programmatic Approach EAP East Asia and the Pacific PBOC People’s Bank of China EWS Early Warning System PNG Papua New Guinea F&M Finance and Markets Global Practice RBC Risk-Based Capital FCPFL Financial Consumer Protection and RBS Risk-Based Supervision Financial Literacy SC Seoul Center for Financial Sector FIU Financial Intelligence Unit Development FRC Financial Regulator Commission SSC State Securities Commission (Vietnam) (Mongolia) SME Small and Medium-sized Enterprise FSAP Financial Sector Assessment Program SOB State-Owned Bank FSC Financial Services Commission (Korea) TA Technical Assistance FSS Financial Supervisory Service (Korea) VSS Vietnam Social Security Fund ISA Insurance Supervision Agency WBG World Bank Group (Vietnam) 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) HIGHLIGHTS OF 2016 Operations of Seoul Center for Financial Sector Development (Seoul Center)  2016 was the first full year of operation in Korea for the Seoul Center. Operational processes streamlined and operational guidelines updated. Process for approval from MOSF enhanced and processing timelines shortened through face to face proposal presentation to MOSF team.  Seoul Center staff integrate into country operations providing technical assistance through country programs (Mongolia, Vietnam) as well as providing technical inputs for concept review, program design, implementation support and identifying appropriate partner connections.  Knowledge generation activities initiated -- Greenback (related to migrant remittances); financial sector and gender diversity and broader issues of financial literacy; and preliminary research on financial stability focus started.  Programs start leveraging Korean partners and several connections made to transfer knowledge and lessons. Knowledge-sharing enhanced with participation of F&M in several partner events. Event on fintech co-organized with ADB and FSS for APEC financial regulators.  Dialogue started with Finance and Markets Global Practice centers in Malaysia and Austria (FinSAC) to coordinate support and seek opportunities for synergy; joint work under discussion  Seoul Center next phase approach and design developed in consultation with MOSF. “Seoul Center 2.0.” to focus on financial stability and soundness, an area of comparative advantage for Korea. Country and Region specific operational work support through KTF  2016 was an outstanding year for KTF-funded F&M country programs, with the largest number and size of programs being under implementation since the beginning of the trust fund operation. A record- high of $4,545,195 of technical assistance was implemented during the year.  Four new projects were approved in 2016 for a total grant amount of $4,130,000 (Mongolia, Vietnam, Lao and Philippines). As of end-2016 a total of 16 proposals had been approved, covering 10 countries and 3 at regional level. Eight projects have been completed and eight are ongoing.  All country focused projects funded by the KTF are in response to client demand and aligned with the Country Partnership Framework (CPF) agreed with each country. Internally WBG standard Accountability and Decision-Making (ADM) process is followed. Project concept is reviewed and approved by Country Director or relevant Manager before proposal is sent to MOSF.  Responding to MOSF’s recommendation to develop larger proposals addressing technical assistance needs in EAP countries, all the new projects are designed as multi-year Programmatic Approaches which allow for more strategic and comprehensive engagement. However, closing date of KTF will be needed to complete technical assistance effectively (especially for the recently approved projects). Leveraging Korean expertize and institutional capacity through partnerships  An important objective of the WBG and MOSF partnership is leveraging expertize of Korean institutions to support country needs and enhance/deepen the delivery of assistance. Substantial progress has been made in 2016 with all the formal and informal partnerships (12 partners so far, including MOSF) to connect these institutions with specific country needs in the EAP region.  Physical presence of technical team in Korea has allowed Seoul Center team to focus on more direct, frequent, and effective interactions and communication with Korean partners on the ground. 1 KEY OUTPUTS OF KTF-FUNDED OPERATIONS IN 2016 The table below highlights the key outputs of the KTF-funded operations that were delivered in 2016. Please refer to the main text of the report for details. Country Key Outputs  Two major pieces of legislation through WBG’s technical assistance to CBM: o Myanmar Financial Institutions Law Myanmar o Mobile Financial Services regulation  BOK shared knowledge on Korea’s payment system  National Payment System Strategy note preparation started Cambodia  National Bank of Cambodia “Let’s Talk Money” campaign launched  BOK shared financial stability lessons from Korea  Financial Sector Reform policy note prepared for new government Mongolia  Assessment of the Deposit Insurance Corporation of Mongolia conducted  Roadmap prepared for enhanced risk-based supervision of insurance sector. National Risk Assessment (NRA): ASEAN  TA enabled Philippines to prepare and publish NRA report  NRA tool transferred to Cambodia, Vietnam, Lao; NRA preparation started Basel II Toolkit: EAP  Quantitative model prepared and discussed with FSS (supported with FSS secondee)  APEC Financial Regulators Conference on FinTech (jointly with FSS and ADB) Seoul Center  Proposal for Seoul Center 2.0 designed 2 ABOUT SEOUL CENTER AND THE PARTNERSHIP BEGINNING OF THE PARTNERSHIP The Ministry of Strategy and Finance (MOSF) of the Republic of Korea and the World Bank Group’s Financial and Private Sector Development (FPD) Department, which is now the Finance & Markets (F&M) Global Practice, agreed on October 11, 2011 to establish the Seoul Center for Financial Sector Development (Seoul Center). MOSF subsequently provided a trust fund to be governed by an Administration Agreement signed with the World Bank on June 25, 2012. The KTF is scheduled to operate for five years, from 2012 to 2017, under the management of F&M GP. The objective of this Korean Trust Fund, titled the Poverty Reduction and Socio-Economic Development Trust Fund II (“KTF”), is to improve and develop financial sectors in the East Asia and Pacific (EAP) Region by delivering better technical assistance and advisory services. It provides financing for activities clustered around the themes of (i) Mitigating financial crises, (ii) Meeting international standards, (iii) Balancing the role of state financial systems, (iv) Developing capital markets, (v) Improving financial inclusion, (vi) Deepening Asian regional integration, (vii) Financing sustainable growth, and (viii) Monitoring, reporting, and evaluation. 3 LEVERAGING SEOUL CENTER TO SUPPORT FINANCIAL SECTOR DEVELOPM ENT IN EAP The World Bank is increasingly focusing on results-oriented comprehensive solutions, which demand a new approach to the delivery of its activities to ensure a more integrated, strategic, and selective knowledge portfolio at the global and country levels. This has given birth to the Programmatic Approach (PA), which organizes separate activities within a program under the framework of an overarching development objective, thus expected to enhance the results and allow greater impact from the overall regional or global multi-year comprehensive program rather than individual activities. F&M has also adopted this Programmatic Approach since 2015 for its country engagements. In the EAP region, F&M’s priorities are: (i) enhancing the stability of financial systems, (ii) improving financial inclusion and infrastructure, and (iii) supporting development finance initiatives, to address the region-specific challenges in the financial sector. The Seoul Center, established to support these priorities, was operated as a virtual pilot for the first two years and subsequently took presence in the WBG Korea Office in the fall of 2015, now housing two F&M technical staff and one short-term staff. The team will continue to build on the current F&M portfolio, participating more extensively in projects (see table below). The Seoul Center team has also been strengthening the partnership between the WBG and the Korean counterparts in the financial sector to support country programs and client-demanded engagements in the East Asia and Pacific region by sharing knowledge, expertise, and lessons from Korea’s successful experience. 4 TRUST FUND FINANCIAL SUMMARY As of December 31, 2016 In USD Total Contributions Received (2012-2016 inclusive) 15,867,052 (+) Investment Income 140,685 (-) Allocation to Country / Regional Projects and Seoul Center Operations 14,593,696 (-) Administrative Fees 688,982 Remaining KTF Funds 725,059 (To be used for Seoul Center operations, administrative fee adjustments, allocation to new discrete tasks) F&M KTF Allocation by Country 3% 2% Myanmar East Asia and Pacific 3% 4% Mongolia 23% 4% Vietnam 5% Cambodia China 8% Korea (Seoul Center) 15% Philippines 10% Laos Papua New Guinea 10% 13% Thailand Indonesia 4 new programs approved to support comprehensive technical assistance and reforms : In 2016, 4 new programs were approved by the MOSF for a combined trust fund allocation of $4,130,000 for Mongolia, Vietnam, Philippines, and Lao PDR. Also, $800,000 was allocated to the Seoul Center for staff cost and partnership activities. Please refer to the next chapter for details of each program. 5 Significant acceleration in pace of delivery: Calendar year 2016 was an outstanding year for KTF-funded F&M country programs, with the largest number and size of programs being under implementation since the beginning of the trust fund operation. A record-high total of $4,609,220 was disbursed during this year to support critical technical assistance in EAP. Below is a breakdown of disbursements by calendar year. KTF Programs - Disbursements 4,609,220 5,000,000 4,000,000 3,000,000 1,509,469 2,000,000 781,297 735,973 1,000,000 0 2013 2014 2015 2016 Expense Categories CY 2013 CY 2014 CY 2015 CY 2016 Staff Costs 512,401 487,818 279,918 2,930,295 Consultant Fees 74,029 775,844 344,736 600,871 Travel Expenses 144,730 234,635 99,087 893,691 Media, Workshop 40,775 3,428 7,072 97,606 Associated Overhead 7,368 7,633 5,068 73,240 Contractual Services 1,994 112 91 13,517 Total 781,297 1,509,469 735,973 4,609,220 Notwithstanding the accelerated implementation this year, the ongoing KTF-funded operations would benefit from an extension of the grant closing date (currently set at August 31, 2017) to ensure more effective delivery of the technical assistance. This is especially true for the three most recent projects (Vietnam, Philippines, and Lao PDR) that were newly approved in September 2016. 6 KTF – Status of Disbursements by Project (accumulated as of December 31, 2016) Project Name Country Project Grant Amount Disbursements Outstanding Available Closing Commitments Balance Indonesia Crisis Simulation Framework Indonesia 3/7/2014 314,063 314,063 - - China Financial Reform Strategy Report China 2/13/2014 469,715 469,715 - - China Financial Consumer Protection and Financial Literacy China 8/31/2015 456,756 456,756 - - Thailand: Solvency Modernization and Risk Based Capital Thailand 5/15/2015 399,282 399,282 - - TA to the Implementation of PNG Financial Competency Survey PNG 11/30/2015 474,661 474,661 - - Mongolia Capital Market Development TA Mongolia 12/31/2015 366,321 366,321 - - East Asia Regional Financial Integration Region 10/16/2015 385,115 385,115 - - Evaluation System for Consumer Financial Education in China China 12/31/2015 217,183 217,183 - - National Risk Assessment ASEAN Region 8/31/2017 898,000 234,957 11,495 651,548 Basel II Pillar 2 Implementation Toolkit Region 6/15/2017 940,000 47,855 - 892,145 Myanmar: Scaling Up Financial Services for the Poor Myanmar 8/31/2017 3,300,000 2,269,508 235,801 794,691 Cambodia: Financial Sector Development TA Cambodia 8/31/2017 1,442,600 364,092 137,525 940,983 Mongolia: Financial Sector Development Support Program Mongolia 8/31/2017 1,470,000 700,851 154,764 614,385 Vietnam: Capital Markets and NBFI Development Vietnam 8/31/2017 1,460,000 218,516 2,713 1,238,772 PH Financial Development and Inclusion Philippine 8/31/2017 600,000 6,013 - 593,987 s Lao PDR: Financial Sector Development Lao PDR 8/31/2017 600,000 64,025 - 535,975 Seoul Center Operations and Knowledge Korea 8/31/2017 800,000 647,046 10,823 142,131 Total 14,593,696 7,635,958 553,121 6,404,616 7 KTF SUPPORT – EAP COUNTRY AND REGIONAL OPERATIONS SUMMARY  A total of 16 KTF proposals for country or regional support have been approved as of end of 2016. This represents 10 countries and 3 regional initiatives. Eight of the 16 projects have already been completed; the other 8 projects, which were approved in 2015 and 2016, are under implementation.  Since 2015 the WBG F&M program has been supporting client demand through a multi-year Programmatic Approach (PA) which allows for more strategic and comprehensive country engagements. Accordingly, funding requests for KTF support have recently been more comprehensive and spanning longer timeframes (thus also larger in amount). This has responded well to the MOSF recommendation to develop larger proposals addressing strategic reforms and aiming for stronger impact in EAP countries. 8 KTF-SUPPORTED COUNTRY AND REGIONAL OPERATIONS BY PROGRAM Grant Project Country Objective Timeframe (USD) To contribute to the promotion of a sound and stable financial sector in Indonesia through Crisis Simulation Mar 2013 – Indonesia 370,000 improved capacity of financial sector Framework Mar 2014 authorities to prevent, manage, and resolve financial crises. To design and implement far-reaching and Financial Reform Mar 2013 - China 480,000 fundamental financial reforms to China’s Strategy Report Feb 2014 financial system. Financial To support the Chinese authorities in setting up Consumer May 2013 - China 490,000 an effective Financial Consumer Protection Protection & Aug 2015 &Financial Literacy system in China. Financial Literacy To assist the Office of Insurance Commission of Solvency Thailand to improve risk-based supervision and Jul 2013 – Modernization & Thailand 420,000 dynamic solvency regimes, including designing May 2015 Risk-Based Capital the required legal/regulatory framework, tools, and market practices. TA to the Implementation of Papua To assist the PNG Central Bank to develop a Jul 2013 – Financial New 475,000 baseline for understanding the financial Nov 2015 Competency Guinea capability of the PNG population. Survey Capital Market To support the Mongolian authorities in Sep 2013 – Mongolia 350,000 Development TA developing robust deep capital markets. Dec 2015 To support sustained economic growth and East Asia Regional poverty reduction through the expansion of Dec 2013 – Financial Regional 450,000 investments and financing under the ASEAN Oct 2015 Integration agenda of financial integration. Evaluation System To assist the People’s Bank of China to develop Mar 2014 – for Consumer China 250,000 a system for evaluating the effectiveness of Dec 2015 Financial Education consumer financial capability programs. 9 Grant Project Country Objective Timeframe (USD) To help the ASEAN countries improve the National Risk Apr 2015 – Regional 898,000 effectiveness in detecting and preventing Assessment ASEAN ongoing financial crime. Basel II Pillar 2 To develop a supervisory toolkit for the use of Implementation banking supervisors in client jurisdictions to Oct 2015 -- Regional 940,000 Toolkit improve the effectiveness of their Basel II ongoing implementation. Scaling up Financial To help increase access to financial services by Services for the the poor in Myanmar through technical Sep 2015 - Myanmar 3,300,000 Poor (PA) assistance and advisory services. ongoing Financial Sector To support the Cambodian financial authorities Development TA in core areas of financial sector modernization Jan 2016 - Cambodia 1,442,600 (PA) and reform. ongoing Financial Sector To support building a sound, diversified, and Apr 2016 - Development Mongolia 1,470,000 Support (PA) inclusive financial system for Mongolia. ongoing Capital Markets To support leveraging capital markets and Non- and NBFI Bank Financial Institutions for growth and Sep 2016 - Vietnam 1,460,000 Development (PA) development of Vietnam ongoing Financial To support the development of the financial Development and system of the Philippines and increased Sep 2016 - Philippines 600,000 Inclusion (PA) financial inclusion ongoing Financial Sector To promote the development of a more stable Sep 2016 - Development (PA) Lao PDR 600,000 and efficient financial sector in Lao ongoing 10 RESULTS AND PROGRESS OF KTF PROGRAMS UNDER IMPLEMENTATION ASEAN: NATIONAL RISK ASSESSMENT Grant amount: USD 898,000 Project Duration: April 2015 – August 2017 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). Project Objective The project helps improve the effectiveness of some of the countries in the ASEAN region to detect illicit financial flows, investigating and prosecuting financial crime such as corruption, tax evasion, and fraud. The results/indicators for the activity will be measured by the following: (1) Some of the ASEAN countries have a detailed and comprehensive report that identifies and analyzes the proceeds of crime in the country and identifies the key vulnerabilities of law enforcement agencies to investigate and prosecute financial crime; (2) Some of the ASEAN countries officially adopts concrete time bound action plan that is endorsed by the government through appropriate processes such as a national coordination committee on anti-money laundering and terrorism financing or at cabinet level.; and (3) 50-60 key experts from the judicial, law enforcement, financial regulators and senior policy makers are trained on how to identify the money laundering and terrorism financing risks and vulnerabilities facing some of the ASEAN countries. Progress The Philippines. The final workshop was delivered from May 11-13, 2016. A half-day session on May 13 was held for senior policy makers at which the findings of the national risk assessment process were presented and discussed. The team provided detailed comments on the NRA Draft Report, and during the final workshop provided comments on the draft action plans. Following the endorsement of the Government of the Philippines in July 2016, the NRA Report was published on the website of the Anti- Money Laundering Council (the Philippines Financial Intelligence Unit (FIU)) - www.amlc.gov.ph. The action plan for the coming years covers: (i) amendments to the Anti-Money Laundering Act to cover casinos and real estate agents and brokers; amendments of the Central Bank of the Philippines Charter to cover Money Service Businesses; and Institution of a National Identification Document; and (ii) 11 Administrative: enhancing cooperation and coordination of Law Enforcement Agencies and the FIU; capacity building and awareness raising campaign; and increasing of manpower complement in the FIU and Supervisory authorities. Cambodia. The final workshop was delivered from October 25-26, 2016, meaning that the authorities completed the risk assessment process in a timely manner. This demonstrated a strong technical and political commitment on the part of the Cambodian authorities. The World Bank team that assisted the authorities provided detailed comments on the national risk assessment draft report, and during the final workshop provided comments on the draft action plans. Going forward in 2017 and the coming years (3- 5 years), Cambodia will be implementing their action plan to include: Iincreasing efforts to combat financial crime and enhance cooperation and coordination at the operational level of Law Enforcement Agencies and the FIU; establishing a mechanism to determine beneficial ownership; enhancing effective supervision of the securities and insurance sectors; enhancing the capacity of law enforcement agencies; setting up reliable system to cross check supporting KYC/CDD documents; and improving the existing mechanism to collect data and statistics. Vietnam. The first workshop to launch the national risk assessment was delivered from December 12-14, 2016. Approximately 75 officials who are members of the risk assessment working group participated. This group will be responsible for conducting the risk assessment in the coming months. A financial inclusion session was held on December 15, 2016 with a small team of financial inclusion experts from the State Bank of Vietnam, micro-finance institutions representatives and the faculty of Banking and Finance Academy. The final workshop is expected to be delivered in the first quarter of 2018. In delivering this 12 support, the team benefited from the participation of a Korean colleague on secondment to the World Bank from the Korean Prosecutor’s Office. The World Bank team support to Vietnam will extend through the end of the NRA process when the final NRA report is presented to senior government policy makers in the first quarter of 2018. Lao PDR. Following the authorities decision in April 2016 to ask for the World Bank to begin the support on the national risk assessment, an awareness raising workshop was held from January 9-10, 2017. The purpose of the workshop was to raise awareness of the Laotian authorities on how to conduct a National Money Laundering and Terrorism Financing Risk Assessment of Lao PDR. 30 officials participated in the workshop. Going forward in 2017, the first national risk assessment workshop will be delivered within the first half of 2017, likely by May 2017. In delivering this support, as in the case of Vietnam, the team benefited from the participation of a Korean colleague on secondment to the World Bank from the Korean Prosecutor’s Office. ASEAN Regional Risk Assessment workshop. Working in consultation and collaboration with the Korean Financial Intelligence Unit and the FATF Training and Research Institute based in Busan, Korea, the World Bank is organizing an ASEAN regional workshop to be held in Busan, Korea, from March 27-30, 2017. The focus will be on the implementation of actions arising out of the national risk assessment processes and exploring regional solutions to cross border risks. 36 participants will be expected to attend from the ASEAN countries plus Timor-Leste and Korea. Completing the assessment while laudable and foundational is not sufficient. The most critical part is putting into effect the action plan(s) that mitigates the risks and vulnerabilities identified by the country. In view of this, the workshop will be expected to facilitate the sharing of country experiences on progress being made on implementing respective country action plans arising out of the risk assessments completed and/or to be completed. Each participating country will be expected to make a presentation on one of the following themes/topic:  Smuggling (humans; goods; cash, etc.)  Remittances & informal channels  Wildlife, illegal logging & natural resources  Banking channels for moving criminal proceeds  Financial inclusion, expanding financial access, maintaining integrity 13  Terrorism financing, terrorism  Dealing with real estate, casino and gem stone sectors  Offshore business and financial integrity EAP: BASEL II PILLAR 2 IMPLEMENTATION TOOL KIT Grant amount: USD 940,000 Project duration: October 2015 – June 2017 Context The Basel Committee on Banking Supervision (BCBS) issued a comprehensive revised capital adequacy framework in 2004 (known more popularly as Basel II), which was designed to be more risk-sensitive than the Basel I framework. Basel II has three pillars: Pillar 1 – prudent capital regulation; Pillar 2 – supervisory review, and Pillar 3 – market discipline. Pillar 2 involves two main steps – (a) requiring banks to maintain an internal capital adequacy assessment process (ICAAP) and complying with the internal targets; and (b) supervisory evaluation of how well banks are assessing their capital needs relative to all risks incurred by the bank. Pillar 2 implementation is mandatory and critical to the effective implementation of Basel II. Within Pillar 2, some jurisdictions have progressed on part (a) above, but very few have progressed on implementation of part (b). This offers a vast potential for providing technical assistance in this specialized area to client authorities. 14 Project Objective The objective for this project is to assist banking supervisors in client jurisdictions to improve the effectiveness of their capital adequacy framework, which would eventually help them achieve a higher level of compliance with international standards. This will be achieved through the development, customization and delivery of a supervisory toolkit. Progress The Pillar 2 toolkit and guidance notes are being designed to meet the needs of banking systems in low and middle-income jurisdictions, including those that are currently on Basel I. The Pillar 2 toolkit comprises of two key components, a qualitative section and a quantitative section. The two components of the Pillar 2 Toolkit can collectively better equip the supervisors in performing more effective supervisory reviews, engaging in constructive discussions with banks and performing more dynamic supervision. Thus, the Pillar 2 toolkit can contribute to strengthening the capacity of banking system supervisors to promote resilient and stable banking systems. The project team, including a seconded staff from Financial Supervisory Service (FSS), has developed the toolkit quantitative section and visited FSS in Korea to discuss the preliminary model in mid-2016. With feedback from the FSS the team has completed the core elements of the quantitative parts. Work on the project slowed down with the return of the FSS secondee in October 2016. F&M management has reviewed the status and agreed to assign more staff to speed up this important assignment and to start work on the qualitative part. Upon completion, the toolkit will be reviewed and offered to select EAP countries. The primary reason for the low disbursement of this project is the heavy use of the seconded staff which was not anticipated when they first designed the project. The Seoul Center team is working with the project team to adjust the costing estimates for the remainder of the project term and will accordingly claw back the excess funds so that they can be used for other programs and activities. MYANMAR: SCALING UP FINANCIAL SERVICES FOR THE POOR Grant amount: USD 3,300,000 Project duration: September 2015 – August 2017 Context Financial inclusion is a key priority in Myanmar's development agenda. At present, over 70 percent of adults do not have access to credit, savings, and deposits. Thus, the Government of Myanmar has recently formulated a Financial Inclusion Roadmap 2014-2020 that aims at increasing the percentage of adults with access to basic financial services from 30% in 2015 to 40% by 2020. 15 Project Objective The development objective is to help increase access to financial services by the poor in Myanmar. Financial inclusion is a key priority in Myanmar's development agenda. The Government of Myanmar has formulated a Financial Inclusion Roadmap 2014-2020 that aims at increasing the percentage of adults with access to basic financial services from 30% in 2015 to 40% by 2020. Hence, the objectives under this Programmatic Approach are achieved through the provision of technical assistance and advisory services to enable local financial institutions to offer new savings and deposit accounts; grant credit to smallholder farmers and micro, small and medium enterprises (MSMEs); leverage digital finance to serve the financial needs of the poor; and enhance the capability of financial sector authorities to identify and manage risks. Progress The activities supported through this Programmatic Approach (PA) are proceeding well and there has been substantial implementation progress across all sub-tasks despite the transition in government and change in leadership in the Ministry of Planning and Finance. The counterparts have maintained a strong commitment to the reform program despite the major political and policy uncertainty related to the November 2015 elections and the rather long period of transition thereafter. Across all components of the PA, the teams have continued with the TA and capacity building programs with the Central Bank of Myanmar (CBM), Ministry of Planning and Finance (MOPF) and the Financial Regulatory Department (FRD). The TA program has established strong engagements at the working level particularly at the MOPF-FRD which is responsible for insurance, microfinance supervision and regulation as well state-bank ownership, and at the CBM with regard to bank regulation and supervision and payments systems development. For the payment systems work, the Bank of Korea provided two technical experts to share their expertise with the CBM. The IFC work is also ongoing and proceeding well with regard to credit bureau development and the legal framework for secured transactions. Notably, two very substantial outcomes were achieved during 2016 that are expected to have a large positive impact on financial inclusion in the medium and long term. First, the Myanmar Financial Institutions Law was passed in January 2016, significantly modernizing the financial sector legal framework and providing the basis for modern banking product development and implementation of Basel Core Principles. Second, CBM issued the Mobile Financial Services regulation, strengthening the regulatory basis for provision of mobile financial services by non-banks, including telecommunication companies. Both these areas were supported through technical assistance funded under the KTF PA directly to the CBM, sharing of good international practices, and support for consultation with the private sector. Implementation of both laws remain a high priority given weak institutional capacity of the CBM. 16 Overall, the TA has been an important factor in building consensus for the World Bank’s Myanmar Financial Sector Development IDA credit of US$100 million which was approved Board in December 2016. The WB’s IDA project will build on the work programs implemented through the KTF -funded activities and provide the co-financing necessary to ensure deep impact and effectiveness of the many reform initiatives in the financial sector. CAMBODIA: FINANCIAL SECTOR DEV ELOPMENT TA Grant amount: USD 1,442,600 Project duration: January 2016 – August 2017 Context The Ministry of Economy and Finance (MEF) and the National Bank of Cambodia (NBC) have requested the assistance of the WBG to modernize the financial system with the ultimate goal of building a sound, efficient and inclusive financial system to underpin economic growth and poverty reduction in Cambodia. The financial system provides all of its citizens with the opportunity to save, invest, and get credit from financial institutions to cover their consumption needs or meet unexpected expenses. Furthermore, a larger and more dynamic financial system is needed to support the financing needs of economic actors, 17 from micro-entrepreneurs, small and medium enterprises (SMEs) to large corporations and government institutions. Recognizing the importance of these objectives, MEF and NBC have reached out to the WBG for TAs in a number of areas of financial sector development. Project Objective Based on these requests and dialogue with the WBG financial sector team, TA activity plans to support the MEF and NBC in core areas of financial sector modernization and reform have been developed. The beneficiaries of this proposed TA are financial sector policymakers, regulators and market players in Cambodia in their efforts to build a stable, efficient and inclusive financial system to underpin economic growth and poverty reduction. This program is designed to establish the fundamental components for an effective and efficient financial system in Cambodia and for a financial sector that will support economic stability and growth with inclusion goals of the country. The following activities are proposed for this TA.  Pillar 1: Enhancing and maintaining financial stability: (i) strengthening prudential regulation and supervision in the banking sector; (ii) Strengthening capacity for financial crisis prediction and management; (iii) Anti-Money Laundering and Combating Financing of Terrorism (AML/CFT)  Pillar 2: Increasing system efficiency: (i) Supporting the development of a National Payments Strategy (NPS) and a payments system oversight framework; (ii) Strengthening the accounting and auditing system in financial system  Pillar 3: Promoting inclusion and consumer protection: (i) Supporting the deepening and strengthening of non-bank financial institutions; (ii) Promote consumer protection framework in financial system Progress The work has begun across all three pillars. Under Pillar 1, there were a series of capacity building programs held in 2016. With KTF’s financial support, both MEF and NBC jointly organized three workshops related to macro-prudential, financial stability, and financial crisis management, while the Bank of Korea provided a technical expert in one workshop. In addition, the KTF supported officials from the MEF and NBC to attend the Financial Stability Study Program organized by the Bank of Korea. In the last quarter, a Risk-Based Supervision (RBS) mission was conducted to assess the existing RBS regime and provide recommendations to enhance this system. Regarding the next steps, the authorities plan to enhance risk- based supervision and its crisis management framework. 18 Under Pillar 2, a series of missions were conducted in 2016. The WBG has conducted a preliminary assessment of the payment system in Cambodia and started work on a national payment system strategy which will be presented in 1H 2017. In terms of accounting and auditing, the WBG has jointly worked strategically with the PUM Netherlands Senior Experts, the non-profit organization specialized in accountancy. The team has provided technical support to establish and implement a quality assurance and quality control structure in accordance with the International Federation of Accountants (IFAC)’s Statements of Member Obligations (SMO) 1 requirements. Regarding the next steps, the authorities plan to implement the national payment strategy and quality assurance review system in order to improve the accounting practice in Cambodia. Under Pillar 3, a series of missions were conducted in 2016. The WBG has provided technical support for the NBC’s “Let’s Talk Money” campaign to enhance financial education and consumer protection . In addition, the WBG has also supported the financial counseling pilot project at the village level. In terms of financial inclusion, the WBG has supported a legal reform of the Micro-Insurance Sub-Decree in order to promote micro-insurance products to the untapped population. Regarding the next steps, the authorities will continue its “Let’s Talk Money” campaign and the financial counseling pilot project at the village level. In addition, they plan to draft a series of legislation (Prakas) to support the Micro-insurance Sub-Decree and enhance the market conduct for the micro-insurance sector. 19 MONGOLIA: FINANCIAL SECTOR DEV ELOPMENT SUPPORT PROGRAM Grant Amount: USD 1,470,000 Project Duration: April 2016 – August 2017 Context Natural-resource rich countries face extra financial stability risks as well as constraints to developing financial systems, stemming from the “Dutch disease” effects and higher macroeconomic volatility. The slowdown in China, the main export destination for Mongolia, and the declining global commodity prices have transmitted to the real economy, and consequently, to the financial sector. The Mongolian Authorities are acknowledging that a sound financial sector is essential for sustainable growth of the Mongolian economy which is inherently subject to the commodity price swings and aim at developing an internationally competitive, efficient, inclusive and balanced financial system. Project Objective The Development Objective (DO) of the Program is to support building a sound, diversified and inclusive financial system for Mongolia. The Program is focused on strengthening financial system stability, including through strengthening the banking sector; developing capital markets and the non-bank financial sector; improving financial infrastructure and financial literacy, and also creating better conditions for recovery of stolen assets. The program has been designed in two phases: Phase I from May 2016 to December 2017; and Phase II from January 2018 to June 2019. KTF is expected to support Phase II once funding is confirmed. The key elements of the program are noted below. (i) strengthen financial sector oversight; crisis preparedness and financial safety nets; (ii) design and implement a policy framework for the state owned financial institutions and state owned enterprises; (iii) strengthen the regulation and supervision of capital markets and insurance sector; (iv) improve the national payments system and expand access and use of payment services; (v) improve the legal and regulatory framework for financial consumer protection and foster financial literacy; (vi) reform the insolvency system; and (vi) strengthen the effectiveness of the asset declaration system and the capacity of Mongolian institutions to trace, freeze, confiscate and return stolen assets. Progress The KTF support for the program was made available in May 2016 and it has already delivered a number of important financial sector development support activities:  A financial sector policy note was prepared for the new Mongolian government, highlighting the key areas for reform and suggesting policy actions. The policy note was highly valued by the new management teams of the Bank of Mongolia (BOM) and Ministry of Finance (MOF). 20  The assessment of the Deposit Insurance Corporation of Mongolia (DICOM) structure and operations was prepared based on the IADI Core Principles for Effective Deposit Insurance System and a corrective action plan was recommended to improve DICOM’s compliance with the deposit insurance core principles. The next step - implementation of this action plan - will improve the financial safety net and relatedly, the overall financial sector stability in Mongolia.  The new State Property Agency (SPA) that was established in July 2016 was advised on the necessary amendments to the State Property Law and the Resolution on the Functions of SPA .  The work with Independent Authority against Corruption (IAAC) was commenced on developing an investigations manual.  A draft medium-term roadmap for enhanced risk based supervision (RBS) of insurance industry was prepared in cooperation with the Financial Regularity Commission (FRC). A two-day training on RBS was provided for 20 supervisory personnel of FRC. For the securities sector, a two-days training for 25 FRC personnel was provided, addressing RBS and the securities market clearing and settlement issues. Both training events were well received by the participants.  The Strategy for National Payments System (NPS) Development was launched and a workshop on the self-assessment of Mongolia’s Real Time Gross Settlement System was conducted for the BOM staff. The BOM Governor opened the NPS Strategy launch event and emphasized its importance for supporting the economic growth in Mongolia.  A two-day workshop on Debt Collection Best Practices was organized in cooperation with the BOM and the Mongolian Bankers Association. More than 60 financial sector representatives attended the event and it was very well received by all participants.  A two-day workshop on key ingredients of a modern insolvency system was conducted; it was well received by the authorities.  The work on supporting the implementation of the National Program for Financial Capability was launched, with a focus on incorporating financial education into the curriculum for schoolchildren and undertaking preparatory work on the website. In his letter to the WBG Management, the BOM Governor highlighted the importance of this work. 21  A draft policy note on the Mongolia Education Loan Policy was prepared at the request of the MOF, highlighting the necessary amendments to the current set-up of the Education Loan Fund based on the best international practices.  A regular presentation on the Mongolia financial sector situation was designed and prepared. VIETNAM: CAPITAL MARKETS AND NBFI DEVELOPMENT Grant Amount: USD 1,460,000 Project Duration: September 2016 – August 2017 Context Vietnam has achieved remarkable economic performance since the start of its transition in 1986 including rising levels of formal financial intermediation and deepening. However, several challenges remain to be addressed as noted in the 2012 FSAP report. As Vietnam strives to move towards a higher middle income country, it is facing higher demands for sustainable long-term financing and a diversified financial system. Capital markets and NBFIs remain in the early stage of development and are not yet able to relieve the pressures on a very bank centric financial system for long-term financing. To address these challenges in the NBFI sector and also the vulnerabilities in the banking sector, the Vietnamese financial authorities have requested technical assistance from the WBG, to which F&M has responded by developing a multi- year Programmatic Approach (PA). Project Objective The overall objective of this PA activity is to leverage capital markets and NBFIs for the growth and development of Vietnam. Developing capital markets is not an easy task, as it involves a large number of players and institutions, as well as complex building blocks, to ensure the efficiency and safety of their operations. The key stakeholders in this market include, banks, insurance funds, pension funds, securities market as well as the bond markets. The engagements under this pillar will develop these complementary segments in appropriate sequence to support long term growth and development. Key discrete activities under this engagement will include: 1) Insurance: (i) Design an information system to capture insurance supervisory information required for a modern smart-RBS; (ii) Review the insurance law and regulations and supervisory framework and identify gaps and determine needed changes for a smart-RBS; (iii) Provide training as needed in all activities and specific training focusing on using IT and data management for effective smart- RBS 22 2) Pension: (i) Support the Ministry of Finance (MoF) to develop the private pensions market and to ensure safe and productive investment of pension assets; (ii) Support the Vietnam Social Security Fund (VSS) and stakeholders to develop a clear governance structure and investment strategy for the fund; propose legislative and/ or regulatory amendments required for safe and efficient investment of public pension assets; (iii) Provide capacity building/training for the MoF, the VSS, and related stakeholders regarding global good practice on the investment and governance of public pension funds 3) Government bond market: (i) Review the implementation of Vietnam Bond Market Development Roadmap (2012) and its results and support the MoF to prepare the next phase of implementation; (ii) Strengthen the legal framework for a better functioning and more liquid government bond market and to make government borrowings more market-based and transparent; (iii) Develop policies to increase demand and broaden the investor base for government bonds; (iv) Develop policies to improve supply and support development of new, relevant bond products that cater to the needs of institutional investors; (v) Develop policies to improve the secondary market operation 4) Securities: (i) Support legislative reform of the Securities Market Law and prepare for the promulgation of the next generation of Securities Law; (ii) Provide on-site training programs for the State Securities Commission (SSC) and prepare internal operating manuals Progress This project was approved at the end of September 2016, but the teams have already made progress on several fronts. The pension team worked with VSS to develop investment governance and operations, and with MoF to develop private pensions. This component kicked off in November 2016 with strong client endorsement of the short-term deliverables to improve current operations but a desire to engage over the longer term to transform investment capabilities and results, as well as the coverage of pensions for the people in Vietnam.2017 will see a range of outputs from new assessment of their liabilities to inform policy to create a more sustainable system, improved strategy and operations on investment, development of policy to improve coverage and development of private pension regulation and supervision to help create a more diversified pension system in Vietnam. 23 The government bond market team had a mission in December to meet with the delegation from Vietnam - comprising 11 representatives from MoF, SBV, SSC and Ho Chi Minh and Hanoi Stock Exchanges, and Vietnam Bond Market Association - with the purpose of exchanging knowledge and studying the development of the bond market in advanced economies. Two meetings with WB/IFC teams were arranged to discuss the recent developments in the Bond Market in Vietnam, specifically focused on the on-going TA work with MOF on information disclosures, assessments and recommendations to develop the corporate bond market roadmap during 2017-2020 & about the IFC bond program. The teams discussed the bond market development roadmap and priorities to be included to develop the corporate bond market, among others: information disclosures, measures to attract more issuers to the market (advised MOF to look into specific sectors in the economy for long term financing such as telecom, banking, power); discussed tax policies on deposit and tax on corporate bond investment. The securities team had a mission in November (i) to conduct a knowledge sharing session with SSC staff on international practices on supervision of securities businesses and market intermediaries, and (ii) to have dialogues with SSC staff, the Exchanges (Hanoi and Ho Chi Minh City), and select market participants on potential enhancements in the regulatory and supervisory framework for securities firms and market intermediaries. The knowledge sharing session was organized in two half-day sessions (November 16-17, 2016) and attended by 24 staff from various departments. During the session, the team shared international experience and best practice on supervision of securities firms in the area of business conduct. Based on the dialogue with the clients and review of related material, the mission team recommended 5 priorities for SSC to be implemented with the support from WBG. PHILIPPINES: FINANCIAL DEVELOPMENT AND INCLUSION Grant Amount: USD 600,000 Project Duration: September 2016 – August 2017 Context The Philippines’ financial system is dominated by the banking sector, and appears to be stable and highly liquid. Growth of the banking system and abundant liquidity, however, are not translating into greater access to financial services. Access to basic financial services for the lower 40% (by income) of the population increased from 10% in 2011 to 18% in 2014 but remains low. Lack of access to basic savings, payment and credit services for low income population and MSMEs limits their ability to fully participate in the broader economy, exacerbating inequality and poverty in the Philippines. Lack of effective insurance and retail finance mechanisms also means that financial assistance and risk mitigation for natural disasters cannot be delivered efficiently to the affected populations. To address these challenges, the Philippines financial authorities launched a National Strategy for Financial Inclusion (NSFI) in 2015, which the WBG had helped design. Following the launch, the authorities have also requested WBG’s support in the implementation of the NSFI. WBG Finance and Market’s team has developed a multi-year Programmatic Approach (PA) to respond to the client request which has been approved by the WBG management. 24 Project Objective The overarching objective of the PA is the development of the financial system of the Philippines and increased financial inclusion through 1) Pillar I: Financial inclusion (i) Monitoring and measurement system and mechanism for NSFI implementation (ii) Assessment of data gaps in cooperative sector and enhancement of Cooperative Development Authority capacity in cooperative oversight (iii) Stock taking and developing a systematic approach for the implementation of financial education programs and policies across agencies (iv) Identification of specific reforms and instruments (guarantees, special purpose funds) to improve access to finance for SMEs 2) Pillar II: Financial stability and soundness (i) Implementation of the enhanced bank resolution framework and improving the deposit insurance capacity Progress This proposal was approved at the end of September 2016. The team provided assistance to the NSFI secretariat for the development of the monitoring and results framework for the NSFI. Also developed was the draft dashboard for review by the authorities which was shared in September 2016. The next 25 steps are to revise and finalize the framework as well as support the NSFI secretariat with the preparation of the first monitoring report for the NSFI. The team also completed a preliminary review of the cooperative sector and is working to finalize the report. Considering substantial changes in the Philippine government following the 2016 elections, the report is being updated to be aligned with the new administration priorities and to identify suitable implementation modalities for reforms. The next steps include a mission in March 2017 to discuss the preliminary findings with key stakeholders. The team also prepared a draft report on SME finance and shared it for discussion with relevant authorities. The next steps are recruitment of experts to advise on the possible reforms for the SME guarantee facility and establishment of early stage financing mechanisms in the Philippines. Consultant selection is ongoing and expected to be completed by February 2017. LAOS: FINANCIAL SECTOR DEVELOPMENT Grant Amount: USD 600,000 Project Duration: September 2016 – August 2017 Context A more stable and efficient financial sector is essential to promote economic growth and shared prosperity in Lao PDR. The modernization of Lao PDR’s financial system is one of the ten strategic areas that the WBG has decided to support in the upcoming years. This concept note outlines the WBG’s Financial Sector Development TA program designed to achieve this goal, utilizing a Programmatic Approach (PA) that will allow the WBG to operate on a multi-year timeframe and address problems in a comprehensive manner though coordinated and properly sequenced projects. Project Objective The development objective of this Programmatic Approach is to promote the development of a more stable and efficient financial sector. This will be achieved through the provision of TA to enhance the capabilities of financial sector authorities, and assist in the aligning of laws, regulations and practices with key international standards. This TA program involves a coordinated, sequenced and comprehensive approach, with a consistent impact monitoring framework, based on the following three pillars: (i) Pillar 1: Enhancing Financial Stability a. Financial Stability Monitoring b. AML/CFT National Risk Assessment (separate KTF program) (ii) Pillar 2: Upgrading the Legal and Regulatory Framework a. Legal and Regulatory b. IFRS Roadmap 26 (iii) Pillar 3: Just-in-time Technical Assistance a. Deposit Insurance b. Insolvency and Creditor Rights Progress This proposal was approved in September 2016 and the team has been working to speed up the implementation. Although some challenges remain (such as the lack of an FSAP conducted for the country), Lao PDR’s recent willingness to reform its financial sector and engage international partners has opened a window of opportunity. The Bank of Lao (BOL)’s 2016-2025 Strategy, approved in late 2016 is particularly ambitious. BOL has also taken the initiative to compile their TA requests to the WBG for 2017 into one document, aided by the Bank’s coordinated approach. Pillar 3, the just-in-time pillar, has been especially helpful for the Bank to responsively build relationships that lead to new opportunities for reform. Although one activity in Pillar 1 (Financial Stability Monitoring) lost traction, through just-in-time, we now have two very relevant engagements in Deposit Insurance, and Insolvency. Also with the just-in-time support, the Deputy Governor attended the IMF/Fed/WB training for Emerging Market Banking Supervisors held in Washington in October, and while there, had a dozen frank and productive meetings with senior experts and management. Both the course content and the meetings were excellent in building their trust in the Bank, and catalyzing progress for the project. Under Pillar 1, the last training session for the Financial Soundness Indicators was carried out in the first quarter of 2016 and BOL is finalizing its selection of core indicators for monitoring and eventual publication. On the AML/CFT front, the team convinced the Deputy Governor of the fundamental importance of doing an NRA earlier rather than later, during their meeting in October. A two-day awareness raising workshop was subsequently held in January, with a training of NRA module team leaders penciled in for March, and an NRA kick-off workshop by June this year. Under Pillar 2, the BOL has categorically reaffirmed they would like TA on key laws such as the Bank of Lao Law, Commercial Banking Law, and related regulations. WBG legal experts have provided comments on what is needed in the Laws as well as relevant regulations including draft Decision on the Management of Bank Assets and draft Decision on Bank's Products in 2016. Based on the request from BOL, an expert will visit Lao again in February 2017 to continue working with the BOL legal team. In addition, BOL has requested assistance from the WBG to review and advise on the Law on Securities, which is expected to go into effect in mid-2017. On the assistance toward the adoption of IFRS, the team has been working closely with LCPPA and provided three trainings in 2016 including (1) Training from the Institute of Singapore Chartered Accountants in October 2016, and (2) International Standards on Accounting (ISA) Training from the Federation of Accounting Professionals to support LCPAA in November 2016. There has also been agreement from the MOF and BOL to establish a joint-committee chaired by MOF to undertake a gap analysis under this PA, led by the Malaysian Institute of Accountants. The gap analysis would inform a transition plan, to be drafted by June 2017, and separately funded capacity building in FY18. 27 Under Pillar 3, the team has provided support to the Depositor Protection Fund (DPF) with several rounds of inputs to the new DPF Decree that was submitted to the Ministry of Justice (MOJ) in December 2016. In conjunction with the submission of the Decree, DPF has requested support from the WBG in reviewing and advising on the Implementation Guidelines and related regulations in early 2017. On the capacity building front, training on Payouts and Purchase and Acquisition are being planned for Q1 and Q3 respectively. The team has also been working with the MOJ and related parties on improving Lao’s extremely low position in the WB’s Doing Business ranking for resolving insolvencies. An expert visited Lao to present preliminary findings in September, and several counterparts attended the INSOL International (International Association of Restructuring, Insolvency & Bankruptcy Professionals) conference in Hanoi in November. A formal request for TA on amending the Bankruptcy Law and/or Dispute Resolution Law is expected shortly. 28 STRENGTHENING THE PARTNERSHIPS An important objective of the WBG and MOSF partnership is leveraging the expertise and capacity of Korean institutions to support EAP country needs and enhance/deepen the delivery of assistance to the client countries. At the end of 2016 the WBG has 6 formal MOUs with Korean institutions, which had helped the F&M teams connect better with these institutions before the Seoul Center was established. All these partners are noted in the chart below. With the staffing of the Seoul Center in the 2nd half of 2015, the F&M has focused on more direct, frequent, and effective interactions and communication with Korean partners on the ground, rather than having formal MOUs. Much progress has been made with all the formal and informal partnerships (12 partners so far, including MOSF) to connect these institutions with specific country needs in the EAP region. The table below lists the connections and partnerships made and progress in leveraging these partners to support F&M client countries. 29 PARTNERSHIP ACTIVITIES IN 2016 The following chart and table summarize the partnership activities, by client country and subject area, where the Seoul Center team has connected the partners with each project or has discussed potential collaboration with the partner during 2016. Partner Subject Partnership Countries • The Seoul Center team connected an expert from BOK with F&M Cambodia team to provide support to the central bank Cambodia of Cambodia on financial stability, in the format of a workshop and meetings, as part of F&M’s Cambodia program (January 2016) • The Seoul Center facilitated two nominated staff members of the Central Bank of Cambodia and the Cambodian Ministry of Economy and Finance to participate in BOK’s Central Bank Study Program on financial stability as part of F&M’s Cambodia program (November 2016) • The Seoul Center team also connected two experts from Myanmar BOK to provide training on payment systems for the Central Bank of Myanmar as part of F&M’s Myanmar program (September 2016) 30 Partner Subject Partnership Countries Korea • The Seoul Center team organized a meeting with FSC and F&M staff to discuss the potential of a Greenback project (to improve the remittances environment of migrant workers) in Korea (April 2016) • The Seoul Center team also had follow up meetings with FSC to discuss future plans and collaboration (October 2016) EAP • The FSS secondee in F&M (HQ) is working with the F&M team to develop and test a Basel II toolkit as part of a TA funded by the KTF (ongoing) • The Seoul Center, FSS, and ADB co-organized a conference titled “Fintech-Avoiding the Pitfalls, Reaping the Benefits” for 50 participants from financial regulatory agencies of APEC countries (September 2016) • The Seoul Center team has had many meeting with FSS to discuss the various TA requests from F&M clients and teams (April, May, July, September 2016) All • The Seoul Center and KIF have been discussing research support focusing on Financial Stability and Soundness (April, July, August 2016) • The Seoul Center and staff from other F&M hubs (Malaysia, Austria) had a joint meeting with KIF to discuss potential collaboration (September 2016) • F&M and KIF are also discussing a staff exchange program to the WBG headquarters All • The Seoul Center and KCMI are discussing potential collaboration opportunities All • The Seoul Center team presented at CIFC’s annual workshop to explore more concrete collaborative opportunities with FSC and other members (March 2016) • The Seoul Center team also connected F&M senior staff Alwaleed Alatabani with CIFC to speak at CIFC’s 3rd International Financial Cooperation Forum (December 2016) Lao • The Seoul Center team is working with KAMCO and F&M Lao team to arrange for KAMCO’s technical support to the Central Bank of Lao as part of the F&M program (planned for 2017) 31 Partner Subject Partnership Countries • The Seoul Center is also discussing a KAMCO staff exchange program to the WBG Korea Office All • The Seoul Center team arranged for F&M Global Lead Simon Bell to deliver the keynote address in KoDIT’s Global Forum on SME Finance (May 2016). Subsequently, Mr. Bell wrote a blog on the WBG webpage highlighting the case of KoDIT and its key characteristics and lessons. (see annex 4) Tanzania http://blogs.worldbank.org/psd/learning-korea-story-korea- s-credit-guarantee-agency • The Seoul Center team also arranged for KoDIT to present at F&M’s credit guarantee schemes workshop in Tanzania (planned mid-year 2017) EAP • The Seoul Center is discussing collaboration with KoFIU to sign an MOU and also to cooperate on the operationalization of Financial Action Task Force (FATF)’s Training and Research Center (TREIN) in Busan • The Seoul Center team organized a meeting with F&M staff, KoFIU, and TREIN (December 2016) to discuss collaboration on the upcoming National Risk Assessment workshop for ASEAN countries to be held in Busan in March 2017 (preparation ongoing) Indonesia • The Seoul Center arranged for an expert from KSD to speak at the international seminar “Financial Market Deepening: the Way Forward for Indonesia” hosted by Bank Indonesia and facilitated by the WBG (September 2016) • The Seoul Center is discussing F&M plans to involve KSD in Mongolia the F&M program in Mongolia for them to provide technical support to the Mongolian Central Securities Depository and the Mongolian Securities Clearing Co. (planned for 2017) All • The Seoul Center team participated in the International Association of Deposit Insurers (IADI) Annual Conference organized by KDIC (October 2016) • The Seoul Center and KDIC are discussing support for F&M country programs (Cambodia, Philippines) 32 SEOUL CENTER WORK PROGRESS AND PLANS SEOUL CENTER – RESULTS FOR 2016 CY 2016 was the first year that the Seoul Center was fully operational. In addition to managing the trust fund, working with country teams, and working with partners as described in the previous sections, the Seoul Center team has also worked to generate and share knowledge on current and important topics in today’s financial markets, and to collaborate with other F&M hubs for more synergy and lessons. KNOWLEDGE GENERATION AND SHARING During CY 2016 the Seoul Center team also carried out a few research initiatives in collaboration with F&M colleagues specializing in each of the subject areas. These tasks were initiated to chart out the landscape of these topical areas in Korea and explore the possibility of applying the lessons from Korea to future F&M operations, or to identify any areas where Korea might be able to benefit from WBG’s knowledge portfolio. Financial Literacy and Entertainment Education • This research was done to take stock of Korea’s financial literacy and education for financial consumers, and possibly derive lessons for developing economies. The Seoul Center team identified the champions in Korea's financial education that F&M could consider partnering with in its client engagements. • Also explored was the possibility to leverage Korea's entertainment media that is vastly popular in the region, to convey important messages for financial education in a more familiar and effective way for the general public. Project Greenback 2.0 • This is an integrated product that F&M provides with an aim to improve the remittances services and environment for migrant workers in select cities highly populated by immigrants and active corridors of remittances. • As this topic is also relevant to Korea which is seeing a fast-growing population of migrant workers (in cities such as Ansan), the Seoul Center team and F&M staff introduced the concept and potential benefits of the project to Korea's Financial Services Commission (FSC) to gauge their interest. Gender and Finance • This initiative highlights the gender gap and glass ceiling in the Korean workforce that are particularly pronounced in the financial sector. Korea comes in last amoung OECD countries when it comes to gender equality and research shows that the financial sector has the largest income gap between genders. • However, this seems yet to be dealt with as a high-priority issue for the financial authorities. The team sees a great value that the WBG can provide to Korea and other countries by sharing its global insight and lessons on gender issues. 33 Financial Regulators Conference - FSS-ADB-WBG Fintech – Avoiding the Pitfalls, Reaping the Benefits The Seoul Center team co-organized a financial regulators conference on “Fintech - Avoiding the Pitfalls, Reaping the Benefits” that was held on September 7, 2016 in Seoul, together with the Asian Development Bank (ADB) and the Financial Supervisory Service (FSS), partly sponsored by MOSF. Reflecting Fintech’s growing position at the center of governments’ and regulators’ strategy and vision of future financial services, the forum brought together 50 participants from APEC country central banks, securities commissions, stock exchanges, associated financial regulatory agencies and standard-setting bodies as they exchanged ideas and views on Fintech’s impact on regulation and how regulators should respond to this new wave of developments. Speakers from the WBG, ADB, FSS, think-tanks, consulting firms, and fintech companies discussed: the rise of fintech and the future of financial services, introduction of certain fintech products such as crowd funding and block chain, the opportunities for improving financial inclusion through fintech and the challenges for the traditional financial industry, how regulators should approach and tackle fintech, the issue of cyber security and how the financial industry can be better prepared. The lively questions and discussions from the audience clearly showed that fintech was indeed becoming a keyword of the year for many policy makers and regulators, warranting much more attention and cross- border knowledge-sharing going forward. 34 Financial Stability and Soundness Focus: The Seoul Center team has also started preliminary work to prepare for the Financial Stability and Soundness focus of the next phase of funding, including communicating and coordinating with other F&M hubs (described in more detail below), brainstorming with think-tanks such as the Korea Institute of Finance (KIF) and building a database of related literature and publications of the Financial Stability Board (FSB), G20, IMF, multilateral development banks, and the like, to take stock on the current developments in financial stability. COLLABORATION WITH OTHER HUBS The Seoul Center team also worked closely with F&M colleagues in the Malaysia Office and the Vienna FinSAC (Financial Sector Advisory Center) during this year to coordinate the work done by each hub office and to seek opportunities for synergy. Besides numerous two-way and three-way discussions at the working level, the following are some noteworthy efforts that were made to better understand the approach of each office and think about ways to collaborate.  Seoul Center and the Malaysia Office held joint presentations for F&M staff that are not yet familiar with the work being done in the EAP region, to introduce and explain the different setup of each trust fund and how they can help F&M (May 2016 in Washington, September 2016 in Malaysia).  Seoul Center, the Malaysia Office, and Vienna FinSAC offered a joint presentation to the staff in the Korea Office for them to better understand GP operations and the composition and work of different offices. This was also helpful input for the thinking on the future of the Korea Office (September 2016).  The team members from the three hub offices had a joint meeting with the Korea Institute of Finance (KIF) to exchange ideas on financial stability and Korea’s comparative advantage (September 2016). The Seoul Center is following up and planning to build upon these discussions to start preparatory work for the next phase of the Seoul Center with a focus on financial stability. 35 SEOUL CENTER – PLANS FOR 2017 SEOUL CENTER 2.0: EXPANDED SCOPE, ENHANCED IMPACT During a meeting between the management of MOSF and WBG in February 2016, informal discussion started regarding the next phase of the Seoul Center and exploring options to expand and deepen the partnership. During the course of 2016, the Seoul Center team has worked with MOSF, F&M management and the Korea Office team to develop the approach for Seoul Center 2.0. The design has benefited from dialogue and discussion with the other two F&M centers in Vienna (FinSAC) and Malaysia. Strategic context and rationale for Seoul Center 2.0: Lessons learned from the first phase demonstrate the tremendous potential to expand the Korea Office from its current role focusing on knowledge-sharing and partnerships, into a specialized hub with stronger links with WBG operations. MOSF has expressed its support for and appreciation of the Seoul Center’s support to advisory and analytical activities over the past couple of years, and in particular the results of the partnership model to transfer lessons from Korea’s successful development experience and leverage its expertize and institutional capacity. A proposal has been developed which builds on the highly successful first phase of the Seoul Center to introduce Seoul Center 2.0 – a significantly expanded and broadened partnership aimed at raising the profile and visibility of the Center and establishing it as a “center of excellence” for the region. This new stra tegy will introduce both scale and thematic depth, and enable greater global knowledge creation. 36 A renewed vision to scale response through positioning and comparative advantage: The renewed vision for “Seoul Center 2.0” builds on feedback from Korean partner institutions and responds to the high demand from country clients. The key guiding principles include: (i) Maintain and expand the current support to country programs in EAP; (ii) Focus on Korea’s comparative advantage and increase local presence  higher visibility and stronger partnerships; and (iii) Increase its global footprint and thus impact. The key elements of the approach are summarized in the figure and box below. Discussions are ongoing between MOSF, F&M team, and the larger WBG to finalize the design and approach of the second phase of the Seoul Center. Annex 3 lists some of the potential project ideas in a bit more detail. Seoul Center 2.0 Proposal Highlights  Builds on successful experience of Seoul Center 1.0 in delivering 16 substantive technical assistance engagements, covering 10 EAP countries and 3 regional initiatives; as well as leveraging partnerships with several Korean institutions to enhance delivery  Renewed vision for scaling up through positioning and focus on comparative advantage  Component 1: Continue Support to EAP countries (and possibly beyond) -- $19.2 million for 5 years (a scale up of 20% from current $16 million)  Component 2 (NEW): Establish a Financial Stability and Soundness Focus – responding to Government interest in stronger technical presence in Korea -- $17.2 million for 5 years (4 IRS, 3 LRS - benchmarking Vienna & Malaysia F&M Hubs)  Focus / Value-Add: Will allow the Seoul Center to better respond to: (i) Growing concerns on vulnerability in the region and globally; (ii) Strong demand for support in the area of financial stability and soundness (evidenced from the focus areas of the SC 1.0 support); (iii) growing interest in learning from Korea’s experience in this area of comparative advantage; (iv) renewed focus of F&M through a dedicated global solutions group on Financial Stability and Integrity 37 SEOUL CENTER 2.0: ENHANCED PARTNERSHIP AND KNOWLEDGE Building upon the successes and lessons of the first full year of operations, the Seoul Center will ramp up its efforts to develop a comprehensive work program on partnership, knowledge transfer and knowledge generation to leverage the Korean partners’ experience, expertize and institutional capacity. Some of the elements of this program under discussion include:  More effective communication of the results of the projects supported with KTF, especially highlighting the value-added by participation of Korean institutions (e.g. dedicated website, audio-visual materials, brochures, smart lessons notes, etc.)  Preparing for a financial stability and soundness focus o Foundation report on financial stability in Asia (in collaboration with KIF, BOK, FSC, FSS) o Collaboration with the Korea Sharing Program to update and develop the modularized lessons notes on the financial sector o Flagship series of events on topical areas of financial stability (Non-performing loans, early warning systems, etc.)  Partnership event to bring major clients, F&M teams, and Korean partners together, to share the results of F&M’s and Korea’s support for each country, and discuss challenges and opportunities for future engagements  Enhanced collaboration with other F&M Hubs to learn from one another and purse joint research and operations  Joint activities for the WBG and MOSF in monitoring and evaluation, knowledge sharing, advocacy missions, and with other key partners as appropriate A detailed work plan is being prepared and will be discussed with MOSF and other partners. 38 ANNEXES 39 ANNEX 1. STRENGTHENED COMMUNICATION WITH MOSF The following is a list of the meetings held between the Seoul Center and MOSF during 2016, which is evidence of the strengthened communication between the two since the placement and operation of the Seoul Center in Korea. Date MOSF Participants F&M Participants Purpose Jan. 7 E. Hong (Analyst) Youjin Choi Informal meeting for introduction Jisun Kim (GOKMU) Feb. 16 Y. Kim (DDG) Sebastian Molineus Reaffirmation of partnership K. Park (DD) Sameer Goyal Discussion on the strategy of the Seoul Center E. Hong (Analyst) Youjin Choi (first mention of the Financial Stability idea) Mar. 17 J. Park (Dir) Sameer Goyal (Director Park’s visit to the Korea Office) Youjin Choi Short briefing on Seoul Center May 26 S. Choi (DD) Youjin Choi Presentation of KTF projects, Seoul Center work E. Hong (Analyst) program and plans Q&A for better understanding Jul. 27 J. Park (Dir) Sameer Goyal Presentation and discussion of Seoul Center 2nd S. Choi (DD) Wansup Kim (CMU) phase plans J. Park (DD) Kwang Chul Ji (CMU) E. Hong (Analyst) Aug. 17 Y. Kim (DDG) Sameer Goyal (Korea Office group meeting) J. Park (Dir) Youjin Choi Review of Seoul Center progress and presentation J. Park (DD) of 2nd phase plans E. Hong (Analyst) Aug. 31 J. Park (Dir) Youjin Choi Explanation of funding proposals (Vietnam, Laos, J. Park (DD) Kwang Chul Ji (CMU) Philippines) E. Hong (Analyst) Briefing on KTF financials Sep. 21 Y. Kim (DDG) Sameer Goyal Presentation and discussion of Seoul Center 2nd J. Park (DD) Youjin Choi phase plans E. Hong (Analyst) Wansup Kim (CMU) Nov. 14 J. Kim (Dir) Sameer Goyal Presentation and discussion of Seoul Center 2nd S. Choi (DD) Youjin Choi phase plans Wansup Kim (CMU) Nov. 15 S. Choi (DD) Youjin Choi Informal meeting for introduction, for the new M. Kim (DD) Wansup Kim (CMU) MOSF team J. Chang (Analyst) Min Jae Kang (CMU) Soyoun Jun (CMU) 40 ANNEX 2. RESULT CHAIN OF KTF-FUNDED PROJECTS Completed projects PROJECT PROCESS / ACTIVTIES OUTPUTS INTERMEDIATE OUTCOMES OUTCOMES 1) Prepare a policy note with recommendations to improve Build the capacity of the Indonesian financial authorities to 1) Policy note with recommendations to improve the the effectiveness of the Financial System Stability Forum respond effectively to a financial crisis, by (i) strengthening Indonesia Crisis effectiveness of the Financial System Stability Forum A robust financial safety net to improve (FSSK), 2) Provide technical inputs through a series of inter- interagency coordination; (ii) improving systemic risk Simulation Framework (FSSK), 2) Inter-agency workshops and inputs for both crisis prevention and management agency workshops to prepare operational manual, 3) Organize analysis; (iii) clarifying resolution options; and (iv) enhancing operational manual, 3) Crisis simulation exercise a crisis simulation exercise crisis preparedness and legal / regulatory framework 1) Prepare strategy report and technical notes to support the 1) Main report and 12 technical notes with Equip the Chinese financial authorities with better China Financial Reform Chinese financial authorities' decision-making, 2) Organize a Transition to a more efficient, balanced, recommendations, 2) one-week workshop to discuss the understanding of their financial sector and an actionable Strategy Report workshop to discuss and set a roadmap for implementation of inclusive, and stable financial sector recommendations financial reform strategy the recommendations 1) Design a demand-side questionnaire, according to CBRC’s needs, to understand Chinese financial consumers’ consuming 1) Demand-side survey database on Financial Consumer 1) Enhance the CBRC’s capacity to better understand behavior and attitude towards financial services and trainings; Better protection of the interests of Protection and Financial Literacy System; 2) Report on financial consumers’ needs; 2) Enhance CBRC staff’s ability China Financial 2) Select a consulting firm to conduct a household survey financial consumers; promoting financial Strengthening Financial Consumer Protection in China: A to design questionnaires based on international standards Consumer Protection & across China; 3) Participate in and monitor the training of access and competition; and maintaining a Demand-Side Assessment ; 3) Report on Institutional and and adapting to the Chinese needs; 3) Enhance the Financial Literacy enumerators and translation of English questionnaires; 4) healthy financial market conducive to social Legal Framework for consumer Protection in Financial authorities’ capacity to set up an effective Financial Produce a reporting outline based on the survey results; 5) stability as a whole Services Consumer Protection and Financial Literacy System Design legal framework for consumer protection in financial services 1) Technical assistance to strengthen and improve the 1) Capacity building process for the OIC to strengthen the RBS Thailand: Solvency solvency capital regime for insurers in the areas of RBC, and RBC framework for the insurance industry; 2) Conduct 1)Strengthen the supervisory capacity and tools of the OIC; Modernized solvency regimes that better Modernization and Risk Asset-Liability Management, Enterprise Risk assessment of the current state of the capacity of the OIC, the 2) Assist the OIC to improve RBS and dynamic solvency reflect and measure the risks that insurers Based Capital for the Management, and stress testing mechanisms; 2) Training current RBS legal framework and data availability, and quality regimes (RBC) for the insurance industry are exposed to Insurance Sector on actual on-site examinations for one life- and one non- in the OIC and in the insurance industry life insurer 41 1) Develop representative samples for household surveys; 2) Translate survey instruments into major local languages; 3) TA to the 1) Baseline data survey on financial capacity condition in Train survey interviewers; 4) Deploy regional survey; 5) 1) Increase PNG Central Bank’s understanding on financial Implementation of PNG; 2) Project Steering Committee to provide guidance Better policy development planning on Collect data and analyze; 6) Disseminate final analysis report; inclusion (microfinance & SME finance) issues; 2) Increase Papua New Guinea and final decision on the project implementation; 3) financial inclusion (microfinance & SME 7) Set up Project Steering Committee to provide guidance and PNG Central Bank’s capacity to implement a financial (PNG) Financial Stakeholder workshops and regular Steering Committee finance) issues final decision on the project implementation; 8) Conduct inclusion study Competency Survey meetings to monitor project implementation stakeholder workshops and meetings to monitor project implementation 1) Analyze the status of regional financial integration in the 1) Report on the ASEAN Financial Integration; 2) Increasing integration across the capital markets and ten ASEAN member countries, focusing on banking and capital 1)Sustained economic growth and poverty Presentation of key findings to ASEAN member banking systems of the ten ASEAN member countries1) markets; 2) Engage in policy dialogue with senior policy reduction through the expansion of countries; 3) Discussion of future TA needs particularly More ASEAN banks operating across borders and providing East Asia Regional makers in ASEAN to discuss current gaps and challenges that investment and financing under the ASEAN for low income countries (Laos, Myanmar, Cambodia, services to new customers, particularly low income Financial Integration prevent further financial integration and examine existing agenda for financial integration;2)More and Vietnam); 4) Participation in specialized working households and SMEs; 2) New initiatives to enable countries regional initiatives; 3) Discuss with stakeholders (ASEAN, ADB, financial inclusion for low income groups in ASEAN including SME Finance, Financial to raise debt in neighboring countries and expand funding APEC) as well as a broad range of international development households and SMEs Inclusion, and Capital Market Development sources for developmental activities partners 1) Report on Mongolia clearing and settlement; 2) Drafts Capacity building of the Mongolian capital markets and 1) Mongolian authorities have strategy and implementation for Capital Market Strategy, Implementation Plan, 7 regulatory authorities to improve efficiency and effectiveness, plan that prioritizes and sequences the development Investment Fund Law regulations, RBS Strategy, draft including: 1) Develop a Capital Markets Strategy and initiatives for the securities and capital markets; 2) Mongolia Capital Intermediaries Inspection Procedures and Manual, Mongolia has robust and deep capital Implementation plan; 2) Develop implementing regulations Strengthen supervisory and enforcement effectiveness of Market Development Inspection/Audit workbook to support the inspection markets with effective supervisory and following the effectuation of the Securities Markets Law and the FRC; 3) Improve the efficiency of the supervisory and TA process and criteria for enforcement under the regulatory frameworks in place Investment Funds Law; 3) Develop a RBS framework and regulatory framework for the securities market; and (4) Securities Markets Law; 3) Dissemination workshop for provide training to regulatory authorities; 4) Produce Enhance capacity of FRC, MSE and MOF and contribute to the Capital Market Strategy; 4) Training on all new inspection and enforcement manuals and working papers institutional development of the FRC implementing regulations for FRC, MOF and MSE staff 1) Increase awareness of the importance of establishing a 1) Help PBOC draft China’s national framework for evaluating system of financial consumer protection and literacy in the effectiveness of education programs; 2) Advocate the 1) Framework of methodology for evaluating the A National Strategy on Consumer Financial Evaluation System for China; 2) Strengthen the capacity of PBOC to develop a importance of establishing a system of financial consumer effectiveness of financial education programs; 2) Education (NSFE) that can contribute to Consumer Financial system for evaluating the effectiveness of the NSFE and protection and literacy in China at the workshop held by PBOC Financial Capability Questionnaires; 3) Training better provision of financial education in Education in China design China's framework of financial education; 3) in Shanghai and less developed regions; 3) Assist PBOC to workshops China Stimulate public debate on financial consumer protection develop financial capability questionnaires and financial education 42 Ongoing projects PROJECT PROCESS / ACTIVITIES OUTPUTS INTERMEDIATE OUTCOMES OUTCOMES Some of the ASEAN countries: 1) Have a report that identifies and analyzes the proceeds of crime in the country and the Self-assessment of the countries using the National key vulnerabilities of law enforcement agencies to Improved effectiveness to detect illicit Risk Assessment Tool developed by the World Bank; investigate and prosecute financial crime; 2) Officially adopt financial flows, investigate and prosecute National Risk assistance to authorities of the requesting authorities Risk assessment reports derived from running the NRA tool, concrete time-bound action plan endorsed by the financial crimes such as corruption, tax Assessment ASEAN of the CLMV and ASEAN member states. Such training on evaluation methodology best practice, policy advice government through appropriate processes; and 3) Key evasion, and fraud assistance will cover legislative drafting, capacity experts from the judicial, law enforcement, financial building activities and policy advice regulators and senior policy makers are trained on how to identify the money laundering and terrorism financing risks and vulnerabilities Basel II Pillar 2 Development of a supervisory toolkit and testing in Supervisory toolkit (Basel II Pillar 2 toolkit) for the use of Help banking supervisors improve the effectiveness of Basel Achieve a higher level of compliance with Implementation Toolkit parallel with discussions with banking supervisors II implementation international standards on capital adequacy 1) A more safe, secure and reliable payment system is in 1) Pillar 1: Modernizing Financial System place and operational New Credit Reporting System 1)Increased percentage of adults with access Infrastructure; 1) Development of CBM-Net and related environment; 2) established and operational; 2) Transformation of SOBs into to financial services;2) Improved financial Recommendations for strategies for state-owned banks; 3) financially-sustainable institutions, with appropriate MOF infrastructure and payments system; 3) 2) Pillar 2: Financial Institution Reform and Recommendation for CBM and MOF to finalize the Financial Myanmar: Scaling Up performance monitoring, and improved policy framework Improved capacity of financial institutions to Development; Sector Development Strategy; 4) Seminar for CBM and MOF on Financial Services for and coordination for overall financial sector development; 3) provide efficient access to financial services; upgrading legal and regulatory framework for CPFL and design the Poor Government framework for FCPFL strengthened, and 4) Strengthened legal and regulatory 3) Pillar 3: Digital Financial Services and Expanding of implementation roadmap; 5) Recommendations on how to innovative financial products developed for the underserved; framework for the financial sector and Depth of The Financial System; amend and upgrade key laws and regulations; 6) Training for 4) Strengthened legal, regulatory and supervisory framework improved consistency with international the supervisory staff on off-site and on-sight supervision, etc. 4) Pillar 4: Legal and Regulatory Framework Reform as indicated by increased compliance with international standards standards and practices 1) Strengthen financial supervisory capacity 1)Financial corrective action framework; 2) Training on risk- 1)Stronger prudential regulation for the banking sector; 2) and improve the enabling environment for 1) Pillar 1: Enhancing and Maintaining Financial based and consolidated supervision; 3) Financial crisis Stronger capacity for financial crisis prediction; 3) Stronger financial services in Cambodia; 2) Reduce the Stability; management framework; 4) Regulatory framework for deposit capacity for financial crisis management; 4) Increase transaction costs of finance services by Cambodia: Financial insurance; 5) Amendments of NBC Law; 6) Stakeholder awareness of potential benefits and risks involved in improving financial infrastructure; 3) 2) Pillar 2: Increasing System Efficiency; Sector Development TA strategy-setting to develop a NPS; 7) Assessment report of developing a deposit insurance system for Cambodia; 5) Strengthen bank and non-bank financial 3) Pillar 3: Promoting Inclusion and Consumer financial infrastructure and needs; 8) International good Improved Legal framework and Prakas improved for banking markets; 4) Reform the payments system Protection practice guidance on insurance and microfinance; 9) Consumer and central bank; 6) AML/CFT system strengthened in line and inter-bank market that will reduce the protection framework, etc. with recommendations of 2016 National Risk Assessment cost of financial intermediation and improve market efficiency 43 (i) Strengthen legal and regulatory frameworks, financial sector oversight, crisis preparedness and (i) Support for revision of banking, securities and insurance (i) Strengthened policy, legal and regulatory framework for financial safety nets; (ii) Design and implement a regulation and legislation and related capacity development; the financial sector and improved consistency with policy framework for the state owned financial (ii) Reports and policy noted on governance for SFIs and SOEs; international financial sector standards. (ii) Enhanced institutions and state owned enterprises; (iii) (iii) Capacity building for strengthening the asset declaration consumer protection and improved financial capability. (iii) Strengthen the regulation and supervision of capital and asset recovery systems and development of an Sound, diversified and inclusive financial Strengthened oversight of SFIs and SOEs, and improved Mongolia: Financial markets and insurance sector; (iv) Improve the investigation manual; (iv) Diagnostic reports and policy notes system in Mongolia with (i) stronger financial capacity at MOF; (iv) Increased capacity to use asset Sector Development national payments system and expand access and use on clearing and settlement processes and procedures; (v) sector stability, (ii) more developed non-bank declarations to prevent and combat corruption, counter Support Program of payment services; (v) Improve the legal and Assessment of Mongolia’s remittance market; (vi) TA to financial sector and (iii) improved financial money laundering and recover stolen assets. (v) A more regulatory framework for financial consumer strengthen legal and regulatory framework on National infrastructure and financial capability efficient, safe and reliable national payment, securities protection and foster financial literacy; (vi) Reform Payment System; (vii) Financial capability technical assistance settlement and remittance systems; (vi) Strengthened the insolvency system; and (vi) Strengthen the and related capacity building; (viii) TA to strengthen legal and insolvency regime and increased confidence of lenders to effectiveness of the asset declaration system and the regulatory framework for insolvency resolutions and develop provide financing. capacity of Mongolian authorities to manage stolen related institutional capacity. assets. A. Insurance A. Insurance 1) Technical notes, advisory services, inputs to inform ISA/MoF Enhanced operational autonomy of ISA/MoF A. Insurance on regulations/supervisory function and ICT system design and A. Insurance to support the development of a modern 1) Design and implement an information system an implementation roadmap, 2) Training focused on risk-based risk-based regulatory and supervisory required for risk-based supervision, 2) Review the supervision (RBS) and IT and data management framework for insurance insurance laws/regulations and supervisory 1) Improved ISA/MoF understanding and experience of the framework, 3) Provide training and knowledge B. Pension ICT infrastructure and legal/supervisory framework for RBS, B. Pension exchange/transfer 1) Technical notes, advisory services, inputs for MoF, MOLISA, 2) Improved institutional capacity to undertake necessary and VSS on public and private pension framework, 2) A legal/supervisory and ICT reforms 1) Strengthened capacity of MoF and MOLISA B. Pension technical review of the investment policy and the VSS to develop public and private pension 1) Develop regulatory and supervisory framework for institutional capacity and ICT system for investment operations, B. Pension schemes, and to adhere to guidelines for safe private pension schemes, 2) Provide capacity building 3) PROST modeling of VSS’s liability structure, 4) Training and productive investment of pension assets, for VSS and relevant stakeholders in investment (workshops, learning/exchange with peer countries) for VSS 2) Strengthened capacity of the VSS to management and governance, 3) Provide training and staff in funds investment 1) Improved understanding and institutional capacity to develop a clear governance structure and knowledge exchange/transfer undertake the necessary legal/supervisory reforms, 2) investment strategy, 3) Improved capacity of C. Government Bond Market Improved perception/ understanding of investments Vietnam: Capital MoF in supervision and regulation of public C. Government Bond Market 1) Technical note on Roadmap 2012-2016; recommendations diversification and fund governance, independence and Markets and NBFI and private pension schemes; improved 1) Review the implementation of the Vietnam Bond to develop phase 2 of implementation, 2) Technical note on the oversight, and changes needed Development capacity of VSS in management of the public Market Development Roadmap (2012), 2) Strengthen Public Debt Law and/or comment on the draft revision; review pension fund the legal framework for the government bond of Decree 01/2007 and/or comment on the draft revision, 3) C. Government Bond Market market, 3) Develop policies to broaden the investor Advice and inputs on (i) policy framework for institutional and C. Government Bond Market base for government bonds, 4) Develop policies to retail investors, (ii) guidelines on the development of variable 1) Contribution towards improved functioning of the bond improve the supply and support new product rate bonds, and (iii) development of repo markets and market- market in Vietnam, 2) Increased demand and broadened 1) Improved liquidity of the government development for institutional investors, 5) Develop making practices investor base for government bonds, 3) Improved supply and bond market, 2) Improved reliability of policies to promote the development of the development of new, relevant bond products, 4) Improved government bonds secondary market operation D. Securities secondary market operation D. Securities 1) Technical note with recommendations on selected policy D. Securities issues, 2) Inputs to support the formulation of the revised D. Securities 1) Strengthened legislation and critical 1) Review the current Securities Law and prepare for Securities Law, 3) Training programs and operating manual for regulations for securities market the promulgation of the next generation of Securities SSC staff on licensing and supervision of securities companies& 1) Strengthened SSC’s and relevant stakeholders’ capacity to improve the legal/regulatory framework for the securities development, 2) Improved and expanded Law, 2) Strengthen SSC’s supervisory capacity collective investment schemes; supervision of public companies access to capital investment through the and securities issuances; secondary market surveillance and market, 2) Enhanced supervisory capacity of SSC securities market regulation; and investigation & enforcement 44 A. Monitoring and measurement system for NSFI A. Monitoring and measurement system for NSFI implementation: implementation: A. Monitoring and measurement system for NSFI Support design and implementation of the results Monitoring and measurement system for NSFI implementation implementation: framework and monitoring mechanism, and data A. Monitoring and measurement system for 1) A robust and comprehensive results and monitoring management system for NSFI implementation NSFI implementation: B. SME Finance: system for tracking, measuring, and evaluating national NSFI More effective implementation of the NSFI Report and recommendations for improving design and progress, 2) Improved policy design and implementation for B. SME Finance: advisory support on the specific reforms and instruments for prioritization of reforms Identify specific reforms and instruments B. SME Finance: SMEs and agricultural sector (guarantees, special purpose funds) to improve Increased SME finance B. SME Finance: access to finance for SMEs C. Cooperative Development Improved instruments for SME finance and reduced financing C. Cooperative Development: 1) Assessment report on data gaps in cooperative sector, 2) constraints reported by firms C. Cooperative Development Increased lending to cooperatives to improve Philippines Financial Recommendations for enhancement of Cooperative Assess data gaps in cooperative sector and enhance financial access in agriculture and fishery Development and Development Authority capacity in cooperative oversight C. Cooperative Development the Cooperative Development Authority capacity in sector 1) Improved stakeholder understanding of the cooperative Inclusion cooperative oversight D. Financial Education sector development, 2) Enhanced performance of D. Financial Education: 1) Report on stock-taking of existing financial education cooperatives in undertaking reforms D. Financial Education Increased outreach of financial education programs, 2) Recommendation for developing a systematic 1) Stock-taking of existing financial education programs approach for the implementation of financial education D. Financial Education programs provided by various agencies, 2) programs and policies across agencies Increased scalable delivery of financial education Developing a systematic approach for E. Strengthening bank resolution mechanism implementation of financial education programs and deposit insurance capacity: E. Strengthening bank resolution mechanism and deposit E. Strengthening bank resolution mechanism and deposit More effective bank resolution and stronger insurance capacity: insurance capacity: E. Strengthening bank resolution mechanism and capacity of deposit insurance 1) Implementation of the enhanced bank resolution Enhanced operational procedures for PDIC to contribute to deposit insurance capacity: framework, 2) Procedures for improving the deposit insurance financial sector stability and soundness Provide support to the PDIC for strengthening bank capacity resolution mechanism 1) Pillar I: Enhancing Financial Stability 1) Pillar I: Enhancing Financial Stability Develop a set of comprehensive financial soundness (i) Capacity building sessions that give BOL a functional CAELS indicators (FSIs), Integrate the indicators into the based FSI system that BOL staff are able to operate, interpret, 1) Pillar I: Enhancing Financial Stability supervisory process and update, (ii) Operation tools including a manual explaining the significance of each indicator and guidance on linking More effective financial sector monitoring 1) Enhanced financial sector stability, 2) Pillar II: Upgrading the Legal and Regulatory directly to source data templates, (iii) Financial Sector Framework diagnostic completed and report published 2) Pillar II: Upgrading the Legal and Regulatory Framework 2) Strengthened legal and regulatory (i) Review and advise on the amendments of the framework for a more stable and inclusive Commercial Banking Law and the BOL Law, and 2) Pillar II: Upgrading the Legal and Regulatory Framework (i) Improved consistency with international standards to financial sector, Compliance with Lao PDR: Financial regulations related to the Commercial Banking Law and the conduct technical assistance (TA), (ii) Conduct TA to (i) Set of recommendations on amendments of legislation, (ii) international standards of auditing and Sector Development upgrade some prudential regulations, (iii) Revise and Workshops and seminars to the technical experts and lawyers BOL Law, (ii) Endorsement of Roadmap for full adoption of accounting, strengthen accounting and auditing standards to of BOL, (iii) Set of recommendations for upgrading top priority IFRS by systemic commercial banks ensure they are consistent with international prudential regulations, (iv) Set of recommendations to revise 3) Contribution to the development objective standards the accounting framework 3) Pillar III: Just-in-time Technical Assistance and future areas for programs for the development of financial sector Increased client capacity and improved policy dialogue with 3) Pillar III: Just-in-time Technical Assistance 3) Pillar III: Just-in-time Technical Assistance clients which are key to achieving the PDO e.g. Deposit Insurance, SOB Reform, Financial Timely TAs in response to client requests that make a Inclusion systematically important contribution to the PDO 45 ANNEX 3. SAMPLE PROJECTS FOR THE STABILITY AND SOUNDNESS FOCUS Seoul Center for Financial Sector Development 2.0 Financial Stability and Soundness Focus Sample of Work Program/ Projects These sample project ideas were prepared to illustrate the types of potential engagements that the Seoul Center’s Financial Stability and Soundness focus may explore, once the necessary funding and other pre-conditions are met. Please note that these ideas have not been reviewed for feasibility nor have been endorsed by F&M management. We provide these solely to facilitate the preliminary discussions with MOSF and other stakeholders for them to better understand the kind of work we envision. The actual work program of the Seoul Center will be determined by client demand, fit with Korean expertise and availability of experts, alignment with WBG Country Partnership Framework and F&M strategy, availability of relevant staff, and the size of funding to be granted by MOSF. 1. Building Capacity to monitor vulnerabilities, identity and address issues The Case for Early Warning Systems (EWS)  Context: The economies in the East Asia and Pacific region are showing increased vulnerabilities to the emerging risks such as rapid credit growth, deterioration of firm profitability, downward pressures on asset quality, and weak financial safety nets, which is also more or less a global trend. After the global financial crisis there has been much more interest in WBG client countries to establish early warning systems. An early warning system cannot predict financial crises but can serve as a “flag-raising” mechanism through which the authorities can identify and monitor the vulnerabilities and risky trends in their economies and financial systems.  Relevant Korean expertise and experience: Following the Asian crisis in 1997, the Korean authorities have developed several Early Warning Systems. The Korea Center for International Finance (KCIF)’s Early Warning System for currency crisis was developed as early as 1999 and has been adding new developments and revising models since then. The Financial Supervisory Service (FSS)’s Early Warning System for the financial sector was developed in 2004 and has been operating since. There is also a National Early Warning System in place in Korea since 2005, encompassing other sectors such as energy, commodities, real estate, and labor markets, in addition to the KCIF and FSS models.  WBG F&M expertise and experience: F&M has several experts focusing on macro-financial monitoring, financial stability indicators, systemic risk, and crisis management on a global basis. F&M’s regional experts have detailed knowledge on certain regions and economies. Working together in this matrix structure, the WBG brings the global perspective to the local client, providing customized advisory services and analytics.  Suggested Outputs: The Seoul Center can collaborate with WBG experts and Korean partners such as KCIF and FSS to provide knowledge transfer, policy advice, and/or technical assistance on Early Warning Systems for WBG client countries. o Knowledge generation and transfer: case study of Korean experience in EWS and its evolution; conduct a review of the client’s early warning framework or related efforts and provide 46 recommendations for the framework to be strengthened leveraging lessons from Kore a’s experience and more aligned with global best practices o Policy advice and Technical assistance: work together with the client to develop or upgrade EWS; leverage Korean institutions for providing technical assistance and advise as appropriate. 2. Addressing Banking Sector Stability Resolution of Non-performing loans (NPLs)  Context: The rapid build-up of non-performing loans (NPLs) is a common and chronic issue in the East Asia and Pacific economies, which typically have weak institutional frameworks and low supervisory capacity to handle NPLs in a preemptive manner. Lack of reliable data also makes the risk assessment more difficult. NPLs are problematic as they make it difficult for banks and other financial institutions to generate new loans and advance the economic development. As such, the EAP client countries have a large need for NPL management and resolution.  Relevant Korean expertise and experience: Following the Asian crisis in 1997, the Korean authorities set up the Korea Asset Management Corporation (KAMCO) which has played an important role in NPL resolution and corporate restructuring. KAMCO disposed of many distressed assets through a number of innovative methods, including by issuing asset-backed securities (ABS), which launched an important new market in Korea.  WBG F&M expertise and experience: F&M has experts focusing on NPL resolution and debt restructuring on a global basis. This is also one of the core areas of the Vienna Financial Sector Advisory Center (FinSAC), which the Seoul Center can benchmark. F&M’s regional experts have detailed knowledge on certain regions and economies. Working together in this matrix structure, the WBG brings the global perspective to the local client, providing customized advisory services and analytics.  Suggested Outputs: The Seoul Center can collaborate with WBG experts and Korean partners such as KAMCO to provide knowledge transfer, policy advice, and/or technical assistance on NPL resolution for WBG client countries. o Knowledge transfer: introduce the Korean experience, lessons learned, and implications to the client country o Policy advice: analyze the client’s NPL situation, review their regulations including provisioning and related efforts, provide recommendations to better manage the NPLs o Technical assistance: work with the client on loan resolution and provide a toolkit for NPL resolution 3. Strengthening Supervisory and Regulatory Frameworks Enhancing data management for financial supervision  Context: The modern financial supervision relies heavily on the data provided by financial institutions and the financial markets. This is a common weakness in many East Asia and Pacific economies, leading to incomplete and unreliable data for the supervisory authorities. Thus EAP client countries are in great need for ICT systems that will ensure a better quality and quantity of data collection and management. 47  Relevant Korean expertise and experience: Korea being a global leader in ICT, the Financial Supervisory Service (FSS) and the Bank of Korea (BOK), among other authorities, are operating sophisticated and well-functioning data management systems which have come a long way to reach the current status.  WBG F&M expertise and experience: F&M has experts in financial regulation and supervision, and regional experts who have knowledge on the data gaps of the clients. There are also experts in the ICT area that F&M could collaborate with. Working together in a matrix structure, the WBG brings the global perspective to the local client, providing customized advisory services and analytics.  Suggested Outputs: The Seoul Center can collaborate with WBG experts and Korean partners such as BOK and FSS to provide knowledge transfer, policy advice, and/or technical assistance on financial data management for WBG client countries. o Knowledge transfer: introduce the Korean experience, lessons learned, and implications to the client country o Technical assistance: assess the client’s situation and existing data system, provide recommendations on how to improve the system or introduce better systems 4. Building financial integrity Capacity enhancement to address Anti-Money Laundering and Combating the Financing of Terrorism issues  Context: Transnational organized criminal activity, corruption, the illegal trade in natural resources and the laundering of the proceeds of crime generate illicit financial flows that undermine good governance, financial sector stability, and economic development. This is also true in many EAP countries and there is a growing concern on AML/CFT issues.  Relevant Korean expertise and experience: Korea Financial Intelligence Unit (KoFIU) is the leading body in Korea that tackles the AML/CFT issues and improves transparency in financial transactions. KoFIU is also working closely with the Financial Action Task Force (FATF) through its Training and Research Institute (TREIN) that they have jointly established with the FATF and the Busan Metropolitan City.  WBG F&M expertise and experience: F&M has experts in financial integrity (including the Stolen Asset Recovery Initiative (StAR)), who often times work on a regional basis to look into cross-border flows of the proceeds from criminal activities.  Suggested Outputs: The Seoul Center can collaborate with WBG experts and Korean partners such as KoFIU to provide knowledge transfer, policy advice, and/or technical assistance on financial data management for WBG client countries. o Knowledge transfer: introduce the Korean experience, lessons learned, and implications to the client country o Policy advice: review the AML/CFT framework of client jurisdictions and provide policy advice in line with FATF international standards o Technical assistance: conduct workshops on NRA to assist client jurisdictions to carry out their self- assessments of AML/CFT risks, provide support to clients to prepare operating procedures Support for TREIN: work with KoFIU to fully operationalize TREIN, provide WBG expertise to support their work program (details to be discussed) 48 ANNEX 4: LEARNING FROM KOREA: THE STORY OF KOREA’ S CREDIT GUARANTEE AGENCY http://blogs.worldbank.org/psd/learning-korea-story-korea-s-credit-guarantee-agency Submitted by Simon Bell On Mon, 10/17/2016 Image: CC Pixabay South Korea today has the fourth largest economy in Asia, is a member of the OECD’s “Rich Club,” and is part of the G20. Despite sharp economic shocks emanating from the Asian financial crisis in the late 1990s, the global financial crisis in 2008, and the more recent slowdown in the Chinese economy – Korea has bounced back and continues to grow. So it’s hard to imagine that some 70 years ago, Korea’s future looked ve ry bleak – and akin to many of the excruciatingly difficult post-conflict environments that we face today. To briefly summarize Korea’s post-World War II history: a 1947 report on Korea commissioned by U.S. President Truman concluded, [1] “South Korea, [as] basically an agricultural area, does not have the overall economic resources to sustain its economy without external assistance …. Prospects for developing sizeable exports are slight ….. The establishment of a self -sustaining economy in South Korea is not feasible.” Then the Korean War compounded these problems – resulting in massive damage to both the north and the south – with destroyed infrastructure, a loss of skilled workers, a million South Koreans killed, and as much as one-quarter of the country’s population refugees. We have many lessons to learn from Korea – particularly as our institution, the World Bank, increasingly focuses on post-conflict and fragile environments. Although South Korea is known for its large scale “Chaebols,” which have dominated much of its political and economic life – less well known is the considerable support that the government has 49 provided to small and medium scale enterprises (SMEs). As in most countries, Korean SMEs play a pivotal role in the national economy, accounting for 99% of all enterprises [2] (3 million SMEs), over 80% of all employees (10.8 million employees), and almost 48% of total national production. A main policy tool for supporting Korean SMEs has been Korea’s Credit Guarantee Agency [3] (KODIT), which is one of the largest credit guarantee schemes (CGSs) in the world – guaranteeing a portfolio of around $44 billion. I visited Seoul in May this year to give a Key Note Address at KODIT’s 40 th anniversary. The visit was timely as credit guarantee schemes are capturing increasing interest around the world as bank lending to SMEs struggles to return to pre-2007 crisis levels. By contrast, according to the OECD, Korea has experienced a healthy growth in SME lending since 2007 – boosted by the support provided by credit guarantees [4]. The two graphs below from the OECD’s “2015 Score Board” show the high sustained levels of SME lending in Korea – as well as the significant overall size of KODIT. Unlike many SME support schemes that governments are now keen to push – including directed lending programs, subsidized interest rate schemes, or central bank breaks on reserve requirement holdings for commercial banks – credit guarantee schemes [5] are considered more market friendly as they combine a subsidy element with market-based arrangements for credit allocation. The best of these credit guarantee schemes are designed to increase overall levels of lending to SMEs [6], reduce their collateral requirements, and reduce the interest rate charged on such loans. Figure 1: Trends in Outstanding SME Loans, 2007-14 Relative to 2007, percentages (2007=0) Source: OECD’s Scoreboard [7] 50 Figure 2: Government Loan Guarantees for SMEs, 2014 As a percentage of GDP Source: OECD’s Scoreboard [7] This is but one area where Korea has excelled and demonstrated how to provide prudent, yet effective, support to a key segment of the national economy. The World Bank’s ongoing relationship with the Government of Korea and the establishment of an office in the country will help us leverage this real-world experience so Korea can share its own phenomenal economic growth story with the rest of the world and bring lessons from the real-world interventions that have made this success story possible. Tags:  credit guarantee schemes [8]  small and medium sized enterprises [9]  small and medium scale enterprises [10]  access to finance [11]  SMEs [12]  Financial Sector [13]  Korea, Republic of [14]  fragile and conflict situations [15] Source URL (retrieved on 06/01/2017 - 03:32): http://blogs.worldbank.org/psd/learning-korea-story-korea-s-credit- guarantee-agency 51