Costa Rica: Financial reform in 2016
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Costa Rica: Financial reform in 2016

euro coin with national flag of costa rica on the euro money banknotes background.

Randall Barquero León

In July 2015, the Organisation for Economic Cooperation and Development (the OECD) formally established the path for Costa Rica's accession. The process started in 2013 when the OECD stated that it would consider applications for Colombia and Costa Rica's entry. This was the first time the OECD had announced an expansion since 2007. If admitted, Colombia and Costa Rica would become the third and fourth Latin American members of the OECD, after Chile and Mexico. This has been considered both a vote of confidence for Costa Rica but also a challenge to its capacity to adapt to meet the organisation's standards. These standards include financial regulations.

In putting together a road map for reform, Costa Rican officials and regulators have started to engage with OECD committees of experts in several areas. These include: investment; financial markets; insurance; private pensions and competition. The purpose of this engagement is to evaluate and compare Costa Rica's current practices and policies in the areas identified with the OECD's standards. This collaboration is also intended to be a catalyst for reform, to bring Costa Rica's regulations closer to the OECD's standards. Local financial regulators recently acknowledged that some areas in which reforms will be required to meet the OECD's standards have already been identified.

Costa Rica's financial regulators have also continued their efforts to implement the Basel III recommendations. They expect to take significant steps in this direction in 2016. These steps include amendments to the corporate governance framework, risk assessment and capital adequacy regulations as well as adopting recent suggestions on KYC-AML (know your customer and anti-money laundering) regulations issued by the Financial Action Task Force (FATF or Groupe d'action financière – GAFI).

Finally, the Costa Rican Central Bank (BCCR) has hinted that it will pursue other amendments to certain banking regulations in Congress. These amendments seek to strengthen some of BCCR's monetary policy tools, including its authority over reserve requirements. They also seek to establish the obligation for local banks to obtain BCCR's prior authorisation to enter into indebtedness in foreign currency. This has been sparked by concerns over what is known as a significant dollarisation of the local economy.

As a result, not only local financial institutions but also international banks and investors with current or potential business in Costa Rica related to the banking sector, should pay close attention to what looks set to be an active year in financial reforms in 2016. Due to the complexity and significance that several of the changes could entail, some of them may require more time to be approved, possibly beyond 2016.

Randall Barquero León

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