Banking Supervision May Change Hands
29 May, 2015
Banking Supervision May Change Hands
Georgian Parliament recently suggested transferring the capacity of banking supervision from the National Bank of Georgia to a new public law entity called the Financial Supervision Agency. Proponents of this idea believe it is going to provide the banking sector with proper regulation – something that is severely sub-par at the moment. Opponents claim that this separation will weaken the NBG and violate banking secrecy.

A new, separate regulatory body, Financial Supervision Agency is expected to replace the National Bank’s financial
supervision committee. The FSA is expected to become operational as of July 1, 2015.

Tamaz Mechiauri, Deputy Head of the Finance and Budget Committee at Parliament, was the one who submitted the bill in question. The amendment to the law is aimed at replacing the National Bank’s financial supervision committee with a separate regulatory body named Financial Supervision Agency. The FSA is expected to become operational as of July 1, 2015. However, as Finance Minister Nodar Khaduri claims, despite being under NBG control, the FSA will be completely independent and answer only to the Parliament. It will be led by a council of seven members, each appointed for seven years. One of the members will be Governor of the NBG, but he/she will not be able to chair the council. The Parliament will nominate all other council members and they, in turn, will elect the chairman.
NBG and FSA will be oriented towards enhancing transparency of the Georgian financial sector as well as protecting the rights of consumers and investors alike. The scope of FSA activity duplicates the currently active financial supervision committee of the NBG and covers the following parts of the financial sector: commercial banks, non-banking deposit institutes, qualified credit institutes, micro-finance organizations, money transfer and currency exchange activity as well as the securities market.
According to Mr. Mechiauri, the reasoning behind the bill he proposed was to weaken the universal control of the NBG. The point is that the recent depreciation of Georgian national currency has unleashed a wide range of speculations about the depreciation being mostly caused by commercial banks rigging the currency market rather than by economic factors. And yet despite the abundance of such claims, the NBG has turned a blind eye.
A year earlier, the Financial Monitoring Service was separated from the NBG as an independent body responsible to the prime minister alone. According to Roman Gotsiridze, ex-governor of the NBG, removing the banking supervision capacity as well will ruin the bank. He considers this to be an attempt to control not only the commercial banks, but also the entire business community.
“This bill revokes the confidentiality of banking information and any tax body will be able to see our accounts. Previously, something like this could be authorized only by a court decision. This step abolishes the NBG as such, leaving it only a technical function,” Gotsiridze says.
The Association of Young Businessmen and Financiers approves of the initiative, though. According to Shota Gulbani, Vice President of AYBF, separation of the FSA from the NBG will enhance the transparency of the banking sector and will leave no room for speculations.
“The NBG and the government are playing a blame-game at the time of the currency crisis. To avoid such misunderstandings and insinuations in the future, Parliament has decided to assume the responsibility of staffing the council,” he said.
Irakli Dogonadze, Executive Director of the Center for Analysis and Prognosis at Tbilisi State University, thinks that FSA separation is viable as a temporary remedy to discharge the currency crisis, since the National Bank’s monetary policy poised and still poises many question marks. However, in the long-term, he recommends making the NBG a universal and strong regulatory body for the entire financial system.
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