AMF issues guidelines for central banks to deal with COVID-19

Guiding Principles includes several aspects taking heed of issues of financial stability

DUBAI, May 14: In the framework of the keenness of the AMF to offer support to its member states in the field of economic, financial and monetary reforms promoting financial stability in the Arab region, and in light of the discussions held at the numerous consultative meetings organized by the AMF during the months of April and May 2020, in the presence of their excellencies governors of central banks and Arab monetary authorities, members of Arab committee for banking supervision, Financial Stability Task Force and Financial Inclusion Task Force and Arab Regional Fintech Working Group in the Arab countries, the AMF has issued “General Guiding Principles for central banks to deal with COVID 19 implications on Financial Stability”.

The guiding principles included a number of recommendations about the policy of the central bank, enhancing the system of risk management, where it ascertained the importance of carrying out the policy of the central bank to promote economic activity along with preserving the safety of the financial system; in addition to ascertaining the importance of establishing a crisis management committee or financial stability committee inside the central bank under its own leadership. Representatives from the ministry of finance and securities authority are to become members to guarantee coordination and cooperation between monetary, fiscal, and macro and micro prudential policies. The monetary, financial and macro and micro prudential policy will serve to support each other.

The guiding principles confirmed the importance of gradual implementation of the instruments of macro prudential policies in the current crisis so as not to overreact in minimizing the prudential and supervisory requirements. It mentioned the importance of having the central banks set instructions over the use of the form of Expected Credit Losses (ECL) according to the IFRS9 and to the provisions and customer classification. External Auditors are to be coordinated with in this regard.

The principles recommended the importance of having the central banks strike a calculated balance to promote financial stability. On one side, taking necessary procedures to protect the financial sector and from another side taking all necessary means to protect individuals and corporates especially the SME’s.

The guiding principles confirmed promoting the system of compliance and risk management and combating money laundering and terrorism financing and developing its own systems to face challenges linked to the use of fintech in implementing banking operations.

In this regard, the principles mentioned the importance of promoting digital financial inclusion, fostering digital financial awareness with the public and launching vast remote campaigns in light of increasing dependence on fintech in the current crisis. It confirms as well promoting the financial culture in coordination with the educational institutions.

Regarding credit information, the principles confirmed the necessity of protecting the safety and credibility of the systems preparing credit reports where we need to promote complete participation in providing constantly credit information including reporting on negative credit data emanating from this crisis and taking all necessary means to limit the negative impact on the Clients’ credit rating especially those who have defaulted due to unperceived circumstances. In this regard, the principles mentioned the possibility of guiding the clients to communicate with their banks (means of communication allowed during this crisis) and to negotiate with them to reschedule the payments or if possible to put a note in the credit report about the reasons behind the lack of defaulting.

The guiding principles confirmed the importance of getting ready to receive the post crisis era when it comes to the timing and gradual suspension of the tools and procedures used to mitigate the impact of this suspension and the promptness of the return of the economic cycle and to tackle the impact of recovery.

The principles mentioned a number of aspects that take heed of issues of financial stability i.e. prudential and regulatory requirements, system of risk management, reviewing macro and micro stress tests, business continuity plans for central and commercial banks, recovery plans, Fintech, digital financial inclusion, and other aspects that will promote financial stability.

In this regard, HE Dr. Abdulrahman

Al Hamidy as Director General Chairman of the Board of Executive Directors of the AMF expressed his happiness for the issuance of “General Guiding for central banks to deal with COVID19 implications on Financial Stability”. The issuance of these principles come to confirm the protection of financial stability in the Arab countries a priority within the central banks and Arab monetary authorities due to the fact that financial stability is closely linked to economic and social stability in the countries. HE reiterated his warm wishes to protect our Arab countries and all countries of the world from this pandemic and to quickly trespass the impact of this crisis.

To check these principles, kindly access the AMF website on the following link: https://www.amf.org.ae/en/page/ papers-and-speeches