Financial Stability Committee holds first quarterly meeting |08 July 2016

Following the creation of the Financial Stability Committee (FSC) in March of this year, the members met for their first quarterly discussion on July 1, 2016.

The FSC is a high-level committee chaired by the governor of the Central Bank.  The other members are the chief executive of the Financial Services Authority (FSA), the principal secretary in the Ministry of Finance, Trade and the Blue Economy, and the director of the Financial Intelligence Unit (FIU).

All members of the committee were present, in addition to the Minister for Finance, Trade and the Blue Economy, Jean-Paul Adam. 

Being the first sitting of the FSC, the discussions touched upon the core definition of financial stability, its core function and how it is monitored, before moving on to what are the perceived threats at a domestic as well as international level, taking into account the recent “BREXIT” vote results and other prominent market dynamics.  The FSC is responsible to take action to reduce systemic risks and enhance the resilience of the Seychelles financial system, while also supporting the economic policy of government.  As such, the FSC members discussed various risk assessment results and recent developments in the context of domestic financial stability.  

The committee debated over various probable future events that had been graded on the basis of their likelihood and impact upon the domestic economy, and also importantly what the recent trends are indicating in terms of changes to these elements and the related perception of the future.  This part was more of a qualitative assessment of the likelihood and impact of future plausible events. Members discussed the regional developments with regard to terrorism and the threat to Seychelles of exposure to either attacks or the financing aspect with regard to Anti-Money-Laundering (AML) and Combating of Financing of Terrorism (CFT) endeavours.  In addition, the increased number of skimming events locally on ATM machines was highlighted as indicative of exposure to cyber-crime. 

The other elements of risks assessed were more quantitative, covering various metrics relating to the macro-economy and indicators of financial system dynamics, such as Credit-to-Gross Domestic Product, loan-to-deposit ratios, inflation and foreign exchange market pressures.   The key metrics in these regards indicate a relatively stable trend over the first three months of the year.

A large part of the committee's discussion focused on the United Kingdom’s referendum vote results to leave the European Union, as well as more importantly the expected impact it is likely to have upon Seychelles, both in the short as well as the longer term.  Members of the committee were also appraised of some of the countermeasures deployed to try to stabilise the markets and counter any adverse dynamics which ensued following the results of this referendum.  The continued uncertainty within Britain and the European Union is likely to impact further upon financial markets and the manner in which this could filter into the domestic financial system was discussed.

Other prominent elements discussed covered aspects such as oil price movements and future expectations in this regard and how this would impact upon domestic prices in addition to the domestic financial sector exposure to tourism. 

Considerable discussion was attributed to the increased risk that money laundering poses to the domestic financial system and negative perceptions of corporate transparency, particularly in light of various international developments and the upcoming FATF mutual evaluation.  This risk was noted in conjunction with cyber-crime, terrorism financing, drug trafficking and tax fraud and discussed qualitatively given the impact on the country’s reputation and thus the filtering through to investment and the financial system.    

The next FSC meeting is planned for end of the third quarter of the year. The Central Bank of Seychelles, as the committee chair and the institution under which the legal mandate of financial stability falls, will continue to be responsible for conducting analysis of the financial sector and the risks that threaten its stability.  Should any action be required to mitigate risk or prevent contagion effects of an adverse development, the Central Bank stands ready to take the required action.  The FSC and the member institutions will provide any necessary support to such action.