Liberalisation of Current Invisible Operations: Financial Services Overview
Explore the code of liberalisation of current invisible operations in financial services as discussed by Etienne Lepers, an Economist at OECD. Delve into the CLCIO, GATS, cross-border trade, insurance, pensions, banking, and experiences regulating bank branches.
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Presentation Transcript
The Code of Liberalisation of Current Invisible Operations: Financial Services Etienne Lepers Economist, OECD
Outline Outline The CLCIO and the General Agreement on Trade in Services (GATS) The CLCIO and cross-border trade in financial services Insurance and Pensions Insurance and Private Pensions Banking and Financial Services Country experiences on regulating and supervising bank branches
Liberalisation list for CLCIO A. B. C. D. E. F. G. H. J. K. L. Business and Industry Foreign trade Transport Insurance and private pensions Banking and financial services Income from capital Travel and tourism Films Personal income and expenditure Public income and expenditure General (Professional Services, )
The CLCIO & the General Agreement on Trade in Services All OECD members are also members of the WTO GATS entered into force in 1995 Different but compatible obligations with GATS
OECD Codes of Liberalisation: Invisible Operations & GATS Scope for Services OECD Codes GATS Establishment Yes, for all services. Yes, as commercial presence for the purpose of supplying services. Cross-border Yes, for specific list. All, including future. Movement of persons No Yes Consumption abroad Yes Yes Government procurement No No (future negotiations) Monopolies No No, unless supplied on a commercial basis and/or in competition with other private suppliers. Subsidies No, except by invocation of Art 16. Yes, can be subject to commitments and are subject to MFN
OECD Codes of Liberalisation: Invisible Operations & GATS Scope OECD Codes GATS Capital Movement Yes, all Where specific commitments made to admit capital inflow needed for establishment or which is part of services itself. Also where restrictions affect negatively trade in services. Payment and transfers Yes Yes, only where specific commitments made. Repatriation of profits and dividends Yes Not excluded. GATS may protect as related to services transactions covered by specific commitments.
Services under: OECD Codes GATS Exceptions to MFN/ Non-discrimination Art 10 (only EU recognised) Annex E Prudential measures: mutual recognition of standards. National MFN exemption lists Art V (economic integration) Fin Serv.: prudential measures and selective recognition. Standstill Yes Subject to negotiation/varies across sectors No precautionary reservations Precautionary allowed Rollback Yes, general obligation to eliminate reservations gradually. Agree to participate in future negotiations. Safeguards Balance of payments & financial and economic disturbance Balance of payments General prudential carve-out No Yes Enforcement Peer pressure. Dispute settlement (state-to-state). Possibility of retaliation.
The CLCIO and cross The CLCIO and cross- -border trade in financial in financial services services - - Insurance and Pensions and Pensions border trade Insurance
Financial Services Insurance & pensions CLCIO liberalisation list CLCM liberalisation list A. Business and Industry B. Foreign trade Item I/A Establishment (subsidiaries and branches) Portfolio restrictions on financial institutions Some specific provisions C. Transport D. Insurance and private pensions E. Banking and financial services F. Income from capital G. Travel and tourism H. Films J. Personal income and expenditure K. Public income and expenditure L. General
D. Insurance and private D. Insurance and private pensions pensions - - Cross-border Branches D/1. Social security and social insurance. D/2. Insurance relating to goods in international trade. D/3. Life assurance. D/4. All other insurance. D/5. Reinsurance and retrocession. D/6. Conditions for establishment and operation of branches and agencies of foreign insurers. D/7. Entities providing other insurance services D/8. Private pensions
D. Insurance and private pensions D. Insurance and private pensions Prudential considerations Members may take regulatory measures in the field of insurance and pensions, including the regulation of the promotion, in order to protect the interests of policyholders and beneficiaries, provided those measures do not discriminate against non-resident providers of such services.
D. Insurance and private pensions D. Insurance and private pensions Liberalisation list D/1. Social security and social insurance. Transfers and payments only Services linked to public pension schemes but provided by the private sector are covered by: D/8 Private pensions
Detailed provisions for items D2 to D8 D/2. Insurance relating to goods in international trade. Cross-border transfers and transactions For freight and for all means of transport (railway, road, ships, aircraft), also satellites. D/3. Life assurance. Cross-border transfers and transactions Includes pension products offered by insurance companies. Tax treatment of premiums paid.
D. Insurance and private pensions D. Insurance and private pensions D/4 Other Insurance (other than life) Group & mandatory insurance not covered Cross-border transfers and transactions Tax treatment of premiums paid D/5 Reinsurance and retrocession Cross-border transfers and transactions Settlement of balances
D. Insurance and private pensions D. Insurance and private pensions D/6. Conditions for establishment of branches and agencies Transfers between head office & branches and agencies Equivalent treatment Financial guarantees Controlled investments (not more burdensome) Authorisation procedures Membership in associations Transfers
D. Insurance and private pensions D. Insurance and private pensions D/7 Other Insurance Services Intermediation services, auxiliary services (consultancy, actuarial, risk assessment and claim settlement) and representation services Cross-border transfers and transactions Establishment: representatives; representative offices (to promote cross-border services); branches and agencies to offer services covered under D/7. D/8 Private pensions Cross-border transfers and transactions Establishment by means of branches Tax treatment of contributions paid
E. Banking and Financial Services CLCM liberalisation list Item I: Direct Investment FDI in banking and financial services (Inward & outward) Establishment by means of branches (see also CLCIO) Items I to XII: Investments or borrowing abroad of financial institutions. Currency rules: In the country: subject to domestic legislation. Outside the country: according to rules of foreign jurisdiction.
E. Banking and financial E. Banking and financial services services Cross-border E/1. Payment services. E/2. Banking and investment services E/3. Settlement, clearing and custodial and depository services E/4. Asset management. E/5. Advisory and agency services. E/6. Fees, commissions and other charges. Establishment E/7. Conditions for establishment and operation of branches, agencies, etc. of non-resident investors in the banking and financial services sector.
E. Banking and financial E. Banking and financial services services General remarks: 1. Regarding operations in the country concerned, Members may take measures for the maintenance of fair and orderly markets and sound institutions and for the protection of investors or other users of banking or financial services, provided those measures do not discriminate against non-resident providers of such services. 2. Regarding operations abroad, Members may regulate on their territory the promotional activities of non-resident providers of such services. 3. Transactions and transfers concerning capital movements in connection with operations covered by Section E of this Code are governed by the Code of Liberalisation of Capital Movements.
E. Banking and financial services E. Banking and financial services E/1. Payment services. Payment instruments (issuance and use of cheques, travellers cheques, cash cards, ) Fund transfer services Remarks in Users Guide: Countries may maintain authorised resident agents requirements The obligation to liberalise foreign payments services under Item E/1 only applies within the scope of permitted capital operations. Such operations, in particular the freedom to operate deposit accounts with non-resident banks, may be subject to reservations under the Capital Movements Code.
E. Banking and financial E. Banking and financial services services E/2. Banking and investment services Underwriting Broker/dealer services Financial market information, communications and execution systems Remarks in Users Guide: Obligations on financial market information, communications and execution systems apply only to the access to such systems, not to their provision.
E. Banking and financial E. Banking and financial services services E/3. Settlement, clearing and custodial and depository services Remark: Members may require that non-residents participate in a domestic settlement and clearing system only through a branch or subsidiary established in the territory of the Member concerned. Remarks in Users Guide: Obligations on settlement and clearing systems apply only to the access to such systems, not to their provision. There are no obligations with respect to the provision of depository systems, either by non-residents in the country concerned or by residents abroad. Cross-border access, both by non-residents in the country concerned and by residents abroad to depository systems, shall be free.
E. Banking and financial services E. Banking and financial services E/4. Asset management. Cash, portfolio, pension fund management services Safekeeping of assets Trust services E/5. Advisory and agency services. Credit reference and analysis. Investment research and advice (including securities rating agencies). Mergers, acquisitions, restructurings, management buyouts, venture capital. E/6. Fees, commissions and other charges. Transfers shall be free if the underlying service transaction is permitted. Covers other services not mentioned under E1-E5.
E. Banking and financial services E. Banking and financial services CLIO liberalisation list E/7. Branches, agencies, etc. of in the banking and financial services - includes securities dealing. Equivalent treatment Self-employed intermediaries Financial guarantees Controlled investments (not more burdensome) Authorisation procedures Representation Representative offices Membership in associations Transfers Prudential Considerations 7. Domestic laws, regulations and administrative practices needed to assure the soundness of the financial system or to protect depositors, savers and other claimants shall not prevent the establishment of branches or agencies of non-resident enterprises on terms and conditions equivalent to those applying to domestic enterprises operating in the filed of banking and financial services.
Chart on Reservations under CLCIO Chart on Reservations under CLCIO Banking and Financial Services Insurance and Pensions D/1 - Social E/1 - Payment D/2 - Trade-Related E/2 - Banking and Investment D/3 - Life Assurance E/3 - Settlement D/4 - Other Insurance E/4 - Asset Management D/5 - Reinsurance E/5 - Advisory D/6 - Establishment E/6 - Fees D/7 - Other Entities E/7 - Establishment D/8 - Private Pensions 0 20 0 10 20 30
Country Experiences on Regulating and supervising bank branches
Establishment: Conditions for establishment of branches v/v domestic banks:
Points of consideration Availability of deposit insurance Allowing retail banking operations for branches Governance requirements (risk mgmt., boards, committees ) Financial requirements (min cap req, fin. guarantees, asset pledges ) Liquidity requirements Resolution issues and bilateral agreements See OECD report to the FSB on establishment of bank branches (2017) for more information
