Financial Sector Assessment Program

The Financial Sector Assessment Program (FSAP) is a joint initiative of the International Monetary Fund (IMF) and the World Bank (WB). This initiative was launched in 1999 on the heels of the 1997 Asian financial crisis. The program’s ultimate objective is to identify financial system vulnerabilities and to develop the appropriate responses. This is done by examining and assessing the countries’ financial sectors, which include the banking, securities and insurance sector.

The examination is done jointly by the IMF and WB for developing and emerging economies (conducting both financial stability assessment and financial development assessment), and by the IMF alone for advanced economies (financial stability assessment only). Financial stability is the main concern of the IMF, while financial development is the main concern of the WB. In 2009, a review of the program was conducted and fundamental changes were introduced following the 2007-2008 financial crisis. Interestingly, it has been acknowledged that “FSAPs do not cover all sources of financial sector risk [e.g., operational risk or the risk of fraud]. But even for risks that the FSAPs do cover, there are limitations that are not always appreciated.”

Since 1999, about 144 member- countries have undergone FSAP, including almost all G-20 countries. The Philippines will have one in 2019. The first FSAP conducted in the Philippines was in 2002 and then again in 2009. Around 14 to 16 FSAPs are conducted every year at an annual cost of about $15 million. As of 2013, there are 29 jurisdictions where assessment is mandatory as they are considered to be “systematically important.” These mandatory assessments are conducted every five years. Others are on a voluntary basis. Countries requesting assessment are prioritized based on established criteria.

The primary concern of financial sector assessment is the creation of a “strong and well-regulated financial sector.” It has been observed that three-fourths of the 180-plus country members of the IMF and the WB have experienced a financial sector crisis in the last two decades. The occurrences of these crisis have led the IMF and WB to create this program. FSAP has been designed to be comprehensive and in-depth. Stress tests and scenario analysis are conducted to see how financial institutions, such as a central bank, would respond to shocks like significant movements in interest rates or exchange rates. Compliance with international standards are looked into, such as the Basel Core Principles for Effective Banking Supervision. Compliance with directives of international standard-setting bodies are determined, such as the Basel Committee on Banking Supervision, the International Association of Insurance Supervisors with respect to the Insurance Core Principles, and the International Organization of Securities Commissions with respect to the Objectives and Principles of Securities Regulation. 

The FSAP examination has three main components: “1) an assessment of stability of the financial system, including macroeconomic factors that could affect the performance of the system and conditions in the system that could affect the macroeconomy; 2) an assessment of the extent to which relevant financial sector standards, codes, and good practices are observed; and 3) an assessment of the financial sector’s reform and development needs.”

The outcome of the examination is the preparation of the Financial System Stability Assessment by the IMF. The WB produces the Financial Sector Assessment (FSA). The FSSA focuses on the strengths, risks and vulnerabilities in the financial system. This FSSA is submitted to the IMF’s executive board, which will form part of the Article IV consultations between the IMF and the member-countries.    

The 2009 FSAP pertaining to the insurance sector has observed the lack of independence of the Insurance Commission, that supervision is not sufficiently risk-based, and that the Insurance Code of 1978 and regulations are out of date and fall short of international best practices. These have been addressed by the amendment of the Insurance Code by Republic Act 10607.


Dennis B. Funa is the current insurance commissioner. Funa was appointed by President Duterte as the new insurance commissioner in December 2016. E-mail:


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