Interview: David Bojanini
What impact will recent reforms have on the country’s financial services sector?
DAVID BOJANINI: While the recently passed tax reform reduced the corporate rate, it also applied a surcharge on financial institutions for a minimum of three years. Details on how this will affect different industries like banking or insurance are still needed. Furthermore, we are waiting on a ruling by the Constitutional Court on the lawsuit brought by the Banking Association following the reform. We are also assessing the impact that value-added tax will have on commissions for the placement of life insurance products. The most important factor in ensuring development is having a regulatory framework that promotes competitiveness. The law on conglomerates incorporates international standards in the prudential regulations of the financial industry. Moreover, the Ministry of Finance’s increased oversight and monitoring capacities will help it to anticipate and avoid risks in the financial system, which will translate into greater economic stability and be a sign of confidence for attracting foreign investment. Likewise, the implementation of the Basel III and Solvency II guidelines will improve consumer confidence and stability by guaranteeing that companies have higher levels of capital and reserves. In turn, these increased levels of solvency will allow firms to tackle possible banking losses or insurance claims that, under other scenarios, might put their operations in jeopardy. This will entail a strengthening of their control mechanisms towards more rigorous scenarios and prospective.
How can policy spur the uptake of financial services?
BOJANINI: In recent years Colombia has had some success in increasing the penetration rate in financial services, driven by advances in connectivity and improved access through digital channels and correspondents. Nevertheless, adjustments are necessary. Increasing the use of banking services necessitates a tax policy that disincentivises the use of cash, reduces the transactional costs for users of the formal financial system and promotes financial education. Public policy must incentivise an increase of insurance correspondents, who can provide solutions in smaller communities, and work with banks and retail outlets to develop physical and digital channels for mass marketing.
To what extent have prevailing digital trends been integrated into financial services?
BOJANINI: The adoption of new technologies needs to pick up the pace, and there is an awareness of the need to develop capabilities in analytics, data management and blockchain. A sandbox has been created to test different disruptive models in a regulated environment, with the objective of learning from the use of these technologies, understanding the new dynamics at play and establishing norms for their deployment.
In which ways can infrastructure investment dovetail with the goals of financial service providers?
BOJANINI: The development of large projects is an important component of bolstering the participation of the banking, insurance and reinsurance industries. This development should be undertaken in a favourable economic environment and accompanied by mechanisms that attract private investment, guarantee legal stability and adequately share risks between the state and private operators. The current financial structure includes a mix of local and international banks, the bonds market and private debt funds. For insurers and reinsurers there is considerable potential in the guarantees required under both government contracts and engineering, procurement and construction contracts. Through the use of investment vehicles such as private debt and equity funds focused on infrastructure, institutional investors can participate in the financing and development of these projects, as they pursue stable cash flows that are indexed to inflation over the long term and characterised by adequate risk management.
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