Front Matter

Front Matter Page

© 2007 International Monetary Fund

February 2007

IMF Country Report No. 07/69

This Assessment of Financial Sector Supervision and Regulation in Andorra in the context of the offshore financial center assessment program contains technical advice and recommendations given by the staff team of the International Monetary Fund in response to a request for technical assistance by the authorities of Andorra. It is based on the information available at the time the report was completed on February 5, 2007. The views expressed in this document are those of the staff team and do not necessarily reflect the views of the government of Andorra or the Executive Board of the IMF.

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Front Matter Page

International Monetary Fund


Assesment of Financial Sector Supervision and Regulation

Prepared by Monetary and Capital Markets Departmant

Approved by Jonathan Fiechter

February 5,2007

This report is based primarily on work undertaken during a visit to Andorra in the period September 18 to 28, 2006. The assessment team comprised Mmes. Socorro Heysen (Mission Chief) and Alicia Novoa (both MCM); Mr. Ruben Mendiolaza (Superintendency of Banks and Insurance Companies of Peru); and Messrs. Piotr Andrzejewski, and Walter Zunic (both consultants). The main findings of the assessment are:

  • Bank supervision is broadly sound and has improved since the 2002 assessment.

  • INAF’s new charter strengthened its independence and remedial powers. But these could be further strengthened by empowering it to impose all types of sanctions.

  • Developing INAF’s on-site supervisory capacity and clarifying its requests to external auditors will be key for the bank and nonbank financial sectors.

  • The increasing importance of collective investment schemes (CIS) and life insurance business raises the need to recast their legislation up to international standards.

  • Insurance supervision could improve in the short run by reprising external auditors to prepare a complementary report, in addition to their annual financial reports. Transferring as soon as possible the responsibility for insurance supervision to INAF is essential.

Appendix II includes the Report on the Observance of Standards and Codes (ROSC) on banking. The ROSC on AML/CFT will be submitted to the Board for information later, once the report of the MONEYVAL mutual evaluation is issued.

The main authors of this AFSSR are Socorro Heysen and Alicia Novoa, with contributions from the rest of the assessment team.

The AFSSR is a summary report on implementation of the indicated financial sector regulatory standards. It has been developed to help jurisdictions identify and remedy weaknesses in financial sector supervision and regulation. The reviews do not directly assess risks such as those associated with asset quality, markets, or fraud that could affect the soundness of financial systems or individual institutions.


  • Glossary

  • Preface

  • Executive Summary

  • Key Recommendations and Authorities’ Response

  • Introduction

  • I. Financial System Overview

    • A. Background

    • B. Financial Institutions and Markets

    • C. Legal and Institutional Framework

  • II. Strengths and Vulnerabilities of the Financial Supervisory and Regulatory Arrangements

    • A. Cross Sectoral Issues

    • B. Sectoral Findings

    • C. Cross-Border Cooperation and Information Exchange

  • Tables

  • 1. Financial Structure

  • 2. Banking System Ownership Structure, as of December 2005

  • 3. Banking System Indicators

  • 4. Insurance Sector, as of December 2005

  • 5. Securities Market, as of December 2005

  • Figures

  • 1. Size of the Banking Sector in Selected Financial Centers, end-2004

  • 2. Deposits, Securities in Custody and Derivatives, as of December 2005

  • Appendices

  • I. History of the Andorran Banking System

  • II. Follow up of Implementation of Recommendations Contained in the 2002 Module 2 Report

  • III. Reports on the Observance of Standards and Codes

  • Appendix Table

  • 6. Recommended Action Plan to Improve Compliance with the Basel Core Principles



Associació de Bancs Andorrans


Anti-Money Laundering and Combating the Financing of Terrorism


Banco Bilbao Viscaya Argentaria


Bank of Spain (Banco de España)


Basel Core Principles for Effective Banking Supervision


Consell General


Collective Investment Schemes


Comissió Superior de Finances


European Union


International Association of Insurance Supervisors


Informe Complementario d’ Auditoria


International Financial Reporting Standards


Nacional Andorr á de Finances


International Organization of Securities Commissions


Select Committee of Experts on the Evaluation of AML Measures


Ministry of Finance (Ministeri de Finances)


Report on Observance of Standards and Codes


Unitat de Prevenció del Blanqueig (Laundering Prevention Unit)


At the invitation of the Andorra government an IMF team visited Andorra from September18–28, 2006 and conducted an assessment of the supervision and regulation of the financial sector. This report is based on work undertaken during the team’s visit to Andorra. The current assessment is a follow up to the assessment undertaken in 2002 in the first phase of the Offshore Financial Center (OFC) program. In 2003 the IMF Executive Board agreed that the IMF should conduct periodic assessments (every four to five years) to monitor progress as well as ensure that good supervisory practice has been maintained.1

The assessment team comprised Ms. Socorro Heysen (Mission Chief), Ms. Alicia Novoa (both MCM), Mr. Ruben Mendiolaza (Consultant, Superintendency of Banks and Insurance, Peru, Banking), Mr. Walter Zunic (Consultant, Banking), and Mr. Piotr Andrzejewski (Consultant, Insurance and Securities).

The mission met with representatives of the Andorra government including the Cap de Govern, Hon. Albert Pintat; the Minister of Finance Mr. Ferran Mirapeix; the President of the Board of the Institut Nacional Andorrà de Finances (INAF) Mr. Xavier Jordana; the Director General of INAF, Mr. Carles Salvadó; the Head of the Unitat de Prevenció del Blanqueig (UPB) Mr. Jordi Pons; as well as other senior officials, including the Deputy Director General (INAF), Ms. Verónica Guardia; the Director of Supervision (INAF) Ms. Maripau Naranjo and the Director of Tax Administration, Mr. Xavier Jimenez. The mission also met with representatives of various financial institutions, industry associations, audit firms and rating agencies.

The members of the mission would like to express their gratitude to the Andorran authorities and staff of the institutions, which they visited and with whom they worked during their stay for their hospitality and excellent cooperation. In particular the mission would like to thank Mr. Jordi Alcobé and Ms. Esther Canelles for their invaluable logistical support during the mission and the Ministry of Finance (MF) for providing the use of their facilities.

Executive Summary

The results of the assessment indicate that financial sector supervision is broadly sound with respect to material activities of the financial system, which are centered on the banking sector. Efforts have been made during the last few years to address several of the recommendations made by the 2002 mission, including by issuing a new charter for the INAF. Work is under way to address the remaining gaps in the regulatory and supervisory framework. Draft laws have been prepared to bring the regulation of the nonbank financial institutions and insurance companies up to international standards, and to strengthen the enforcement capacity of the UPB.

Financial sector supervision in Andorra relies heavily on the work of external auditors who, in addition to the annual financial reports, are required since 2002 to prepare complementary reports. Every year since, INAF has revised the requirements for these reports and has broadened their scope, but additional guidance is needed to ensure that they provide effective support for bank supervision. Clarifying INAF’s request and reaching an understanding with auditors on the specific requirements would enhance supervision in the short term. In the medium term, INAF's on-site capacity would be operational and further strengthen supervision.

Andorra has made significant improvements in banking regulation and supervision but additional efforts are needed. Most notably, INAF’s independence and ability to cooperate with foreign supervisors has been strengthened by the approval of its new charter.2 While INAF’s new charter also strengthened its remedial powers, these should be further enhanced by empowering it to undertake all sanctions, including those classified as “very serious.” The charter allows INAF to sign agreements with foreign supervisors, but efforts to reach an agreement with the Bank of Spain (BE) have not been successful due to restrictions on the access of supervisors of foreign banks to nominative information of these banks’ customers. INAF is able to facilitate nominative information of large exposures and to conduct joint on-site examinations. It is recommended that INAF be also empowered to share with the home country supervisor information about the local operations of the foreign banks necessary to conduct effective supervision of these banks, provided its confidentiality is protected. The development of INAF’s on-site supervisory capacity is under way and full on-site inspections are expected to start in late 2007, after the new staff has completed a thorough training program. However, INAF’s staff is still lean (12) and additional hirings may be needed to ensure an effective on-site oversight, less reliant on external auditors.

The increasing importance of collective investment schemes (CIS) and life insurance raises the need to recast their legislation. It is recommended that the draft law on regulation of CIS be tabled in the Parliament with a view to its adoption as soon as possible. The draft law on insurance regulation may need to be reviewed beforehand. Additionally, short run improvements of insurance supervision could be achieved by enhancing the role of external auditors, requiring additional reports, similar to those in place for other financial sector entities. Transferring the responsibility of insurance supervision to INAF as soon as possible is essential.

The Andorran financial system changed significantly in recent years. The low interest rate environment caused a shift away from deposits and into higher yield instruments offered by various types of asset managers, with a resulting increase of banks’ off-balance sheet items. Starting on 2005, the prospect of the retention of EU taxes on the savings income of EU costumers of Andorran banks, induced these customers to switch to savings linked life insurance policies offered by insurance affiliates, thus increasing the significance of the life insurance sector. The sale of the shares of Spanish banks in two of the Andorran banking groups has caused a significant change in the ownership structure. The capital of banks with foreign participation represents 2 percent of total bank capital by end-2006, down from about 70 percent in 2002.3

Key Recommendations and Authorities’ Response

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See PIN No. 03/138 at for a summary of the Executive Board discussion.


The law 14/2003 superseded the original charter issued in 1989 and is referred to as INAF’s “charter” hereupon.


The actual share of foreign capital in the banking system has fallen from 36 percent to 1 percent from 2002 to end-2006.

Andorra: Assessment of Financial Sector Supervision and Regulation
Author: International Monetary Fund