Uruguay: Central Bank Transparency Code Review

The Central Bank of Uruguay (BCU) is implementing transparency practices that are broadly aligned with the good practices for central banks (Table 1). The institution’s comprehensive communication tools and strategy underpin the commitment to transparency and its accountability for the price stability and financial system soundness mandates. In addition, the adoption of transparency among its value statements supports its mission “to contribute to the wellbeing of the society.” The BCU management wants to make further improvements in the transparency practices and envisions that by relying on its strong legal and institutional arrangements this can be achieved. Ultimately, the BCU intends to be recognized as an “independent, effective, and reliable institution with the capability to anticipate and respond to new challenges.”

Abstract

The Central Bank of Uruguay (BCU) is implementing transparency practices that are broadly aligned with the good practices for central banks (Table 1). The institution’s comprehensive communication tools and strategy underpin the commitment to transparency and its accountability for the price stability and financial system soundness mandates. In addition, the adoption of transparency among its value statements supports its mission “to contribute to the wellbeing of the society.” The BCU management wants to make further improvements in the transparency practices and envisions that by relying on its strong legal and institutional arrangements this can be achieved. Ultimately, the BCU intends to be recognized as an “independent, effective, and reliable institution with the capability to anticipate and respond to new challenges.”

Executive Summary

The Central Bank of Uruguay (BCU) is implementing transparency practices that are broadly aligned with the good practices for central banks (Table 1). The institution’s comprehensive communication tools and strategy underpin the commitment to transparency and its accountability for the price stability and financial system soundness mandates. In addition, the adoption of transparency among its value statements supports its mission “to contribute to the wellbeing of the society.” The BCU management wants to make further improvements in the transparency practices and envisions that by relying on its strong legal and institutional arrangements this can be achieved. Ultimately, the BCU intends to be recognized as an “independent, effective, and reliable institution with the capability to anticipate and respond to new challenges.”

Table 1.

Uruguay: CBT Review Summary for Transparency Practices—Central Bank of Uruguay

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Improving communication with domestic and international stakeholders is a significant pillar of the medium-term strategic plan. The well-developed communication framework and architecture were assessed to be comprehensive in this IMF Central Bank Transparency Code (CBT) review. They provide the means through which this strategic plan can be implemented to respond to targeted audiences. The BCU’s determination to establish a solid culture of transparency that applies to all its functions has allowed the central bank to gain public respect and trust. For example, the recent transformations in monetary policy and foreign exchange (FX) management communication were commended by stakeholders, and the approach can serve as a blueprint for enhancing communication and transparency in other areas. Concurrently, deepening financial education and outreach programs can support these efforts to establish a strong sense of accountability to stakeholders.

While general information about its legal structure and mandate are disclosed, enhanced transparency about the scope and depth of institutional, personal, and financial autonomy could be improved. The annual report and website contain the core information, but some important elements require complete information or simpler translations from the legal language. Specifically, the BCU could: (i) describe the main instruments through which its institutional and financial autonomy are established and explain their relevance for the attainment of its mandate; (ii) indicate whether third parties can participate in decision-making committees of the BCU; and (iii) outline the process through which the BCU’s decisions could be subject to judicial review.

Additional transparency in some areas of governance is needed to enhance institutional accountability. Disclosures about the risk management framework, internal compliance, and oversight for AML/CFT risks, and the applicability of domestic legislation on corruption to BCU staff and its relevance for the workings of the BCU’s Ethics Committee could boost institutional accountability. In this regard, the BCU could explain how public resources are put at risk, the institution’s management of these risks, and its accountability through independent oversight. In addition, the BCU could disclose its interactions arising from its role as agent, adviser, and banker to the government, and the services provided to other public entities.

Enhancements to the transparency practices about monetary policy were implemented in 2020, establishing comprehensive disclosure practices. The mission acknowledged the amplified disclosure of information on policy decisions and the supporting analysis for monetary and FX operations. In addition, the (re)introduction of the overnight interbank market rate as the operating target in the inflation targeting (IT) framework would help in clarifying the BCU’s monetary policy stance. However, the review identified further enhancements in transparency could be achieved by offering regular venues for stakeholders to participate in policy decisions, for example, on the rationale for FX interventions, including the instrument choice given the market context. These interactions would facilitate greater accountability for its operations for achieving the inflation target.

Core elements for financial stability analysis, macroprudential policy, and broader financial stability are disclosed, but important enhancements could be made. A high-level strategy and objectives for financial stability are disclosed, but transparency about the underlying analysis used to assess financial stability needs improvement. Specifically, the communique published after the semiannual meetings of the inter-agency Financial Stability Committee (FSC) lacks detail. Further, clarity on the relevance of stress-testing exercises for policy decisions could be provided. Equally important is the transparency about the framework for emergency liquidity assistance (ELA) activation. The information about key operational features, including the roles and responsibilities for agencies that share responsibility for financial stability, is absent. Other useful enhancements to transparency include the publication of a core set of aggregate financial soundness indicators, a dedicated macroprudential policy framework document, a clearer description of available macroprudential tools and their potential effects.

The BCU plays a key role in safeguarding financial integrity, but more information on its AML/CFT supervision of the financial sector could be disclosed. General information on the BCU’s AML/CFT supervisory policies, powers, and processes, could be supplemented with more detailed information.

The BCU’s comprehensive communication framework allows it to honor its legal commitments on public access to information and judiciously balances these obligations against maintaining confidentiality. The national law on access to information safeguards the constitutional right to information on the activities of public entities. However, the limits to that constitutional right are defined in the BCU’s expanded confidentiality policy that publicly discloses a hierarchy for document classification across the BCU. The confidentiality policy embeds relevant allowances for the restrictions on documents classified as ‘reserved’ to be adjusted to facilitate incremental public disclosure.

The BCU has developed a transparent and efficient system to safeguard the rights of financial consumers. The BCU has put in place a model system on consumer protection that inspires public confidence and trust. The BCU’s website discloses the responsibilities for discharging this function through the SSF. The important components of a solid consumer protection framework are well disclosed, accessible, and clear for consumers and financial institutions.

A. Central Bank of Uruguay—Transparency Overview 1

The mission found that BCU’s transparency practices largely conform to some dimensions of transparency as information is disseminated through several channels and the timeliness for disclosures are consistent with the periodicity in the published communication standards. However, relative to the criteria outlined in the CBT, there is room to enhance the quality of transparency to address gaps in some important areas relevant for supporting institutional autonomy and accountability.

The mission provided recommendations that provide high-level focal points to enhance transparency practices at the BCU. Still, it is within the purview of the BCU to evaluate the sequence and intensity of changes to transparency practices. The BCU provided feedback and a proposed implementation plan in ’AUTHORITY’s RESPONSE TO THE REVIEW is included in this CBT Report.

B. Key Recommendations

1. Transparency on the BCU’s legal protection and institutional and personal autonomy could be enhanced by explaining in the annual report and/or the BCU’s website: (i) that the BCU’s decisions are subject to judicial review by third parties; (ii) whether the BCU and the members of its decision-making bodies are prohibited from seeking or receiving instructions from third parties, including the government; (iii) the term of office of the members of the Board; and (iv) the dismissal criteria and procedure applicable to the members of the Board.

2. Transparency on the BCU’s financial autonomy would benefit from an explanation of its rationale and measures for implementing related provisions of the BCU legal framework. Also, the BCU could clarify its financial reporting framework, including the applicable auditing standards and all departures from the Uruguay Accounting Standards in the annual published financial statements.

3. Transparency on risk management could also outline: (i) key risks as they relate to the BCU’s mandate and the BCU’s attitude towards these risks; (ii) risk governance and risk management processes; and (iii) strategies to manage these risks. The annual report could also include a section overviewing key risks that emerged during the year and the BCU’s approach in containing them.

4. Transparency on accountability mechanisms could be enhanced by including on the website and/or in its annual report: (i) the conditions for appointment of external auditors and related eligibility criteria (independence, reputation, experience); (ii) the role and reporting lines of the internal audit function and criteria for the appointment of its head; and (iii) the oversight role of the Audit Committee (AC) and its composition, including the names of the current members. While priority should be given to providing a high-level overview of these accountability mechanisms, the BCU could also consider publishing the charters of the internal audit function and the AC, and information on their main activities during the financial year.

5. Transparency in the BCU’s accountability framework could be enhanced by disclosure of more information on the applicability of domestic anti-corruption legislation to BCU staff and its Code of Conduct. It would be important to state the existing legal basis of the BCU’s Code of Conduct and to disclose information on the activities and controls of the BCU’s Ethics Committee.

6. Additionally, providing information on the oversight of the compliance department could strengthen accountability. Specifically, the BCU should describe the compliance framework that is in place, including the policy with respect to internal AML/CFT control activities, their oversight, and the outcomes from their activities.

7. BCU transparency practices in the area of monetary and FX policies and operations would benefit from the following measures: (i) offering regular venues (e.g., press conferences) for the media to ask questions and further clarify the rationale for the monetary policy decisions; (ii) disclosing generic information related to the calibration and parameters of the various monetary policy instruments, as well as the outcome on the banks’ overall liquidity position; (iii) publishing generic descriptions of the rationale for FX interventions and the choice of instruments given the market context; (iv) disclosing the report sent to the Parliament of the Republic; and (v) providing additional disclosures on the coordination of monetary and fiscal policies.

8. Enhancing BCU transparency practices relating to ELA would enable stakeholders to be prepared to act expediently and with clarity in the event of ELA activation. In this regard, disclosures of key operational procedures that facilitate the implementation of the requirements of Article 32 of the Organic Charter of the Central Bank, 2008 (OCOT) are important. Additionally, within the key operational procedures, an auxiliary policy on transparency is needed to identify the type of information and time for disclosures in the event of ELA activation.

9. BCU’s transparency practices in financial stability stress-testing and macroprudential policies could be improved by: (i) publishing a Financial Stability Report (FSR) that includes relevant details of the underlying analysis of financial stability risks; (ii) publishing of a core set of aggregate financial soundness indicators; (iii) disclosing a comprehensive macroprudential policy framework document, including a clear description of available macroprudential tools and their potential effects; and (iv) a detailed analysis of stress-testing results and their use in guiding policy. In addition, providing clarity about the institutional arrangements of the inter-agency FSC, including the respective roles and responsibilities of the members of the FSC, would strengthen BCU accountability for financial stability and soundness.

10. BCU is encouraged to improve the dimension of information access across all areas by utilizing the already comprehensive communications framework. Improved access via the BCU website could be achieved by: (i) translating more technical language in reports to simple language suited for different audiences; and (ii) creating viable and searchable document registers for important documents such as Board Resolutions to enable easy access to past issues that are relevant for current decisions and communications.

Scope and Objective

11. At the request of the BCU, the mission has conducted a CBT review. The organizational structure and financial soundness objectives of the BCU qualifies this third mission under the CBT pilot reviews to cover all principles of the CBT. Accordingly, the review maps the BCU’s transparency choices for all CBT principles to a range of practices as detailed in the CBT, covering transparency in: (i) governance; (ii) policies; (iii) operations; (iv) outcomes; and (v) official relations. The review should help strengthen the BCU’s dialogue with stakeholders on transparency choices and contribute to improved accountability within the context of its vision of independence, policy effectiveness, and reliability.

12. The intended use of the CBT review by the BCU is to support its three-year strategic reform that outlines the improvement in communication and transparency as a central theme. Accordingly, the review should help the BCU develop action plans to improve its reporting of key economic information and strengthen its relationship with stakeholders by improving the accessibility of content on its website and through social media networks. The review provides an opportunity for the BCU to categorize its current transparency practices across the range of responsibilities and identify strengths and areas for improvement. In particular, the review provides a timely opportunity for the BCU to examine the recent initiatives to enhance communication on monetary policy decisions of the BCU.

Approach and Methodology

13. The mission’s review relies on the combination of a self-review provided by the BCU, the mission’s desk reviews, and in-depth discussions with the BCU and key stakeholders. The BCU’s self-review was received prior to the mission, and follow-up discussions with the BCU Board, 2 management, and staff provided valuable information and facilitated discussions on the application of the CBT. Meetings with key stakeholders outside the BCU facilitated the collection of views on the interaction with the BCU and its transparency practices. Stakeholders in the public sector included representatives of the Ministry of Economy and Finance (MOEF), other public sector institutions that share responsibility with the BCU for functions (e.g., the Bank Savings Protection Corporation (COPAB) that sits on the FSC), and public committees with which the BCU coordinates, such as the Public Debt Coordination Committee (PDCC). Other stakeholders that the mission met with include commercial banks (publicly and privately owned), FX traders, the Chamber of Industries, civil society groups, rating agencies, the media, and academia. The meetings with key stakeholders were planned in coordination with the BCU, although BCU representatives did not participate in these meetings.

14. The review was conducted principle-by-principle, taking into consideration the relevant dimensions of transparency. In addition to reviewing the BCU’s transparency practices according to the CBT principles, other important dimensions of transparency were also considered, including timeliness, periodicity, and quality of disclosure. The latter is of particular relevance when reviewing accessibility and the ease of understanding of information by the public. To conduct this review, the mission also referred to the feedback from the BCU Survey on the Image of the Central Bank, which is done on a five-year cycle. The review also considered views expressed by stakeholders.

15. The review recognizes the role of the Constitution and relevant laws in shaping the transparency choices of the BCU and their impact on this review. In particular, the Law on Free Access to Public Information, and the Law on Classified Information and the restrictions or exemptions provided therein determine documents that are disclosed or prohibited from disclosure based on their classification. Therefore, the BCU’s Confidentiality Policy (see Principle 1.8) is essential for understanding and placing into context, the outcomes from this CBT review. In the presence of these laws, the BCU must ensure that it appropriately balances the thrust to improve transparency with satisfying these legal requirements.

Background

16. The Uruguayan economy continues to normalize after the COVID-19 pandemic. Economic performance is expected to reflect broad-based improvements across most sectors over the near term, which augurs well for the general stability of the financial sector. There is no evidence (yet) of weaknesses emerging from the effects of the pandemic, as the exposure of the financial sector to business sectors most affected by the pandemic is low.3 But a comprehensive assessment of the financial sector and the impact of policy measures implemented in response to the COVID-19 pandemic will be undertaken in the Financial Sector Review Program mission scheduled for 2022.4 In response to the COVID-19 crisis, the BCU pursued accommodative monetary policy, including measures to increase money market liquidity and support the flow of credit to the economy. Specifically, the BCU reduced the reserve requirements and allowed banks to extend moratoria on credit as appropriate. Communication of these measures was done via circulars published on the BCU’s website.5

17. Uruguay’s financial sector shows relatively limited depth and financial dollarization remains a prominent feature. Private sector credit growth remains sluggish, and banks retain large reserves domestically in central bank instruments and with overseas financial institutions. The financial sector provides standard banking and insurance products in pesos and dollars. Highly segmented credit markets for dollar and peso loans have characterized the largely bank-centric financial system. Some stakeholders attribute the preference to save and quote prices in dollars to the protection against inflation outcomes that exceed the maximum announced target. Moreover, this perception of protection is pursued even in the context of inflation-indexed savings products and the indexation of wages to past inflation.6

18. The 2020 Annual Report reaffirmed the BCU’s vision to be an “independent, effective, and reliable central bank,” accountable for its legal mandate. The OCOT establishes the two objectives of the BCU: (i) price stability to achieve economic growth and employment; and (ii) regulation and supervision of the payment and financial system to promote its soundness, solvency, and development. To fulfill these objectives, the BCU has embraced transparency among its values, “to promote the clear communication of information relevant to society, an ongoing dialogue, and accountability for its actions.”7 Recent changes in its operational framework for monetary policy and its communication on monetary policy demonstrate this commitment. Since 2020, the BCU has reverted to a short-term interest rate as an operating target, which aligns with international practices for IT frameworks. In addition, the BCU is communicating more of the supporting analysis for monetary policy decisions and outlook to actively guide inflation expectations to the current target range of three percent to 7 percent, which is expected to be capped at 6 percent in 2022.

19. Accordingly, the mission paid particular attention to the linkages between de facto central bank autonomy and the effectiveness of central bank policies and communications in shaping private sector inflation expectations. In the IT framework, the effect of monetary policy decisions and communications on private sector expectations are important considerations for policymakers. In discussions with stakeholders, BCU’s autonomy was perceived as unclear, and that in the past this may have weakened the expected impact of monetary policy actions and communications on private sector expectations. In this context it is important to stress that central bank autonomy as it is currently understood and applied in central bank governance frameworks (and for the CBT) is different from the “State Autonomous Entity” concept that is mentioned in the OCOT. 8

20. The recent initiatives on communication for monetary policy and its coordination with fiscal policy (Box 1) would support the progress towards establishing clarity in BCU’s operational autonomy over monetary policy decisions. A set of measures were announced by the BCU in April 2020, and the authorities have taken several actions and related communication initiatives aimed at bolstering the impact of policies on inflation expectations. In the context of the new monetary operational framework announced in September 2020, additional macroeconomic measures were presented to the public in a joint conference by the BCU President and the Minister of Finance. This event was also utilized to discuss broader issues of monetary and fiscal policy coordination to support the price stability mandate of the BCU. Given the importance of the policy actions for the attainment of BCU’s policy mandate, giving them high prominence in BCU communication (including greater accessibility in the BCU website) would be useful in relation to the de facto autonomy of the BCU and the perception of the public.

Recent Initiatives of the BCU to Improve Transparency of Monetary Policy and its Coordination with Fiscal Policy

Actions to enhance monetary policy transparency were announced in April 2020. The Communique that was issued following the April 2020 Monetary Policy Committee (COPOM) announced the following measures to enhance the transparency and accountability of the BCU regarding the conduct of monetary policy vis-à-vis the different sectors and actors of the Uruguayan economy:

  • Frequency. The frequency of communication was increased in line with an increase of the number of COPOM meetings. In addition to the four regular meetings held at the end of each quarter, an additional four meetings were added and scheduled on intermediate dates.

  • Materials. Materials disclosed in relation to COPOM decisions were expanded as follows: (i) issuance of a Communique following each of the eight COPOM meetings on the day of the meeting that includes a forward-looking review; (ii) disclosure of the minutes within 72 hours after the meeting; and (iii) improvements in the Monetary Policy Report (MPR) by incorporating macroeconomic models and economic results, as well as the evaluation of policy results.

  • New product. A newsletter was created to establish a more direct contact with a broader set of entrepreneurs and households, designed with a friendly format and simple language, with a view to making monetary policy transparent and hence enhance its impact on inflation expectations.

  • Expanding the audience. The dissemination of decisions and actions was expanded to have direct access to broader audiences. The following documents are disseminated as follows: (i) members of Parliament and media: COPOM communiqué and minutes in Spanish; (ii) foreign investors: COPOM communiqué and minutes in English; and (iii) Chamber of Entrepreneurs: newsletter.

The general objective is to strengthen the transparency of policy decisions, so that the public and markets receive better information about the analysis of the macroeconomic situation—in particular, inflation past developments and projections—and the related decisions taken by the BCU to discharge its legal mandate of safeguarding price stability. These changes are expected to enhance the impact of monetary policy on inflation expectations.

Other measures taken recently to introduce best practices in communication and transparency include: (i) relaunching an improved survey on inflation expectations and publication of its results; and (ii) publication of the economic models used by the BCU in the forecasting of the main macroeconomic variables.

In September 2020, the BCU announced a new monetary policy framework under the IT regime. The BCU announced a shift from a monetary aggregate as the operational target for monetary policy to a short-term interest rate. The change is intended to improve policy signaling and to allow for fine-tuning of monetary policy at a higher frequency.

The joint conference by the BCU President and the Minister of Finance during which the new monetary policy framework was announced was also an occasion to discuss broader issues of monetary and fiscal policy coordination to support the BCU price stability mandate. Key issues among the rage discussed include: (i) stressing the need for consistency between fiscal discipline, the disinflation strategy and wage policies; (ii) initiating the disclosure of macroeconomic projections over a rolling five-year period, thereby providing an outlook beyond the current administration; (iii) ensuring that fiscal consolidation plans are consistent with BCU´s commitment to lower inflation and breaking inflation inertia; (iv) focusing on the BCU priority to bring inflation down structurally and to anchor inflation expectations within the target band; (v) prioritizing the rebuilding of the BCU’s credibility, notably through the newly announced institutional framework and practice of monetary policy; (vi) highlighting the BCU plans relating to the “search for a quality currency, including the reconstruction of peso markets to mitigate financial dollarization;” and (vii) providing consistency between fiscal targets, disinflation strategy and wage policies based on close coordination across institutions.

In parallel with the adoption of the new monetary operational framework, the BCU launched a working group to work on de-dollarization. The working group has been tasked with setting up, in dialogue with the financial industry and other stakeholders, a reform agenda that will also cover financial education and public communications matters.

Source: Central Bank of Uruguay, IMF staff

Main Findings

A. Pillar I: Transparency in Governance

21. The mandate and overall legal structure of the BCU, including its legal framework and legal nature are disclosed, yet information on the BCU’s legal protection is missing. While the OCOT provides information on the BCU’s legal mandate, disclosure regarding the BCU’s legal structure could be enhanced by including descriptions of: (i) the specific requirements for the BCU to fulfill its mandate; (ii) the general framework that currently applies to the BCU, including the relevant provisions in the Constitution and other pertinent laws; and (iii) the judicial review process of the BCU’s decisions, including those of the SSF.

22. Transparency practices about the institutional autonomy of the BCU could be strengthened. The Constitution of the Republic and the OCOT establish that the BCU is a “State Autonomous Entity,” with the OCOT further specifying that the BCU has technical, administrative, and financial autonomy. In addition to its legally defined mandate, the BCU could explain what it means to be an autonomous entity, how autonomy is implemented, and the rationale in the context of the legal mandate. Disclosure could be enhanced by indicating publicly: (i) whether the BCU and the members of its decision-making bodies are prohibited from seeking or taking instructions from third parties; (ii) whether representatives from third parties, including the government, can attend the BCU’s meetings; and (iii) the term of office of the members of the Board and the dismissal criteria and procedure applicable to said members, and how this operates in practice. In addition, the role of members of the Executive and Legislative Branch on committees in which the BCU has shared responsibilities, for example the Macroeconomic Coordination Committee (MCC) and the FSC, could be discussed on its website.

23. Whereas financial autonomy is established in the legal framework, the central bank does not explain the rationale and measures to safeguard it. The OCOT provides for core financial autonomy provisions, including the rules on capital and profit distribution, limits on monetary financing of the government, publication of audited financial statements, as well as approval and execution of the budget. Transparency could be enhanced by explaining the rationale for the BCU’s financial autonomy and the tools for implementing the related provisions of the OCOT. In addition, the disclosures on how these resources are safeguarded from risks attendant to the BCU’s activities and the accountability mechanisms that ensure oversight of their effectual use would be relevant complementary information to support autonomy.

24. Concurrently, disclosures about the BCU’s accountability mechanisms could be improved. The OCOT establishes the high-level provisions for accountability, including the publication of financial statements that are examined by external auditors and the Court of Accounts. Publications thereto are required within 120 days after fiscal year-end. The OCOT also provides for an independent internal audit function. While the OCOT does not provide for an AC, the Board nevertheless established one to assist with oversight of financial statements, the audit mechanism, and internal controls. However, the BCU’s website and annual report do not provide an overview of these accountability mechanisms.

25. In a similar vein, increased disclosures about risk exposures and the management of these risks would enhance accountability. The BCU’s transparency on risk management consists mainly of disclosures in financial statements on risks from managing foreign reserves. In contrast, disclosures about overall risk governance and management of operational risk are limited. Specifically, the BCU’s publications lack an institutional view of the bank’s risk practices and governance arrangements. To improve transparency, the BCU could consider publishing information on: (i) the key risks as they relate to the BCU’s mandate and the bank’s tolerance for these risks; (ii) the risk governance and the risk management process; and (iii) the main strategies to manage these risks. In its annual report, the BCU could also usefully include a section explaining the main developments in its key risks.

26. Improving the disclosures about the risk management and accountability mechanisms would support the BCU’s reputation as a well-managed autonomous institution. In this regard, the BCU could disclose on its website and/or in its annual report: (i) the conditions for appointment of external auditors and related eligibility requirements (independence, reputation, experience); (ii) the role and reporting lines of the internal audit function and criteria for the appointment of its head; and (iii) the oversight role and composition of the AC, including the names of the current members. While priority should be given to providing a high-level overview of these accountability mechanisms, the BCU could also consider publishing the charters of the internal audit function and of the AC, and information on their main activities in a reporting period. The mission also noted that the BCU’s financial reporting framework and the applicable auditing standards are not clearly defined, nor explained in the BCU’s financial statements when it comes to exceptions from the Uruguay Accounting Standards. This could be easily remedied at the next occasion.

27. Transparency practices on governance and management of human capital is categorized at the ‘expanded’ level. The BCU publishes on its website and in the annual report an array of internal policies and regulations related to the management of human resources, including on staff development, performance management, diversity and inclusion, external recruitment, and staff competencies. The BCU website describes the ongoing recruitment campaigns that include detailed documentation for each step of recruitment. There are still opportunities for improvement of transparency by: (i) the inclusion of data on staff turnover in the annual report; and (ii) the publication of other relevant policies (e.g., on leadership and succession and policies or measures for attracting, promoting, and retaining employees). In addition, to enhance access, the BCU could consolidate information on human resource management under a specific section on the website instead of the current arrangement of dispersed disclosures across different sections of the website.

Communications and Confidentiality

28. The BCU has a strong commitment to transparency, which is discharged through a well-articulated and structured communications policy that includes comprehensive tools. The BCU has a strategic program to enhance its engagement with specific stakeholders and the public. Among the various official tools, the BCU website—in Spanish and partially in English—is the most frequently used. The framework also includes measures to evaluate communications through monitoring tools, including surveys of public views of the BCU. The quality and quantity of the information available are satisfactory, but the website search methods may curtail access to information and could be enhanced to locate information more easily. Continuing to expand financial education programs and simplifying the technical language used in the analysis can make information more accessible and understandable for the public. The efforts made to actively promote its messages through mass media, digital platforms, and social media are positively acknowledged by stakeholders.

29. The BCU discloses in detail its communication arrangements, including internal principles and guidelines. The BCU Board discloses and publishes its internal arrangements of institutional communications, including in relation to the powers delegated to the Superintendency of Financial Services (SSF). The BCU reinforces transparency by publishing and disseminating its internal principles and guidelines for its external communication processes.

30. The BCU has a robust confidentiality policy, established by law. The confidentiality policy is established by the OCOT and the national Law on Access to Public Information (Ley 18.381). However, the application of this national law to the BCU could be further explained to enhance public understanding. Moreover, the application of the confidentiality policy can be streamlined to ensure consistency in the documents that are classified by the BCU that may be already publicly disclosed elsewhere. For example, policies, guidelines and technical procedures and Memorandums of Understanding (MoUs) are published by the official counterparts on their websites. Additionally, the BCU could publish the report submitted annually to the Parliament of the Republic since this document is not specifically classified under the confidential policy.

B. Pillars II, III, and IV: Transparency in Policies, Operations, and Outcome

Monetary Policy

31. Several characteristics of Uruguay’s economy and financial sector are relevant for the categorization of the BCU’s transparency in monetary and FX policies and operations. These key features include: (i) the high level of financial dollarization; (ii) inflation inertia and effects of public sector wage formation; (iii) an open capital account; (iv) the strength of the exchange rate channel in the transmission channel; (v) a shallow FX market characterized by a concentrated market with limited transactions; and (vi) the institutional arrangements for the coordination of monetary and fiscal policies.

32. Bearing in mind these characteristics, the mission’s review of the BCU’s transparency of monetary and FX policies and operations considered the following aspects of the BCU’s transparency practices: (i) disclosures on the BCU’s research and analytical work related to inflation inertia; (ii) disclosures on the analytical tools used by the BCU to assess the alignment of the exchange rate with fundamentals; (iii) disclosures of the frameworks in place for the coordination of monetary and fiscal policies; (iv) disclosures on the rationale for FX interventions in view of the specific characteristics of the Uruguayan FX market; (v) disclosures on ex-post evaluations of the economic impact of FX intervention; and (vi) disclosures on the BCU’s assessment of the strength of the transmission channels of monetary policy.

33. Over the years, and increasingly in the most recent period, the BCU’s transparency practices about monetary policy have considered these specific economic and financial conditions in the communications with stakeholders. Publications on monetary policy have encompassed issues related to: (i) the institutional framework for monetary and FX policies (that is, the target range for inflation and the exchange rate regime) established by the MCC; (ii) inflation inertia research, including its interactions with fiscal policy and wage-setting guidelines; (iii) the strength of the transmission channels, including the role of the exchange rate channel; (iv) the coordination of monetary and fiscal policies through the MCC and the Public Debt Coordination Committee (PDCC) to discuss fiscal policies to support the BCU’s price stability mandate; (v) episodic ex-post discussions on the economic impact of FX intervention; and (vi) the broad objective of its FX intervention in the context of the IT with an open capital account and a floating exchange rate arrangement.

34. Overall, the transparency in relation to monetary policies and FX policies and decisions is at the comprehensive level, with specifically tailored documents disclosed to different stakeholders. Firstly, information is available to the public via the BCU website through the timely issuance of a monetary policy communiqué following the meetings of the COPOM. The minutes of the COPOM meetings containing the assessment of global and domestic macroeconomic conditions, and the voting positions of committee members for monetary policy decisions are published on the BCU website. A quarterly MPR is also published via this medium. Secondly, the BCU has also published a version of the MPR in simplified non-technical language aimed at providing the most recent information on monetary policy assessments and decisions to international investors, entrepreneurs, and households . Finally, its accountability for monetary policy decisions is fulfilled through the submission of a report detailing its activities and policy outcomes to the Parliament of the Republic annually to fulfill the legal obligation of Article 46 of the OCOT.

35. The BCU discloses its monetary operational framework, including well-defined operational targets, objectives, and tools. The critical components of the framework are explained in several sections of the website, as well as in the Recopilación de Normas de Operaciones (RNO). Historical data on stocks and flows of the various monetary instruments is made available on the website at varying data frequencies. The rules governing the issuance of the main policy instrument to conduct monetary operations, the monetary regulation bills of the BCU, are disclosed on the website, including a calendar of future auctions, results of previous auctions, and outstanding amounts that have been issued. The categories of monetary policy counterparties and respective access criteria are clearly defined and disclosed on the website. Additional disclosure of generic information on the calibration and parameters of the various monetary policy instruments, as well as the effect of BCU actions on the overall market liquidity would enhance information quality.

Foreign Exchange Management and Administration and Reserves Management

36. The prevailing monetary policy regime in the context of a floating exchange rate regime is disclosed. Several publications explain the operational framework, which consists of FX interventions by the BCU to reduce excessive volatility that could affect inflationary expectations and uncertainty. FX intervention may also be carried out to cushion abrupt exchange rate swings in a concentrated market of few transactions. All FX transactions are executed transparently through the electronic platform operated by the Stock Exchange Market of Uruguay (BEVSA), and daily amounts are disclosed on the BCU website, including the type of underlying instrument that was used (e.g., spot, future, non-deliverable forward, etc.). Counterparties must comply with the market conduct norms set by the BEVSA and disclosed on its website.

37. Transparency practices regarding actual FX interventions provide relevant stakeholders (mostly financial institutions active in the domestic FX market, but also the wider public) ample information on the outcomes of BCU’s actions. Daily publication of the BCU’s FX interventions, including the type of instrument that was used, as well as data in the quarterly MPR on FX operations with the central government, and FX interventions in the spot and forward markets over the last three years provide transparency on the outcomes of FX interventions. However, further disclosure of the effects of intervention given the current microstructure of Uruguayan FX market that is characterized by a limited number of participants and the concentration of transactions a concentrated FX market with few transactions would be useful. Transparency about FX intervention for the public at large would be enhanced by a generic description on the BCU website of the rationale for the choice of the various instruments that may be used, as well as generic explanations regarding the rationale for FX intervention.

38. The BCU’s responsibility concerning FX administration emanates from its oversight of the financial system and is not structured to oversee, regulate, or implement measures for managing cross-border financial flows. As stated in Ley 14.371 that is disclosed on the BCU website, Uruguay has had an open capital account since 1975 and does not apply restrictions to current account transactions. Under this law, there are no recent policy disclosures that may be relevant for the CBT concerning: (i) the regulation of cross border financial flows in foreign and domestic currencies (sale/purchase, transfer, transmission, and export/import of domestic and foreign currencies); (ii) the regulation of transactions in foreign currencies within the country; and (iii) the regulation of transactions within the country in domestic currency between residents and non-residents, and between non-residents. The disclosure of the allowable FX activities and the requirements for general licensing of entities authorized to execute FX activities are assessable via the BCU website.

39. The BCU’s transparency practices for FX reserve management are categorized at the expanded level. The BCU discloses detailed and clear information on the governance framework for managing international reserves. Frequent disclosures on reserves management are made through a quarterly report and the annual financial statement, providing a detailed account of FX reserves management for each reserve tranche, as well as overall risk management. Transparency about FX reserves management could be improved by disclosing the eligible investments for FX reserves as the OCOT makes no mention of this aspect, and the FX Reserves Investment Strategy approved by the BCU Board is not published. In addition, the BCU could describe the investment decisions and results achieved, measured relative to their respective benchmarks. Information on the criteria for setting the size of the reserve tranches would also improve transparency and facilitate the BCU’s accountability that reserves management is in line with international practices as indicated in Article 28 of the OCOT.

Financial Stability and Macroprudential Policies

40. While the BCU does not have an explicit mandate to undertake macroprudential policy, the OCOT empowers the BCU to safeguard the stability of the financial system. On this basis, the BCU has introduced macroprudential policy instruments that are aimed at safeguarding the stability of the banking system.

41. The BCU has published a minimum of core information on its macroprudential framework and supporting analysis for macroprudential measures on its website. The SSF describes its role in this area in its Operational Framework, with broad strategy and objectives. However, macroprudential tools are generally not classified as such and measures are published chronologically alongside other prudential measures, hampering their identification. Any links between macroprudential objectives and specific measures with supporting analysis is generally not made public. Also, ex-post evaluations of macroprudential policies have not been conducted.

42. Press releases following the semi-annual meetings of the FSC (in which the BCU and SSF are members) serve as the main channel to communicate about financial stability. In these releases, the reviews and conclusions provide a general overview, without the disclosure of supporting analysis. The FSR prepared by the BCU for the FSC meetings is kept confidential and is separate from the Report on the Financial System (RSF) prepared by the SSF that is mostly descriptive without much analysis of financial stability risks. While stress testing methods are clearly disclosed, it is not clear how the results are used in the analysis of macroprudential risks and measures to mitigate the risks identified.

43. The transparency about macroprudential policies could be enhanced in important ways. The role of the respective actors in macroprudential policymaking could be clarified in a comprehensive policy framework document. Such a document could also include a description of macroprudential policy tools with their potential contribution to policy objectives and could provide more clarity about the relevance of stress tests, other indicators, and analysis in identifying risks in the financial sector. A modified version of the FSR submitted to the FSC with in-depth analysis of developments and risks could be made public as the main vehicle for reporting periodic financial stability assessments and stress test results. Additionally, the periodic publication of a core set of aggregate FSIs, building on the individual bank financial indicators data currently published on the BCU website, would enhance transparency.

Emergency Liquidity Assistance

44. The legal basis for ELA is laid out in the OCOT, but key features for the operationalization of the framework are missing. The disclosure of these key features, including the roles of the BCU, the SSF, the COPAB, and the Minister, is needed to explain how the legal principles of the OCOT would be applied and implemented in case the framework is activated. Comprehensive transparency practices for ELA, based on the international practices outlined in the CBT, would include: (i) a regulation outlining the objective of ELA (that is, preserving financial stability); (ii) the key requirements for accessing ELA (including regarding solvency, viability, full collateralization, and execution of and ELA agreement defining the counterparty’s obligations); and (iii) the key parameters for ELA (at least interest rate and tenor).

Anti-corruption and Internal Code of Conduct and Financial Integrity

45. The BCU discloses general information on its anti-corruption and Code of Conduct practices, but transparency about their applicability could be enhanced. The BCU’s legal framework clearly notes that anti-corruption legislation and measures apply to decision-makers, staff, and agents of the BCU. It is however not clear from the disclosed information that the national law on the Code of Ethics in the Public Service serves as the BCU’s Code of Conduct. The separate Code of Ethics of the BCU includes general guidelines regarding conduct, confidentiality, transparency, and impartiality, as well as prohibitions on certain activities and behaviors. However additional information on rules on the acceptance of gifts, the abstention from decisions where a conflict of interests exists, and on specific pre- and post-public employment requirements (“cooling off” periods) are absent. The BCU could also disclose information regarding the functioning and activities of its Ethics Committee, especially related to internal control measures to safeguard independence and ensure the accountability of this committee.

46. The BCU plays a key role in safeguarding financial integrity; however specific information on its policies and processes related to AML/CFT supervision is limited. The BCU discloses general information about its AML/CFT supervisory policies, powers, and processes. However, further information on how it assesses the AML/CFT risks of its supervised institutions, how it defines its supervisory policies, and on the internal resources allocated to these activities is not available publicly.

47. The transparency of the BCU’s internal AML/CFT controls, including about its compliance function, is not implemented. The BCU currently does not disclose information on its internal compliance framework related to the activities and services that may give rise to AML/CFT risks. While the OCOT makes no provision for this level of internal oversight, the Board created the compliance function to ensure the BCU’s internal compliance with applicable domestic and international AML/CFT standards. Through this function the BCU has developed AML/CFT policies and evaluate compliance throughout its business units, subsidiaries, and branches. However, there is no disclosure on the internal control activities, their oversight and accountability within the organizational structure, and the human and technical resources allocated to perform the functions. Transparency in this area could be greatly enhanced by providing disclosures on the internal AML/CFT framework and policies, relevant descriptions on internal AML/CFT controls, the control activities carried out for compliance with AML/CFT laws, and the measures of their overall effectiveness.

Consumer Protection

48. BCU has established a robust system to guarantee the rights of financial consumers. This function is discharged though a well-developed, widely disclosed, and transparent legal and operational framework on consumer protection activities (Box 2). Rights and responsibilities of consumers are clear and accessible on a section of the BCU website titled “Usuario Financiero.” In the area of fair treatment and business conduct, the BCU has developed the capacity to identify infringements of consumer rights through its supervisory process to actively promote the fair and equitable treatment of consumers.

49. The BCU is fully accountable regarding its handling of consumer protection complaints. The complaint process seems accessible, clear, affordable, timely and efficient. Financial education programs are a priority for the BCU, including the ongoing implementation of programs to engage vulnerable groups. The BCU has an adequate accountability system for the consumer protection function as it extensively discloses resolutions, sanctions to encourage appropriate redress, and statistics regarding complaints and queries. The BCU also reports the policy outcomes in the areas of consumer protection, including on financial education initiatives in relation to its consumer protection activities.

Transparency in Consumer Protection—Experiences from a Small Central Bank

Disclosure About the Legal Context:

The BCU has a legal mandate for consumer protection, which is prominently disclosed in the OCOT (Article 35), and further established through Law 17.250 (2000) and its Regulatory Decree of August 23, 2000. These documents outline that the SSF works to address inquiries and complaints from consumers to promote their protection in their access and use of the financial services and products, and the financial system.

Disclosures About the System of Consumer Protection Policies:

  • Objective for the function: to promote the confidence of the users of the financial system and guide them towards a more agile and transparent relationship with the supervised institutions.

  • Scope of competence for the BCU on consumer protection:

    • Products and Services: Including credits, deposits, cards, checks and services that the BCU oversees under the consumer protection system and the financial institutions supervised, including banks, Pension Funds (AFAP), insurance companies and the securities market.

    • Personal Data Protection: The central bank regulation establishes that supervised entities must comply with the laws and regulations that govern the financial system, within which lies the national law (Ley 18.331) on personal data protection that originates from the AGESIC. A financial customer can file a complaint with the SSF for non-compliance with the law on personal data protection, which is received and processed.

    • Management of Financial Data: The SSF complies with the personal data protection law, by the adoption of resolution 246/2020 (2b) and ensures its application to the processing of administrative files as well as in the publication of activities related to consumer complaints.

  • Assurances to consumers under the law: Gives legal certainty to the public as “a consumer,” and their access to the Confidential Protection System implemented at BCU.

  • Access channels: The digital portal called “Usuario Financiero,” is indicated as the major tool to disseminate the rights and obligations of consumers and to contribute to their better understanding of basic economic and financial concepts (e.g., interest rates, commissions, among others). Additional channels are used to disseminate financial information, including a Chatbot, a dedicated telephone service that provides real-time responses in addressing queries from consumers, and through email.

  • Dispute resolution mechanisms: It is widely disseminated that the “Usuario Financiero” electronic portal provides an efficient and timely channel to receive and redress consumer complaints.

Disclosures About the Commitments and Actions of the BCU in Relation to Consumer Protection:

  • The BCU has specified function in the OCOT “to promote and develop education and economic and financial culture,” which is discharged through the SSF that develops informative economic and financial education “to contribute to the economic and financial education of society.” For example, the BCU uses public campaigns to address emergent risks to consumer safety (e.g., in cybercrime awareness and security). In addition, specialized programs, such as BCU Educa aimed at targeted and vulnerable groups, are implemented.

  • Financial institutions can be sanctioned for breaches identified through routine supervisory inspections, or in response to reported infringements of the rules that regulate supervised entities in relation to consumer rights (as determined by the central bank law and all other regulations) and that are received through the access channels.

  • The accountability to the public is a fundamental requirement under the Law, and the outcomes from disputes and applied sanctions are published on the BCU’s website.

Source: Central Bank of Uruguay and IMF Staff

C. Pillar V: Transparency in Official Relations

50. The BCU reinforces its commitment to transparency by comprehensively disclosing its dealings with international institutions and other central banks. The disclosure includes explanations of the role of the BCU in the international community as a representative of the government, as a central bank proper, and in relation to the delegated supervisory role of the SSF. The documents also include a brief explanation of the reasons and benefits from international engagements.

51. The BCU should clearly disclose coordination policies and exchange of information with the government and its agencies. The BCU’s interaction with the Executive is channeled through the MCC, and (on a more technical level) with the PDCC of the MOEF, which provide a solid platform for interaction with the government. The coordination of policy and exchange of information that takes place in these forums should be explained to the public in a clear and accessible manner. Policies and practices that derive from these interactions on more technical level should be disclosed by the BCU. We recommend that the information that is currently disclosed by the MOEF in relation to the functions that the BCU performs for the government be also published on the BCU website.

52. Furthermore, there is a need to clarify roles and responsibilities of the BCU in its interactions with other public agencies in terms of financial system management. Disclosure of the interaction between the BCU and the COPAB will help enhance transparency and understanding of their respective roles and responsibilities within the Uruguayan financial system. Disclosure of cooperation arrangements, the guidelines for the exchange information, and the technical contributions of the BCU and the SSF to the deliberations of the FSC is strongly encouraged. In general, a disclosure policy should be implemented with any domestic public financial counterpart of the BCU.

Detailed Review

53. This review is based on the current state of BCU’s transparency practices. The mission took place during September 7–20, 2021. Changes in transparency practices implemented after the review date have not been considered in the CBT review.

54. In accordance with the CBT, this review categorizes the transparency practices of the BCU’s in relation to the CBT principles. The category assigned for each principle is guided by the criteria established for the range of transparency practices in the CBT. In addition, the BCU transparency practices were reviewed in the context of the BCU’s legal mandate and policy context, the sophistication and complexity of the financial system of Uruguay, and prevailing general legal framework (including, but not limited to, the existence of rules on access to information, confidentiality, and active transparency).

55. Reaching conclusions about the BCU’s transparency practices is largely based on the CBT, yet the review team exercised required judgments in some instances. Central banks, the environment in which they operate, and domestic circumstances differ from one country to another. Nevertheless, by adhering to a common, agreed methodology, the review should provide the BCU with reliable view of transparency practices globally, against which it can benchmark its transparency practices, while taking account of its legal context and confidentiality requirements.

This CBT review benefited from the high quality of cooperation with the BCU. The valuable inputs of the staff of the BCU who spent extended time to complete the self-review, attend to additional requests for information during the mission, and who participated in meetings are acknowledged. Their efforts in completing and attending to these activities are critical for the comprehensive descriptions and comments provided in the Detailed Review Report (DRR) presented in Table 2.

Table 2.

Uruguay: Proposed Roadmap for Implementation of CBT Review Recommendations

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Authority’s Response to the Review

The Board of the Central Bank of Uruguay (BCU) thanks the International Monetary Fund (IMF) for the opportunity to implement the pilot review of the new CBT. Similarly, the Board thanks the mission that between September 7–20, 2021, met virtually with the Board, managers, and staff of the BCU as well as with key external stakeholders, whom we thank for their willingness to collaborate. Much of the benefit of this exercise is based on the background diversity, experience, judgment, and professionalism of the mission. This review takes as a reference other central banks in the world, especially those that are a source of good practices. The CBT review adds value to the transparency agenda that has been developed at the BCU, encompassing new dimensions and alternatives, with a constructive, comprehensive, and realistic perspective.

The CBT was approved in July 2020 by the IMF’s Executive Board and corresponds to an update of the 1999 Monetary and Financial Policies Transparency Code and it is aligned with the recommendations made in 2017 by the Joint Review of the Standards and Codes Initiative. The CBT consists of five pillars, focused on transparency in governance, policies, operations, outcome, and official relations. The BCU requested a review of all these pillars, in order to externally and independently evaluate the multiple advances made in the transparency agenda and the improvement in the Monetary Policy communication process.

Along with assessing the achievements of the BCU in terms of transparency, the mission noted that “The Central Bank of Uruguay (BCU) is implementing transparency practices that are broadly aligned with international practices.” Regarding BCU objectives, the mission mentioned that improving communication with domestic and international stakeholders is a key pillar of the medium-term strategic plan, reinforcing the institution’s strong commitment to transparency. On transparency in policies, the mission pointed out that “The transparency practices regarding monetary policy, enhanced through the comprehensive set of measures introduced in April and September 2020, have established robust disclosure practices.”

However, the mission also identified areas for improvement that are aligned with and/or added to the strategic agenda on transparency of the BCU. On the legal aspects, the legal structure and mandate are disclosed, but transparency about institutional, personal, and financial autonomy, risk management, and accountability mechanisms would support the BCU’s reputation as a well-managed autonomous institution. On macroprudential issues, the mission pointed out that Core transparency elements for financial stability analysis and macroprudential policy are in place, but important enhancements could be made. In particular, on AML/CFT the report noted that “The BCU plays a key role in safeguarding financial integrity, but more information on its AML/CFT supervision and internal controls could be disclosed.”

The mission’s report also provided ten Key Recommendations on the five pillars of the CBT. Most of these recommendations refer to the diffusion of information to be disseminated within the legal framework applicable to the BCU, although they are within the reach of our resources, professional capacity, and aligned with our strategic objectives. Thus, parts of the recommendations are included in an ongoing agenda at the BCU.

A roadmap proposed by the BCU for each of the offered recommendations is found in Table a. These actions are classified under: (i) “Immediate implementation” and (ii) “Implementation subject to further analysis.” In the first category, it corresponds to gathering and properly ordering existing information and including official documents and other publications of the BCU, to be published and disseminated through the website in the corresponding menu. In the second category, the recommendations will be analyzed in light of the strategic guidelines inside the BCU, the legal framework applicable to each one, and when appropriate, with the approval of related external entities. In any case, the Board estimates that mostly all the recommendations will be considered in next year’s activity plan.

Table 3.

Uruguay: CBT Review—Detailed Review Report for the Central Bank of Uruguay

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