Chapter 1:Fimancial Sector Assessments:Overall Framework and Executive Summary arrangements,including 1 managemen areas of weakness identified in many recent assessments,for example,weak independence and weak legal protection for banking supervisors,weak organization of the supervisory agency and weak supervision of asset risk management in insurance,lack of authority to investigate and the limited enforcement mandate in securities regulation,and weak cor porat gove cial institu financial institutions(specialized financial institutions and pension funds)and for rura and microfinance institutions.The sectoral and regional significance of many specializec financial institutions (such as housing finance,leasing and factoring companies)and the key role of pension funds in asset allocation and capital markets call for risk-focused and well-tailored regulation that is proportionate and consistent with costs and benefits Those e and the specia isory and pension fund industry are discusse chapter.T s that arise in leasing,factoring The provision of financial services to the poor and very poor,particularly those in rural areas,is the purpose of microfinance institutions(MFIs),and the assessment of the regulatory framework for MFIs is part of a broader assessment of adequacy of access.Chapter 7 explains the rationale and scope of regulation of various categories of MFIs as well as the elements of a regulatory framework that are consistent with the MFI functions,risk profile,and operation al cha racteristics r 8 sider ssing financial syste integrity based on the Financial Action Task Force's (FATF)recommendations for the anti-money-laundering and countering the financing of terrorism (AML-CFT)regime.This chapter covers the scope and coverage of aml-ceTt standards.preconditions for effective implementation of those standards,the content of assessment methodology,recent assessment experience, and special topics in AML-CFT assessments such as customer due diligence,financial and s ope of UN urity Cou ncil Resolutions Chapter cusses key nts of the gal in rastructu e for the effec ve opera tion of financial markets.The legal framework fo or the financial sector is wide ranging. covering the overall governance and rule of law,laws governing financial infrastructure and sector-specific laws.It includes the legal framework that empowers and governs the regulator and the rules for the regulation of various institutions and markets as well as the broader legal framework that goves and the crediror rights regime,ower ship,contr s,contract enfo sur matio of trusts and asset sec ritization.A review f the overall egal framework hould over both groups of laws.In particular,central banking law,legal foundations of payment system functioning,and government debt management should be reviewed together with the laws governing banking,insurance,and capital markets to ensure that a sound legal basis for macroeconomic policies is available to support stable financial markets.In addi- tion,an overview of co ompany laws other co consumer protec tion lay and 1 e also i mportant f good e of financial nst Rights regime can help assess enforcement systems for secured and unsecured credit,leg- 0 9 Chapter 1: Financial Sector Assessments: Overall Framework and Executive Summary 1 I H G F E D C B A 12 11 10 9 8 7 6 5 4 3 2 paid to elements of financial safety nets consisting of liquidity support, deposit insurance and policyholder-investor’s protection, and crisis management arrangements, including the bank insolvency regime (see appendix G). The chapter also summarizes the main areas of weakness identified in many recent assessments, for example, weak independence and weak legal protection for banking supervisors, weak organization of the supervisory agency and weak supervision of asset risk management in insurance, lack of authority to investigate and the limited enforcement mandate in securities regulation, and weak cor￾porate governance of financial institutions. Chapter 6 and chapter 7, respectively, discuss assessing regulatory frameworks for other financial institutions (specialized financial institutions and pension funds) and for rural and microfinance institutions. The sectoral and regional significance of many specialized financial institutions (such as housing finance, leasing and factoring companies) and the key role of pension funds in asset allocation and capital markets call for risk-focused and well-tailored regulation that is proportionate and consistent with costs and benefits. Those considerations and the special supervisory issues that arise in leasing, factoring, and pension fund industry are discussed in chapter 6. The provision of financial services to the poor and very poor, particularly those in rural areas, is the purpose of microfinance institutions (MFIs), and the assessment of the regulatory framework for MFIs is part of a broader assessment of adequacy of access. Chapter 7 explains the rationale and scope of regulation of various categories of MFIs as well as the elements of a regulatory framework that are consistent with the MFI functions, risk profile, and operational characteristics. Chapter 8 considers issues in assessing financial system integrity based on the Financial Action Task Force’s (FATF) recommendations for the anti-money-laundering and countering the financing of terrorism (AML–CFT) regime. This chapter covers the scope and coverage of AML–CFT standards, preconditions for effective implementation of those standards, the content of assessment methodology, recent assessment experience, and special topics in AML–CFT assessments such as customer due diligence, financial intelligence units, and scope of UN conventions and Security Council Resolutions. Chapter 9 discusses key components of the legal infrastructure for the effective opera￾tion of financial markets. The legal framework for the financial sector is wide ranging, covering the overall governance and rule of law, laws governing financial infrastructure, and sector-specific laws. It includes the legal framework that empowers and governs the regulator and the rules for the regulation of various institutions and markets as well as the broader legal framework that governs insolvency and the creditor rights regime, owner￾ship, contracts, contract enforcement, accounting auditing and disclosure, and formation of trusts and asset securitization. A review of the overall legal framework should cover both groups of laws. In particular, central banking law, legal foundations of payment system functioning, and government debt management should be reviewed together with the laws governing banking, insurance, and capital markets to ensure that a sound legal basis for macroeconomic policies is available to support stable financial markets. In addi￾tion, an overview of company laws, other corporate governance laws, consumer protec￾tion laws, and land laws are also important for good governance of financial institutions. Finally, the World Bank’s Principles and Guidelines for Effective Insolvency and Creditor Rights regime can help assess enforcement systems for secured and unsecured credit, leg-