The International Monetary Fund (IMF) conducted a Financial Sector Assessment Program (FSAP) of Morocco in 2003 and reported that, at the time, Morocco's legal, regulatory, and supervisory framework was in need of further improvements. However, according to the report, Morocco had come a long way in implementing much needed reforms to the financial sector. A 2005 report by the IMF noted that several recommendations made in the IMF's 2003 assessment were being addressed, and the authorities were in the process of implementing a new Banking Law (enacted in 2006) that would address some of the IMF's earlier regulatory and supervisory concerns. In its 2007 Article IV Consultation report, the IMF states that the 2006 Banking Law has increased the supervisory powers of the Central Bank of Morocco and increased cooperation between the various financial sector supervisory agencies. Moreover, according to a 2007 report by A. Tahari et al., Morocco's reform process since 2002 has resulted in the implementation of most of the Basel Core Principles (BCPs) by Morocco. In spite of this rather strong statement, there is no other substantive or corroborative information publicly available indicating Morocco has implemented most of the BCPs. A 2005 World Bank report, however, indicates that the World Bank is funding Morocco's Financial Sector Development program and, through this process, will help Morocco set up a legal, regulatory and supervisory framework for the banking sector that will conform to international standards. A 2006 World Bank Status Report indicates that the Moroccan authorities, with World Bank assistance, have made substantial progress towards achieving their goals.

General Overview

The International Monetary Fund (IMF) in 2003 conducted a Financial Sector Assessment Program (FSAP) of Morocco and concluded that the authorities in Morocco, specifically the Central Bank of Morocco (Bank Al-Maghrib, or BAM) is committed to reforming the supervision of the financial sector and Morocco has made significant efforts towards this end over the past few years. However, the report also indicated that, in 2003, Morocco still had to take additional measures in terms of its legal, regulatory, and organizational setup to bring the country's financial supervision standards closer to international norms, namely, the Basel Core Principles (BCPs). In a 2005 report, the IMF stated that Morocco has taken significant steps in addressing most of the recommendations made by the IMF assessors in the 2003 FSSA. Moreover, according to a 2007 report by A. Tahari et al., "since 2002, Morocco has undertaken a number of reforms implementing almost all the Basel Core Principles" (p. 18). However in spite of this rather strong statement there is no other substantive or corroborative information indicating Morocco has implemented most of the BCPs.

Subsequently, in a 2007 Article IV Consultation report, the IMF indicated that the 2006 Law Related to the Establishment of Credit Institutions and Affiliated Organizations (Banking Law) "has extended BAM's supervisory mandate to previously unsupervised institutions, and the cooperation between entities supervising different segments of the financial system has been strengthened" (p. 11). Furthermore, the 2007 IMF report noted that BAM expected banks in Morocco to comply with Basel II requirements starting June 2007 and the authorities have scheduled a FSAP update for November 2007.

The World Bank's 2005 report assessing its Financial Sector Development Policy Loan to Morocco, states that the loan will support the Moroccan authorities' objective of "implementing an effective and modern legal, regulatory and supervisory framework, in line with international standards" (p. 8) for banking supervision. In 2006, the World Bank released a progress report titled "Status of Projects In Execution - FY 06 SOPE," in which it stated that significant progress had been made in terms of implementing the Financial Sector Development Policy, adding that the Moroccan banking sector "is moving forward to complying with prudential requirements in 2007" (p. 2011).

According to the World Bank (2005) report, Morocco's banking sector plays a vital role in the economy, with the State still in control of a significant portion of banks' financial assets. However, according to the report, the authorities have indicated their intent over time to decrease their holdings within the financial sector.

The 2007 report by A. Tahari et al. indicated that the banking industry is composed of commercial banks, publicly owned specialized banks, and offshore banks. According to the report, the BAM supervises all institutions that engage in banking activities and its autonomy and supervisory functions have been further strengthened by the 2006 Banking Law.

The Principles

1. (1) Clear responsibilities and objectives for each supervisory agency.

II

There is insufficient information publicly available regarding Morocco's compliance with this Principle. However, the 2003 IMF assessment indicates that Morocco had to take additional measures in its legal, regulatory, and organizational setup to bring the country's financial supervision standards closer to the Basel Core Principles (BCPs). In a 2005 report, the IMF stated that Morocco had taken significant steps to address most of its recommendations, adding that the draft Banking Law would further improve the supervisory power and autonomy of BAM. This Banking Law was enacted in 2006. A. Tahari et al., in their 2007 report, noted that the new Banking Law has significantly increased the supervisory power and autonomy of the BAM, enhancing its information-sharing capacity.

1.(2) Operational independence and adequate resources.

II

One of the recommendations of the IMF in its 2003 report was to strengthen the BAM's independence and powers. A. Tahari et al., in their 2007 report, noted that the new Banking Law of 2006 has significantly increased the supervisory power and autonomy of the BAM, enhancing its information-sharing capacity. However, there is insufficient information publicly available regarding Morocco's compliance with this Principle.

1.(3) A suitable legal framework for authorization and ongoing supervision.

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Refer to Principle 1 (1).

1.(4) A suitable legal framework to address compliance with laws as well as safety and soundness concerns.

II

Refer to Principle 1 (1).

1.(5) Legal protection for supervisors.

II

Refer to Principle 1 (1).

1.(6) Arrangement for sharing of information between supervisors and protection of confidentiality of shared information.

II

Oxford Analytica, in a 2006 assessment, noted that the new Banking Law establishes a commission for the coordination of institutions in charge of the financial sector called the Commission de Coordination des Organes de Supervision du Secteur Financier, which is composed of the BAM, the Securities Commission (Conseil D'ontologique des Valeurs Mobiliéres, or CDVM, and the administration in charge of supervising the insurance sector.

2. Clearly defined permissible activities for banks and control of the use of the word 'bank'.

CP

The 2003 IMF assessment notes that "licensing procedures are largely consistent with the Basel principles" (p. 42).

3. Criteria for structure, directors, operating plan, controls, financial condition and capital base.

CP

The 2003 IMF assessment notes that "licensing procedures are largely consistent with the Basel principles" (p. 42).

4. Authority to review and reject transfer of ownership.

CP

The 2003 IMF assessment notes that "licensing procedures are largely consistent with the Basel principles" (p. 42). The report also states that the Banking Law stipulates that any merger or takeover is required to be approved under the same initial licensing criteria.

5. Authority to review major acquisitions and investments.

CP

The 2003 IMF assessment notes that "licensing procedures are largely consistent with the Basel principles" (p. 42). The report also states that the Banking Law stipulates that any merger or takeover is required to be approved under the same initial licensing criteria.

6. Minimum capital adequacy requirements (meet Basle Capital Accord for internationally active banks).

II

In its 2003 assessment, the IMF recommends that Morocco incorporate the risk profiles of individual banks in its calculation of capital adequacy ratios and also notes that initiatives underway in 2003 indicated a significant strengthening of prudential norms by the authorities. Nonetheless, there is insufficient information publicly available regarding Morocco's compliance with this Principle. A 2007 report by the IMF indicates that BAM expected banks in Morocco to comply with Basel II requirements starting June 2007.

7. A method exists for the evaluation of procedures related to loans, investments and portfolio management.

II

The IMF, in its 2003 assessment, notes that initiatives underway in 2003 indicated a significant strengthening of prudential norms by the authorities. Nonetheless, there is insufficient information publicly available regarding Morocco's compliance with this Principle.

8. Policies, practices and procedures for evaluating the quality of assets and the adequacy of loan loss provisions and reserves.

II

In its 2003 assessment, the IMF recommends that Moroccan authorities consider revising the classification of loan loss provisioning. A 2004 report by S. Creane et al. arrived at the same conclusion, indicating that significant weaknesses remain in Morocco's supervisory and prudential framework. However, the IMF's 2003 report notes that initiatives were underway that would significantly strengthen prudential norms in Morocco. Nonetheless, there is insufficient information publicly available regarding Morocco's compliance with this Principle.

9. Prudential limits and management information system on concentration of exposure.

II

In its 2003 assessment, the IMF recommends an overhaul of the risk assessment office of the Credit Institutions Supervision Directorate (Direction de Contrôle des Éstablissements des Crédit, or DCEC). A 2004 report by Creane et al. states that significant weaknesses remain in Morocco's supervisory and prudential framework. However, the IMF's 2003 report notes that initiatives were underway that would significantly strengthen prudential norms in Morocco. Nonetheless, there is insufficient information publicly available regarding Morocco's compliance with this Principle.

10. Arm's length rule and monitoring for connected lending.

II

A 2004 report by S. Creane et al. states that significant weaknesses remain in Morocco's supervisory and prudential framework. However, the IMF's 2003 report notes that initiatives were underway that would significantly strengthen prudential norms in Morocco. Nonetheless, there is insufficient information publicly available regarding Morocco's compliance with this Principle.

11. Policies and procedures for country risk and transfer risk.

II

Refer to Principle 10.

12. Measuring and monitoring market risk. Limit and/or specific capital charge on market risk exposure.

II

Refer to Principle 10.

13. Comprehensive risk management processes.

II

Refer to Principle 10.

14. Adequate internal controls.

II

In its 2003 assessment, the IMF recommends that the authorities in Morocco clearly define a methodology for internal controls. According to the same IMF assessment, initiatives were underway in 2003 that would significantly strengthen prudential norms in Morocco (2003). Nonetheless, there is insufficient information publicly available regarding Morocco's compliance with this Principle.

15. Strict "know-your-customer" rules and high ethical and professional standards.

II

In its 2003 assessment, the IMF recommends that the authorities in Morocco clearly "define a specific regulatory framework with respect to money laundering" (p. 46). According to this report there is no specific legislation governing the participation of financial institutions in combating financial crime. Subsequently, a 2007 report by the U.S. Department of State (DoS) notes that the BAM has taken measures to control money laundering in the financial sector. For example, the BAM issued Memorandum No. 36, which requires banks and other financial institutions to have internal controls such as reporting suspicious transactions and retaining these reports, and have Know Your Customer (KYC) requirements. Nonetheless, there is insufficient information publicly available regarding Morocco's compliance with this Principle.

16. Effective supervisory system consisting of on-site and off-site supervision.

II

There is insufficient information publicly available regarding Morocco's compliance with this Principle. According to a 2004 report by S. Creane et al., "significant weaknesses remain in the supervisory framework, including the lack of efficiency in on-site and off-site supervision" (p. 36). The IMF, in its 2003 assessment, recommends that the BAM (the body responsible for onsite and offsite supervision) define clearly its objectives for on-site and offsite supervision.

17. Regular contact with bank management and understanding of bank's operations.

II

There is insufficient information publicly available regarding Morocco's compliance with this Principle. The IMF, in its 2003 assessment, recommends that the BAM develop contact with bank managers at various levels.

18. Analytical reports and statistical returns on solo and consolidated basis.

II

There is insufficient information publicly available regarding Morocco's compliance with this Principle.

19. Independent validation of supervisory information through on-site examination or external auditors.

II

There is insufficient information publicly available regarding Morocco's compliance with this Principle. At the time of the 2003 IMF assessment, a circular on internal controls and a circular on external audits were being finalized and were expected to help reform the architecture of the overall prudential supervision system and the overall supervisory strategy which includes off-site inspection, on-site inspection, and external auditing.

20. Ability to supervise on a consolidated basis.

II

According to the 2003 IMF assessment "with the adoption of the chart of accounts and the rules on consolidation for financial institutions, the Credit Institutions Supervision Directorate (DCEC) has changed its internal organization in order to supervise banking groups on a consolidated basis" (p. 43). A. Tahari et al., in their 2007 report, also affirm that the 2001 Chart of Accounts facilitates better consolidated supervision by the BAM. However, there is insufficient information publicly available regarding Morocco's compliance with this Principle.

21. Consistent accounting policies and practices that provide a true and fair view of the financial condition of the bank.

II

According to the 2003 IMF assessment "the adoption and introduction of a new chart of accounts for banks has allowed credit institutions to rationalize their information systems, and has enabled the [Bank Al-Maghrib] (BAM) to adapt its own processing system" (p. 44). The IMF's 2007 report indicates that Morocco has made arrangements for adopting international financial reporting standards/international accounting standards (IFRS/IAS) in 2008. However, there is insufficient information publicly available regarding Morocco's compliance with this Principle.

22. Adequate supervisory measures to ensure timely corrective action.

II

According to the 2003 IMF assessment "the BAM has wide legal powers to force banks to take the necessary measures to comply with prudential regulations to protect depositors" (p. 44). However, there is insufficient information publicly available regarding Morocco's compliance with this Principle.

23. Banking supervisors must practice global consolidated supervision over their internationally-active banking organizations.

II

There is insufficient information publicly available regarding Morocco's compliance with this Principle.

24. International exchange of information with other supervisors.

II

There is insufficient information publicly available regarding Morocco's compliance with this Principle.

25. Supervision of local operation of foreign banks and information sharing with home country supervisors.

II

There is insufficient information publicly available regarding Morocco's compliance with this Principle. However, A. Tahari et al., in their 2007 report, note that the 2006 Banking Law "envisages the possibility for the central bank to sign accords with the supervisory agencies of the home countries of foreign banks established in Morocco" (p. 33).