Document of The World Bank FOR OFFICIAL USE ONLY Report No: ICR00004873 IMPLEMENTATION COMPLETION AND RESULTS REPORT ON A SMALL GRANT IN THE AMOUNT OF USD 2.06 MILLION TO ALBANIA FOR A ALBANIA FSA - SECO TRUST FUND FOR STRENGTHENING SUPERVISORY CAPACITIES PROJECT August 20, 2019 Finance, Competitiveness And Innovation Global Practice Europe And Central Asia Region Regional Vice President: Cyril E Muller Country Director: Linda Van Gelder Regional Director: Lalita Moorty Practice Manager: Mario Guadamillas Task Team Leader(s): Johanna Jaeger, Keler Gjika ICR Main Contributor: Artak Azizyan ABBREVIATIONS AND ACRONYMS AFSA Albanian Financial Supervisory Authority ALL Albania Lek AML/CFT Anti-Money Laundering/Combating the Financing of Terrorism CFA Chartered Financial Analyst Program CFCU Central Finance and Contracting Unit CISI Chartered Institute for Securities & Investment CIU Collective Investment Undertakings CPS Country Partnership Strategy CPF Country Partnership Framework EU European Union FSAP Financial Sector Appraisal Program IOSCO International Organization of Securities Commissions M&E Monitoring and Evaluation MoFE Ministry of Finance and Economy MOU Memorandum of Understanding PDO Project Development Objective SECO Swiss State Secretariat of Economic Affairs WB World Bank TABLE OF CONTENTS DATA SHEET ....................................................................... ERROR! BOOKMARK NOT DEFINED. I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES ....................................................... 4 II. OUTCOME ...................................................................................................................... 9 III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME ................................ 11 IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME .. 12 V. LESSONS LEARNED AND RECOMMENDATIONS .............................................................. 14 ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS ........................................................... 15 ANNEX 2. PROJECT COST BY COMPONENT ........................................................................... 20 ANNEX 3. RECIPIENT, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS ...... 21 ANNEX 4. SUPPORTING DOCUMENTS .................................................................................. 22 The World Bank Albania FSA - SECO Trust Fund for Strengthening Supervisory Capacities (P153211) DATA SHEET BASIC INFORMATION Product Information Project ID Project Name Albania FSA - SECO Trust Fund for Strengthening P153211 Supervisory Capacities Country Financing Instrument Albania Investment Project Financing Original EA Category Revised EA Category Not Required (C) Not Required (C) Organizations Borrower Implementing Agency Albania Albania Financial Supervisory Authority Project Development Objective (PDO) Original PDO

The development objective of the project is to support AFSA in strengthening its capacities to regulate and supervise the Investment Funds sector and the issuance of Corporate & Municipal Bonds.

Page 1 of 35 The World Bank Albania FSA - SECO Trust Fund for Strengthening Supervisory Capacities (P153211) FINANCING FINANCE_TBL Original Amount (US$) Revised Amount (US$) Actual Disbursed (US$) Donor Financing TF-18931 1,583,721 1,583,721 1,583,721 Total 1,583,721 1,583,721 1,583,721 Total Project Cost 1,583,721 1,583,721 1,583,721 KEY DATES Approval Effectiveness Original Closing Actual Closing 21-Jan-2015 11-Nov-2015 30-Jun-2017 31-Mar-2019 RESTRUCTURING AND/OR ADDITIONAL FINANCING Date(s) Amount Disbursed (US$M) Key Revisions 02-Mar-2016 0.00 Change in Loan Closing Date(s) KEY RATINGS Outcome Bank Performance M&E Quality Satisfactory Satisfactory Substantial RATINGS OF PROJECT PERFORMANCE IN ISRs Actual No. Date ISR Archived DO Rating IP Rating Disbursements (US$M) 01 24-Jun-2016 Moderately Satisfactory Moderately Satisfactory 0.00 02 01-Jun-2017 Moderately Satisfactory Moderately Satisfactory 0.35 03 02-Aug-2018 Moderately Satisfactory Moderately Satisfactory 1.27 Page 2 of 35 The World Bank Albania FSA - SECO Trust Fund for Strengthening Supervisory Capacities (P153211) ADM STAFF Role At Approval At ICR Regional Vice President: Cyril E Muller Cyril E Muller Country Director: Ellen A. Goldstein Linda Van Gelder Director: Sebastian-A Molineus Lalita M. Moorty Practice Manager: Aurora Ferrari Mario Guadamillas Task Team Leader(s): Michael Brent Edwards Johanna Jaeger, Keler Gjika ICR Contributing Author: Artak Azizyan Page 3 of 35 The World Bank Albania FSA - SECO Trust Fund for Strengthening Supervisory Capacities (P153211) I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES 1. Strengthening Supervision Capacities of the Albanian Financial Supervisory Authority (AFSA): Focus on Capital Market Development Project was a SECO funded Trust Fund to AFSA in the amount of $2.06 million in the form of a grant, approved in January 2015. As Albania’s 2013 Financial Sector Assessment Project (FSAP) identified, the effectiveness of the AFSA was severely hindered by a weak regulatory framework as well as capacity constraints. To turn AFSA into an effective regulator of the Albanian non-bank financial markets, the project supported significant legal, regulatory, and institutional reforms in investment funds and bond markets. The project development objective was to support AFSA in strengthening its capacities to supervise the investment funds sector and the issuance of corporate & municipal bonds. Context 2. AFSA, established in 2006 following the 2005 FSAP recommendations, took over the regulatory and supervisory functions from the Insurance Supervisory Authority, the Albanian Securities Commission, and the Inspectorate of Supplementary Private Pensions’ Institutions. AFSA’s institutional setup for insurance, pension, and investment fund supervision and regulation was, however, hampered due to its lack of independence, financial resources, and qualified personnel, and limited input to the policy making process. The insurance sector, albeit small in size, initially absorbed most of AFSA’s supervisory resources. This was attributed to the fact that other markets had only recently started to develop and AFSA had not been able to change/expand its structure and hire additional professional staff. As a result, AFSA paid little attention to capital markets supervision at the time. 3. In 2014, following the 2013 FSAP recommendations, the Albanian Parliament approved most of the recommended legal changes paving the way for strengthening of AFSA’s institutional setup. The approval of the legal changes provided true independence to AFSA, it allowed parliament to appoint a new AFSA Board and Management, based on stricter requirements for professional qualifications and conflict of interest criteria. This paved the way for AFSA to adjust its structure and remuneration system to attract qualified personal, particularly to cover investment fund supervision that was identified as previously very ineffective. 4. The non-bank financial sector in Albania was very small and represented only 9.6 percent of total financial system assets in 20141. It included 12 insurance companies (with 1.7% of total financial system assets), 2 investment funds (4.4%), 124 Savings and Credit Associations in 2 Unions (0.8%), 3 pension funds (0.04%), and 21 other non-bank (that is, non-deposit-taking) financial institutions (2.7%). Development of specific segments of the capital market, from a virtual absence of activities in 2011, became possible due to remarkably fast growth of the investment funds sector. In 2012 Raiffeisen Bank created the country’s first investment fund, the Raiffeisen Prestige Fund, investing exclusively in government treasury bills and bonds. A second fund, Raiffeisen Invest Euro, was created shortly thereafter. By June 2014 these two funds had grown to over $631 million of total net-asset value, with close to 35,000 investors (overwhelmingly individuals). 5. While the funds’ size had grown rapidly, AFSA was unable to respond with appropriate adjustments to 1 Source: Bank of Albania Financial Stability Report 2014 H2 Page 4 of 35 The World Bank Albania FSA - SECO Trust Fund for Strengthening Supervisory Capacities (P153211) its supervisory or regulatory capacities and systemic risk in the financial system increased. Though these funds helped diversify the ownership of government securities, investing mostly in longer-dated securities, they were inadequately supervised and regulated. The result was a weak regulatory framework for investment funds, AFSA lacked effective organizational structure and appropriate staff capacity to issue funds-related regulations and apply a standardized regulatory approach. 6. Given the rapid growth of the investment fund sector after 2012, AFSA anticipated future development of other capital market segments particularly the corporate and municipal bonds markets. Since the adoption of the regulatory framework on corporate and municipal bonds issuance and trade in 2009, the EU directives and international standards had evolved substantially and there was a need to review the existing legal framework. 7. The assistance provided under the project aimed to support AFSA in strengthening its capacity to supervise the investments funds sector, and the corporate and municipal bonds issuance. The key goal of the project was to assist AFSA in developing its institutional and professional capacities to supervise and regulate the investment fund sector. It also assisted AFSA in upgrading the legal framework to address market needs, and increase compliance with EU related directives, and solve related incompatibilities of the investment funds legislation with the general securities market regulation. On the bond issuance, assistance provided focused on building capacity at AFSA to duly assess the merits of a bond issuance application, preparing a guideline for application approval by AFSA, and amending the legal framework for a better streamlined processing of bond issuances. 8. The project contributed to the Government’s high-level objectives for the sector and were relevant to Albania’s Country Partnership Strategy (CPS) FY11-14 and Country Partnership Framework (CPF) FY15-19 objectives. The Government’s National Strategy for Development and Integration 2014-2020 included as strategic objectives for the non-bank financial sector, inter alia: a) alignment of the national legislative framework to the EU acquis and international standards for supervision over the insurance, securities, and pensions markets; and institutional capacity building for AFSA through development of a strategy for crisis management and for securities market development. The project supported Albania’s CPS FY11-14 objective: Accelerating the recovery in Albania’s economic growth through improved competitiveness by strengthening macroeconomic and public expenditure management, improving business regulations and reducing compliance costs, supporting local banks and competitive local companies, and improving key infrastructure services and their financial sustainability. The project also supported Albania’s CPF FY15-19 objective: Supporting improved financial stability by strengthening the independence and capacities of financial regulators. 9. The expected results of the project were to: (i) equip AFSA with a comprehensive supervision methodology and practices for investment funds as well as related operational manuals and tools; (ii) be able to better support development of the corporate and municipal bonds market through an improved regulatory framework; (iii) strengthen professional and human resources of AFSA to supervise capital market activities through on-site and off-site capacity building activities. 10. The project achieved the following results: • The organizational structure of AFSA has been improved, and new capital markets supervision staff have been hired. The new structure moved capital market supervision into its own department, separated from insurance supervision; Page 5 of 35 The World Bank Albania FSA - SECO Trust Fund for Strengthening Supervisory Capacities (P153211) • 53 people from AFSA participated in 39 different training activities, including: in house workshops held in Tirana, training courses abroad for senior personnel, study visits to other regulators/markets, and internationally recognized professional qualifications; • The professionalism of human resources at AFSA has been improved - the project provided a Learning and Development toolkit which AFSA used to develop sustainable internal training planning and delivery mechanisms, and created a two staff member Training Unit in the AFSA Human Resources Directorate. • New draft Capital Markets Law and Collective Investment Undertakings (Investment Funds) Law2 were finalized and submitted to the Ministry of Finance and Economy (MoFE); • Six Investment Fund Regulations; a Risk Based Supervisory Manual; and an Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) Manual for investment funds were developed; • A roadmap/action plan was adopted by the AFSA Board, based on the diagnostic reports prepared as part of the project, and is currently under implementation; • AFSA has prepared a 5 year strategy (for the period 2018-2022) for development of markets under its supervision, relying to a great extent on the project’s recommendations; • A crisis management report has been finalized and internal and external crisis simulation exercises took place in 2018. 11. Strengthening AFSA capacities to regulate and supervise the capital market activities, as well as the preparation and public consultation of new draft legal acts, has increased trust in the market and helped existing and prospective financial intermediaries to create long-term expectations on their future development. The project has provided AFSA with adequate technical capacities and support to take professional decisions and also shape and disseminate its vision for the future of the market through adoption of its 5-year strategy for the period 2018-2022. This is also being reflected in some recent developments that can be attributed to some extent to the project results. In 2018, the last year of project implementation, AFSA licensed one new funds management company (bringing the total number to 3), and two new investment funds (now a total of 5), one of which is the first equity fund in the market. The issuance of corporate bonds also increased with 4 new private offer issues in 2018, including from a non-financial sector subject. Issuances of private bonds offers have increased, from Albania Lek (ALL) 3,8 billion outstanding bonds in December 2014 to about ALL 8 billion (about EUR 60 million) by end 2018. In addition, AFSA authorized in February 2019 a private company, ALREG, to carry out securities settlement services for the recently licensed Albania Stock Exchange (ALSE). Once ALREG also receives the permission from the BoA to carry out payment clearance services, ALSE will be ready to list and trade corporate securities issued through public offers. Project Development Objectives (PDOs) 12. The project development objective was to support AFSA in strengthening its capacities to regulate and supervise the investment funds sector and the issuance of corporate & municipal bonds. 2 The legal term for the Investment Funds is the Collective Investment Undertakings. Throughout this report the terms “Investment Funds Law� and “Collective Investment Undertakings (CIU) Law� are used interchangeably. Page 6 of 35 The World Bank Albania FSA - SECO Trust Fund for Strengthening Supervisory Capacities (P153211) Key Expected Outcomes and Outcome Indicators 13. Achievement of the overall development objective to be assessed through the following results indicators: (i) AFSA is equipped with a comprehensive supervision methodology and practices for investment funds as well as related operational manuals and tools; (ii) AFSA is better able to support development of the corporate & municipal bonds market through improved regulatory framework; (iii) Professional and human resources of AFSA to supervise capital market activities are strengthened through on-site and off-site capacity building activities. Components 14. The project components were grouped around two specific areas: Area 1: Develop capacities of AFSA to supervise and regulate investment funds sector (US$ 1.33 million). Component 1 (US$ 0.1 million): Perform an assessment of the supervisory needs of AFSA regarding the rapidly developing Investment Funds sector, in terms of: (i) Current local legal framework (law & bylaws), and existing supervision arrangements; (ii) Current and expecting EU regulatory and supervisory developments, as well as applicable International Organization of Securities Commission (IOSCO) principles; (iii) Current and expected local industry development; (iv) Current and prospective staffing functions and requirements (quantity & quality); (v) Overall fitting of investment fund supervision with the other supervisory directions of AFSA (ie, insurance, private pensions, other capital market activities). The outputs of the assessment included a medium-term strategic development plan for supervision of the Investment Fund sector, and a detailed time-bound roadmap for implementation. Component 2 ($ 0.25 million): Develop the investment funds sector supervision methodology, manuals, and tools: (i) Proposal of the on and off-site supervision methodology for investment funds sector considering the current and expected medium term market development; (ii) Development of off-site documents and tools, including: a. market participants licensing regulation and toolkit; b. Investment Funds Prospectus evaluation toolkit; c. reporting templates for market participants; d. off-site analysis manual. (iii) Development of an on-site inspection manual for the investment funds sector. Component 3 ($ 0.98 million): Develop Professional and Human Resources capacities of AFSA. Page 7 of 35 The World Bank Albania FSA - SECO Trust Fund for Strengthening Supervisory Capacities (P153211) (i) On-the-job training – a resident advisor established at AFSA to provide on-the-job regulatory and supervisory training and guidance to AFSA, also to assist AFSA establish a mechanism for maintaining the sustainability of the training program. (ii) Gaining expertise and experience through: (i) training hosted at/by selected European supervisory agency(ies), and (ii) tailor made training workshops delivered to AFSA on specialized issues by short term expert consultants. (iii) Fund AFSA staff submitting exams and acquiring recognized investment knowledge certificates. Area 2: Develop capacities of AFSA to prepare for corporate bonds & municipal bonds issuance ($ 0.3 million). Component 1 ($ 0.2 million): Perform a review of current corporate & municipal bonds regulatory and supervision framework and recommend short and longer term changes: (i) Quick fixes in AFSA bylaws enabling it to adequately and properly handle applications for bonds private or public offers in the near to medium future; (ii) Long term changes to the legal, regulatory, and supervisory framework to bring it in line with the evolved local and EU legislation, and international standards. Component 2 (US$ 0.1 million): Provide capacity building to AFSA to increase knowledge on debt instruments and markets. (i) Activities included specific tailored training sessions to AFSA staff on topics such as debt instruments, risk factors, issuance, trading, development of proper prospectuses, valuation methodologies for this market, pricing (e.g., premium or discount against par and how to assess), cashflow based pricing, etc., as well as approach from the supervisor’s perspective; (ii) Additional training activities to effectively handle in practice bond offers applications at AFSA. Allocation of part of the resident advisor’s (selected under component 3, Area 1) time to train AFSA staff on this topic, benefiting also from the cooperation with selected foreign supervisory agency(ies). This component was strongly linked with the capacity building activities envisaged under the investment funds support (component 3, Area 1). Project Management Development (US$ 0.03 million). This financed support to improve the project management capacities of the recipient and the implementation agency through: (i) coverage of incremental operation support for the Central Finance and Contracting Unit (CFCU), a unit of the MoFE, in charge of managing the fiduciary aspects of the project, and (ii) enabling training of the AFSA Project Implementation Team and Administrative staff to upgrade their project management and administrative/financial management skills, in order to improve capacity to manage projects in the future. Project Implementation Support (US$ 0.28 million): This financed WB implementation support activities for the project. Page 8 of 35 The World Bank Albania FSA - SECO Trust Fund for Strengthening Supervisory Capacities (P153211) II. OUTCOME Assessment of Achievement of Each Objective/Outcome 15. The Project Development Objective was to support AFSA in strengthening its capacities to regulate and supervise the investment funds sector and the issuance of corporate & municipal bonds. The PDO level indicators remained relevant and based on their achievement presented below the PDO is considered achieved. Achievement of the overall development objective was measured by the following three indicators. Result Indicator 1: AFSA is equipped with a comprehensive supervision methodology and practices for investment funds as well as related operational manuals and tools. The initial targets were achieved and even exceeded by also including a risk-based AML/CFT manual. The new AFSA structure, with more focus on capital markets was approved, and new AFSA legislation is due for approval by the Parliament. Implementation of new supervisory methodologies is dependent on the passage of new legislation. The following outputs were delivered: - A medium-term strategic development plan for supervision of the investment funds sector with a detailed time-bound roadmap; - Legislation assessment report; - Supervisory assessment report; - Draft of Collective Investment Undertakings (CIU) Law; - Draft of Capital Markets Law; - Crisis management report; - Risk based supervisory manual; - Risk based AML/CFT manual; - Investment funds licensing regulation; - Investment funds investment and borrowing regulation; - Investment funds suspension and termination regulation; - Investment funds operations regulation; - Investment funds investor communication regulation; - Investment funds master feeder regulation. Result Indicator 2: AFSA is better able to support development of the corporate & municipal bonds market through an improved regulatory framework. The initial targets were achieved and even exceeded with the preparation of a study on the future shape of the Central Securities Depository. The new revised bond issuance procedure and prospectus is being implemented, with the first private bond issuance approved under the new framework in October 2018, anticipating first public offerings of corporate bonds by end 2019, and shares in 2020. Despite the improved regulatory framework, the market still faces challenges among others with regard to market infrastructure. The new Capital Markets law will establish a stronger legal environment to support Page 9 of 35 The World Bank Albania FSA - SECO Trust Fund for Strengthening Supervisory Capacities (P153211) progress in establishing a central securities clearing and settlement infrastructure. The following outputs were delivered: - Bond market development plan; - Bond issuance application report; - Bond issuance application report recommendations implemented by AFSA in Regulation no 16; - Study of the future shape of Central Securities Depository; - Capacity building to AFSA to increase knowledge on debt instrument and markets. Result Indicator 3: Professional and human resources of AFSA to supervise capital market activities are strengthened through on-site and off-site capacity building activities. The targets were achieved, with the following outputs delivered: - Assessment of staffing requirements (number of staff and profiling) and expected training needs; - development of training plan; - 53 people from AFSA participated in 39 different training activities, including: in house workshops held in Tirana, training courses abroad for senior personnel, study visits to other regulators/markets, and participation in internationally recognized professional qualification programs; - Learning and Development Toolkit was developed to assist AFSA in achieving sustainability and improving the quality of the training program; Overall Outcome Rating Rating: Satisfactory 16. Project activities were highly relevant in achieving its objectives. The project addressed a key risk in the Albanian financial sector posed by investment funds, identified by the 2013 FSAP, in a very timely manner and very effectively. The project contribution in achieving the PDO has been recognized and well appreciated by the AFSA. The project supported key development objectives of the Government’s National Strategy for Development and Integration 2014-2020 and was aligned with the World Bank Group Country Partnership Strategy FY11-14. 17. The project achieved the PDO and provided important capacity building support to AFSA, when it was most needed. The organizational structure of AFSA was approved, including creating capital market supervision as a department, separate from insurance supervision. New capital markets supervision staff have been hired. This increased AFSA’s capacity as a more effective regulator of capital markets. Staff capacity to understand capital market products, services, and risks have increased substantially due to implementation of a tailored capacity building program, supported by the project, that included training, workshops, international professional certificates examinations, exchange visits, and on-the-job training. The legal framework for investment funds and corporate bonds issuance has improved through amendments to existing regulations or approval of new ones. The new draft Collective Investment Undertakings Law and Capital Market Law, once Page 10 of 35 The World Bank Albania FSA - SECO Trust Fund for Strengthening Supervisory Capacities (P153211) approved by the Parliament, together with robust supervisory practices will provide an advanced framework for sound market regulation, in line with the EU acquis. The supervision methodology has been upgraded introducing a new risk-based approach. The ability of AFSA to handle potential investment funds crises has improved through improved internal crisis management processes, training (simulation exercises), and increased cooperation and awareness by other stakeholders (Bank of Albania and MOFE). III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME 18. Due to delays during the grant approval phase, the closing date of the project had to be extended. To accommodate administrative delays during the grant approval stage the Grant Agreement and project closing date were extended on a no-cost basis from June 30, 2017 to March 31, 2019. This was mainly due to issues related to the ratification process and interpretation of the legislation in this regard. It caused much back and forth communication with the Authorities; delays in their response postponed approval of the grant agreement by 10 months. In addition, some delays occurred in the first half of the project lifetime attributable to AFSA management replacement and staff turnover. The lengthy procurement process and the underlying reasons highlighted below were also important contributory factors. In addition, there were specific activities that experienced substantial delays. For example, a draft of the crisis management report was presented by the consultants in March 2017. The report highlighted the need to develop an AFSA internal crisis management procedure that required changes in AFSA’s internal procedures which took approximately nine months. In addition, there was a six-month delay in organizing an inter-agency simulation exercise (AFSA attributes this to disruption caused by elections and the need to accommodate new representatives from MoFE, appointed in September 2017). Eventually, the final draft of the report was presented to AFSA in October 2018 (compared with a total time of 11 weeks originally anticipated). 19. The major deliverables of the project were procured separately through three different contracts. The activities in these contracts were inter-related, the diagnostic and assessment work of the first contract would be followed-up by implementation activities through the second two contracts. The procurement of the three separate contracts caused delays. Once the project became effective, it took five months from the request for expressions of interest to the contract signing for the first contract, and eight months for the others. One of the main objectives of splitting up the project implementation into three contracts was to mitigate potential risks arising from allocating the entire work to one firm. However, using different companies risked inefficiencies, duplication, re-learning, and weak coordination between the various sets of activities. Ultimately, all three contracts were awarded to the same consulting firm and retrospectively a single contract would have probably been better given the interrelations of the different activities. 20. AFSA’s core staff participation in professional certification programs has been especially beneficial to ensure optimal absorption of knowledge. 15 core staff benefited from participation in professional certification programs: 11 members of staff participated in the Chartered Institute for Securities & Investment (CISI) introductory securities or investment operation certification courses, passed the exams, and obtained certificates; three members of staff submitted Chartered Financial Analyst Program (CFA) level 1 exam, one staff member passed the Institute and Faculty of Actuaries exam for certified actuarial analyst. All these professional certifications have significant importance for capacity development in AFSA. Page 11 of 35 The World Bank Albania FSA - SECO Trust Fund for Strengthening Supervisory Capacities (P153211) IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME Quality of Monitoring and Evaluation Rating: Substantial 21. At the time of project approval, the M&E framework was designed around three results indicators to assess progress towards achievement of the PDO. The results indicators were qualitative without any quantitative targets and timelines to follow the progress. However, at the implementation stage, the team prepared a very detailed log frame with envisaged timelines for achieving impact, outcome, and output indicators (see Annex 4). This log frame was included as part of the Project’s Operations Manual and became a very important monitoring tool, used both by the beneficiaries and the WB to assess the achievement of the project’s key results indicators and PDO’s on a biannual basis. 22. The project has been monitored effectively using the log frame as the main point of reference. The Project Implementation Team, in partnership with the CFCU, implemented various monitoring tools, including monthly monitoring of consultants’ work plans and discussing their activity reports and contract monitoring tables with activities and deliverables. These tools appear to have been systematically utilized throughout the implementation of the project. AFSA prepared comprehensive semiannual progress reports (with CFCU contributing financial/ procurement information) measuring performance against the agreed log-frame. AFSA staff appear to have the capacity to discharge their project management and monitoring responsibilities. The partnership with CFCU, with its experience in managing fiduciary aspects of large World Bank (WB) projects, has been an important factor in successful project monitoring. Bank Performance Rating: Satisfactory 23. The Bank correctly assessed the relevance of PDO at the time of the project design and, in a very timely manner, addressed a key risk identified by the 2013 FSAP in the Albanian financial sector posed by investment funds. The project was timely and relevant from its inception and has remained so during its implementation. The project was well aligned with Albania’s CPS FY11-14 objective of accelerating the recovery in Albania’s economic growth through improved competitiveness by improving business regulations and reducing compliance costs, supporting local banks and competitive local companies, and improving key infrastructure services and their financial sustainability, and CPF FY15-19 objective of supporting improved financial stability by strengthening the independence and capacities of financial regulators. 24. The project was implemented through a hybrid Trust Fund, both recipient and Bank executed. The WB carried out project supervision and AFSA was responsible for project implementation. AFSA established a Project Implementation Team (to coordinate activities among AFSA departments, consultants, WB, and CFCU, the agency Page 12 of 35 The World Bank Albania FSA - SECO Trust Fund for Strengthening Supervisory Capacities (P153211) responsible for fiduciary aspects of the project). A Project Steering Committee was established that included key stakeholders’ representatives: WB, SECO, CFCU, and AFSA. The Steering Committee met biannually and was responsible for strategic guidance on activities, endorsing work plans, reviewing progress, and budgeting. 25. The WB team actively supervised project implementation. During project implementation, five missions were completed and three ISRs were submitted. The project also benefited from a country-based core team member that was in almost daily contact with all stakeholders. The team provided technical oversight, including reviewing and commenting on activity terms of references and project outputs and participating in the consultant selection. Emerging problems in implementation were identified and addressed proactively and in cooperation with all partners represented on the Project Steering Committee. 26. Fiduciary aspects of the project were managed in a timely manner. A review of project-related documents and correspondence indicate a close collaboration between the WB’s respective specialists and CFCU. CFCU’s experience in dealing with large WB projects, has been an important factor that contributed to successful project management. The program was implemented through four contracts, three of which covered the scope envisaged in the project’s log frame (core activities), with an additional contract procured for advice on an approach for a Central Securities Depository for privately issued securities at the request of AFSA by utilizing savings accrued under the project. The core activities were divided into three ‘phases’, each covered by a contract. Although, each of these three contracts was procured separately, the same firm, “Cadogan Financial�, was awarded all of them and was responsible for implementing all the core activities. As mentioned above, activities in these contracts were inter-related and procurement of the three separate contracts caused delays. 27. The project benefited from a detailed log frame with envisaged timelines for achieving impact, outcome, and output indicators. The related outcome in the project log frame, pursuing implementation of a comprehensive and effective supervisory approach based on a detailed diagnostic and comprehensive strategy and action plan, was a robust approach addressing identified weaknesses. 28. Despite the delays during the grant approval phase and in the first half of the project lifetime the team reacted in a very timely manner. The project log frame was updated, and new timelines were set. All anticipated outputs and outcomes were delivered at the end of the project implementation period. 29. Most project results are expected to be sustained, although some further support may be needed in certain areas. Training, planned and delivered by the consultants, built adequate AFSA staff capacity for investment funds supervision and new bond issuance processes. AFSA’s new organizational structure and staffing levels are expected to remain effective in the medium-term. AFSA has strengthened the HR function by hiring an additional two HR staff, responsible for addressing staff training needs who are equipped with the knowledge assessment and quality control toolkit to further develop and implement training and self-development programs for the staff. AFSA developed, and approved in March 2019, an internal training guideline that aims at standardizing procedure for the identification of training needs; developing the annual Training Calendar; creating a comprehensive database of training records; standardizing training evaluation forms; and standardizing the set of materials for induction training. However, there is a need for further support to assure the sustainability of the AFSA training program and other capacity building activities going forward. 30. Phase 2 of the AFSA Capacities Strengthening Project. To enhance and deepen results achieved by the project, AFSA, the WB and SECO agreed to initiate a new Phase 2 Project, as a continuation of the support already Page 13 of 35 The World Bank Albania FSA - SECO Trust Fund for Strengthening Supervisory Capacities (P153211) provided to AFSA in strengthening its supervisory capacities. The new project will support AFSA in strengthening its capacity to regulate and supervise the capital markets and the insurance sectors and to boost market development for insurance and capital markets products through innovation, introduction of new products, and product distribution technologies. V. LESSONS LEARNED AND RECOMMENDATIONS 31. In projects such as this it is beneficial to have a detailed M&E framework with clear outputs, outcomes, and timelines before approval. The results indicators for the project at the time of approval were qualitative without any quantitative targets and timelines. However, at the implementation stage, the team prepared as part of the Project’s Operations Manual a very detailed log frame with envisaged timelines for achieving impact, outcome, and output indicators. It became a very important monitoring tool, used to assess the achievement of the project’s key results indicators and PDO’s on a biannual basis. 32. There is a need to carefully assess project preparation and implementation timelines in order to avoid having to extend the project closing date at a later stage. Buffers should be built in to factor in the time needed for the government to complete the ratification process of the grant agreement as well as completion of procurement processes. In addition, project activities should be carefully designed and sequenced throughout the lifetime of the project to account for implementation capacity constraints at AFSA. 33. In projects with inter-related activities, it is important therefore to weigh the benefits of having a larger single contract rather than splitting implementation into different contracts against the potential costs and risks. One of the main objectives of having three separate contracts in this project was to mitigate potential risks arising from allocating the entire work to one firm. However, in projects with inter-related activities, it is important to weigh the benefits against the potential costs and risks of splitting implementation into different contracts. Having different contracts in such cases could cause both project implementation delays, due to lengthy procurement procedures, but also possible inefficiencies, duplication, re-learning, and weak coordination between the various sets of activities. In projects with a capacity building component and comprehensive training program, envisaging funding for acquiring internationally recognized certificates will be beneficial to ensure a more effective absorption of knowledge. With the help of the project 53 AFSA staff benefited from participating in 39 different training activities, such as in house workshops, training courses abroad, study visits to other regulators/markets, etc. AFSA core staff participation in internationally recognized professional certification programs has been beneficial to ensure a more optimal absorption of knowledge. . Page 14 of 35 The World Bank Albania FSA - SECO Trust Fund for Strengthening Supervisory Capacities (P153211) ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS A. RESULTS INDICATORS A.1 PDO Indicators Objective/Outcome: AFSA has strengthened its capacities to regulate and supervise the Investment Funds sector and the issuance of Corporate and Municipal Bonds Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion AFSA is better able to support Text No Yes Yes Yes development of the corporate & municipal bonds market 16-Jun-2016 16-Jun-2016 31-Mar-2019 31-Mar-2019 through improved regulatory framework. Comments (achievements against targets): AFSA has adjusted its regulatory base to tackle immediate issues with investment funds sector health and corporate bonds private issuance approval processes. In the long term the approval by parliament of the new draft laws on Investment Funds and Capital Markets will further support market development and increase stability of the sectors. Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Page 15 of 35 The World Bank Albania FSA - SECO Trust Fund for Strengthening Supervisory Capacities (P153211) Professional and human Text No AFSA capacities AFSA capacities AFSA capacities resources of AFSA to supervise strengthened strengthened strengthened capital market activities are strengthened through on-site 16-Jun-2016 16-Jun-2016 31-Mar-2019 31-Mar-2019 and off-site capacity building activities. Comments (achievements against targets): AFSA capacities to supervised capital market activities were substantially upgraded. A.2 Intermediate Results Indicators Component: AFSA received Technical Assistance to upgrade its regulatory framework, and a new draft of a risk based supervision methodology and tools. Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion AFSA is equipped with a Text No Yes Yes Yes comprehensive supervision methodology and practices for 16-Jun-2016 16-Jun-2016 31-Mar-2019 31-Mar-2019 investment funds as well as related operational manuals and tools. Comments (achievements against targets): Page 16 of 35 The World Bank Albania FSA - SECO Trust Fund for Strengthening Supervisory Capacities (P153211) AFSA's new Investment Funds Risk Based Supervision Manual (and tools) will enter in force once the new Investment Funds Law is approved by the Parliament - expectedly within 2019. Page 17 of 35 The World Bank Albania FSA - SECO Trust Fund for Strengthening Supervisory Capacities (P153211) A. ORGANIZATION OF THE ASSESSMENT OF THE PDO Objective/Outcome 1 AFSA is equipped with a comprehensive supervision methodology and practices Outcome Indicators for investment funds as well as related operational manuals and tools. 1. Legislation assessment report; 2. Supervisory assessment report; 3. Crisis management report; 4. Review and recommendation report on shaping the landscape of the investment fund industry; 5. A medium-term strategic development plan for supervision of the investment funds sector with a detailed time-bound roadmap; 6. Draft of Collective Investment Undertakings Law; Key Outputs by Component 7. Draft of Capital Markets Law; (linked to the achievement of the Objective/Outcome 1) 8. Risk based supervisory draft manual; 9. Risk based AML/CFT manual; 10. Investment funds licensing draft regulation; 11. Investment funds investment and borrowing draft regulation; 12. Investment funds suspension and termination draft regulation; 13. Investment funds operations draft regulation; 14. Investment funds investor communication draft regulation; 15. Investment funds master feeder draft regulation. Objective/Outcome 2 AFSA is better able to support development of the corporate & municipal bonds Outcome Indicators market through improved regulatory framework. Key Outputs by Component 1. Bond issuance report; Page 18 of 35 The World Bank Albania FSA - SECO Trust Fund for Strengthening Supervisory Capacities (P153211) (linked to the achievement of the Objective/Outcome 2) 2. Bond market development report; 3. Study of the future shape of Central Securities Depository; 4. Bond market development plan; 5. Capacity building to AFSA to increase knowledge on debt instrument and markets. Professional and human resources of AFSA to supervise capital market activities Objective/Outcome 3 are strengthened through on-site and off-site capacity building activities. 1. Report assessing training needs and proposing long-term training strategy for AFSA staff; 2. 53 people from AFSA participated in 39 different training activities, including: in-house workshops held in Tirana, training courses abroad for Key Outputs by Component senior personnel, study visits to other regulators/markets, and studying (linked to the achievement of the Objective/Outcome 3) towards internationally recognized professional qualifications; 3. Learning and Development toolkit was provided to maintain the quality of training and self-development of sustainable program; 4. Development of training plan. Page 19 of 35 The World Bank Albania FSA - SECO Trust Fund for Strengthening Supervisory Capacities (P153211) . ANNEX 2. PROJECT COST BY COMPONENT Amount at Approval Actual at Project Closing Components (US$M) (US$M) Assessment of investment fund supervision, structure, staffing and 0.11 0.11 training needs Review and drafting of legislation, and supervision methodology for investment 0.42 0.42 fund and bonds Capacity building with regard to 0.95 0.95 investment fund and bonds Incremental operating costs/Project 0.05 0.05 administration support Study of the future shape of Central 0.05 0.05 Securities depositary in Albania Alignment of the Draft Law on Capital 0.01 0.01 Markets with Albanian legal conventions Total 1.58 1.58 Page 20 of 35 The World Bank Albania FSA - SECO Trust Fund for Strengthening Supervisory Capacities (P153211) ANNEX 3. RECIPIENT, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS No comments were received. Page 21 of 35 The World Bank Albania FSA - SECO Trust Fund for Strengthening Supervisory Capacities (P153211) ANNEX 4. SUPPORTING DOCUMENTS Project’s Log frame Key Performance Means of External Factors Current Status Strategy of Intervention Indicators Date Verification (assumptions / risks) Impact Impact Indicators • AFSA is fully capable End of project • AFSA Risks Completed AFSA is better able to to supervise capital (March 2019) supervisory • The independence of The following have been completed: foster development of market activities due reports AFSA remains de jure investment funds, and the to increased • Independent independence and • AFSA supervisory and legislative reports and corporate & municipal capacities: in quantity reports, e.g. does not materialize as manuals bonds market through and technical quality, IMF Article IV, a de facto one, and its • AFSA bond market development report improved regulatory better legal FSAP update Board does not • Bond issuance report framework, supervision framework, better • Post- exercise effectively its methodology and tools, licensing and enhanced powers. Based on the consultants’ reports, a completion roadmap/action plan has been adopted by the and enhanced professional supervision review • Economic/financial and human resources. methodology and AFSA Board and completed. Details of the shock reduces tools, stronger roadmap/action plan were also incorporated attractiveness of A sound investment fund management into annual workplans of AFSA. investments in sector showing stability and capacities, and investments funds. sustainable growth, that is enhanced integrity. • Inability to attract There have been some improvements to AFSA’s transparent and compliant • Funds are compliant quality staff. capacities to supervise the capital market thanks with legislation, and has with upgraded • Frequent staff changes to the new effective structure. The regulations that are investment funds limit the effectiveness organizational structure of AFSA was improved, consistent with EU legislation/regulations. of the project. and new capital markets supervision staff have legislation and • Growth in assets Assumptions been hired. The new structure elevated capital international standards. under management • Government is aware market supervision to a department, separating after revised of financial sector it from insurance supervision. framework is in place. stability risks and is • Increase in number of committed to AFSA has completed a draft Capital Markets licensed and strengthen financial Law. The draft law has received “No objection� authorised investment sector supervision. from the WB. The Capital Markets Law is funds. • Appropriate consumer consistent with EU directives and international • Absence of investor literacy/protection standards. The draft law was translated and loss from investment regime will be internally aligned to be consistent linguistically fund failures for 5 implemented. and to identify inconsistencies with existing years from start of Albanian laws in March 2019. Workshops were Page 22 of 35 The World Bank Albania FSA - SECO Trust Fund for Strengthening Supervisory Capacities (P153211) implementation of • The capital market held in order to present the law to the MOFE, revised supervisory activities are Bank of Albania, as well as to the industry. The approach. economically atractive feedback received was reflected in the final to incentivise version of the draft law. additional asset managers. AFSA has finalized the draft CIU Law, which has been reviewed by the Board of AFSA on 27.09.2018. It will be submitted within Q1 2019 to MoFE which will follow its approval in the Parliament. Consultants have completed the bylaws of the new CIU draft law: Operations Regulation, Licensing Regulation, CIU borrowing Regulation, investor communication Regulation, suspension & termination regulation, CIU Master feeder Regulation. AFSA has already finalized and approved the following regulations during the first half of 2018: Regulation no. 21, dated 06.02.2018 On liquidity administration of investment funds Regulation no. 57 dated 29.03.2018 On related parties. Companies and investors • Increase in number of End of project Risks Completed do not consider the bonds primary issues of (March 2019) • There is inadequate The bond issuance application report has been regulatory framework as a corporate bonds after timely follow-on implemented by AFSA in Regulation no. 16, hindrance to market improvement in by- TA/technical capability dated 31.01.2018 “: “On the Application Form, development, nor as a laws and approval at AFSA to complete Documentation Content required for the loophole to undertake processes. the work started under Prospectus Approval of Bond Issuance�. excessive risk or follow an the project. undue process in bond • There are Approval of the new Capital Markets Law will issuing. legal/technical barriers further improve and modernise the bonds to corporate and issuance and trading process. municipal bond raisings outside scope Page 23 of 35 The World Bank Albania FSA - SECO Trust Fund for Strengthening Supervisory Capacities (P153211) of project that reduce bond issues. • There is inadequate supply of/demand for corporate or municipal bonds. • Secondary market barriers are not addressed, and no secondary market takes off. • Market/ economic conditions might be unfavourable to develop bond markets. Assumptions • Local economic and business environment is ripened enough to start generating interest by companies for bonds’ issuance. • There is adequate market infrastructure and appropriately qualified/interested intermediaries and advisors. Area 1: Development of AFSA’s capacity to supervise and regulate the investment funds sector Outcomes Outcome Indicators* Component 1: Assessment of supervisory needs of AFSA 1) AFSA is • Diagnostic findings Q3 2016 • AFSA Board Risks: Completed implementing a report approved by decision • Inadequate or delayed The following reports have been approved: comprehensive and AFSA Board. access to market or Comprehensive report effective supervisory • AFSA Board regulatory information strategy, supported by a • Strategy consistent with decision hampers diagnostics. Evaluation Report detailed implementation project plan, for the investment recommendations Page 24 of 35 The World Bank Albania FSA - SECO Trust Fund for Strengthening Supervisory Capacities (P153211) fund sector that addresses approved by AFSA • AFSA • AFSA Board do not or The diagnostic reports from phase 1, have been current weaknesses, Board. management delay approval of endorsed by the Board on 24 January 2017. A anticipates future reports/project strategy/roadmap. roadmap has been endorsed by the board and is developments, and enables • Implementation of M&E reports • Delays/resistance to under implementation. AFSA has prepared a 5- it to meet EU regulations action plan progressing organization change year strategy including the project and international significantly to and recruitment. recommendations. standards. timetable. Assumptions: Decision of AFSA Board no 78, April 23rd, 2018. • Diagnostic is wide enough to ensure all New legal acts (law and by-laws) and new potential dependencies supervision methodology for investment funds are identified and have been prepared awaiting enactment. addressed. • Adequate budgetary resources would be available to implement strategy. • Commitment of relevant parties outside AFSA, e.g., MoFE, Bank of Albania, etc. to strategy implementation. Component 2: i. Development of a supervision methodology for the investment funds sector. ii. Strengthening of legal/regulatory framework to regulate and supervise investment funds. 2) AFSA has an • Supervisory policy Q2 2017 • AFSA Board Risks: Completed effective regulatory and significantly in line with decision • Unrealistic The supervisory report was approved and supervision methodology, project • AFSA internal expectations about the finalized in July 2017 and its final version, including risk-based recommendations M&E reports on time needed to build incorporated into a draft comprehensive report, supervision and supervision approved. action plan capacity, implement was finalized in September 2017. of systemically important implementation. processes and funds, inter-agency co- • Approved supervisory • Resident advisor readiness of supervised Based on this report the supervision ordination and crisis practices being progress reports. institutions for some methodology and risk-based manual were management and implemented in supervisory processes, finalized and completed. resolution, for the accordance with such as risk-based investment funds sector medium term strategy supervision. The new supervision approach that meets EU and action plan and • Inter-agency (methodology/manual), was delivered by the international standards. milestones. coordination is weak consultant in February 2019. Page 25 of 35 The World Bank Albania FSA - SECO Trust Fund for Strengthening Supervisory Capacities (P153211) and does not improve The final Crisis Management report was as result of project. accepted and approved by AFSA in October • AFSA and regulated 2018. entities are not 3) AFSA’s • Draft legislation in line Q4 2017 • AFSA Board capable of meeting Legislation assessment report has been supervisory framework for with recommendations decision EU/international finalized and its final version has been the investment funds sector approved by AFSA standards. incorporated into the comprehensive report. is supported by legislation management. • Legislation is not that is consistent with EU • Publication in the passed on time for AFSA has finalized the CIU Law, which has been Directives and IOSCO • Legislation passed by Official Gazette. upgraded supervisory reviewed by the AFSA Board on 27.09.2018. It principles. parliament without practices to be has been submitted to MoFE which will follow significant changes. implemented during its approval in the Parliament (scheduled for project. end 2019). Meanwhile the consultants have • Dynamics/uncertainty completed the bylaws of the new CIU law and associated with future submitted them to AFSA: Operations EU Directives. Regulation, Licensing Regulation, CIU borrowing Assumptions: Regulation, investor communication Regulation, • There is no mismatch suspension & termination regulation, CIU between AFSA’s Master feeder Regulation. ambitions to implement EU/international standards in CIS compared with the quality of regulations/supervision in other capital markets areas. • AFSA’s and supervised institutions’ systems and processes are consistent with aims of implementing upgraded supervisory practices. Component 3: Strengthening and development of professional human resources and capacities at AFSA 4) AFSA has Consistent with project Q1 2017 • AFSA Board Risks: Completed appropriate organizational recommendations: (depending on decision(s) Page 26 of 35 The World Bank Albania FSA - SECO Trust Fund for Strengthening Supervisory Capacities (P153211) structure, with required • Approved revised mid-term plan • Inadequate staff Since September 2017 AFSA has implemented levels, qualification and organizational developed by resources are devoted the revised organizational structure in line with remuneration of staff, to structure. the Consultant) to project the project recommendations. regulate and supervise the • Approved staffing plans. implementation. investment funds sector, • Approved remuneration • Resident advisor Some administrative (non-substantial) delays effectively integrated with policy. becomes a core occurred in implementation of the new the rest of its activities. • Approved allocation of resource for AFSA structure approved by the AFSA board. budget to fund the undertaking tasks above. him/herself rather than Capacity building activities completed an advisor building team capacity. 5) AFSA staff can • Quality of supervisory Q1 2018 • Resident advisor • Inter-agency On-going effectively regulate and reports progress reports. cooperation with supervise the investment • Implementation of • WB project partner supervisory For the outcome to be complete the new funds sector. agreed tools and implementation agency fails. legislation has to come in force and the new processes. reviews. Assumptions: supervision methodology to be approved and • Results of post- • AFSA is able to use applied. training tests as effectively the arranged/agreed enhanced by AFSA and independence and consultant. benefit from it. 6) AFSA has • Approval of training Q2 2017 • AFSA Board • AFSA implements an Completed developed sustainable (including funding) plan. Decision. appropriately strong arrangements to deliver its • Adherence to plan in its organization HR policy Implementation of the training program started staff training program. implementation. • AFSA so that aims and later than expected due to: (i) delays in • At least 80% of invitees Implementation recommendations of procurement of the consulting company, (ii) attend each training progress reports. the project are prolongation of the discussion and approval by course and the average consistent with it. AFSA/WB of the training program prepared by attendance every year is • WB progress • AFSA is committed to the consultant. at least 85%. reports. reorganization and reform and will The Learning & Development Toolkit was allocate funds delivered in December 2018. It includes three accordingly. toolkits required under the project - future • AFSA has or develops a training, knowledge assessment and quality long-term training and control. They have been combined into a single professional capacity Toolkit in order to comprehensively address development program AFSA's needs and are being used to develop for staff in all areas, sustainable internal training planning and delivery mechanisms. Page 27 of 35 The World Bank Albania FSA - SECO Trust Fund for Strengthening Supervisory Capacities (P153211) rather than investment funds only. • There is sufficient basic qualification and experience among AFSA staff allocated to the project to absorb and implement training lessons. • An appropriately qualified resident advisor can be found. Outputs Output Indicators Component 1: Assessment of supervisory needs of AFSA 1) Diagnostic report • Final needs assessment Q1 2017 • Output Risks: Completed of AFSA’s investment funds report of current • Progress report • Strategy and especially Final evaluation report accepted on 17/10/16. supervisory strengthening organizational resource allocation needs. structure, processes, recommended for CIS staffing and training is not consistent with needs. that of other parts of AFSA. Assumptions: 2) A multi- • Plan produced and September • Output. • Awareness of overall Completed dimensional medium-term finalised, incorporating 2016 • Progress report staffing needs at AFSA Final comprehensive report accepted on strategic development plan AFSA staff comments. • AFSA Board taking into account all 17/10/16. for administrative decision supervisory functions. capacities of AFSA, and a • Sufficient consultation time-bound draft roadmap with all internal and for its implementation external stakeholders to ensure diagnostic 3) Review and • Report produced and December • Output and strategy is realistic. Completed recommendation report on finalised, incorporating 2016 • Progress report Final comprehensive report accepted shaping the landscape of AFSA staff comments. September 2017. the investment funds industry. Component 2: i. Development of a supervision methodology for the investment fund sector. ii. Strengthening of legal/regulatory framework to regulate and supervise IF. Page 28 of 35 The World Bank Albania FSA - SECO Trust Fund for Strengthening Supervisory Capacities (P153211) 4) Report assessing • Report produced and Q2 2017 • Output Risks: Completed gaps in legal and finalised, incorporating • Progress report • New supervision Final comprehensive report accepted supervisory framework for AFSA staff comments. methodology too September 2017. investment funds complicated for effective implementation in 5) Report on the • Supervision Q2 2017 • Output Albanian environment. Completed proposed supervision methodology package • Progress report Assumptions: Final comprehensive report delivered in March methodology for the produced including: i) • Strong cooperation 2019 investment fund sector. description of between resident methodology, ii) advisor/ consultants and reporting template for AFSA staff will ensure Some delays occurred due to complexity of the market participants, iii) effective implementation new legislation/supervision methodology which off-site analysis manual, of supervision are part of the same consultancy contract. iv) on-site inspection methodology. manual, v) documents • Toolkits/manuals etc. are completing the licensing sufficiently tailored to regulatory base (forms, Albanian context. templates. etc), (vi) • Legislation will be evaluation toolkit for appropriately tailored to investment funds local context. prospectuses 6) Crisis • Document suggesting Q3 2017 • Outputs Completed management report. the strategy and • Progress report protocol for crisis The final Crisis Management report was management accepted and approved by AFSA in October 2018. The AFSA Board approved the internal procedure for risk management in December 2017. An internal crisis management simulation was held in February 2018 to test it and to identify gaps. A Financial Stability Advisory Group crisis simulation was held in June 2018 and a report submitted shortly after. Page 29 of 35 The World Bank Albania FSA - SECO Trust Fund for Strengthening Supervisory Capacities (P153211) 7) Revised • Draft legislation, Q1 2018 (final • Outputs The legislative report, and draft law on investment funds and incorporating deadline – • Progress report Collective Investment Undertakings (translated related legislation stakeholder comments, process is • Publication in the in Albanian), was approved by the AFSA Board compliant with EU presented to staggered) Official Gazette on 27.09.2018. It has been submitted to the directives and IOSCO parliament. MoFE which will follow the approval process in principles. • Legislation approved by the parliament. parliament without significant weakening of The following draft by-laws under the new draft provisions. law were prepared and submitted: Operations Regulation, Licensing Regulation, CIU borrowing Regulation, investor communication Regulation, suspension & termination regulation, CIU Master feeder Regulation. Component 3: Strengthening and development of professional human resources and capacities at AFSA 8) Report assessing • Report incorporating Q2 2017 • TA/training Risks: Completed: training needs and AFSA staff and program report • Poor attendance at Assessment complete and the training program proposing long-term management finalized • Outputs training. submitted and accepted. training strategy for AFSA and delivered for AFSA • Progress report • A suitably qualified staff, including continuous Board approval. partner supervisory professional development agency cannot be found and arrangements for or is not interested. ensuring training • Staff participating in sustainability. external courses are not sufficiently motivated 9) Various training • Workshops Q2-Q4 2017 • Training material and do not effectively workshop presentations, implemented as per (final deadline • Participant meet the course Completed technical reports, and training plan. – process is feedback and obligations. activity reports produced • Technical reports staggered) post workshop Assumptions: Implementation of the training program started by resident advisor. produced as per plan. test results • Training courses are later than expected due to: (i) delays in • Technical reports practical and tailored to procurement of the consulting company, (ii) • Strategy/action Albanian needs. prolongation of the discussion and approval by plan vs actual • Recommendations on AFSA/WB of the training program prepared by organization changes are the consultant. 10) MoU/cooperation • MoU finalized Q2 2017 • MoU/cooperation realistic and take Completed agreement between AFSA incorporating key agreement sufficient account of There is a MoU in place, used for the Financial and partner supervisory cooperation provisions. AFSA appetite for Stability Advisory Group simulation of crisis agency. change. management exercise in June 2018. Page 30 of 35 The World Bank Albania FSA - SECO Trust Fund for Strengthening Supervisory Capacities (P153211) 11) Outputs • Training, secondments, Q2 2017 (final • MoU progress • Training program takes Completed envisaged in partnership etc. delivered as per deadline – reports into account budgetary Several knowledge exchange visits took place MoU/agreement. MoU. process is and resource constraints (Estonia, Croatia, Austria) staggered) within AFSA to ensure 12) Staff participation • Numbers and profiles of Q3 2017 (final • Progress reports sustainability. Completed and progress reports from staff enrolled in deadline – • Toolkits/manuals etc. are Staff enrolled in certification courses such as certification courses. appropriate courses as process is • Periodic test sufficiently tailored to CFA and CISI. 2 members of AFSA staff have envisaged in training staggered) results Albanian context. submitted the CFA exam. plan. • Satisfactory progress in training being achieved. Area 2: Development of AFSA capacity to prepare for regulation and supervision of corporate and municipal bonds issuance Outcomes Outcome Indicators* Component 1: i. Review of current regulatory and supervisory framework for corporate and municipal bond issuance. ii. Improvement of regulatory and supervisory framework. 1) AFSA has a clear • Strategy for bonds Q3 2018 • AFSA Board Risks: Completed understanding of current market supervision decision • The diagnostic and The Bond Market Development Report was and potential future bonds strengthening, and strategy do not completed July 2017. market landscape and has development endorsed • Progress reports sufficiently take into adjusted its short and by AFSA account or fully address Future bond market development is part of medium-term supervision bottlenecks/barriers to the AFSA’s 5 year strategy. approach for corporate & bond market municipal bonds issuances development. which enables it to meet EU • Financial intermediaries regulations and may not have sufficient international standards. capacity or knowledge to 2) Improved • Approval of by-laws Q2 2018 • Outputs act effectively in a new The Bond Issuance application report was regulatory framework for changes, and • Publication of market. completed August 2017. bond issuance implemented amendments to the guidelines • Changes in by-laws, in compliance with EU legislation endorsed by • AFSA Board regulations etc. legislation and international AFSA. decision envisaged within the An awareness roundtable with members of standards. scope of the project may Parliament from the Economy & Finance not be enough to Commission, Legal Affairs Human Rights and develop a sufficiently Public Administration Commission took place in January 2018. Page 31 of 35 The World Bank Albania FSA - SECO Trust Fund for Strengthening Supervisory Capacities (P153211) 3) Improved • New application Q1 2018 • Progress reports effective supervisory Completed process for filing and requirements and framework, even as an The Bond Issuance Report was completed in regulating the bond processes for bond interim step. August 2017. issuance application issuances being • Local authorities do not process in place. implemented. have sufficient powers to The regulation on Bond Issuance has been issue bonds and any approved. approval requirements (e.g. from central government) may act as a critical barrier Assumptions: • Market/ economic conditions will not change substantially during project duration. • Central government is aware of liquidity risks and is supportive of further capital market development. • Local governments are in need of alternative financing sources. Component 2: Develop relevant capacity at AFSA regarding debt instruments and markets and implement appropriate supervisory approach to this area 4) AFSA staff can • Approved bond Q3 2018 • Resident Risks: The Bond Issuance Report was completed in effectively and efficiently issuance applications advisor/WB • Inadequate numbers or August 2017. process and monitor bond meeting appropriate progress reports quality of staff is issuance applications. standards. allocated to this area of Advisory activities and trainings regarding this • Timescales for the project. matter have been completed. approvals being met. • Issuers lack capacity to meet revised issuance The Regulation on Bond Issuance has been application approved. requirements. Assumptions: • There is appropriate market infrastructure to effectively assess credit risks associated with Page 32 of 35 The World Bank Albania FSA - SECO Trust Fund for Strengthening Supervisory Capacities (P153211) corporate and municipal bonds being issued. • There is infrastructure for development of a secondary market in bonds. Outputs Output Indicators Component 1: i. Review of current regulatory and supervisory framework for corporate and municipal bond issuance. ii. Improvement of regulatory and supervisory framework. 1) Report assessing • Final version of Q2 2017 • Output Risks: Completed gaps in the regulatory diagnostic report • Progress Report • Insufficient Bond Market Development Report, Bond framework for bonds incorporating AFSA staff understanding of local Issuance Report, and Legislative Report have against EU legislation and comments. economic and corporate been submitted and agreed. International standards. environment. • New application Bond Market Development report – completed methodology too on 14/07/17 complicated for effective Bond Isuance Report – completed on 08/08/17 implementation in Draft Legislation Report – accepted on 12/06/17 Albanian environment. Regulatory framework work finalised (new draft Assumptions: Law on Capital Markets). 2) Report reviewing • Final version of report Q3 2018 • Output • AFSA to provide Completed the bonds market incorporating • Progress Report resident/ consultants Bond Market Development Report was landscape, and proposing stakeholder comments, with local insight. submitted. strategic prescription for presented to AFSA • Toolkits/manuals etc. potential development of management. are sufficiently This has been incorporated in AFSA’s 5 year the bonds market tailored to Albanian strategy 3) Report presenting Report with quick fixes Q1 2018 • Output context. Completed quick fixes to bonds and issuance analysis • Progress Report Bond Issuance Report was submitted. issuance regulatory toolkit finalised after • AFSA Board framework, as well as an incorporating AFSA staff Decision Regulation on Bond Issuance has been issuance analysis toolkit. comments. approved. Page 33 of 35 The World Bank Albania FSA - SECO Trust Fund for Strengthening Supervisory Capacities (P153211) 4) Revised • Draft legislation Q2 2018 • Output Completed corporate & municipal incorporating • Progress Report legislation compliant with stakeholder comments • AFSA Board Legislation Assessment Report and Bond EU directives and IOSCO endorsed by AFSA decision Reports have been submitted and accepted. principles. AFSA and consultants finalized draft Law on Capital Markets Component 2: Develop relevant capacity at AFSA regarding debt instruments and markets and implement appropriate supervisory approach to this area 5) Training material • Training material Q4 2018 (final • Training Risks: Completed as part of the approved Training and workshop produced and delivered deadline – material • Poor attendance at program presentations. as per training plan. process is • Participant training courses. staggered) feedback and Assumptions: post workshop • Training courses are test results practical and tailored to • Technical Albanian needs. reports • Training program takes 6) Revised • Tailored application Q4 2018 (final • Application into account budgetary Completed application package and package and procedures deadline – package and resource constraints Bond Issuance Report has been submitted and procedures for bond finalised process is within AFSA to ensure accepted. issuance. staggered) sustainability. Regulation on Bond Issuance approved. Project management capacity development Outcomes Outcome Indicators* 1) CFCU and AFSA • Project outputs and Q4 2018 (final • Progress reports Risks: Completed staff can effectively and outcomes being deadline – including financial • Poor financial efficiently manage projects. substantially delivered process is component. management and cost within envisaged staggered) control results in not all timescales. planned project activities • Financial management and outcomes being met. of project is effective, as • Weak reporting to SECO evidenced by actual hampers effective spending vs budget. project oversight. • Clarity and timeliness of • Procurement and other progress reports. systems may be cumbersome, causing delays and inefficiencies. Page 34 of 35 The World Bank Albania FSA - SECO Trust Fund for Strengthening Supervisory Capacities (P153211) Assumptions: • Adequate and appropriately qualified staff are allocated to project management. • Staff are able to devote sufficent time on project management and monitoring activities. • Appropriate information infrastructure is in place for effective monitoring and reporting. • AFSA’s financial management systems and processes are robust. Outputs Output Indicators 1) Training material • Training material based • Training material. Risks: In 2017 AFSA and CFCU staff held a joint and workshop on needs analysis and • Inadequate commitment workshop on project monitoring, presentations. tailored to recipient among CFCU/AFSA staff implementation and fiduciary aspects. CFCU needs delivered. to attend training. staff participated in an international • Training not sufficiently workshop in Turin on Procurement processes tailored to needs. Assumptions: Also, CFCU and AFSA staff participated in • Allocation of staff time to training (in Montenegro) on fiduciary aspects training. organised by the WB. Page 35 of 35