WASHINGTON, November 12, 2004 – The World Bank today disclosed the findings of a recently completed Assessment of Governance in the Czech Collective Investment Fund Sector at a workshop organized by the Ministry of Finance and attended by the Prague Stock Exchange, the Union of Czech Investment Companies and the Czech Securities Commission. The Assessment highlights the following six key governance issues for the Czech collective investment fund sector: (i) the potential for conflicts of interest between investment management companies, depositaries and unit-holders, particularly if an investment manager and depositary are part of one and the same financial conglomerates, (ii) the oversight to be exercised over fund managers by the supervisory boards of investment management companies, (iii) the importance of modern, comprehensive risk management systems and internal controls and high quality financial reporting, (iv) the need to regulate abusive practices, (v) the need for the authority of the Czech Securities Commission to include the regulation of sales practices, and (vi) ensuring that the development of adequate regulations for special funds precedes the appearance of such funds in the Czech Republic.
The Assessment underlines the great strides made by the Czech authorities in revising and improving legislation and regulatory norms related to the capital markets, including in the area of collective investments. The laws and regulations enacted to meet the requirements of the European Union’s Acquis Communautaire go a long way towards resolving concerns that were raised in the 1990’s regarding investors’ rights and the conduct of management of collective investments. Issues regarding risk assessment and management, as well as the regulation of the sales practices of collective investments, are currently being addressed.
The Assessment is part of a broader set of joint World Bank–Czech Government activities supporting financial and private sector development in the Czech Republic. A Country Study titled Czech Republic: Capital Markets Review was undertaken in 1999. A report titled Czech Republic: Completing the Transformation of Banks and Enterprises (2000) offered advice and assistance on structural reforms to strengthen the commercial law framework for insolvency and credit recovery. An Assessment of the Czech Financial Sector (FSAP) was undertaken in 2001, including a Report on the Observance of Standards and Codes (ROSC) for Insolvency and Creditor Rights. On the basis of this ROSC, an Insolvency Policy Note comparing the Czech Republic with a peer group of countries was prepared in late 2003. A general Corporate Governance ROSC evaluating corporate governance rules and practices in the Czech Republic against the OECD Principles was completed in 2002, and an Accounting & Auditing ROSC benchmarking Czech accounting & auditing standards and practices against International Financial Reporting Standards and International Standards on Auditing, as well as the requirements of the Acquis in this area, was completed in 2003.
These ROSCs were followed by specialized governance assessments for financial institutions – banks, insurance companies, mutual funds and pension funds. Preliminary work on evaluating governance in the Czech insurance sector was undertaken in December 2002, and an assessment of governance in the Czech banking system is scheduled to be completed in January 2005. These specialized assessments will further strengthen the case of the authorities for developing strong governance and institutional capacity in the financial sector, with a view to benefit both clients and investors and to support the smooth integration of the Czech financial system into the broader EU single market for financial services.  Country Financial System Stability Assessment (FSSA) and Reports on Standards and Costs (ROSC) documents on the Czech Republic can be found at: http://www1.worldbank.org/finance/html/cntrynew.html   |
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