Albania assistance to the Bank of Albania on selected Corporate Governance Issues Technical Assistance Project Terms of Reference

1. 
   BACKGROUND
   

Since the global financial crisis, it has become clear that weaknesses in corporate governance, including inadequate board oversight over risk management and internal control functions, have contributed to excessive and imprudent risk-taking in the banking sector, which has led in turn to systemic problems. This is particularly critical for Albania, as the Albanian financial system is currently centred on banks and the equity market is remarkably underdeveloped. At the end of 2013, the ratio of financial system assets to GDP reached 99.1%, with the banking sector owning 91.4% of financial system assets (90.6% of GDP),¹ while stock market capitalization is the lowest in South East Europe (SEE).

2. 
   OBJECTIVE
   

The main objective of this Project is to assist the Bank of Albania in strengthening its regulatory framework and supervisory functions and align them with the legislation and practices in place in the EU.

3. 
   SCOPE OF WORK
   

The Consultant shall undertake the following activities:

1. 
   work with the EBRD and the Bank of Albania in order to:
   

1. 
   Review the Albanian legislation on corporate governance of banks and provide comments and recommendations to the Bank of Albania, in the context of the review of the supervisory practices, with the goal of aligning it with the Acquis.
   
2. 
   Review the Bank of Albania’s supervisory framework, methodology and on-site and off-site supervisory practices inspection objectives, expected controls and inspection techniques on:
   

• 
  Credit Risk and Counterparty Risk: organisational framework, policies and procedures (governance, policies and procedures, remuneration, resources, outsourcing and compliance); credit risk profile and strategies (risk profile and strategies and new products); credit risk management (granting process and monitoring process; specific requirements for credit risk models; risk classification process; collateral management process; other credit risk mitigation techniques; recovery process; provisioning process; credit administration process; information technology systems; reporting and disclosure requirements); credit quality review (data validation; review of the portfolio risk quality; review of collateral; review of repossessed assets; collective provision analysis; review of country risk and the risk of equity in the banking book); internal audit.
  
• 
  Internal Governance and Risk Management: composition and governance of the management body; roles and responsibilities of the management body; committees of the management body in its supervisory function; corporate structure and organisation; governance processes; internal governance transparency and disclosure;
  
• 
  Internal Governance and Remuneration: remuneration policy; governance (management body, remuneration committee, control functions); variable elements of remuneration; specific requirements (measurement and performance process, award process, pay-out process); [if applicable] institutions that benefit from government intervention (to obtain assurance that institutions receiving public aid have set up a remuneration policy in line with the priority of building up capital base for their own recovery and repaying the taxpayer assistance and in line with the national provisions in this regard); disclosure; internal audit review;
  
• 
  Risk Control Function: organisational framework status of the function and resources (governance, resources, outsourcing, remuneration); scope of activity; the risk management process (identification, assessment and measurement, monitoring, stress testing and reporting); internal audit.
  
• 
  Compliance Function: organisational framework, status of the function and resources (governance, resources, outsourcing, remuneration); scope of activity; internal audit.
  
• 
  Internal Audit Function: governance; status and organisation of the internal audit function (professional competence, internal audit charter, management of the internal audit department, reporting lines of the internal audit function, relationship between internal audit, compliance and risk management, internal audit in a group context, remuneration, outsourcing, periodical activity report); scope of activity; internal audit life cycle;
  

3. 
   Illustrate and advise the Bank of Albania on the practices in place by selected EU banking supervisors on the issues above and recommend practices appropriate for the Bank of Albania considering – among others - the expertise and resources (both human and financial) needed at the Bank of Albania for effectively implementing the proposed practices against the resources currently available; and the structure and challenges posed by the Albanian banking system;
   
4. 
   Assist the Bank of Albania in developing and in drafting a new supervisory methodology (the “Methodology”) on the issues mentioned above. For the avoidance of doubt, the drafting of the Methodology will be done by the Consultant (the drafting will be in English and the final version will also be translated in Albanian). The Methodology shall also include all necessary guidelines, templates and procedures for the implementation of the Methodology.
   
5. 
   Design and provide training to the Bank of Albania to illustrate and to effectively implement the Methodology and to commercial banks on how they should provide internal assurance on the issues detailed above.
   
6. 
   In addition to the above, the Consultant shall also remain available to provide assistance and ad-hoc advice to the Bank of Albania for the adoption and implementation of the Methodology up to a maximum of 2 man/days during the first 6 months of the implementation of the Methodology.
   

4. 
   IMPLEMENTATION AND DELIVERABLES
   

1. 
   Implementation
   
   1. 
      The Bank of Albania shall evaluate the recommendations presented by the Consultant, and decide on the solution to be adopted. Upon agreement with the Bank of Albania, the OL shall instruct the Consultant to develop and present to the Bank of Albania the Methodology - in line with the EU supervisory practices and legislation and in particular with the ECB SSM Supervisory Manual.
      
   2. 
      The Bank of Albania shall commit to providing all necessary equipment (including translation and interpretation), its experts and any necessary documents, data and information necessary for the implementation of the Project.
      
   3. 
      The Project shall be managed by the Operation Leader of the EBRD in consultation with the Bank of Albania. The Consultant shall report to the EBRD Operation Leader and work in close cooperation and under the guidance of the Bank of Albania and.
      
   4. 
      The methodology shall be prepared in Albanian and English. The training shall be delivered in English with interpretation in Albanian. Two separate trainings sessions will be organised: one to staff of the Bank of Albania and one to commercial banks.
      
   5. 
      The Consultant shall supply all necessary computer hardware and software required to deliver the services, together with the necessary office equipment.
      
   6. 
      The Consultant will be responsible for arranging their own transport, accommodation, communications, materials, printing and report preparation etc. (the Consultant will be responsible for the cost of connection time for calls/faxes/internet).
      
   7. 
      The Bank of Albania will provide serviced and furnished office accommodation for the, plus suitable office space for Consultant meetings, together with access to all relevant information, reports, maps, studies, legal documents etc., at no cost to the Consultant. All available project information, reports and documents will be made available to the Consultant by the Bank of Albania.
      

2. 
   Deliverables and Reporting
   

The Consultant shall deliver the activities described in Section 3 above and produce the following deliverables:

• 
  Draft a Report on the Albanian legislation on corporate governance of banks, following the review detailed in section 3.1.a above. The Report shall include comments and recommendations, on how to align the legislative framework to the Acquis.
  
• 
  Draft a Report on the Bank of Albania’s Supervisory Framework, Methodology and Practices, legislation on corporate governance of banks, following the review detailed in section 3.1.b above. The Report shall include comments and recommendations, specifically on the issues detailed in section 3.1.b above.
  
• 
  Advice to the Bank of Albania on the practices in place by other EU banking supervisors, pursuant to section 3.1.c above.
  
• 
  Assistance to the Bank of Albania in developing and then draft the Methodology, pursuant to section 3.1.d above.
  
• 
  The Consultant will develop, organise and implement a Training Program, pursuant to sections 3.1.e and 4.1.d above.
  
• 
  Remain available to provide ad hoc advice, pursuant to section 3.1.f above.
  

The Consultant shall deliver to the EBRD quarterly reports on the progress of the Project, highlighting the major obstacles faced and results achieved.

3. 
   Donor Visibility
   

It is expected that the Assignment will be funded by the Government of Luxembourg through the Luxembourg - ODA Technical Co-operation Fund. The Consultant will be required to ensure visibility of these resources. Support on these visibility aspects can be obtained from the Bank’s Communications Department. Measures could include but not be limited to:

• 
  All documents produced in relation to the project and exchanged between the consultant and the client should mention donor support and include the use of donor/s’ logo, when appropriate
  
• 
  This project can be used for a case study/article to be published on the EBRD web site, Blueprint, the Donor Update and other external and internal publications.
  

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1. 
   (We determined that the services are exempted from indirect taxes/VAT. The basis of exemption is set out in …(provide evidence)….as attached, OR
   

2. 
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