Nicu Marcu, president ASF: “We have started a digitization project to improve efficiency for supervision, control and surveillance processes.”
“My mandate will run in three fundamental directions: strengthening the institutional capacity of the Financial Supervisory Authority (ASF), developing the markets regulated and supervised by our authority and protecting the rights and interests of consumers,” Nicu Marcu, the new president of ASF told The Diplomat-Bucharest.
“Sustainable development in a socio-economic environment impacted by COVID-19 will be triggered by the fast pace of digitization of financial services, including the private pensions. Digitization implies a massive effort with respect to business process automation in order to optimize their day-to-day activity. (…) The Authority has started a digitization project to improve efficiency for supervision, control and surveillance processes.”
What are the challenges you are facing at the moment?
The Financial Supervisory Authority oversees three markets of over € 20 billion, which have an impact on 10 million people, and the stability of these markets is the main challenge we face in the current context.
Moreover, ensuring the stability of non-bank financial markets is one of the fundamental missions of the Financial Supervisory Authority. We are facing, like the whole planet, a totally atypical situation, which we have never encountered before. This is why I believe that the main challenge we have at the moment is to find, together with the private sector, the best solutions to keep in balance the three markets we supervise – the capital market, the private pension market and the insurance market.
We are working on a complex plan at the level of the Financial Supervisory Authority, built in several directions, so that we are prepared to take the necessary measures if needed.
What are your main priorities and objectives as the new president of ASF?
My mandate will run in three fundamental directions: strengthening the institutional capacity of the Financial Supervisory Authority, developing the markets regulated and supervised by our authority and protecting the rights and interests of consumers.
The Financial Supervisory Authority is one of the elite institutions in Romania and I want this status to exist also in the perception of the public opinion. For me, strengthening the reputation and the image of the authority are key points that I will rely on during my mandate. Without a very good reputation and without a spotless image, you cannot be credible in the eyes of those you supervise and control.
The Financial Supervisory Authority must be a modern institution, adapted to the realities of the 21st century, a flexible institution that reacts quickly and that requires respect and professionalism in relation to entities and consumers.
We have an ongoing project to re-establish the mechanisms and functionalities within the authority, which will help us achieve the objectives I have listed above.
At the level of the institution, analyses were initiated on all three sectors of activity in order to identify possible vulnerabilities.
As I said before, the Financial Supervisory Authority supports the Bucharest Stock Exchange to become a regional hub for other financial markets in Southeast Europe. This requires, in addition to improving liquidity conditions, financial and operational stability of the market and of the institutions that provide critical infrastructure, trust and a more active involvement of the Romanian state in the development of the financial sector.
At the same time, we make efforts to increase institutional communication and transparency, through an open relationship with the press and by increasing the presence in the public space by: publishing analytical materials, opinions, press releases, positions on various topics, etc.
As I mentioned, another challenge is to carry out an analysis and go through an institutional restructuring process, in order to improve the internal workflows, the decision-making processes as well as the way of carrying out the main functions of the authority: supervision and regulation. Also, the Authority has started a digitization project to improve efficiency for supervision, control, and surveillance processes.
As for the markets, I would like to give you a flash x-ray of the main priorities:
Insurance market – ensuring the market stability, removing the potential imbalances, diversifying the product types, and solving the problems on the MTPL market, by redefining the legislative framework, but also by strengthening the supervision.
Capital market – increasing the role of the capital market in the economy by bringing in the stock market some major issuers, both from the private sector and from companies having as main shareholder the state. Without these major issuers, the status of the emerging market will remain just a beautiful goal achieved only on paper.
Romania’s intention is to have a developed capital market and thus to become accessible on several levels; the Authority must constantly monitor the investors and shareholders rights. For example, a strong investment fund, which would like to access the Romanian market, has to know that our authority is sound and thus to have the guarantee that it professionally supervises the capital market.
We are dedicated to strongly promote the stock exchange as a real option for financing companies. In this respect, I want to tell you that the authority, together with the Ministry of Finance, the market players and with the OECD consultancy, is developing in the near period the Capital Market Strategy. We are making an x-ray of the entire capital market, of its weaknesses and strengths, and the ultimate goal is to maximize the strengths so that we can move to the next level of development for the Bucharest Stock Exchange.
Private pension market – promotion and implementation of occupational pensions and adoption of the law on the payment of privately administered pensions – Pillar II.
What is your strategy for sustainable development of the insurance and private pension market?
Sustainable development in a socio-economic environment impacted by COVID-19 will be triggered by the fast pace of digitization of financial services, including the private pensions. Digitization implies a massive effort with respect to business process automation in order to optimize their day-to-day activity.
As current regulation of the private pension system refers only to the accumulation phase, without specific legal provisions for the pay-out phase and along with the fact that in the next decade an increasing number of participants will turn from contributors to beneficiaries of pension funds, it is of paramount importance to adjust the legal framework with provisions regarding the pay-out phase in order to have a complete pension product.
From the participants’ perspective, digitization changes interaction habits with pension administrators and facilitates online access to all the necessary information. We have noticed participants’ increased preference for electronic communication means, especially in today social distancing conditions.
Sustainable, long-term development of the private pension system is based on rules regarding investments, with a prudent diversification of portfolio structure, designed to reduce volatility against time horizon. Hence, private pension funds investment strategies proved resilient in market downturn, as in spring this year, increasing trust confidence in private pensions.
The high level of volatilities on the capital market due to the COVID-19 pandemic had a limited impact on pension fund assets given the weight of shares in the portfolio structure. The impact of the crisis generated by the pandemic on the private pension system is limited and conjectural, taking into account that the investment policy is prudent and conservative, the pension funds’ investments are on long-term, in line with the contribution period (30-40 years), and the portfolios are highly diversified.
In the insurance industry we would like to see a diversification of the products. As a result, we expect an increase of other type of the insurance classes, different from the non-life insurance class. Also, the development of data-powered technologies can not only help insurers assess risk more accurately, but also can help us as a supervisor. The landscape of insurance services and what are perceived to be core activities are expected to change and digital technology will play an important role in this evolution.
The Financial Supervisory Authority is proactive and ready to deal with any potential emerging risk in order to preserve the stability of the insurance sector and protect all consumers.
How do you see the evolution of the Romanian insurance industry in 2021?
The Romanian insurance market has been on a steady ascending trend for the past several years, which gives us hope that in 2021 it will not be significantly affected by the COVID-19 pandemic.
As you know, Romania is a maturing market, which, paradoxically, can be an advantage in the current context. I say this because non-life insurance, dominated by car insurance, has a share of over 80% in the total market, which will be a counterpoint to a possible decline in the life insurance segment, meaning more sophisticated products that are usually affected in periods of crisis. This is confirmed by the results registered in the first half of this year. In the first six months, the value of gross written premiums in the non-life insurance segment increased by 5.4% compared to the same period of the previous year, and the market as a whole increased by 3.4% compared to the first half of 2019.
We must admit that a rather complex period will follow, given the economic context generated by the global health crisis. In general, in such periods, markets with a smaller degree of sophistication face the turbulent ocean better. In these times, it is not indicated to make forecasts, but my hope is that the Romanian insurance market will cross next year without major convulsions.
Project your hope into the future: Which is your expectation for the Romanian business and macroeconomic scene in 2021?
We expect that social distancing and some of the measures implemented by states in order to prevent the spread of the virus will be maintained throughout 2021, with a gradual lifting as the number of infections decreases.
Given that social distancing will remain one of the main recommendations during this period, the service sectors will continue to be affected, retail trade, tourism, and hospitality in particular.
According to the latest projections of the IMF (World Economic Outlook, October 2020), global economic growth is estimated at -4.4% in 2020, an upward revision since the previous forecast (June 2020), as a result of the stronger than anticipated GDP outturns in the second quarter of 2020.
In 2021, global economic growth is projected at 5.2%. There is a high degree of uncertainty that hovers around the future evolution of economic activities, the recovery also depending on the good management of the health crisis.
However, we expect a recovery of the Romanian economy in 2021, but there is still uncertainty about the full recovery of losses registered as a result of the crisis generated by COVID-19.
According to the IMF, Romania’s economy is expected to contract by -4.8% in 2020 and to increase by 4.6% in 2021. The unemployment rate is projected at 7.9%, 4 pp higher than in 2019, while in 2021 it is expected to decrease to 6%.
The National Commission for Strategy and Prognosis (NCSP) estimates that the impact of COVID-19 over the Romanian economy will be reflected into a decrease by -3.8% of GDP in 2020, a decrease of 1.9 pp compared to the spring forecast (-1.9%).
For 2021, NCSP estimates a recovery of the Romanian economy, with an increase of the real GDP by 4.9%. However, an unfavourable evolution of the number of infections may lead to the reintroduction of stricter measures and implicitly the rebound of the Romanian economy will take place at a slower pace.