Document of The World Bank FOR OFFICIAL USE ONLY Report No: ICR00006162 IMPLEMENTATION COMPLETION AND RESULTS REPORT TF0B1063 ON A SMALL GRANT IN THE AMOUNT OF USD0.99 MILLION TO THE Minstry of Finance and Economy FOR Enhancing Capital Markets Supervision Capacities of The Albanian Financial Supervisory Authority Phase 2 (P171066) June 2023 Finance, Competitiveness And Innovation Global Practice Europe And Central Asia Region Regional Vice President: Antonella Bassani Country Director: Xiaoqing Yu Regional Director: Lalita M. Moorty Practice Manager: Mario Guadamillas Task Team Leader(s): Alper Ahmet Oguz, Keler Gjika ICR Main Contributor: Alena Zielinski ABBREVIATIONS AND ACRONYMS AFSA Albanian Financial Supervisory Authority ALL Albania Lek AML/CFT Anti-Money Laundering/Combating the Financing of Terrorism BaFin German Federal Financial Supervisory Authority CNB Czech National Bank GDFC General Directorate of Financing and Contracting CIU Collective Investment Undertakings CPF Country Partnership Framework EIOPA European Insurance and Occupational Pensions Authority EU European Union IFI International Financial Institutions IOSCO International Organization of Securities Commissions M&E Monitoring and Evaluation MoFE Ministry of Finance and Economy PDO Project Development Objective SECO Swiss State Secretariat of Economic Affairs TA Technical Assistance WB World Bank TABLE OF CONTENTS DATA SHEET ....................................................................... ERROR! BOOKMARK NOT DEFINED. I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES ....................................................... 4 II. OUTCOME ...................................................................................................................... 8 III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME ................................ 16 IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME .. 17 V. LESSONS LEARNED AND RECOMMENDATIONS .............................................................. 19 ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS ........................................................... 21 ANNEX 2. PROJECT COST BY COMPONENT ........................................................................... 29 ANNEX 3. RECIPIENT, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS ...... 30 ANNEX 4. SUPPORTING DOCUMENTS (IF ANY) ..................................................................... 31 The World Bank Enhancing Capital Markets Supervision Capacities of the Albanian Financial Supervisory Authority Phase 2 (P171066) DATA SHEET BASIC INFORMATION Product Information Project ID Project Name Enhancing Capital Markets Supervision Capacities of The P171066 Albanian Financial Supervisory Authority Phase 2 Country Financing Instrument Albania Investment Project Financing Original EA Category Revised EA Category Organizations Borrower Implementing Agency Minstry of Finance and Economy Albania Financial Supervisory Authority Project Development Objective (PDO) Original PDO The development objective of the project is to (i) strengthen AFSA’s capacity to regulate and supervise capital markets and to (ii) boost market development for capital market products through increased financial awareness and education, and stimulation of financial innovation. Page 1 of 31 The World Bank Enhancing Capital Markets Supervision Capacities of the Albanian Financial Supervisory Authority Phase 2 (P171066) FINANCING FINANCE_TBL Original Amount (US$) Revised Amount (US$) Actual Disbursed (US$) Donor Financing TF-B1063 990,000 866,865 866,865 Total 990,000 866,865 866,865 Total Project Cost 990,000 866,865 866,865 KEY DATES Approval Effectiveness Original Closing Actual Closing 09-Sep-2019 15-Apr-2020 31-Dec-2022 31-Dec-2022 RESTRUCTURING AND/OR ADDITIONAL FINANCING Date(s) Amount Disbursed (US$M) Key Revisions 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 11-Nov-2019 Satisfactory Satisfactory 0.00 02 03-Nov-2020 Satisfactory Satisfactory 0.00 03 01-Dec-2021 Satisfactory Moderately Satisfactory 0.20 Page 2 of 31 The World Bank Enhancing Capital Markets Supervision Capacities of the Albanian Financial Supervisory Authority Phase 2 (P171066) ADM STAFF Role At Approval At ICR Regional Vice President: Cyril E Muller Anna M. Bjerde Country Director: Linda Van Gelder Xiaoqing Yu Director: Lalita M. Moorty Lalita M. Moorty Practice Manager: Mario Guadamillas Mario Guadamillas Task Team Leader(s): Johanna Jaeger, Keler Gjika Alper Ahmet Oguz, Keler Gjika ICR Contributing Author: Alena Zielinski Page 3 of 31 The World Bank Enhancing Capital Markets Supervision Capacities of the Albanian Financial Supervisory Authority Phase 2 (P171066) I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES 1. Enhancing Capital Markets Supervision Capacities of the Albanian Financial Supervisory Authority (AFSA) Phase 2 project is the second in a series of technical assistance (TA) grants funded by the Swiss State Secretariat of Economic Affairs (SECO). The overall objective of this TA program was to strengthen the supervisory capacity of AFSA. Phase 1 of the program was implemented in the period of 2015-2019 and aimed at strengthening AFSA’s institutional and technical capacities, as well as supported AFSA in drafting new Law on capital markets and the Law on investment funds. The second phase of the program (Phase 2 project) provided further support to AFSA in upgrading its capital market regulatory framework, strengthening its capital market supervision and enforcement capacities, and boosting the market development. Phase 2 project activities reflect a prioritized, programmatic framework in support of the continued implementation of Phase 1 project with a focus on supporting implementation of selected key priorities related to market development and strengthening the supervision capacity of AFSA in line with AFSA’s 2018-2022 strategy1. Phase 2 project, with a grant amount of $0.99 million was approved in September 2019 and completed in December 2022. Context 2. Albanian financial sector is dominated by banks, with other financial sector participants small and underdeveloped. Market share of the banking sector was 94.7 percent of the total financial sector assets in 2011, decreasing slightly to 90.8 percent as of June 2022. Other market participants include non-bank financial institutions (NBFIs) with market share of 3.8 percent, savings and loan associations (SLAs) at 0.7 percent, insurance sector at 2.1 percent, pension funds at 0.3 percent, and investment funds at 2.3 percent. While market share of NBFIs and investment funds has seen some increase in the past decade, other market participants have not gained a stronger stance in the financial sector of the country. Financial sector diversification is key in facilitating development of affordable financing products for the economy, improving access to finance for those segments of economy not serviced by banks, and, thus, deepening financial intermediation and strengthening financial stability in the country. 3. Albanian authorities recognize the need to diversify and deepen financial sector services in the country. Following a set of comprehensive financial sector reforms during 2014-2017 focused on mitigating risks for the high level of NPLs, strengthening the resilience and stability of the banking sector, improving the financial safety net, enhancing the independence of AFSA and creating basic conditions for capital market supervision; the authorities were increasingly supporting measures to enhancing the contribution of the financial sector in the economy. Diversification of the financial sector through the development of non-bank financial institutions and capital markets helps boost competition in the sector, improve financing opportunity for companies, promote investments 1 The strategy articulates major objectives for AFSA in supporting development of the insurance market and its capital market related activities, i.e., investment funds, private pensions, and securities issuance and trading. AFSA’s medium-term objectives are guided by consumer protection, promotion of financial stability, and sound development of financial markets under its supervision. The strategic objectives of AFSA with regard to capital market development focus on: (i) eliminating restrictions that hinder market development; (ii) strengthening the supervision function; (iii) promotion of markets, (iv) financial education, and (v) financial technology (FINTECH). Page 4 of 31 The World Bank Enhancing Capital Markets Supervision Capacities of the Albanian Financial Supervisory Authority Phase 2 (P171066) and, thus, help support the economic growth. In particular, development of capital markets as a solid alternative source of funding for enterprises can support their sustainable growth. In this context, further strengthening of AFSA’s supervisory and regulatory capacities was crucial to contain risks and ensure a sound future development of capital markets. 4. At project start in 2019, Albania experienced important developments in some capital market segments. The investment funds sector, emerging in 2012, had grown remarkably fast reaching close to 5% of GDP in 2019. Several corporations had issued bonds through private offers. Issuances of private bonds offers (mainly by financial institutions) increased from ALL 3.8 billion (slightly above EUR 27 million) in outstanding bonds value by the end of 2014 to about ALL 8 billion (about EUR 60 million) by the end of 2018. In the same year, the authorities established a Market Maker Program for the issuance and trade of government bonds to increase the secondary market transactions in government securities. These developments raised the prospects for facilitating capital markets growth going forward, but also raised concerns about the ability of AFSA to regulate and supervise these growing markets. 5. Legal changes introduced in 2014 strengthened AFSA’s independence and institutional capacities. AFSA is the regulatory and supervisory authority for capital markets, voluntary pensions, and insurance sectors. In 2014, following the 2013 FSAP recommendation, the Parliament of Albania approved legal changes that enabled AFSA to achieve financial and operational independence. These legal changes also substantially upgraded qualification criteria for AFSA’s board membership and paved the way for AFSA to adjust its organizational structure and remuneration scheme to attract professional staff, especially with regard to the capital market supervision department that was severely understaffed at that time. 6. The World Bank supported AFSA with technical assistance on strengthening its legal and regulatory framework and implementation capacity. Following 2013 FSAP recommendations, the World Bank provided two technical assistance projects on strengthening AFSA’s supervisory capacity for the insurance sector and private pensions, and on addressing vulnerabilities identified in these areas. Another TA on Strengthening Supervision Capacities of AFSA with focus on capital market development (Phase 1 project, P153211), funded by SECO, supported AFSA in strengthening its capacities to supervise investment funds, and the corporate & municipal bonds issuance. 7. SECO funded Phase 1 project successfully achieved its objectives. Through the technical assistance delivered, (i) the organizational structure of AFSA improved to better address supervision challenges, and newly established capital markets supervision department expanded with new staff, (ii) technical capacities enhanced through numerous capacity building activities, (iii) human resources function at AFSA has been improved; (iv) new law on Capital Markets and law on Collective Investment Undertakings were drafted and subsequently approved by the Parliament; (v) supervision of investment funds was upgraded through new legal acts, and risk based supervision manuals; (vi) crisis management capacities (related to investment funds) improved; and (vii) AFSA shaped and disseminated its vision for the future of the supervision and market development through the adoption of its 5-year strategy for the period of 2018-2022. 8. At the request of the Albanian authorities, Phase 2 project was prepared and approved by the World Bank and SECO to address the remaining gaps in capital market supervision and development, as laid out in the AFSA Page 5 of 31 The World Bank Enhancing Capital Markets Supervision Capacities of the Albanian Financial Supervisory Authority Phase 2 (P171066) 2018 – 2022 strategy. With capital market complexities arising, AFSA needed continuation of the support with the completion of its capital market legal framework, further enhancements of its operational and professional capacities as well as upgrading its supervisory capabilities, and support with facilitating development of the markets under its supervision. Phase 2 project activities reflected a prioritized, programmatic framework in support of continued implementation and completion of the activities under Phase 1 project. The efforts to develop the capital markets in Albania were well timed, and the activities were implemented in parallel with the ongoing support by the World Bank (with SECO funding) to develop the secondary market for government bonds. A developed secondary market for the government bonds and the resulting yield curve serves as a strong foundation for determining the pricing for all other securities and for facilitating the capital market development in the country. 9. Phase 2 project was developed in line with the objectives of the Albania Country Partnership Framework (CPF) for 2015 – 2019. Specifically, the project objective and its activities are in line with CPF objective 1c: Support improved financial stability, which supports reforms on reducing NPLs, reviving credit growth, and strengthening bank and non-bank prudential authorities. These reforms are essential for spurring growth, protecting the income of economic agents, and increasing financial inclusion. The CPF states that strengthening the independence and capacities of financial regulators is the sine qua non for the maintenance of financial stability and further development of financial sector intermediation. Project Development Objectives (PDOs) 10. The development objective of the project is to (i) strengthen AFSA’s capacity to regulate and supervise capital markets and to (ii) boost market development for capital market products through increased financial awareness and education, and stimulation of financial innovation. 11. AFSA was the direct beneficiary of this project. In addition, households and enterprises in Albania would benefit from a more stable and deep capital market that can serve as a solid alternative to attracting funding and can promote investment. Key Expected Outcomes and Outcome Indicators 12. The development objective of Phase 2 project was expected to achieve the following outcomes. AFSA has further strengthened its capacity to supervise capital markets and support capital market development through: 1) Strengthened regulatory and supervisory framework for capital markets; 2) Increased capacity of AFSA to monitor and supervise capital markets; 3) Enhanced awareness and financial education of market participants; Components 13. Phase 2 project components aimed to continue the work carried under Phase 1 project. They were grouped around two specific areas: Page 6 of 31 The World Bank Enhancing Capital Markets Supervision Capacities of the Albanian Financial Supervisory Authority Phase 2 (P171066) (1) Strengthening AFSA’s regulatory and supervisory capacity, (USD 0.77 MM) a) Component 1: Implementation support as regards to drafting secondary legislation for the newly adopted Capital Markets Law. b) Component 2: Further strengthen AFSA’s risk-based supervision function: Sub-component 2.1: Support to AFSA towards development of prudential reporting for capital market activities. This activity (i) advised on the type/kind of data to be collected from licensed intermediaries and the use of these data by AFSA supervisors, (ii) provided capacity building on the use of the new reporting for supervision purposes. Sub-component 2.2: Advice to AFSA on the development of an enterprise risk management environment at AFSA. The activity supported AFSA in (i) developing a Risk register (or matrix), (ii) drafting respective amendments in internal rules formalizing the risk register, and (iii) provision of capacity building/awareness activities to staff and stakeholders with regard to the developed enterprise risk management environment. c) Component 3: Development of AFSA’s capacity to monitor and supervise securities markets. Sub-component 3.1: Development of inspection, investigation, and strengthening the enforcement capacity of AFSA in relation to securities markets and investment funds. This sub-component supported: (i) on-job training on conducting inspections of investment funds asset management companies and depositories, (ii) preparation of the enforcement manual; (iii) capacity building with regard to enforcement making use of the enforcement manual; and (iv) exchange visits to comparable but more advanced markets with a similar legal framework, focusing on inspection and enforcement. Sub-component 3.2: Technical assistance on improving Market Surveillance Systems. This activity resulted in (i) producing a report outlining AFSA’s needs for market surveillance system and determining specifications for such system. (ii) providing capacity building to AFSA staff on monitoring capital market activities. Sub-component 3.3: Hiring of peripatetic advisor(s) to provide on-job regulatory and supervisory support and guidance to AFSA. The advisor was expected to work together with the AFSA staff and management to: (i) ensure that all deliverables and outputs are functional and guide AFSA through their implementation; (ii) advise AFSA management and staff on day-to-day policy and supervisory and enforcement decisions related to investment fund industry, capital market, as well as bond market; (iii) provide advice to AFSA management in understanding global industry challenges and developments, especially related to EU markets and regulations, and making better use of AFSA membership in the international regulatory associations, and (iv) carry other advisory tasks as dictated by the market developments or trends. Page 7 of 31 The World Bank Enhancing Capital Markets Supervision Capacities of the Albanian Financial Supervisory Authority Phase 2 (P171066) (2) Support AFSA in its Capital Market Development Efforts, (CHF 0.2 MM) d) Component 4: Promote market development. This component supported AFSA in (i) implementing few select activities related to raising awareness and financial education; (ii) preparing a FINTECH technical note on assessing the challenges and opportunities stemming from rapid technological developments. Other project activities Incremental Operation Costs and Project Management Development (USD 0.02 MM) – under the Recipient Executed component. These resources financed incremental operation costs during the implementation stage to improve the project management capacities of the recipient (AFSA) and the implementation agency (the General Directorate for Financing and Contracting of the Ministry of Finance and Economy (GDFC)). Project Management, Implementation Support and Supervision (USD 0.36 MM) - This allocation financed WB implementation support activities for the project. II. OUTCOME Assessment of Achievement of Each Objective/Outcome 14. The PDO level indicators remained relevant and, based on their implementation described below, the PDO is considered as achieved. Achievement of the overall development objective was measured by the following three indicators: 15. Result Indicator 1. Strengthened regulatory and supervisory framework for capital markets implemented: • AFSA adopts bylaws on: (i) Licensing, (ii) Prospectus, (iii) Listed Companies, (iv) Conduct of Business, (v) Post- trade activities. • Risk-based supervisory approach applies to all capital market intermediaries under AFSA's supervision. AFSA adopts bylaws on: (i) Licensing, (ii) Prospectus, (iii) Listed Companies, (iv) Conduct of Business, (v) Post-trade activities. 16. The project’s main deliverable was supporting AFSA in drafting the secondary legislation envisaged under the new Capital Markets law that was approved in May 2020. The consultant firm, Ernst and Young (EY) GmbH, was hired on May 24, 2021, for drafting the new regulations, as well as reviewing and providing comments on the regulations that were drafted and approved by AFSA before the start of the project. Drafting of the regulations was a voluminous work (over 500 pages of regulations), taking a lot of efforts and communication among AFSA and the consultant. The drafting process was considered complete by the consultant in July 2022, with a legal review of the draft regulations by a local law Page 8 of 31 The World Bank Enhancing Capital Markets Supervision Capacities of the Albanian Financial Supervisory Authority Phase 2 (P171066) firm, hired by the consultant firm, finalized in December 2022. All key regulations have been approved by the AFSA board. AFSA planned to approve two more regulations in the last week of June 2023. New regulations drafted by the consultant and their status of approval: • On the Form and Content of a Prospectus to be Published when Securities are Offered to the Public and Admitted to Trading on a Regulated Market – approved by the AFSA Board on January 26, 2023. • On Transparency Requirements of Listed Companies. – approved by the AFSA Board on January 26, 2023. • On the Licensing Requirements and the Requirements for the Operation of a Multilateral Trading Facility (MTF), an Organized Trading Facility (OTF) and Further Requirements for Investment Firms Acting as Systematic Internalizer – approved by the AFSA Board on May 31, 2023. • On Operational Activities of Investment Firms and Banks Providing Investment Services - approved by the AFSA Board on February 28, 2023. • On the Licensing requirements and the Requirements for the Operation of Central Securities Depositories - approved by the AFSA Board on May 31, 2023. • On Capital Adequacy for Investment Firms. - approved by the AFSA Board on January 26, 2023. • On the Licensing Requirements and the Requirements for the Operation of Central Counterparties and Clearing Houses - approved by the AFSA Board on May 31, 2023. • On the Precondition for a Recognition of a Foreign Credit Rating Agency and its Reporting Requirements - expected to be approved by the AFSA Board by the end of June 2023. • On Market Abuse and Short Selling - approved by the AFSA Board on April 28, 2023. • On the Licensing and Operational Requirements of Market Operators and Exchanges - approved by the AFSA Board on May 31, 2023. • On the Procedure and Review of Retail Consumer Complaints in Connection with Regulated Activities Conducted by Licensed, Registered or Recognized Persons and Complaints against the Authority - approved by the AFSA Board on May 31, 2023. • On the Appointment and Requirements for Statutory Auditors of Investment Firms - approved by the AFSA Board on May 31, 2023. • On the Form and Procedures for the Registration of the Offering Memorandum for Securities Issues (except for bonds) - expected to be approved by the AFSA Board by the end of June 2023. 17. AFSA approached the implementation of the new Capital Market law in a strategic way, prioritizing the drafting and approval of key regulations in order to handle market needs effectively. Five regulations listed below were drafted and approved by AFSA before the start of the project. These regulations cover important areas of capital market operation, such as licensing requirements for market players, prospectus content requirements, and business conduct standards for market participants. These regulations had been later reviewed by the consultancy firm hired under the project. AFSA is in the process of introducing changes recommended by the consultancy firm in some of the regulations to ensure their compliance with the EU standards and efficiency of the regulatory framework for capital market2. 2AFSA, for instance, is currently working on combining the regulation on Offer Memorandum for Bonds and the regulation on Offer Memorandum for Stocks into one regulation, which will also accommodate comments provided by the consultancy company on the offer memorandum for bonds. Page 9 of 31 The World Bank Enhancing Capital Markets Supervision Capacities of the Albanian Financial Supervisory Authority Phase 2 (P171066) Regulations drafted by AFSA and reviewed by the consultant. • On Licensing of Investment Firms, Branch Registration and Recognition of Foreign Investment Firms- approved by the AFSA Board on December 29, 2020. • On Clients Suitability Assessment - approved by the AFSA Board on December 29, 2020. • On Certification and Qualifications of Investment Firm Key Function Holders - approved by the AFSA board on December 29, 2020. • On the Registration and Activity of Investment Firm’s Tied Agent - approved by the AFSA Board on December 16, 2020. • On the Form and Registering Procedure of Bond Issuance Offering Memorandum – approved by the AFSA Board on December 16, 2020. 18. In line with the set objective, Phase 2 project has achieved the results in strengthening the regulatory and supervisory framework for capital market in Albania. To this extend, AFSA, with help from the consultancy company, has drafted and approved all key regulations in the identified areas Table 1 provides details on the regulations approved by AFSA for each of the five regulatory areas indicated in result indicator 1 to this project. In addition to the key regulations listed in Table 1, AFSA, with help from the consultant company, has drafted the regulation on the Form and Procedures for the Registration of the Offering Memorandum for Securities Issues (except for bonds), which further strengthens the prospectus content requirements; and regulations on (i) the Licensing Requirements and the Requirements for the Operation of a Multilateral Trading Facility (MTF), an Organized Trading Facility (OTF) and Further Requirements for Investment Firms Acting as Systematic Internalizer, and (ii) the Licensing Requirements and the Requirements for the Operation of Central Counterparties and Clearing Houses, which further strengthen the regulatory requirements for the post-trade activities. These two regulations are expected to be approved by AFSA by the end of June 2023. Table 1. Classification of regulations by regulated area identified at the results indicator level Key regulated areas (as per result indicator) Drafted/adopted regulations (i) Licensing requirements including On Capital Adequacy for Investment Firms. – approved requirements for prudential capital and competence standards of securities firms (MiFID On Licensing of Investment Firms, Branch Registration II definition), in particular criteria for assessment and Recognition of Foreign Investment Firms - approved of capital markets qualifications and establishment of a regime of internationally On Certification and Qualifications of Investment Firm recognized qualifications for capital markets Key Function Holders - approved participants (ii) Prospectus content requirements, aligned On the Form and Content of a Prospectus to be with the EU Prospectus Regulation Published when Securities are Offered to the Public and Admitted to Trading on a Regulated Market – approved On the Form and Registering Procedure of Bond Issuance Offering Memorandum - approved Page 10 of 31 The World Bank Enhancing Capital Markets Supervision Capacities of the Albanian Financial Supervisory Authority Phase 2 (P171066) (iii) Requirements for listed companies, covering On Transparency Requirements of Listed Companies – elements such as transparency (EU Transparency approved Directive), public disclosure and regular and ad hoc reporting requirements, mergers and takeovers (iv) Conduct of business standards, including On Operational Activities of Investment Firms and Banks corporate governance in order to implement the Providing Investment Services - approved new law effectively, and ensure that capital market firms are properly governed; their clients On Clients Suitability Assessment - approved are treated fairly, and their rights are protected On the Registration and Activity of Investment Firm’s Tied Agent - approved (v) Requirements for post-trade activities, On the Licensing Requirements and the Requirements including clearing and settlement. for the Operation of Central Securities Depositories approved On the Licensing and Operational Requirements of Market Operators and Exchanges – approved Risk-based supervisory approach applied to all capital market intermediaries under AFSA's supervision. 19. AFSA already applies a risk-based approach on supervision of collective investment schemes, private pension funds, and respective asset management companies and depositors. While Phase 1 project supported AFSA in building a framework for risk-based supervision of asset management companies, implementation of the new capital markets regulatory framework , supported by the stronger technical capacities (see description below on capacity building), enabled AFSA to implement a risk-based supervisory approach on capital market activities and intermediaries, including regulated markets, listing of securities, traders/brokers, investment advisors, clearing and settlement providers, etc. To this end, the following deliverables completed under Phase 2 project aim to support AFSA’s ability for a better approach to market supervision: • Gap analysis and outline for developing an advanced prudential reporting framework for capital market activities. • Report on enterprise risk management of AFSA and risk management internal guidance and risk matrix. • Analysis of enforcement needs for capital markets activities and enforcement manual. • Analysis of the need for market surveillance and development of the framework for market surveillance. 20. The outcome of risk-based supervisory approach applied to all capital market intermediaries under AFSA's supervision, is considered as achieved: a. The report on prudential reporting has been prepared by the consultancy firm to provide a framework for setting the prudential reporting requirements applicable to market participants under the Capital Markets Law. The report aims to help AFSA obtain timely and reliable information on the market participants to fulfill its supervisory duties vis-à-vis the market participants as set out in the respective rules and regulations concerning the capital Page 11 of 31 The World Bank Enhancing Capital Markets Supervision Capacities of the Albanian Financial Supervisory Authority Phase 2 (P171066) market in the Republic of Albania, and to enable AFSA to effectively counter and remedy violations of the laws and regulations and thus encourage market participants to act in compliance with applicable rules and regulations. b. The consultant reviewed the actual AFSA’s risk register, which includes AFSA’s exposure to internal and external risks, and provided a gap analysis on the risk management. Based on this assessment, the Enterprise Risk Management report provided recommendations on the internal risk management framework within AFSA, including capturing the internal and external risks to its regulatory objectives. c. Enforcement manual was produced as a guide for AFSA to take appropriate supervisory enforcement measures to strengthen the regulatory discipline of the Albanian capital markets activities. d. Market surveillance report was prepared to guide AFSA in taking appropriate measures in relation to the detection and prevention of market abuse. The report also establishes the framework for building an appropriate system that can be used by AFSA for the detection of market abuse and market manipulation when the market is at a more advanced stage. 21. Result Indicator 2 Increased capacity of ASFA to monitor and supervise capital markets: Number of capacity building trainings provided to AFSA staff on monitoring, inspection, investigation, and enforcement capacity completed. 22. Phase 2 project envisaged and delivered a number of capacity building events for AFSA staff. These activities have been successful in achieving the goal of this project to increase the capacity of ASFA to monitor and supervise capital markets. The details of the specific event are provided below: • Three on-job training sessions (3-4 days each) were delivered to AFSA staff by EY GbmH in May, June, and September 2022. The sessions were attended by around 30 staff from the supervision, licensing, and legal departments. The topics covered onsite/off-site supervision, improper market practices, investigation, surveillance, enforcement, cooperation with justice system, cooperation with foreign regulators, among other. • Knowledge exchange (study visit) with BaFin (German Federal Financial Supervisory Authority) took place on 26 June – July 1, 2022 in Frankfurt, Germany. In addition to the meetings with BaFin, the participating AFSA supervisors (seven staff) met with the European Insurance and Occupational Pensions Authority (EIOPA), German Investment Funds Association, and market platform TechQuartier. • Knowledge exchange with the Czech National Bank (CNB) took place on October 31 – November 3, 2022 in Prague, the Czech Republic. During this visit, the Albanian delegation (six AFSA staff) also met with the Office of the Financial Arbitrator, Ministry of Finance, Capital Markets Association, Investor Compensation Fund, Prague Stock Exchange and Central Depository. • Six AFSA staff participated in the Global Certification Program for Regulators of Securities Markets organized by the International Organization of Securities Commissions (IOSCO) and the Program on International Financial Systems (PIFS) at Harvard Law School. All AFSA participants were awarded Global Certificate upon successful completion of the programs. • Ten workshop sessions on the EU capital markets regulatory framework were delivered by the consultant firm Cadogan Financial to the market participants and AFSA staff. The purpose of the training was to i) raise market participants’ awareness of the new AFSA regulations; (ii) consolidate understanding of the key requirements of Page 12 of 31 The World Bank Enhancing Capital Markets Supervision Capacities of the Albanian Financial Supervisory Authority Phase 2 (P171066) the regulations and their implications for the market; (iii) enable a better understanding and clarity of the applicability of the regulations by the market participants. 23. Result Indicator 3 Enhanced awareness and financial education of market participants: Number of awareness raising and financial education programs targeting groups of issuers and investors designed and implemented. 24. AFSA, with the support of the consulting firm, organized two high level conferences covering the issues of the financial sector diversification and capital market development. The conferences served as forums bringing together more than 100 participants each, including high-level policy makers from AFSA, Bank of Albania, and other relevant authorities, as well as representatives from financial intermediaries, academics, investors, and development partners. The conferences were widely covered in the media (TVs, news portals, social media). These two events were highly efficient in achieving its goal to enhance awareness and financial education of market participants in Albania. The details on each conference are provided below: • International conference on Diversifying the Financial System through Capital Market Reforms took place on May 19, 2022 in Tirana, Albania. The conference was organized in three sessions. The first session focused on discussing the role of financial institutions in strengthening stability, diversifying financial markets, as well as opportunities for unleashing the potential of capital markets for bolstering the economic growth in Albania. The second session featured the perspective of the international development partners on diversification of the financial sector and capital market development. The third session provided the opportunity for international regulators and market players to share their views on regional experiences, harmonization and alignment of the national legislation with the EU directives on capital markets. • International conference on Green Finance - Opportunities for the financial sector in Albania took place on November 16, 2022 in Tirana, Albania. The conference brought together high-level representatives from the Albanian government, international financial institutions, regulators and financial market participants, and served as a platform for facilitating the dialogue on the importance of green finance, exchange of perspectives and experiences on environmental, social and corporate plans and policies, practices followed so far for green financing, as well as the challenges for the future. The conference also covered the opportunities for the financial sector in the green agenda, the role of capital market in supporting risk transfer, as well as developing sustainable and green finance in Albania. 25. As yet another deliverable under this project, the consulting company developed a technical note addressing various FINTECH challenges that AFSA can potentially face in the near future. The note focuses on laws and regulations, reporting, transparency, and accountability, as well as data privacy and cybersecurity and aims to support AFSA in shaping its approach to informing investors and consumers on FINTECH benefits as well as warning them against the risks associated with FINTECH products. 26. Phase 2 project has successfully achieved the results despite some challenges encountered during the implementation. There have been significant delays with launching the project activities that were caused by the travel bans in 2020 due to the covid crisis. Those delays negatively impacted the process of hiring the consulting firm and the peripatetic advisor. Despite this development, the projects achieved its objectives thanks to the strong commitment by Page 13 of 31 The World Bank Enhancing Capital Markets Supervision Capacities of the Albanian Financial Supervisory Authority Phase 2 (P171066) AFSA to advance with the implementation of the capital markets reforms, its ownership of the reforms and its ability to step up the efforts, as needed, during the implementation of the project. As a result, AFSA has put in place all key regulations to support the efficient operation and development of the capital market in the country, strengthened its technical and operational capacity, as well as conducted a number of successful events aiming to raise awareness of the market participants about this important reform agenda. Overall Outcome Rating Rating: Satisfactory 27. The overall outcome rating for the project is satisfactory based on its high relevance for the country, successful achievement of the project objectives, and high level of cost-effectiveness. 28. The project achieved a high level of cost-effectiveness despite the initial delays. The project had disbursed 87.6 percent or $866,865 of the approved funding by January 2023. While the project was approved by the World Bank on December 20, 2019, and ratified by the Albanian government on April 15, 2020, the implementation of the activities did not start until early 2021. The delay at the initial stage of the project was caused by the Covid19 crisis, with the restrictions on traveling to Albania leading to major delays in hiring international consultants to work on the project. Despite these delays, all components of the project achieved their objectives. 29. The project activities were highly relevant for Albania in achieving the expected objectives of strengthening the capital market supervisory authority and promoting the development of the capital market in the country. This was the second in series of two SECO-funded TA projects supporting AFSA with the implementation of the capital markets reforms. The first project was crucial in strengthening AFSA institutional capacity with the focus on the broader capital market technical knowledge, investment funds supervision, and new investment funds and capital market legislation. The second project built on stronger institutional capacity and higher technical expertise of staff at AFSA and was key in completing the capital markets legal framework based on the EU acquis, as well as addressing capacity gaps in the areas of capital markets supervision. The activities of Phase 2 project were particularly relevant after the EU announced the opening of the accession negotiations with Albania on March 24, 2020. 30. The project was successful in achieving its objectives. The project contributed to building AFSA’s capacity to supervise emerging capital market activities and support market development. The implementation of the EU capital market related directives and regulations into local legislation is a complex task that requires substantial efforts and carefully thought-through approach. Upon completion of the project, AFSA has in place all sub-regulatory acts required under the capital markets law and has increased its capacities to supervise capital markets and enforce corrective decisions on the market participants. The project activities were key in increasing awareness and establishing a dialogue about the capital market development with high-level policy makers, institutional investors, and other market participants, as well as strengthened the reputation of AFSA as an important institution in the country’s financial system architecture. On April 27, 2023, the Albanian Council of Ministers approved a policy document on “Creating an Enabling Environment for Capital Market Development, 2023 – 2027� that was developed in close Page 14 of 31 The World Bank Enhancing Capital Markets Supervision Capacities of the Albanian Financial Supervisory Authority Phase 2 (P171066) collaboration by AFSA and the Ministry of Finance and Economy (MoFE). Table 2 provides details on the main objectives and gives an overview of the expected results of the reforms envisaged under the policy document. The World Bank supported the cooperation among the two authorities (MoFE and AFSA) by providing advice on the key aspects of the capital markets development in the country, which are captured in a technical note that was shared with both authorities. This note drew the attention of the authorities to focus on addressing the missing preconditions for capital market development in Albania, which may prevent the country from achieving tangible results, particularly in developing capital market for the private sector. Table 2. Main objectives of the Albanian capital market development strategy for 2023-2027 Main Objectives Expected Results Increasing Issuers • State-owned companies start issuing bonds with public offering Participation • Other private companies listed on the Albanian stock exchange (ALSE) • Introduce new types of financial instruments • Increase listing of public and private companies on ALSE • Increase diversification of the portfolio for investment and pension funds • Reduction of financing costs Expanding the Investor • Transition from a small market to a large capital market Base and the Range of • Increase the investor confidence in the capital markets Financial Instruments • Facilitate channeling of investor savings towards the capital markets • Attract foreign investors and facilitate higher participation of institutional investors, such as insurance companies, pension funds or investment funds, in capital markets • Encourage the use of a wider range of financial instruments by investors Capital Market Efficiency • Increase access to capital markets and profiting from the benefits of this market and Transparency • Matching Demand with Supply • Fair valuation of securities prices • Improve competitiveness between financial intermediaries • Increase availability of information by improving market data and application of international accounting standards • Improve and ensure efficient market infrastructure • Introduce measures to improve investor confidence Development of the • Increase the secondary market liquidity Secondary Government • Fair valuation of securities prices on the secondary market Securities Market Other Outcomes and Impacts 31. One important outcome of the project is related to AFSA building its capacity and mobilizing its resources to take stronger ownership in the implementation of the capital market reforms. During the project implementation, AFSA had to step up its role in the implementation of the capital markets reforms due to the (i) delays in hiring international consultants caused by the COVID19 shutdown and travel Page 15 of 31 The World Bank Enhancing Capital Markets Supervision Capacities of the Albanian Financial Supervisory Authority Phase 2 (P171066) restrictions, and (ii) inability of the hired peripatetic advisor/s to complete their job due to the COVID19 pandemic and the related travel restrictions. In view of the above, AFSA initiated the process of drafting several key regulations before the start of the project. It also successfully allocated the function that was expected to be conducted by the peripatetic advisor among its staff and management. As a results, AFSA gained more expertise and strengthened its ownership of the reforms by relying on internal expertise in drafting regulations, verifying output by international consultants, and engaging with national authorities, capital markets supervisors from other countries, and IFIs during the implementation of the project. High level management of AFSA (including General Executive Director) were strongly involved in the project implementation, including at the technical level. 32. Public outreach activities helped achieve stronger engagement of Albanian government and the sector on the issues of the capital market development and initiate discussions on the greening of financial sector services. Public outreach took place in the form of two high-level international conferences organized by AFSA under the project. The conference on financial sector diversification served as a forum to bring together high-level government officials, such as Deputy Prime Minister, Minister of Finance and Economy, Governor of the Central Bank, as well as representatives from the international financial institutions (IFIs), including the World Bank country manager, IMF head of mission, and EBRD Capital markets senior manager, among others, to share their views. The conference was key in getting public commitment from the authorities to address capital market development agenda and in building closer cooperation among the authorities on the capital market related issues. The second conference organized under the project had a strong impact on achieving the project objectives, whereby it brought together strategic stakeholders and facilitated the discussion on green finance development in Albania. The conference was attended by high- level policy makers, including Minister of Finance and Economy, Minister of Environment, and Minister of Agriculture, Deputy Governor of the Central Bank, and IFI representatives. The keynote presentation was delivered by the World Bank to present its recently completed green finance diagnostic for Albania. The conference served to create the supporting environment for the green finance roadmap and action plan recommended under the World Bank diagnostic. 33. Phase 2 project also supported AFSA in drafting a new Private Pensions law that promotes the development of the institutional investors. The project was successful in supporting AFSA in finalizing the drafting of a new Private Pension law to replace the outdated law on voluntary pension funds. Private pension funds are an important building block for capital market development as they serve to channel member’s contribution into long-term investment instruments. The basis for the new law were the recommendations provided by the World Bank in the previous FIRST funded TA project that was implemented in 2015-2017. Under Phase 2 project, the World Bank team provided (under the bank executed component) to AFSA comments and technical advice on the selected topics covered under the draft Private Pension law. III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME 34. The biggest challenge for the implementation of this project was dealing with the reduced timeframe due to the delays at the initial stage of the project. As indicated in paragraph 28, the delays at the initial stage of the project were related to the approval of grant agreement and COVID19 pandemic. First, a delay (8 months) in singing the grant agreement by MoFE pushed the start of the project activities to April Page 16 of 31 The World Bank Enhancing Capital Markets Supervision Capacities of the Albanian Financial Supervisory Authority Phase 2 (P171066) 2020. Further delay was caused by the COVID19 pandemic, which had a severe impact on hiring international consultants and jumpstarting the project when the travel restrictions were in place. As a result, the project implementation was carried out in a period of 19 months instead of 3 years envisaged initially. 35. The project implementation had been also negatively impacted by the procurement process at the initial stage of the project. The procurement under the project was handled by GDFC, with AFSA responsible for drafting the technical specifications for the Terms of References and responding to the queries from the applicants. The consultancy activities were grouped into two major contracts, with the biggest contract covering most of deliverables. It took GDFC and AFSA 8 months from the date of publication of the job announcement to process the contract with E&Y GbmH. The primary reasons for the delay were AFSA’s limited experience in procurement of such contracts, and a weaker position of GDFC at the time when the procurement was initiated, whereby GDFC was understaffed due to the departure of several staff as a result of its restructuring. It is important to note, however, that the procurement process was carried by GDFC and AFSA with due diligence and transparency. GDFC was able to resolve its staffing issues during the project implementation and thus significantly improving its capacities to deal with the procurement process in an efficient and timely manner. 36. The COVID19 pandemic affected the project implementation through shutdowns and restrictions on travel, which started to gradually phase out in summer 2021. The project activities, which were advisory in nature, relied heavily on the efficient coordination and knowledge sharing between AFSA and the international consultant. Efficient coordination was particularly important for drafting the regulations, which were key activities at the start of the project. Online interactions between the consultant and AFSA did not provide a sufficient level of engagement required for such activities, causing further delays for the project implementation. 37. COVID19 restriction also negatively impacted selection process for the peripatetic advisor/s and their ability to complete the assignment. The ToR drafted by AFSA specified that the peripatetic advisor was required to have a substantial physical presence at AFSA because the main responsibility for this position was to support AFSA staff through implementation of the major activities under the project by serving as a technical soundboard. Under the COVID pandemic, this requirement had significantly reduced the rooster of candidates bidding for the position due to the restriction on travel that were in place and due to the general concerns of the candidates about their safety. As a result, the first candidate hired by AFSA for the job had resigned due to the inability to meet the country presence requirement, whereby the online interaction was also a negative factor because it made coordination with AFSA less efficient at the start of the project. The pool of candidates for the second peripatetic advisor was also limited. The candidate selected for the job had limited supervisory skills, which affected her ability to complete the assignment. As mentioned in paragraph 31, AFSA turned the challenge of the lack of peripatetic advisor on site to its advantage and built a stronger ownership of the deliverables using internal resources. The World Bank intensified its technical support and supervision to support AFSA, as needed. IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME 38. The World Bank’s performance during the identification, preparation, and implementation of the project was satisfactory. The identification of project scope ensured continuity of the capital market Page 17 of 31 The World Bank Enhancing Capital Markets Supervision Capacities of the Albanian Financial Supervisory Authority Phase 2 (P171066) reforms in Albania based on the activities conducted under Phase 1 project. The scope of the identified activities adequately reflected the need to strengthen the legal framework by developing the secondary legislation for the newly adopted law as well as strengthen the capacity of the supervisory authority to ensure sustainable market development. The timing of the project was supportive of the country’s needs to align its legal framework with the EU directives, given the start of the accession negotiations in March 2020. However, the project design could have been considered more carefully, taking into account the weak capacity of the authorities to deal with project deliverables and procurement process. This is a small project, which could have avoided delays if it was implemented as a bank executed TA. 39. The World Bank was heavily involved in the project preparation and implementation. The World Bank procurement specialists closely supervised the consultants hiring process by reviewing the documents, providing consultation and clarification on the good procurement practice, provided advise to AFSA and GDFC on the issues related to procurement. The World Bank supervisory activities were also intense, with the World Bank team stepping in, where needed, to support AFSA in the situations, such as reviewing deliverables, providing advice when the peripatetic advisor quit, as well as providing additional background information on topics related to the project (such as a note on the development of capital market in Albania prepared for MoFE and reviewing the Private Pension law). The World Bank team supported AFSA in organizing the international conferences that were a big success and took active participation in the financial sector greening conference. 40. AFSA praised the quality and level of WB team’s engagement. While the World Bank team was praised for its proactivity and expertise, AFSA and GDFC noted that having staff based in the country office in Albania was one of the key determinants of success during project implementation. Such presence provided the authorities with a continued technical support without waiting for official supervision missions, and enhanced communication with other authorities and international consultants. 41. The Project Steering Committees meetings were useful in discussing the project implementation status among the SECO, Albanian authorities and the World Bank. There had been four Steering Committee meetings organized during the project preparation and implementation. The meetings (all but one) were conducted in an online format with minutes produced for each meeting. The discussion focused on the recent developments in the regulatory frameworks for the capital markets and recent trends in the capital market developments, as well as status of the implementation of the project. The Steering Committee meeting helped coordination efforts among all parties involved in the implementation of the project and served as an efficient mechanism for redirecting focus of the activities to ensure the efficient use of funds and timely implementation of the activities. 42. Considerable uncertainty and risks to the economic growth and financial stability might delay Albania’s efforts and plans for further capital market development. Combination of COVID19 crisis and geopolitical tensions fueled by the Russian war in Ukraine, through their impact on commodity prices and inflation, continue to pose a high level of uncertainty about the economic growth globally. Further increase in commodity and energy prices, higher and more persistent inflation, limited access to external funding due to the tightening global financial conditions as well as unfavorable weather and overheating domestic real estate market pose significant risks to the Albanian economy. The above risks have potential to delay the development of capital markets in Albania through the economic downturn in the country and thus tighter access to funding domestically or on the international markets. Page 18 of 31 The World Bank Enhancing Capital Markets Supervision Capacities of the Albanian Financial Supervisory Authority Phase 2 (P171066) 43. As emphasized in the Capital Markets technical note prepared for MoFE and AFSA, the authorities should work on addressing missing preconditions for capital market development in Albania. World Bank team concluded that the country largely fulfills the macro fundamental prerequisites for capital market development. However, not all preconditions for the market development are met. The main challenges are i) the weak demand side, ii) very shallow supply side, and iii) sub-optimal market infrastructure. Authorities should focus as a priority on the government securities market development, rationalizing and strengthening the post-trade market infrastructure, as well as making efforts to develop demand and supply (weak pipeline of capable private companies ready to issue securities). To note, during the project AFSA was able to generate increased awareness and support by the MoFE and the Council of Ministers on capital markets development agenda, as evidenced also by the approval of the Council of Ministers of the Capital Markets development policy note, prepared jointly by AFSA and MoFE. V. LESSONS LEARNED AND RECOMMENDATIONS 44. The design of small TA projects benefiting independent institutions like AFSA could be more efficient if implemented as bank executed trust fund. The scope of the activities under this project, including providing advice on drafting the secondary regulation, producing analytical reports on specified topics, and conducting public awareness events, fits better in the bank executed technical assistance. Another factor to consider when designing a recipient executed project should be the sustainability of the authorities’ capacity and procedures in place to support the project implementation. While the project achieved its objectives, bank executed technical assistance would have prevented many delays during the preparation and implementation stages of the project, including during (i) the government grant approval process; (ii) hiring international consultants process by GDFC; and (iii) AFSA’s dealing with the verification of deliverables. The delays reduced the implementation of the project from the envisaged 3 years to 19 months. 45. Activities on raising awareness and promoting communications are a powerful tool to facilitate strategic reforms and build closer cooperation among the key stakeholders and the market players. AFSA considers activities under component four of Phase 2 project key for establishing a better understanding of the capital markets reforms by other authorities and market participants. The two international conferences had a high-level participation by the relevant authorities, IFIs, representatives from the financial sector, attracted more than 100 participants each and had a wide coverage in the media. Involvement of the World Bank and SECO during the preparation of these events helped in crafting the message/topics and enabling participation of high-level policymakers. AFSA is determined to replicate such events, with the upcoming conference tentatively planned for September 2023. Making use of the successful practice created under the project, AFSA should continue cooperation with the market players, in terms of communications and clarifications of the ongoing reforms. Establishing direct communications with the market is important for the smooth implementation of the capital market reforms in Albania. Under the project, AFSA organized ten workshop sessions with the market participants on the new regulatory framework, which were highly appreciated by the participants. AFSA should continue this practice in the future by organizing learning/raising awareness events for the market participants to explain the ongoing changes in the regulatory framework for the capital market. Such events would be useful in building AFSA’s reputation as a fully developed supervisor. Page 19 of 31 The World Bank Enhancing Capital Markets Supervision Capacities of the Albanian Financial Supervisory Authority Phase 2 (P171066) 46. The capacity of the national procurement agency should be taking into account while designing the project to avoid delays during the implementation stage. Coupling of activities under larger contracts was a lesson learned from Phase 1 project that suffered delays because the consultant services were procured under several smaller contracts. Organizing consultancy work around larger contract helped reduce the delays under Phase 2, which were associated with the COVID19 measures in place and weaker stance of AFSA and GDFC at the initial stage of the project due to the change of management at AFSA and issues with staffing at GDFC as a result of the restructuring. AFSA noted that the quality of the ToRs can be improved by including requirements for specific qualifications, such solid supervisory experience of candidates and a combination of regional (EU) and local experience. 47. It is important for financial regulators in small and underdeveloped countries to be flexible in adjusting the complex regulatory base to own market development circumstances. AFSA has succeeded in putting in place important regulatory requirements for the development of the capital market in line with EU legislation, but it needs to closely monitor the ability of the underdeveloped local market to cope with complex new requirements. It would be important for AFSA to develop a strategy for the implementation of the newly introduced requirements to ensure a sound development of the small and underdeveloped Albanian market and open it to the international markets. It would be equally important for AFSA to have flexibility to adjust the new regulatory framework in line with market needs, as well as to maintain the capacity to keep the regulatory framework aligned with future changes in the EU legal and regulatory environment. AFSA should carefully balance its objectives of having the regulatory framework aligned with the EU acquis and at the same time support the development of the small local market. 48. Lastly, the on-job training and study visits add value. Such activities have been very well perceived by AFSA and proved to be an efficient tool in capacity building. In the context of Phase 2 project, AFSA envisaged the on-job training on the inspections, investigations, and enforcement manual provided by international consultant. A customized and interactive format of the on-job training was very well received by AFSA staff. The study visits to Germany and the Czech Republic provided useful insights to the work of other capital market supervisors and helped in building cross-border relationship with the EU authorities. . Page 20 of 31 The World Bank Enhancing Capital Markets Supervision Capacities of The Albanian Financial Supervisory Authority Phase 2 (P171066) ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS A. RESULTS INDICATORS A.1 PDO Indicators Objective/Outcome: Strengthen AFSA’s capacity to regulate and supervise capital markets Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Strengthened regulatory and Text No Yes Yes Yes supervisory framework for capital markets implemented 30-Sep-2019 30-Dec-2022 30-Dec-2022 30-Dec-2022 AFSA adopts bylaws on: (i) Text No Yes Yes Yes Licensing, (ii) Prospectus, (iii) Listed Companies, (iv) 30-Sep-2019 30-Dec-2022 30-Dec-2022 30-Dec-2022 Conduct of Business, (v) Post- trade activities. Risk-based supervisory Text No Yes Yes Yes approach applied to all capital market intermediaries under 30-Sep-2019 30-Dec-2022 30-Dec-2022 30-Dec-2022 AFSA's supervision Comments (achievements against targets): Page 21 of 31 The World Bank Enhancing Capital Markets Supervision Capacities of The Albanian Financial Supervisory Authority Phase 2 (P171066) Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Increased capacity of ASFA to Text No Yes Yes Yes monitor and supervise capital markets 30-Sep-2019 30-Dec-2022 30-Dec-2022 30-Dec-2022 Number of capacity building Text 0 5 5 16 trainings provided to AFSA staff on montioring, 30-Sep-2019 30-Dec-2022 30-Dec-2022 30-Dec-2022 inspection, investigation and enforcement cpacity completed Comments (achievements against targets): Objective/Outcome: Boost market development for capital market products through increased financial awareness and education, and stimulation of financial innovation. Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Enhanced awareness and Text No Yes Yes Yes financial education of market participants 30-Sep-2019 30-Dec-2022 30-Dec-2022 30-Dec-2022 Number of awareness raising Text 0 2 2 2 Page 22 of 31 The World Bank Enhancing Capital Markets Supervision Capacities of The Albanian Financial Supervisory Authority Phase 2 (P171066) and financial education 30-Sep-2019 30-Dec-2022 30-Dec-2022 30-Dec-2022 programs targeting groups of issuers and investors designed and implemented Comments (achievements against targets): Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion CPF Objective 1c: Support Text No Yes Yes Yes improved financial stability - Regulatory and supervisory 30-Sep-2019 30-Dec-2022 30-Dec-2022 30-Dec-2022 framework for capital markets strengthened Comments (achievements against targets): A.2 Intermediate Results Indicators Component: Strengthen AFSA’s capacity to regulate and supervise capital markets Unit of Formally Revised Actual Achieved at Indicator Name Baseline Original Target Measure Target Completion Peripatetic advisor hired Text No Yes Yes Yes Page 23 of 31 The World Bank Enhancing Capital Markets Supervision Capacities of The Albanian Financial Supervisory Authority Phase 2 (P171066) 30-Sep-2019 31-Dec-2020 28-Feb-2021 30-Dec-2022 Comments (achievements against targets): Page 24 of 31 The World Bank Enhancing Capital Markets Supervision Capacities of The Albanian Financial Supervisory Authority Phase 2 (P171066) B. ORGANIZATION OF THE ASSESSMENT OF THE PDO Objective/Outcome 1: Strengthened regulatory and supervisory framework for capital markets implemented 1. AFSA adopts bylaws on: (i) Licensing, (ii) Prospectus, (iii) Listed Companies, (iv) Conduct of Business, (v) Post-trade activities. Outcome Indicators: 2. Risk-based supervisory approach applied to all capital market intermediaries under AFSA's supervision. Intermediate Results Indicators 1. Peripatetic advisor hired - Bylaws for the new Capital Market Law • On the form and content of a prospectus to be published when securities are offered to the public and admitted to trading on a regulated market • On transparency requirements of listed companies • On the licensing requirements and the requirements for the operation of a Multilateral Trading Facility (MTF), an Organized Trading Facility (OTF) and further requirements for Key Outputs investment firms acting as systematic internalizer • On operational activities of investment firms and banks providing investment services • On the licensing requirements and the requirements for the operation of Central Securities Depositories. • On capital adequacy for investment firms • On the licensing requirements and the requirements for the operation of Central Counterparties and Clearing Houses • On the precondition for a recognition of a foreign Credit Rating Agency and its reporting requirements Page 25 of 31 The World Bank Enhancing Capital Markets Supervision Capacities of The Albanian Financial Supervisory Authority Phase 2 (P171066) • On market abuse and short selling • On the licensing and operational requirements of market operators and exchange • On the procedure and review of retail consumer complaints in connection with regulated activities conducted by licensed, registered or recognized persons and complaints against the Authority. • On the appointment and requirements for statutory auditors of investment firms • On the form and procedures for the registration of the Offering Memorandum for securities issues (except for bonds) • On the licensing of investment firms, branch registration and recognition of foreign investment firms • On clients suitability assessment • On certification and qualifications of investment firm key function holders • On the registration and activity of investment firm’s tied agent • On the form and registering procedure of bond issuance Offering Memorandum - Workshop for market participants presenting the new regulations - Final analysis on the need to develop prudential reporting - Final Report on the Development of Prudential Reporting Framework - Final Report on the Enterprise Risk Management of AFSA and questionnaire - Final template for AFSA’s risk appetite document as well as final risk management internal guidance and related risk matrix document Page 26 of 31 The World Bank Enhancing Capital Markets Supervision Capacities of The Albanian Financial Supervisory Authority Phase 2 (P171066) - Final Report on Enforcement Needs - Final Enforcement Manual - Final Report of the Analysis on the Need for Market Surveillance - Final Framework Document on Market Surveillance Objective/Outcome 2: Increased capacity of ASFA to monitor and supervise capital markets 1.1. Number of capacity building trainings provided to AFSA staff on monitoring, inspection, investigation, and enforcement capacity Outcome Indicators completed. Intermediate Results Indicators - Three on job training sessions (3-4 days each) delivered to more than 30 supervision, licensing, and legal staff of AFSA. - Two knowledge exchange events delivered with 13 participants from AFSA: First study visit (destination: BaFin, Frankfurt, Germany), second study visit (destination: CNB, Prague, Czech Republic) Key Outputs - Six AFSA staff participated in the Global Certificate program of IOSCO and PIFS-Harvard Law School Global Certificate Program for Regulators of Securities Markets and received the Global Certificate. - -Ten workshop sessions delivered to market participants and AFSA staff on the EU capital markets regulatory framework focusing on Page 27 of 31 The World Bank Enhancing Capital Markets Supervision Capacities of The Albanian Financial Supervisory Authority Phase 2 (P171066) improving understanding and technical knowledge on the new AFSA regulations. Objective/Outcome 2: Enhanced awareness and financial education of market participants 1. Number of awareness raising and financial education programs Outcome Indicators targeting groups of issuers and investors designed and implemented. Intermediate Results Indicators - Two public outreach conferences: (i) International conference “Diversifying the Financial System through Capital Market Reforms�. Key Outputs (ii) International conference “Green Finance - Opportunities for the financial sector in Albania�. - Technical note on Fintech challenges to AFSA Page 28 of 31 The World Bank Enhancing Capital Markets Supervision Capacities of The Albanian Financial Supervisory Authority Phase 2 (P171066) . ANNEX 2. PROJECT COST BY COMPONENT Amount at Approval Actual at Project Percentage of Approval Components (US$M) Closing (US$M) (US$M) World Bank Supervision/Implementation 0 .30 0 Support World Bank Project Management and 0 .06 0 Administration Support for the implementation of the new 0 .10 0 capital market law Strengthen risk based 0 .10 0 supervision Develop capacities at AFSA to monitor and supervise 0 .57 0 securities markets Support AFSA for capital 0 .20 0 market development Incremental Operation Costs and Project Management 0 .02 0 Development Total 0.00 1.35 0.00 Page 29 of 31 The World Bank Enhancing Capital Markets Supervision Capacities of The Albanian Financial Supervisory Authority Phase 2 (P171066) ANNEX 3. RECIPIENT, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS AFSA did not have any substantial comments on the ICR report but provided some clarifications and minor edits to the main text of the ICR. Page 30 of 31 The World Bank Enhancing Capital Markets Supervision Capacities of The Albanian Financial Supervisory Authority Phase 2 (P171066) ANNEX 4. SUPPORTING DOCUMENTS (IF ANY) Page 31 of 31