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Financial regulation and supervision in Croatia

There is a trend towards integration of financial regulation and supervision in Europe and in developed overseas countries. Nevertheless, integrated regulatory bodies are quite unusual worldwide and this relatively new structure should be examined in detail. There are a number of different models of the institutional structure of financial regulation and supervision specific to every country, and the question is what will be the best solution for Croatia? The problems of authority overlapping and insufficient regulation are becoming more complex by the development of Croatian financial sector. Although banks dominate the Croatian financial market, that has been threatened by the rapid growth of non-deposit financial institutions, especially investment funds and compulsory private pension funds. Also, there is a problem of formal or informal financial groups that are gathered around few banks owned by foreigners. Accordingly, one can say that Croatian financial market is dominated by financial conglomerates. That complexity enables them to avoid rules and regulations of financial supervisory authorities. Because of the growing role of financial groups it is necessary to coordinate work of different supervisory authorities and consider unification of different regulatory bodies. Only two years ago, supervision of Croatian financial system consisted of six independent regulatory institutions entrusted with different financial services (“ solo” supervision), without any sufficient coordination of their activities. By adopting new laws in 2005, their partial integration started, based on two separate agencies. Croatian supervisory model at the moment is consisted of two regulators of the financial system, i.e. Croatian National Bank (HNB) and Croatian financial services supervisory agency (HANFA). This is an example of the twin peaks system, when banking supervision is carried out by the central bank (HNB), while non-bank financial institutions are regulated and supervised by another supervisory authority (HANFA). The aim of this paper is to discuss the present institutional structure and effectiveness of financial regulation and supervision in Croatia and to point out possible future development of the Croatian supervisory model.

financial system; financial institutions; regulation; supervision; coordination; Croatia

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