Project title: "Strengthening the capacity of the National Bank of Georgia in the field of banking and payment services in line with the EU Standards"
Contracting Authority: Delegation of the European Union to Georgia
EU Partner (Project Implementer): The Polish Financial Supervision Authority (UKNF)
Beneficiary Partner: The National Bank of Georgia (NBG)
Project implementation period: 1 March 2019 – 31 May 2021 (27 months)
EU Budget: EUR 1,750,000

Objectives of the twinning project
The purpose of this twinning project was to ensure stability and transparency of the financial sector by assisting the National Bank of Georgia (NBG) to improve overall financial supervisory mechanisms in line with the EU best practices.
The following results were projected: 

• the revision and implementation of the Georgian banking legislation in accordance with the CRD IV/CRR Package, including Regulation (EU) No 575/2013 on capital adequacy requirements for commercial banks, fit and proper legislative framework for administrators and shareholders with qualifying holding, leverage ratio, Net Stable Funding Ratio, large exposures, corporate governance, licensing and transfer of significant ownership, internal capital evaluation and disclosure requirements;
• the revision of the legal and implementation framework on payment services in line with relevant directives and regulations and in accordance with an inclusive and evidence-based approach including legislative amendments in place, prudential supervision framework developed, rules on execution of payment operations amended and operational, amendments to the rules of registration and cancellation of registration of Payment System Operators at the National Bank of Georgia developed, requirements of the strong customer authentication and the requirements for common and secure open standards of communication developed;
• NBG staff trained and capable to apply new rules and regulations.

Project Partners

Polish Financial Supervision Authority (UKNF)

The UKNF, as the selected Project Implementer, was responsible for the implementation of the Project’s objectives and budget.
The UKNF has operated since September 2006, and in January 2008 it became a fully integrated authority responsible for all sectors of the financial market in Poland Initially, in 2006, the new supervisory authority took over the duties of the Insurance and Pension Funds Supervision Commission and the Securities and Exchange Commission. On 1 January 2008, the UKNF took over the duties of the Commission for Banking Supervision. The Chair of the KNF Board is appointed by the Prime Minister for a 5-year term.

The KNF Board exercises supervision of the banking sector, capital market, insurance market, pension market, payment institutions and payment services offices, electronic money institutions and credit unions. The aim of the supervision of the financial market is to ensure the proper functioning of this market, its stability, security and transparency, confidence in the financial market, and to ensure that the interests of the market participants are protected. The activities of the Polish Financial Supervision Authority are supervised by the Prime Minister.

National Bank of Georgia

The NBG was the direct beneficiary and played a key role in the implementation of all the components of the Project. The National Bank of Georgia (NBG) is the central bank of Georgia. Its status is defined by the Constitution of Georgia. The NBG was established in 1919. The National Bank of Georgia has existed in its current form since 1991.

According to the Constitution of Georgia, the NBG is independent in its activities. The members of Georgia’s legislative and executive bodies do not have the right to intervene in the NBG’s activities. The NBG exercises supervision over the financial sector for the purposes of facilitating financial stability and transparency of the financial system, as well as for protecting the rights of the sector’s consumers and investors.

The main objective of the NBG is to ensure price stability. The NBG shall ensure stability and transparency of the financial system and facilitate sustainable economic growth in the country, if this is possible without posing a threat to attaining its main objective. The Governor of the NBG is appointed for a 7-year term by the Parliament of Georgia.

Institutions supporting the Project implementation

The Project was implemented by the UKNF in cooperation, in the relevant thematic areas, with partners from the National Bank of Poland (NBP), Bank of Lithuania, Bank Guarantee Fund (BFG) and Financial Ombudsman’s Bureau. The involvement of teams of experts in various fields allowed for comprehensive sharing of knowledge, best practices and solutions, with regard to the perspective and experiences of the Polish supervisory authority as well as central banks in Poland and Lithuania, and experts from cooperating national institutions.

Scope and summary of the Project

The Project was successfully implemented during the period between March 2019 and May 2021 as part of two components, comprising the joint actions taken by the Polish and Georgian supervisory authorities to adapt the Georgian laws to the EU legislation in the field of the banking sector and payment services, in accordance with the requirements of appropriate directives and regulations, as well as the support in the implementation of those requirements. With the support of the UKNF, Georgia is now ready to fully adapt its national legislation to EU standards and financial supervisory mechanisms in banking and payment services. 

The Project activities were implemented under the following two groups:

• Approximation and implementation of Georgian legislation with Union acquis in the banking sector in accordance with the CRD IV Package.
• Approximation and implementation of Georgian legislation with the Union acquis in the area of payments through the revision of the legal and implementation framework on payment services in line with relevant directives and regulations and in accordance with an inclusive and evidence-based approach.
  

For more than 2 years of the Project, the joint actions of partners in Poland and Georgia, carried out with the EU support, have contributed to the achievement of the following results:

• gradual approximation of the regulatory, supervisory and enforcement framework in line with the EU legislation and the requirements under the EU-Georgia Association Agreement;
• strengthening the NBG’s supervisory functions and capacities in terms of regulating the banking and payment services market in line with the EU acquis and best practices;
• support in improving financial supervisory mechanisms to protect beneficiaries of the banking and payment services and encourage financial market development in Georgia, as well as providing training to the employees of the NBG and preparing them to apply the new rules and laws.

The Project’s objective and results have been achieved thanks to effective cooperation among experts from the Polish and Georgian supervisory authorities and with the support from experts of participating institutions in Poland and Lithuania. All activities, foreseen within two components, including supplementary expert missions, have been implemented in line with the scope stipulated in the work-plan to the Project, in close cooperation with the Georgian Partner. 

The Project helped to strengthen the capacity of the NBG in the field of supervision of banking and payment services in Georgia through a comprehensive implementation of advisory and training actions. Over the period of 27 months, experts from the UKNF, in cooperation with experts from the National Bank of Georgia (and for actions falling within the relevant scope of competence, with experts from the National Bank of Poland, Bank of Lithuania, the Bank Guarantee Fund and the Financial Ombudsman’s Bureau) successfully completed a total of 61 specialised expert missions in Tbilisi and in the remote work mode. In response to the challenges related to COVID-19, the UKNF transformed, in cooperation with the NBG, the complex structure of the Project from on-site missions into fully remote work mode. 

The Project focused on the contribution to the amendments to and preparation for the implementation of the banking law in accordance with the CRD IV/CRR package and the revision of the regulatory and implementation framework for payment services in accordance with appropriate EU directives and regulations. The joint Project actions included the review and assessment of compliance of proposed or existing provisions of Georgian law with the EU rules laid down in the EU regulatory package, the analysis of legal gaps, formulation of recommendations on the proposed amendments to legal acts, expert consultations, and the exchange of Polish and Lithuanian experiences and practices, recommendations and guidance based on the experiences and best solutions adopted in Poland and Lithuania. 

The Project contributed to the enhancement of professional qualifications and institutional capacities of the National Bank of Georgia, through the interactive workshops and training sessions, focused on the transfer of know–how, experience, lessons learned and good practices based on the EU acquis with regard to the banking sector and payment services supervision. 

In the course of Project implementation, over 400 materials were elaborated and submitted to the Georgian Partner for supervisory use and to support the Georgian supervisor’s work on the gradual preparation of amendments to the legislation (such as recommendations with proposals for legal amendments, review reports with gap analysis, guidelines, handbooks, workshop and training materials). 

Considering the guidance and advice provided, a number of legal regulations and solutions have already been adopted or are at the stage of final consultations, preceding their implementation in Georgia.

Upon completion of the Project, appropriate laws will be adapted in Georgia in accordance with the EU rules; the NBG will have better financial supervisory mechanisms and increased institutional capacity in terms of banking and payment services. Better legislation, the supervisory methodology and standards adapted to appropriate EU rules and practices will improve the effectiveness of application of supervisory powers for a better protection of users of banking and payment services and for the development of the financial market in Georgia. Consequently, in the long term, a sound financial market in Georgia will contribute to the economic growth as well as stability and better protection of financial market participants. 

The final report on the implementation of the Project for the benefit of the National Bank of Georgia, with a final financial settlement, was accepted without reservations by the Delegation of the European Union to Georgia on 29 November 2021.