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Exam Code: CGFM Practice test 2022 by Killexams.com team
CGFM Certified Government Financial Manager (CGFM)
Exam ID : CGFM
Exam Name : Certified Government Financial Manager(R)
Questions : 115 questions
Duration : 2 hrs 15 min.

I: Organization, Structure and Authority of Government (15%)

A. Demonstrate an understanding of the levels of government, including:
- The three levels of government: federal, state and local.
- The interrelationships among the three levels of government: federal, state and local.

B. Demonstrate an understanding of the branches of government – legislative, executive, judicial – including:
- The roles of the three branches.
- The interrelationships among the three branches.
- The checks and balances through separation of powers among the three branches.

C. Demonstrate an understanding of the components of federal, state and local governments (e.g., central management and accountability agencies, departments, agencies, bureaus, commissions, divisions).

D. Demonstrate an understanding of the authorities and responsibilities of the government (e.g., government-wide and departmental), including:

The federal government, its hierarchy and constraints (e.g., U.S. Constitution, federal laws, executive orders, rules and regulations).
The state governments, their hierarchies and constraints (e.g., U.S. Constitution, state constitutions, state laws, executive orders, rules and regulations).
The local governments, their hierarchies and constraints (e.g., state constitutions, state laws, local charters, local ordinances, executive orders, rules and regulations).
Tribal government sovereignty.
E. Demonstrate an understanding of the authorities and responsibilities of the different types of governments, including:

The differentiation among general-purpose governments, special-purpose governments and quasi-governmental entities (e.g., federal, states, cities, counties, territories, authorities, school districts, government corporations, government-sponsored enterprises).
The interrelationships among general-purpose governments, special-purpose governments and quasi-governmental entities.
The role of jointly-governed organizations (e.g., transit agencies).

II: Legally-Based Implications of the Government Financial Environment (15%)
A. Demonstrate an understanding of the implications of sovereignty in the levels of government, including:
- The meaning, application and limitations of sovereign authority.
- The power of governments to tax and borrow.
- The power of the federal government to establish monetary policy.

B. Demonstrate an understanding of the budget, including:
- The role and significance of the budget in government.
- The objectives of the budget (e.g., policy document, operations guide, financial plan, communications device).
- The objectives of the budget process (e.g., define priorities, debate policy, allocate resources, identify revenue sources).
- The legal aspects of the government budget (e.g., control levels, spending limits, fund types, balanced budgeting).
- The principles of legislative control over governmental finance (e.g., appropriating funds, establishing spending levels, establishing spending conditions).
- How the executive branch controls spending (e.g., monitoring budget execution, planning for allocation of resources over time and among programs).
- How judicial decisions affect government spending.
- The role of other budget control devices (e.g., apportionments, allotments, encumbrances/obligations, funds, function, department, activity, object).

C. Demonstrate an understanding of how establishing special funds or dedicated revenues helps fulfill legal requirements.
D. Demonstrate an understanding of legislative “earmarking.”

III: Demonstrate an Understanding of the Government Management System (Cycle), Including: (16%)
A. The elements of the government management system, including strategic planning, programming, budgeting, operations, accounting, reporting and auditing.

B. The interrelationships among the elements of the government management system.
C. The importance of data in the government management system (cycle).
IV: Governmental Financing Process (24%)
A. Demonstrate an understanding of the role of taxation, including:
- The elements of tax policy (e.g., what to tax, who to tax, how much to tax, why to tax).
- The various types of taxes for each level of government and the roles and advantages of each type (e.g., income, wealth, consumption).
- The nature and role of tax expenditures.
- Tax limitations and exclusions.

B. Demonstrate an understanding of intergovernmental revenues, including:
- The differences among contracts, shared revenues and grants.
- The differences among the types of grants (e.g., formula grants, discretionary grants, block grants).
- The requirements and expectations of the grantor and grantee throughout the grant lifecycle, including the role of the Uniform Guidance.

C. Demonstrate an understanding of other forms of financing, including:
Other forms of government revenues (e.g., investment income, user fees, licenses, lotteries, donations).
The rationales for establishing user fees (e.g., recover costs, expand service capacity, encourage or limit use of services). The use of public-private partnerships.

D. Demonstrate an understanding of the role of debt, including:
- Purposes of entering into debt.
- Factors that should be considered before entering into debt (e.g., ability to pay, purpose, interest rate, tax base).
- The types of debt limitations (e.g., statutory, bond covenants).
- Factors that should be included in debt policies (e.g., available tax base, debt maturities).
- The various types of financing options (e.g., notes, bonds, lease-purchase, certificates of participation).
- The sources and methods of repaying debt (e.g., dedicated taxes, user fees, general revenues).
- The role of credit rating agencies in the debt issuance process.
- The role of insurance and guarantees in the debt issuance process.

V: Identify the Concepts, Definitions and Notions of Public Accountability, Including: (12%)

A. The meaning and purpose of accountability in the government environment (e.g., the Chief Financial Officers (CFO) Act of 1990).

B. The role and key attributes of accountability (e.g., disclosure, organization structure, reporting), and their interrelationships.

C. Elements for which a government should be accountable (e.g., performance, financial, compliance, efficiency and effectiveness, stewardship of assets).

D. The primary stakeholders in accountability (e.g., legislators, taxpayers, other governments, investors, creditors, underwriters, future generations).

E. The groups that help to establish and maintain accountability (e.g., legislative bodies, media, management, analysts, employees, taxpayers).

F. The methods used to demonstrate and assess accountability and transparency (e.g., audit reports, performance reports, oversight hearings, program evaluations, service efforts and accomplishment (SEA) reports, electronic reports).

G. The techniques used to assess fiscal sustainability and solvency.

H. Concepts of open government, data transparency and citizen-centric reporting (e.g., Digital Accountability and Transparency Act of 2014 (DATA Act), open checkbooks, open book, sunshine laws).

VI: Demonstrate an Understanding of Ethics as Applied to the Government Environment, Including: (10%)
A. The key concepts related to ethical responsibility to the public, professional conduct (e.g., genuine or perceived conflicts of interest, independence, objectivity, due care) and the sources of guidance (e.g., the AGA Code of Ethics).

B. The steps a government financial manager needs to take to avoid a conflict of interest and to ensure objectivity and independence.

C. The concept of due care in the performance of professional duties.

D. Activities or situations that are inconsistent with the responsibilities of public officials and employees.

E. The appropriate course of action to avoid the reality or the perception of improper use of one's office for personal gain.

F. Personal responsibility as it relates to organizational codes of conduct (e.g., whistle blower, nepotism).

VII: Demonstrate an Understanding of Providing Government Services and Information Electronically, Including: (8%) A. Delivery of government services and e-government (e.g., drivers license renewal, online bill and tax payment).

B. Stakeholder real-time access to information, including electronic financial reporting.

C. The use of various media and devices for communications and providing services (e.g., social networking, apps, mobile devices).

D. Security and privacy considerations (e.g., the requirements of the National Institute of Standards and Technology, encryption, cybersecurity).

I: Governmental Financial Accounting, Reporting and Budgeting: General Knowledge (40%)
A. Demonstrate an understanding of the influences, objectives and role of standards, including:

The unique financial aspects of the governmental environment that differ from the private sector (e.g., profit versus service, importance of budget).
The concept of interperiod equity.
The objectives of governmental financial reporting (e.g., financial accountability, budgetary accountability, program accountability).
The major uses of governmental financial reporting (e.g., budgetary compliance, compliance with laws and regulations, assessing financial position, assessing results of operations, assessing sustainability).
The characteristics of information in governmental financial reporting (e.g., understandability, reliability, relevance, timeliness, consistency, comparability).
The roles of the Financial Accounting Standards Board (FASB), Governmental Accounting Standards Board (GASB) and Federal Accounting Standards Advisory Board (FASAB).
The role of the International Public Sector Accounting Standards Board (IPSASB).
Due process in the setting of accounting standards (e.g., discussion memorandum, invitation to comment, preliminary views, exposure draft, public hearing, task forces).
The purpose of the hierarchy of generally accepted accounting principles for state/local and federal accounting and financial reporting.
The basic concepts and requirements of Open Government financial reporting.

B. Demonstrate an understanding of the concepts of managerial cost accounting and fee establishment, including:
The purposes for accumulating and reporting cost information.
The concept of full cost of outputs, incorporating inter-entity costs.
The requirements of FASAB Statement of Federal Financial Accounting Standards (SFFAS) 4, as amended: Managerial Cost Accounting Concepts and Standards.
Determining the costs under an intergovernmental cost-reimbursement contract or grant (as outlined in the Uniform Guidance).
Identification of the methods for assigning and allocating costs in a given situation (e.g., direct, indirect).
Computation of the fee to be charged to a user.
Various cost recovery objectives (e.g., total direct costs, operating costs, full costs, replacement costs, incremental costs).

C. Demonstrate an understanding of the concepts of budgeting, including:
The key elements of the budget process, from provision of initial guidance through preparation, review, adoption, execution and accounting.
The structure of the budget (e.g., organizational unit, program, function, category, character, fund, line item, object).
The features of various budgetary approaches (e.g., baseline, line item, program, zero-base, performance).
The various means for financing capital projects, including the role of a capital budget.
The methods of forecasting revenues and expenditures.
The various means of budgetary control (e.g., revenue monitoring, encumbrance/obligation control, vacancy controls, allotment, apportionment).

D. Demonstrate an understanding of the general principles of governmental financial accounting, including:
Basic accounting processes (e.g., debits, credits, ledger accounts, stock and flow statements, accounting period).
The differences among the various measurement focuses and bases of accounting (e.g., economic resources, current financial resources, cash, accrual, modified accrual).
The effect of applying the various measurement focuses and bases of accounting to specific transactions.
Exchange and exchange-like versus non-exchange transactions.
How to adjust the allowance for doubtful accounts under alternative methods (e.g., percentage of sales or percentage of accounts receivable).
The differences among various methods of valuing inventory (e.g., First-in, First-out (FIFO), Last-in, First-out (LIFO), average cost).
Situations that require recording depreciation and calculation of the same.
Recording contingencies (e.g., judgments, claims).

II: Demonstrate an Understanding of State and Local Financial Accounting and Reporting, Including: (30%)
A. The application of the GASB standards for determining the reporting entity, including component units.
B. The purpose of each fund type within each fund category, and its related basis of accounting.
C. The form and content of the Comprehensive Annual Financial Report (CAFR).
D. The purpose of popular reporting.
E. The form and content of the basic financial statements, including:

Government-wide financial statements.
Fund-level financial statements.
Notes.
F. The reporting of fund balance in governmental funds.
G. The form and purpose of required supplementary information (RSI).
H. How to measure, record and report the purchase of capital assets, including assets acquired through a capital lease.
I. How to measure, record and report the incurrence and repayment of general long-term obligations in a governmental fund.
J. How to measure, record and report common, fundamental current assets and liabilities, revenue, expenditures, and other financing sources and uses when using modified accrual basis of accounting (e.g., property tax, grants, shared revenues, capital outlays, bond proceeds, debt service, payroll, accounts receivable).

K. How to measure, record and report common, fundamental assets, liabilities, revenue and expense transactions when using accrual basis of accounting (e.g., taxes, grants, shared revenues, capital assets, long-term debt, operating expenses, pensions, payroll, accounts receivable).
L. The types of interfund transactions, and how they are accounted for.
M. How to consolidate or eliminate transactions between the fund level and the government-wide level for governmental activities.
N. The required disclosures for cash deposits with financial institutions and investments, including repurchase agreements.
O. The option and criteria for using the modified approach for infrastructure.
P. The entries for recording the budget, modifying the budget and recording encumbrances and expenditures.
Q. How to reconcile the budgetary information to the generally accepted accounting principles (GAAP) information.
R. How to reconcile the fund financial statements to the government-wide financial statements.
S. Government combinations (e.g., mergers and acquisitions, transfers of operations).

III: Demonstrate an Understanding of Federal Financial Accounting and Reporting, Including: (30%)
A. The role of FASAB and the relationships among the Office of Management and Budget (OMB), U.S. Department of the Treasury and the Government Accountability Office (GAO) in federal financial accounting and reporting.
B. Key budgetary terms (e.g., appropriations, budget authority, budgetary resources, object class, outlays, receipts, offsetting collections, deficit).
C. The components of the budgetary equation.
D. The relationship and differences between budgetary and proprietary accounting.
E. Types of funds (e.g., general, trust, revolving).
F. The components and use of the U.S. Standard General Ledger.
G. How to record common, fundamental budgetary transactions (e.g., appropriation, apportionment, allotment, commitment, obligation, expenditure).
H. How to record common, fundamental proprietary transactions (e.g., warrants, accounts payable, payroll, accounts receivable, pensions, investments, depreciation).
I. Determining the reporting entity.
J. The form and content of an agency financial report (AFR) and a performance and accountability report (PAR).
K. The purposes, form and content of the basic financial statements.
L. The concepts of consolidation and intragovernmental transactions.
M. The purposes and form of the notes to the financial statements.
N. The purposes and form of required supplementary information (RSI).
O. The concept of Fund Balance with Treasury.
P. The concepts of accounting for loans and loan guarantees (Credit Reform Act).
Q. The basic requirements for the U.S. Consolidated Financial Report.

I: Financial Management Functions (25%)
A. Demonstrate an understanding of cash management, including:

Legislation that affects governmental cash management.
Controls appropriate for governmental cash management.
Considerations in establishing banking relationships (e.g., competition, servicing, compensating balance).
Techniques for accelerating collections (e.g., electronic fund transfer (EFT), centralized collections, lockboxes, e-Collections).
Techniques for timely payment (e.g., warehousing payments, EFT, credit cards, electronic invoicing).
The role and control of electronic payments (e.g., smart cards, benefit cards, EFT).
The existence of and the need to identify, prevent and recover improper payments.
B. Demonstrate an understanding of investment management, including:

Concepts and relationships among risk, liquidity and yield, and the associated tradeoffs.
Types of investments for operating funds and pensions.
The concept of fiduciary responsibility, including the duty of loyalty and duties to care, act in a prudent manner and diversify plan assets.
The components of an investment policy, including standards of care, objectives, conflicts of interest and authorization.
Investment management considerations (e.g., selection of money managers, role of prudent experts, understanding of markets, monitoring and evaluating performance, risk assessment/avoidance, internal controls).
C. Demonstrate an understanding of loan and loan certain programs and debt collection, including:
The components of loan and loan certain programs (e.g., rationale, credit extension, account servicing, debt write-off, performance measurement).
The components of delinquent debt collection (e.g., salary and refund offsets, collection agencies, delinquency rates, aging, reporting requirements).
D. Demonstrate an understanding of procurement management, including:
The elements in the public procurement process (e.g., authorized procurement officials, compiling a bidders list, public advertising, preparing and issuing an invitation to bid (ITB) or a request for proposal (RFP), evaluating proposals, awarding the contract, writing the contract).
Techniques for assuring full and fair competition (e.g., advertising, direct contact to likely vendors, registries).
Contract efficiencies (e.g., purchase cards, bulk purchasing, inter-agency procurements).
Evaluation selection criteria (e.g., past performance, delivery time, price).
The monitoring and acceptance process to ensure that contract specifications are met.
E. Demonstrate an understanding of property management, including:
The elements of a property management system (e.g., record keeping, safeguarding, maintenance, reporting).
The procedures for property disposal (e.g., identifying surplus, disposition methods).
F. Demonstrate an understanding of operating materials and supplies/inventory management, including:
The elements of an operating materials and supplies/inventory management system (e.g., policies, classifications, controls, reorder decisions).
Ways to safeguard operating materials and supplies/inventory (e.g., physical control, tagging, periodic inventory, stewardship, radio-frequency identification (RFID).
G. Demonstrate an understanding of financial management systems, including:
The concept of an integrated financial management system.
User needs for real-time access to data across the enterprise (e.g., use of dashboards, data visualization).
Business process re-engineering in the development and implementation of information systems.
The concept of enterprise resource planning (ERP) systems.
The various approaches to meeting system needs (e.g., off-the-shelf, cross-servicing, outsourcing, custom design, shared services).
The elements of a disciplined development process (e.g., requirements management, testing, data conversion, systems interfaces, configuration management, risk management, project management, quality assurance).
Techniques for project management (e.g., defining interrelationships and tasks; resource management; cost, schedule and performance monitoring; independent verification and validation; change management).
Methods for assuring the reliability and completeness of data.
The concept of the continuity of operations plan (COOP).
The use of cloud computing.
H. Demonstrate an understanding of shared services, including:
The service offerings, planning, transition steps and costs of shared support services.
Importance, advantages and disadvantages of shared services.
II: Demonstrate an Understanding of Financial and Managerial Analysis Techniques, Including: (15%)
A. The conduct of the following types of analyses: present value, future value, cash flow, pay-back, trend, ratio analysis, strategic sourcing, regression analysis, earned value management and flowcharting.

B. Identification of the sources of information used and reliability of the data for financial and managerial analysis (e.g., accounting records, performance records, financial statements, census data).
C. The use of forensic techniques, such as data mining.
D. The use of advanced data analytics.

III: Internal Control (25%)
A. Demonstrate an understanding of internal control, including:
The objectives of internal control.
The concepts of cost-benefit and reasonable assurance.
The components and principles of internal control, as specified by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Integrated Framework: control environment, risk assessment, control activities, information and communication, and monitoring.
Cyber security (e.g., general and application controls).
Identification and correction of internal control deficiencies.
Involvement of shared service providers.
B. Demonstrate an understanding of the application of internal control to:
Programs and operations, including information technology.
Financial reporting.
Compliance.
Fraud, waste and abuse prevention and detection.
C. Demonstrate an understanding of internal control responsibilities, including:
Management's responsibility to establish, monitor, remediate and report on internal control.
Management's responsibility for detecting and reporting fraud, waste and abuse.
The independent auditor's responsibility regarding internal control.
The roles of the internal auditor in the internal control process.
D. Demonstrate an understanding of the internal control evaluation process, including:

The process for documenting and assessing internal control.
The roles of management and the auditor in the evaluations of internal control including the risk of fraud, waste and abuse.
E. Demonstrate an understanding of the internal control reporting process, including:

How management reports on internal control, including the use of various types of assertions.
The auditor's reporting on internal control.
F. Demonstrate an understanding of Enterprise Risk Management (ERM), including:

Relationship to internal control.
Application of ERM.

IV: Demonstrate an Understanding of Performance Measurement/Metrics/Service Efforts and Accomplishments (SEA), Including: (15%) A. The objectives of financial and non-financial performance measures.
B. How performance measures relate to organizational goals and objectives.
C. How financial and non-financial performance measures are linked.
D. How financial and non-financial performance measures are integrated with the strategic plan and budget.
E. The uses of performance measurement and reporting to demonstrate public accountability and transparency.
F. The uses of performance measurement and reporting to Excellerate allocation of resources and oversight of performance.
G. The uses of performance measurement and reporting to Excellerate effectiveness and efficiency.
H. The types of performance measures: inputs, outputs, outcomes and efficiency measures.
I. The characteristics of performance measurement data (e.g., relevant, understandable, comparable, reliable, timely, verifiable, actionable, cost-beneficial).
J. Baselines and benchmarks.
K. The role of stakeholder input in the performance process.
L. The legal requirement and guidance for performance measurement.
V: Auditing (20%)
A. Demonstrate an understanding of auditing, including:
Types of auditors (e.g., external, internal).
Objectives of financial audits.
Objectives of attestation engagements.
Objectives of performance audits.
Uses of audit reports.
The concept of materiality.
B. Demonstrate an understanding of standards, including:
The sources of auditing standards for audits of government organizations.
The interrelationships among various audit standards-setting organizations (e.g., the Government Accountability Office (GAO), American Institute of Certified Public Accountants (AICPA) Auditing Standards Board and the Public Company Accounting Oversight Board (PCAOB)).
The concept of general standards (e.g., independence, professional judgement, competence, quality control and assurance).
The concept of auditor independence and the impact of non-audit professional services on independence.
Standards for financial audits.
Standards for attestation engagements.
The responsibilities of the auditor in an audit follow-up program.
Fieldwork and reporting standards for performance audits.
The types of activities that are considered sensitive in a government audit (e.g., taxpayer information, payments to informants, the Health Insurance Portability and Accountability Act (HIPAA) data, personally identifiable information (PII)).
C. Demonstrate an understanding of the responsibilities of the auditee, including tasks related to:
Preparing for and procuring audit services.
Supporting the audit process.
Preparation of the management representation letter.
Audit follow-up and corrective action plan based on audit findings.
The role of an audit or audit advisory committee.
D. Demonstrate an understanding of the components of the Single Audit Act and the role of the Office of Management and Budget (OMB), including:
The scope and purpose.
The required reports.
Certified Government Financial Manager (CGFM)
Financial Government test
Killexams : Financial Government test - BingNews https://killexams.com/pass4sure/exam-detail/CGFM Search results Killexams : Financial Government test - BingNews https://killexams.com/pass4sure/exam-detail/CGFM https://killexams.com/exam_list/Financial Killexams : BoE to stress test non-banks for first time after pensions turmoil FILE PHOTO: The Bank of England is seen against a blue sky, London © Thomson Reuters FILE PHOTO: The Bank of England is seen against a blue sky, London

By Huw Jones and David Milliken

LONDON (Reuters) -Investment funds and other non-bank financial institutions face their first 'stress test' next year to apply lessons from the near-meltdown in Britain's pension fund sector, the Bank of England (BoE) said on Tuesday.

The BoE had to step in from September to buy 19.3 billion pounds ($23.75 billion) of government bonds to stabilise markets after turmoil caused by the fiscal plans of Liz Truss's short-lived government.

Liability-driven investment (LDI) funds, used by pension funds to ensure their long-term payouts, struggled to meet collateral calls as bond prices tumbled.

The BoE's Financial Policy Committee (FPC), which monitors the financial system for risks, said on Tuesday the LDI crisis showed the need to test how non-bank financial institutions (NBFI) cope with stresses.

"The Bank will run, for the first time, an exploratory scenario exercise focused on NBFI risks, to inform understanding of these risks and future policy approaches," the FPC said in its half-yearly Financial Stability Report.

Further details will be set out in the first half of 2023.

"There is also a need to develop stress-testing approaches to understand better the resilience of NBFIs to shocks and their interconnections with banks and core markets," the FPC said.

Neil Birrell, chief investment officer at asset manager Premier Miton Group, said industry would probably react to news of the stress test with a "huge sigh".

"Another layer of regulation just causes more work. But on the other hand we as fund managers shouldn’t have anything to fear from all this because we are probably doing it all already," Birrell said.

The test will focus on the UK government and corporate bond market and its main participants such as banks, which play a core role in financing the UK economy.

Such market-based finance accounted for 776 billion pounds, or 55%, of all lending to UK businesses at the end of 2021 and nearly all of the almost 390 billion pound net increase in lending to the sector between the end of 2007 and end of 2021.

LDI funds are often listed in Ireland and Luxembourg, where regulators - along with their UK counterparts - have introduced quick fixes that forced funds to maintain far higher levels of cash.

They can now cope with a 300 to 400 basis point move in interest rates, well above the 150 basis point level held before September's turmoil.

NEW GUIDANCE

The FPC said it would work with counterparts in the European Union to come up with minimum cash buffer guidance on a longer-term "steady state" basis, which could potentially push up fees to absorb the cost or make the use of LDI funds unattractive.

Jonathan Lipkin, director for policy, strategy and innovation at the Investment Association, said the sector would work with regulators so that any risk measures put in place are proportionate.

Britain's pensions regulator is due to update its guidance to the sector, which could include the new steady state cash buffer levels, data reporting and requirements for fund trustees to speed up decision-making in a crisis.

The regulator said on Tuesday it would likely update its guidance for trustees using LDI in April, to ensure schemes have sufficient resilience.

The FPC said it also backed a call from the Financial Conduct Authority to regulate consultants who advise pension funds.

After regulators introduced tougher rules for banks in the aftermath of the global financial crisis more than a decade ago, attention is turning again to non-banks, such as funds and insurers, which account for about half of the global financial system.

Regulators worry there is too little data on hidden leverage in the system, as shown by LDI.

"The episode also exposed deficiencies in how banks monitor and manage risks with respect to LDI funds," the FPC said.

The FPC said there would be a consultation paper in 2023 on likely moves to require money market funds - which struggled when economies went into COVID-19 lockdowns in March 2020 - to hold more cash.

($1 = 0.8127 pounds)

(Reporting by Huw Jones and David MillikenAdditional reporting by Carolyn Cohn and Naomi RovnickEditing by David Goodman and Mark Potter)

 Tue, 13 Dec 2022 01:37:17 -0600 en-US text/html https://www.msn.com/en-us/money/markets/boe-to-stress-test-non-banks-for-first-time-after-pensions-turmoil/ar-AA15e6bD Killexams : Bank of England to run stress tests on non-bank financial institutions

The Bank of England is set to launch the first ever stress test on financial institutions outside the banking sector after the accurate mini-budget market turmoil that saw the near-collapse of some pension funds.

ore needs to be done to ensure that the non-bank financial sector is more resilient and does not pose a threat to the UK’s financial stability, the Bank’s Financial Policy Committee (FPC) said.

The Bank already stress-tests eight of the UK’s leading banks, such as Barclays, NatWest and Lloyds Banking Group, to determine how well they can withstand shocks to the economy.

It involves putting them under hypothetical worst-case scenarios like high inflation, spiking interest rates, high unemployment and economic decline, to see if they could still support households and businesses effectively.

We have now had a whole series of non-bank incidents across different jurisdictions, and I think it is absolutely critical to recognise that this a sector that is highly internationally diversifiedAndrew Bailey, governor of the Bank of England

But up until now there has been no such scenario for non-banks, such as pension funds, hedge funds, insurers, and private equity lenders.

The FPC said the stress tests will be exploratory and will take into account potential scenarios which go beyond historical experience.

It comes after yields on UK government debt surged to historic levels in September after former chancellor Kwasi Kwarteng’s disastrous mini-budget sparked market chaos.

The Bank of England was forced to step in and purchase about £19 billion worth of gilts to stabilise the market and prevent some pension funds from collapse.

In particular, it exposed the instability of liability-driven investment (LDI) funds – the investment strategies at the centre of the pension crisis, the FPC said.

It is important that these financial stability risks are avoided in the future, it stressed.

The governor of the Bank of England, Andrew Bailey, said there have been a number of “incidents” in the sector that need to be addressed, and the Bank needs to get a better understanding of what causes these.

He said: “The post-financial crisis reforms were very much, and rightly, focused on the banking sector.

I think the things we’ve seen... have made people much more aware of how liquidity resilience in non-bank finance can cause systemic issues, and I think there is much more of a will to solve these problemsSir Jon Cunliffe, Bank of England

“But we have now had a whole series of non-bank incidents across different jurisdictions, and I think it is absolutely critical to recognise that this is a sector that is highly internationally diversified.

“The pooled LDI funds, which were the main source of the challenge we had, are in almost all cases actually based outside this country. So that emphasises why it is so important that we take action.”

Sir Jon Cunliffe, the deputy governor for financial stability, stressed the exploratory nature of the stress tests and the importance of getting a bigger picture of how banks and non-banks work together.

He added: “I think the things we’ve seen… have made people much more aware of how liquidity resilience in non-bank finance can cause systemic issues, and I think there is much more of a will to solve these problems.

“But we’ll know by the end of next year what we’ve come up with.”

 Tue, 13 Dec 2022 01:50:00 -0600 en text/html https://www.belfasttelegraph.co.uk/news/uk/bank-of-england-to-run-stress-tests-on-non-bank-financial-institutions-42216657.html Killexams : BoE to test 'shadow banking' after markets chaos

The Bank of England will test so-called shadow banking institutions such as pension funds, that played a key role in accurate UK bond market chaos, it said Tuesday.

The BoE was forced to buy UK debt in September in an emergency intervention to avert financial catastrophe, after a controversial tax-slashing budget by the government caused bond yields to soar and sparked panic.

The crisis, which sparked the downfall of former Conservative prime minister Liz Truss, threw the spotlight on non-banking financial institutions (NBFIs) and their risk to stability, the BoE noted Tuesday.

"There is a need to develop stress-testing approaches to understand better the resilience of NBFIs to shocks" and their links with commercial lenders and markets, it added in a report.

"The bank will run, for the first time, an exploratory scenario exercise focused on NBFI risks, to inform understanding of these risks and future policy approaches," it revealed.

September's turmoil, centred on the exposure of pension funds to UK debt market volatility, highlighted a "material risk" to stability, the BoE warned.

Some pension funds use Liability Driven Investments (LDIs), which are linked to financial derivatives and intended to help ensure that the income generated by the assets covers their long-term commitments.

However, the chaos caused the value of assets, notably government bonds, to tumble.

That forced pension funds to sell the bonds, known as gilts, to swiftly access liquidity, sending yields rocketing.

"The rapid and unprecedented increase in yields exposed vulnerabilities associated with LDI funds, in which many defined benefit pension schemes invest," the BoE said.

"This led to a vicious spiral of collateral calls and forced gilt sales that risked leading to further market dysfunction, creating a material risk to UK financial stability."

The BoE itself does not regulate LDIs, but wants pension fund watchdogs to ensure institutions have sufficient collateral in LDI funds to withstand further shocks.

Truss quit in October, replaced by Rishi Sunak and the new Conservative prime minister has reversed her unfunded budget that also sent the pound slumping to a record low against the dollar.

js/rfj/bcp/raz

Mon, 12 Dec 2022 23:11:00 -0600 en-US text/html https://news.yahoo.com/boe-test-shadow-banking-markets-131029920.html Killexams : LDI Fund Turmoil Prompts First Stress Test For Non-banks
The Bank of England is seen against a blue sky, London June 15, 2012. Reuters

Investment funds and other non-bank financial institutions face their first 'stress test' next year to apply lessons from the near-meltdown in Britain's pension fund sector, the Bank of England said on Tuesday.

The BoE had to step in from September to buy 19.3 billion pounds ($23.75 billion) of government bonds to stabilise markets after turmoil caused by the fiscal plans of Liz Truss's short-lived government.

Liability-driven investment (LDI) funds, used by pension funds to ensure their long-term payouts, struggled to meet collateral calls as bond prices tumbled.

The BoE's Financial Policy Committee (FPC), which monitors the financial system for risks, said on Tuesday that the LDI crisis showed the need to test how non-bank financial institutions (NBFI) cope with stresses.

"The Bank will run, for the first time, an exploratory scenario exercise focused on NBFI risks, to inform understanding of these risks and future policy approaches," the FPC said in its half-yearly Financial Stability Report.

Further details will be set out in the first half of 2023.

"There is also a need to develop stress-testing approaches to understand better the resilience of NBFIs to shocks and their interconnections with banks and core markets," the FPC said.

The test will focus on the UK government and corporate bond market and its main participants, which play a core role in financing the UK economy.

Such market-based finance accounted for 776 billion pounds, or 55%, of all lending to UK businesses at the end of 2021 and nearly all of the almost 390 billion pound net increase in lending to the sector between the end of 2007 and end of 2021.

LDI funds are often listed in Ireland and Luxembourg, where regulators - along with their UK counterparts - have introduced quick fixes that forced funds to maintain far higher levels of cash.

They can now cope with a 300 to 400 basis point move in interest rates, well above the 150 basis point level held before September's turmoil.

"Ensuring greater resilience has been a central priority for managers of LDI strategies in the aftermath of the unprecedented gilt market movements we saw in late September," said Jonathan Lipkin, director for policy, strategy and innovation at the Investment Association.

The sector plans to work with regulators "so that future stress tests are robust to a yield shock of this magnitude, and that any risk measures put in place are proportionate", he added.

NEW GUIDANCE

The FPC said it will work with counterparts in the European Union to come up with mimimum cash buffer guidance on a longer-term "steady state" basis, which could potentially push up fees to absorb the cost or make the use of LDI funds unattractive.

Britain's pensions regulator is due to update its guidance to the sector in April, which could include the new steady state cash buffer levels, data reporting and requirements for fund trustees to speed up decision-making in a crisis.

The FPC said it also backed a call from the Financial Conduct Authority to regulate consultants who advise pension funds.

After regulators introduced tougher rules for banks in the aftermath of the global financial crisis more than a decade ago, attention is turning again to non-banks, such as funds and insurers, which account for about half of the global financial system.

Regulators worry there is too little data on hidden leverage in the system, as shown by LDI.

"The episode also exposed deficiencies in how banks monitor and manage risks with respect to LDI funds," the FPC said.

The FPC said there will be a consultation paper in 2023 on likely moves to require money market funds - which struggled when economies went into COVID-19 lockdowns in March 2020 - to hold more cash.

($1 = 0.8127 pounds)

 Mon, 12 Dec 2022 22:51:00 -0600 Huw Jones and David Milliken en-US text/html https://www.ibtimes.com/ldi-fund-turmoil-prompts-first-stress-test-non-banks-3646693 Killexams : Bank of England to stress test risks in non-bank financial markets

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Bank of England governor Andrew Bailey has warned Rishi Sunak’s government against going too far with its flagship programme to free the City from post-crisis regulations, cautioning that the rules were put in place for a reason and are still needed.

Bailey’s insistence on the need for continued vigilance in the financial sector came as the central bank said it would carry out the world’s first stress tests on vulnerabilities in the non-bank financial markets, after September’s implosion of UK pension funds exposed gaps in policymakers’ understanding of systemic risk in key markets.

“The notion that we’re past the financial crisis and we therefore don’t need the regulation that we had post the financial crisis, I would not go along with that,” Bailey told reporters on Tuesday, just days after Jeremy Hunt, the chancellor, unveiled the biggest shake up of UK financial regulation in decades.

“It’s . . . important to make clear, that the basis on which the regulatory [regime] was done was not done just to address a particular problem that then went away,” he said. “It was done to put down some pretty fundamental planks of the regulatory system.”

The government’s plans, dubbed the Edinburgh reforms, include relaxing the ringfencing rules around the separation of retail and investment banking, simplifying rules for parts of the investment market, and giving the UK’s top regulators — including the BoE — a mandate to boost the City’s competitiveness.

Ministers insist the reforms are not the bonfire of regulations some hoped for after Brexit. “We have to make sure we don’t unlearn the lessons of 2008 but at the same time recognise that banks today have much more balanced sheets,” Hunt told the FT’s Global Boardroom on Friday.

While acknowledging that Brexit allowed for a reset of some rules that were ill-suited to the UK, such as those on how much capital insurers must hold, Bailey defended the senior managers regime, a crisis-inspired executive accountability regime that Hunt proposes to overhaul.

“[The senior managers’ regime] moved us from a world where the judgment was one of culpability to one of responsibility. That has created a helpful dynamic,” said the governor.

The BoE paid tribute to the robust condition of banks in its Tuesday’s financial stability update, noting that both they and the UK’s corporate sectors were well positioned to withstand the country’s worsening economic outlook.

Officials noted that while UK households were being “stretched” by rising interest rates and soaring inflation, they were not yet showing “widespread signs of financial difficulties” or an inability to repay loans.

But dynamics in the non-banking financial sector were more concerning for the senior bank officials and external experts of the BoE’s Financial Policy Committee.

The FPC said international regulators needed to “urgently . . . develop and implement appropriate policy responses” to tame risk stemming from non-bank financial institutions, whose share of the global financial services market has more than doubled since the 2007-08 financial crisis.

“We’ve had a whole series of non-bank incidents across different jurisdictions and I think it is absolutely critical . . . to recognise this is a sector that is highly internationally diversified [and needs global rules],” Bailey told reporters.

In the meantime, the BoE is planning a “deep dive into specific risks” in financial markets dominated by institutions such as hedge funds, mutual funds and pension funds so that policymakers can “propose solutions”.

The tests will look at issues such as how a shock in one financial market can ripple through another, the dangers of highly concentrated risks and how behaviours evolve through a crisis, with further details to be revealed in the first half of 2023.

Those areas were noted as weak points by the BoE after September’s liability-driven investment crisis, when a surge in UK government bond yields led to a rapid sale of gilts by pension funds in the wake of then prime minister Liz Truss’s poorly received “mini” Budget.

The central bank also identified “deficiencies” in how banks, which were involved in LDI derivative trades, “monitor and manage risks”, as well as “a lack of regular and granular data”.

The BoE ultimately had to step in with an £65bn bond-buying programme to stabilise UK government bond markets.

Unlike the annual banking stress tests the BoE has been running since 2014, the non-bank institution stress tests will not publish results of individual companies or funds, or order them to take actions, such as raising capital or withholding dividends.

Jon Cunliffe, deputy governor for financial stability, said that while the BoE did not have powers to supervise some non-banks, it could request such powers at a later stage and could make “pretty strong recommendations”.

The central bank is separately calling for more stringent oversight of LDIs. On Tuesday, it asked regulators in Ireland and Luxembourg, which oversee most of the UK pension industry’s LDI funds, and The Pensions Regulator, which monitors the pension funds themselves, to set out a permanent safety net that funds should maintain to withstand shocks.

Mon, 12 Dec 2022 22:28:00 -0600 en-GB text/html https://www.ft.com/content/e61c4fe8-1daa-40ab-a75b-7e6085062ea8 Killexams : Federal government should send strong signal on housing

Rising interest rates present a financial challenge for most Canadians. For the hundreds of thousands who bought pre-construction homes during the pandemic and are now seeking to finalize financing as they approach closing and occupancy, the challenge can be formidable. The federal government and the Office of the Superintendent of Financial Institutions (OSFI) can help protect new home owners and send a strong signal on housing by reconsidering or, at the very least, temporarily suspending the mortgage stress test.

The stress test or minimum qualifying rate currently requires home buyers to qualify for the greater of the mortgage contract rate plus 2 per cent or 5.25 per cent. Introduced in 2016 and expanded in 2018, the stress test was originally intended to test borrowers’ ability to continue mortgage payments in the event of changes in economic circumstances, including rising interest rates, fluctuating house prices or reductions in income. It was part of a suite of measures brought in to cool the housing market after a period of high activity in 2016-2017.

With posted five-year rates now at 5.6 per cent, home buyers must be able to qualify at 7.6 per cent, a significant challenge for those who bought new homes and condominiums at a time when interest rates were at all-time lows and who are now seeking to finalize financing during the fastest increase in rates in living memory. Many will struggle to obtain financing, and the 2 per cent additional hurdle imposed by the stress test will, in many cases, be the difference between securing the home they need and not being able to do so.

The market is also in need of a strong signal as we all wait and wonder what comes next. New projects are postponed or delayed, further constraining already limited supply. All the while, pent-up demand for new housing increases—manifesting itself in rising rents—as prospective buyers sit on the sidelines and new residents arrive at a record pace.

With most economists in agreement that rate hikes may be close to the peak and with economic storm clouds on the horizon, temporarily suspending the minimum qualifying rate might just be the signal the market needs. It costs governments nothing, yet it helps the hundreds of thousands of Canadians who bought a new home between 2020 and mid-2022 to close on their homes by removing the artificial 2 per cent hurdle. It also allows the industry to get on with planning and building the housing new and existing residents will inevitably need when the economy stabilizes.

Dave Wilkes is President and CEO of the Building Industry and Land Development Association (BILD), the voice of the home building, land development and professional renovation industry in the GTA. For the latest industry news and new home data, follow BILD on Twitter, @bildgta, or visit www.bildgta.ca.

 Tue, 22 Nov 2022 00:44:00 -0600 en-CA text/html https://nationalpost.com/life/homes/federal-government-should-send-strong-signal-on-housing Killexams : Why the mortgage stress test is likely here to stay, even as qualifying rates hit 8%

HOUSING-OSFI-GS1212

Last week’s Bank of Canada interest rate hike has pushed the qualifying rate under Canada’s mortgage stress test to above eight per cent for many borrowers, raising questions about whether the test is too strict.

The concerns come as regulators prepare to announce a review of the stress test on Dec. 15. On Friday, the Office of the Superintendent of Financial Institutions (OSFI), Canada’s top banking regulator, poured cold water on calls to amend the formula amid soaring interest rates, which have climbed 400 basis points so far this year,

“We see great risk in speculating on the mortgage rate cycle, and we do not consider the minimum qualifying rate to be a tool to manage the demand for housing,” OSFI superintendent Peter Routledge said in a statement. “We see the minimum qualifying rate as an underwriting practice that adds an important safety buffer to residential mortgage portfolios, the largest exposure Canadian lenders have on their books.”

In 2018, the Canadian government rolled out the mortgage stress test. Since then, federally regulated lenders have been forced to ensure borrowers could still afford their payments at an interest rate two percentage points higher than the contract rate being offered.

With the big banks now offering a prime lending rate of 6.45 per cent following the latest Bank of Canada rate increase, the qualifying rate for many mortgages will exceed eight per cent.

Dan Eisner, chief executive of True North Mortgage, said that since Wednesday’s rate hike, a homebuyer must earn around $200,000 a year to afford a million-dollar home.

“A typical client has $10,000 worth of credit card debt and a car payment so you’re going to have to be making about $200,000 a year to buy that home with a 20 per cent down payment … given that you have some other debt,” Eisner said in an interview.

Average home prices in Toronto and Vancouver both exceed the million dollar threshold, while the national average home price stood at $644,643 in October, according to the Canadian Real Estate Association.

While OSFI put the emphasis on protecting lending portfolios, the stress test does so by giving borrowers a buffer in the event interest rates rise or their personal financial situation changes, such as through job loss or a drop in income. It also ensures borrowers have some protection against other changes in the economy, such as recessions or the climbing cost of living. Currently, all of those issues are at play.

Even before Routledge’s statement was released on Friday, most mortgage industry professionals suspected that OSFI planned to leave things as they are when it announces its review this week.

“I would say that the stress test is proving its value,” Robert Hogue, assistant chief economist at the Royal Bank of Canada said in an interview last week. “It was largely designed to protect against what we’ve experienced since March — a sharp rise in interest rates — and to ensure that the vast majority of borrowers are able to manage the increase and not get in trouble. This is a very important safeguard tool that is in the policymakers’ toolbox.”  

While Hogue said a case could be made to soften the buffer as the odds that rates rise by another two percentage points have diminished, he said there is still too much uncertainty about the path of the economy. 

“I suspect that OSFI is going to leave things as they are,” he said. 

Bank of Montreal economist Robert Kavcic said he sympathizes with borrowers.

“Fundamentally, the issue here is that the stress test was really designed to operate in an extraordinarily low interest rate environment, under the assumption that that period was not normal,” Kavcic said in an interview. “Now that we’ve gotten back to a period that’s more normal, I can sympathize with the question out there, ‘Do we still need to qualify people 200 basis points above rates that are on the ground today?’ ”

Although Kavcic sees areas for improvement when it comes to the MQR, he thinks it may not be the right time for OSFI to make changes.

“On the other side of it, is now really the best time to make changes as we potentially go into an economic slowdown?” Kavcic said. “Maybe rates are peaking, but we also could be facing an income shock over the next year or so if the economy goes into a recession.”

Karen Yolevski, chief operating officer of Royal LePage Real Estate Services Ltd. doesn’t believe that OSFI will make any changes to the MQR simply because regulators strongly believe in the purpose of the test which is to ensure that borrowers can keep up with their mortgages.

“The purpose of the test has been well established since its initiation and I don’t think that that reasoning has changed for regulators,” Yolevski said in an interview. “So for that reason, I don’t think that they’ll make a change now.”

• Email: shcampbell@postmedia.com

 Mon, 12 Dec 2022 02:54:00 -0600 en-US text/html https://www.yahoo.com/now/why-mortgage-stress-test-likely-163044708.html Killexams : Tokenized government bonds free up liquidity in traditional financial systems

A handful of government-backed financial institutions have been exploring tokenization use cases to revolutionize traditional financial systems. For instance, El Salvador’s Bitcoin Volcanic bond project has been in the works for over a year and aims to raise $1 billion from investors with tokenized bonds to build a Bitcoin city. 

The Central Bank of Russia has also expressed interest in tokenized off-chain assets. In addition, the Israeli Ministry of Finance, together with the Tel Aviv Stock Exchange (TASE), recently announced the testing of a blockchain-backed platform for digital bond trading.

Cointelegraph Research’s 2021 Security Token Report found that most securities will be tokenized by 2030. While notable, the potential behind tokenized government bonds appears to be massive, as these assets can speed up settlement time while freeing up liquidity within traditional financial systems. 

Brian Estes, CEO of Off the Chain Capital and a member of the Chamber of Digital Commerce, told Cointelegraph that tokenizing a bond allows for faster settlement, which leads to reduced costs.

“The time of ‘capital at risk’ becomes reduced. This capital can then be freed up and used for higher productive use,” he said. Factors such as these have become especially important as inflation levels rise, impacting liquidity levels within traditional financial systems across the globe.

Touching on this point, Yael Tamar, CEO and co-founder of SolidBlock — a platform enabling asset-backed tokenization — told Cointelegraph that tokenization increases liquidity by transferring the economic value of a real-world asset to tokens that can be exchanged for cash when liquidity is needed.

“Because tokens communicate with financial platforms via a blockchain infrastructure, it becomes easier and cheaper to aggregate them into structured products. As a result, the whole system becomes more efficient,” she said.

To put this in perspective, Orly Grinfeld, executive vice president and head of clearing at TASE, told Cointelegraph that TASE is conducting a proof-of-concept with Israel’s Ministry of Finance to demonstrate atomic settlement, or the instant exchange of assets.

In order to demonstrate this, Grinfeld explained that TASE is using the VMware Blockchain for the Ethereum network as the foundation for its beta digital exchange platform. She added that TASE will use a payment token backed by the Israeli shekel at a one-to-one ratio to conduct transactions across the blockchain network.

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In addition, she noted that Israel’s Ministry of Finance will issue a real series of Israeli government bonds as tokenized assets. A live test will then be performed during the first quarter of 2023 to demonstrate atomic settlements of tokenized bonds. Grinfeld said:

“Everything will look real during TASE’s test with the Israel’s Ministry of Finance. The auction will be performed through Bloomberg’s Bond Auction system and the payment token will be used to settle transactions on the VMware Blockchain for Ethereum network.”

If the test goes as planned, Grinfeld expects settlement time for digital bond trading to occur the same day trades are executed. “Transactions made on day T (trade day) will settle on day T instead of T+2 (trade date plus two days), saving the need for collateral,” she said. Such a concept would therefore demonstrate the real-world value add that blockchain technology could bring to traditional financial systems. 

Tamar further explained that the process of listing bonds and making them available to institutions or the public is very complex and involves many intermediaries.

“First the loan instruments need to be created by a financial institution working with the borrower (in this case, the government), which will be processing the loans, receiving the funds, channeling them to the borrower and paying the interest to the lender. The bond processing company is also in charge of accounting and reporting as well as risk management,” she said.

Echoing Grinfeld, Tamar noted that settlement time can take days, stating that bonds are structured into large portfolios and then transferred between various banks and institutions as a part of a settlement between them.

Given these complexities, Tamar believes that it’s logical to issue tokenized government bonds across a blockchain platform. In fact, findings from a study conducted by the crypto asset management platform Finoa and Cashlink show that tokenized assets, such as government bonds, could result in 35%–65% cost-savings across the entire financial system value chain.

From a broader perspective, Perianne Boring, founder and CEO of the Chamber of Digital Commerce, told Cointelegraph that tokenized bonds also highlight how technology-driven innovations in financial instruments can provide investors with alternative financial products.

“Generally, such bonds would come with reduced costs and more efficient issuance, and come with a level of transparency and monitoring capabilities that should appeal to investors who want greater control over their assets,” she said.

Features such as these were recently demonstrated on Nov. 23, when Singapore’s DBS Bank announced it had used JPMorgan’s blockchain-based trading network Onyx to execute its first tokenized intraday repurchase transaction.

Banks use repurchase agreements — also known as repos — for short-term funding by selling securities and agreeing to repurchase them later. Settlement usually takes two days, but tokenizing these assets speeds this process up. A DBS spokesperson told Cointelegraph that the immediate benefits of tokenized bonds or securities result in an improvement in operational efficiency, enabling true delivery vs. payment and streamlined processes with golden copies of records.

While tokenized bonds have the potential to revolutionize traditional financial systems, a number of challenges may slow adoption. For example, Grinfeld noted that while Israel’s Ministry of Finance has expressed enthusiasm in regards to tokenization, regulations remain a concern. She said: 

“To create new ways of trading, clearing and settlement using digital assets, a regulatory framework is needed. But regulations are behind market developments, so this must be accelerated.”

A lack of regulatory clarity may indeed be the reason why there are still very few regions exploring tokenized government bonds. 

Varun Paul, director of central bank digital currencies (CBDCs) and financial market infrastructure at Fireblocks, told Cointelegraph that while many market infrastructure providers are exploring tokenization projects behind the scenes, they are waiting on clear regulations before publicizing their efforts and launching products into the market.

Fireblocks is currently working with TASE and Israel’s Ministry of Finance to provide secure e-wallets for the proof of concept, which will enable the participating banks to receive tokenized government bonds.

In addition to regulatory challenges, large financial institutions may find it difficult to grasp the technical implications of incorporating a blockchain network. Joshua Lory, senior director of Blockchain To Go Market at VMWare, told Cointelegraph that market education across all ecosystem participants will accelerate the adoption of the technology.

Yet, Lory remains optimistic, noting that VMware Blockchain for Ethereum’s beta was announced in August of this year and already has over 140 customers requesting trials. While notable, Estes pointed out that blockchain service providers must also take into account other potential challenges such as back-end programming for brokerage firms to make sure they are equipped to report bonds accurately on their statements.

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All things considered though, Estes believes that the tokenization of multiple assets is the future. “Not only bonds, but stocks, real estate, fine art and other stores of value,” he said. This may very well be the case, as Grinfeld shared that following the proof-of-concept, TASE plans to expand its range of tokenized asset offerings to include things such as CBDCs and stablecoins.

“This POC will lead us toward a complete future digital exchange based on blockchain technology, tokenized assets, e-wallets and smart contracts,” she said. Adoption will likely take time, but Paul mentioned that Fireblocks is aware that financial market participants are interested in taking part in replicating TASE’s model in other jurisdictions:

“We anticipate that we will see more of these pilots launching in 2023.”