23 October 2014

Stuart Clark

Stuart Clark - Impendium Systems

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Financial Services Regulation

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FSB identifies the need for more intense supervision

30 April 2014  |  803 views  |  1

The Financial Stability Board (FSB) identified as a priority the need for more intense and effective supervision, particularly of systemically important financial institutions (SIFIs), after the financial crisis.  The FSB has published two papers:

- Supervisory Intensity and Effectiveness - progress report on enhanced supervision. This describes the changes in supervisory practices since the financial crisis and identifies that institutions’ progress toward consistent, timely, and accurate reporting of top counterparty exposures meets neither supervisory expectations or industry self-identified best practices. 

The area of greatest concern remains institutions’ inability to consistently produce high-quality data. Work identified for supervisors is to:

o   remain focussed on ensuring the necessary changes are embedded in firms;

o   confirm that risk management and measurement are strengthened in firms;

o   enhance their own IT systems for using data collected; and

o   focus on ongoing monitoring of the improved BCBS bank capital models.

In parallel with supervisors implementing these changes toward more effective supervision, the FSB’s future work will focus on the measurement of supervisory effectiveness.

- Guidance on Supervisory Interaction with Financial Institutions on Risk Culture - framework for assessing risk culture. This sets out that a sound risk culture should ensure that:

o   an appropriate risk-reward balance consistent with the institution’s risk appetite is achieved when taking on risks;

o   an effective system of controls commensurate with the scale and complexity of the financial institution is properly put in place;

o   the quality of risk models, data accuracy, capability of available tools to accurately measure risks and justifications for risk taking can be challenged; and

o   all limit breaches, deviations from established policies and operational incidents are thoroughly followed up with proportionate disciplinary actions when necessary.

 

Related links:

http://www.financialstabilityboard.org/publications/r_140407.pdf

http://www.financialstabilityboard.org/publications/140407.pdf

Comments: (1)

Horst Simon - Crowe Horwath - Dubai | 16 September, 2014, 05:47

Risk practitioners generally failed to address these underlying human aspects. Since the publication of the Basle accord, ISO 31000 and other standards and regulations, it has often been argued that compliance with these standards and regulations will mitigate and control risk, but this is only true if the standards and regulations are embraced in an effective Enterprise Risk Management Culture. Just like the policies, procedures and systems, these are worthless if human attitude, acceptance and desired response lack.

Addressing the aspect of people risk is the only way an organisation can improve the results of how their people respond to a situation of risk and the effectiveness of their risk management function. No organisation can ever have a perfect risk management culture, but organisations can achieve a level of maturity where they have an effective risk culture process and every employee is risk-minded and does something on a daily basis to mitigate, control and optimize risk

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Stuart Clark

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Product Development Director

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Impendium Systems

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