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Risk Governance and Compliance

There is an increased focus for financial institutions on compliance, corporate governance and reputational risk, with specific emphasis on Anti-Money Laundering AML, Anti-Terrorism Financing (ATF) and Correspondent Banking.

Concurrent to this is enlarged attention on ‘risk culture’ within organizations, on how to ensure staff are risk-conscious, and ensuring that organizational objectives and staff conduct are aligned.

The Financial Stability Board (FSB) has identified a series of specific indicators of ‘risk culture’, grouped in the following categories:

  • Tone from the top
  • Accountability
  • Effective communication and challenge
  • Incentives

Potential Impacts

Beyond the obvious licensing and legal ramifications, these governance and conduct issues are highly influential for institutions’ reputations and also their modelling of operational risks.

‘Risk culture’ is also pivotal to being able to being able to demonstrate a strong nexus throughout the organization between the ‘top of house’ risk appetite and operational behaviors at the front-line, as per the Basel ‘Use Test’ for banks.

IIF Activity

The IIF Committee on Governance and Industry Practice (CGIP) seeks to identify and promote sound industry practice in the area of risk management, risk governance, corporate governance and compensation. It works with the supervisory community in identifying ways in which such practices can be leveraged as part of the supervisory oversight of firms. One such recent activity was a Colloquium on De-risking and Correspondent Banking, which the IIF hosted together with BAFT and The Clearing House.

The IIF has recently submitted formal responses to the International Association of Insurance Supervisors (IAIS), on the IAIS’s Issues Paper Approaches on Group Corporate Governance, and (jointly with GFMA and IBFed) to the Basel Committee’s Revised Good Practice Principles for Supervisory Colleges.

Current Status

The FSB published a paper on April 7, 2014, entitled Guidance on Supervisory Interaction with Financial Institutions on Risk Culture: A Framework for Assessing Risk Culture, which builds on their earlier Progress Report in 2012. It is anticipated that the themes conveyed in this paper this will become central to future assessments of banks’ risk culture undertaken by national supervisors.

Next Steps and Milestones

  • The FSB and IAIS are understood to be reviewing feedback on their proposed new guidelines and approaches. The IIF will continue to monitor this, and will liaise with institutions as further details emerge.

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