1 / 10

Analysis and Management of Risk: A Regulator’s Perspective

Analysis and Management of Risk: A Regulator’s Perspective. Michael Ainley Head of Wholesale Banks Department UK Financial Services Authority. Risk-Based Supervision in the FSA. First steps - RATE The current system – ARROW The future – ARROW 2. RATE. Identify key units

gusty
Download Presentation

Analysis and Management of Risk: A Regulator’s Perspective

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Analysis and Management of Risk: A Regulator’s Perspective Michael Ainley Head of Wholesale Banks Department UK Financial Services Authority

  2. Risk-Based Supervision in the FSA • First steps - RATE • The current system – ARROW • The future – ARROW 2

  3. RATE • Identify key units • Obtain pre-visit information • Preliminary risk assessment • Undertake on-site visit • Final risk assessment • Prepare supervisory programme • Ensure consistency • Formal feedback to bank (and its home regulator) • Employ relevant tools to mitigate risks • Re-evaluate at least annually

  4. FSA Principles of Good Regulation #3 • The restrictions we impose on the industry must be proportionate to the benefits that are expected to result from those restrictions

  5. Senior Management ResponsibilitiesPrinciples of Good Regulation #2 • Regulator must make clear its requirements and leave senior management space to run the business. • Senior management must ensure that appropriate systems and controls are established and maintained • Non-executive directors have a key role

  6. ARROW • Extends risk-based supervision across all types of financial firms • Focuses on risks to FSA’s objectives • Considers PROBABILITY as well as IMPACT of risks crystallising • PROBABILITY x IMPACT = Overall score • Scores used to classify firms A-D • FSA uses classification to determine amount of resources expended on firm • Frequency of ARROW assessments depends on risks presented by firm

  7. ARROW Risk Mitigation • Actions must be clear and time-specific • Firms’ boards asked to agree them • Preference is to require firms to take the necessary action to improve their systems and controls • May involve further work by FSA, home regulator or outside experts • FSA’s own systems prompt supervisors to follow up to ensure that actions are completed on time

  8. ARROW 2 • To retain the key methodology of ARROW • risk measured in terms of impact and probability to our statutory objectives • mitigation proportionate to our assessment of potential harm to those statutory objectives. • Greater proportionality and consistency in response to risks – applying our resources where they will make the most difference • Better communication with firms on our assessment of them • Closer links to theme and sector work • Improved skills and knowledge of supervisory staff • Full compatibility with Basel 2 and Pillar 2

  9. Pillar 2: Banks take centre stage • Pillar 2 requires the bank to calculate for itself how much capital it needs • Better credit risk management and internal systems and controls can reduce the capital requirement

  10. Analysis and Management of Risk: A Regulator’s Perspective Michael Ainley Head of Wholesale Banks Department UK Financial Services Authority

More Related