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Adrian Trif – Supervision Officer Department IV – Integrated Supervision

Corporate Governance for Financial Institutions (EU and Austrian legislation) Corporate Governance for Insurance Companies (EU and Austrian legislation) Corporate Governance in Austria. Adrian Trif – Supervision Officer Department IV – Integrated Supervision

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Adrian Trif – Supervision Officer Department IV – Integrated Supervision

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  1. Corporate Governance for Financial Institutions (EU and Austrian legislation)Corporate Governance for Insurance Companies (EU and Austrian legislation)Corporate Governance in Austria Adrian Trif – Supervision Officer Department IV – Integrated Supervision Division IV/4 - Combat against Unauthorised Business Financial Market Authority European Commission Technical Assistance Information Exchange Instrument Workshop on Corporate Governance Chisinau, 14-15 May 2012

  2. Agenda • General remarks • European financial markets regulation • Current developments (response to the financial crisis) • Sound corporate governance (credit institutions) • BCBS principles • EBA guidelines • CRD III • CRD IV • Overview Austrian supervisory system • CG developments for insurance companies – Solvency II • CG in Austria – overview legal framework • CG in Austria – corporate governance codex Chisinau, 15 May 2012

  3. Corporate Governance for Financial Institutions 1. General remarks • principal (investor)  agent (management) • corporate (business, company, corporation, enterprise) • governance (management, leadership, administration, control) • system/framework of rules/principles for the management/control of a company “Corporate governance deals with the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment.” (Shleifer and Visny) “Corporate governance is about promoting corporate fairness, transparency and accountability.” (J. Wolfenshohn) • origin: US/UK • basic idea: soft law, self-regulation, self-executing rules, comply or explain • compliance as part of corporate governance • (external) corporate governance: transparency, ratings, external audit, M & A markets • OECD - Principles of Corporate Governance (2004) Chisinau, 15 May 2012

  4. Corporate Governance for Financial Institutions 1. Cui bono? • macro level • stakeholders - (re)-establishing trust/confidence in the financial system • micro level • investor - enhancing return on investment • management – reducing/mitigating liability risks • company – reducing cost of capital Chisinau, 15 May 2012

  5. Corporate Governance for Financial Institutions 1. General Remarks - Market Discipline • ability of third-party claimants (eg debt and equity holders, potential investors) to identify risks in financial institutions and to act in a way that signals those risks (to other market participants) or changes the behaviour of a financial institution • well-informed shareholders/stakeholders may put pressure on the financial institution’s management • act in the shareholders’/stakeholders’ best interests • financial institutions encouraged to anticipate and adjust risk-taking policies, with a view to maintain/reduce their cost of capital • market discipline as a form of self regulation • timely and useful information required for market discipline to work in practice • in principle disclosure is to be driven by the market (participants) • supervisors to facilitate/ensure that adequate disclosure is provided by financial institutions • supervisors see market discipline through risk disclosures and transparency of financial institutions in general as a supplementary tool in the supervision process • market discipline reinforces prudential tools and supervisory efforts by rewarding banks that manage risk effectively and penalizing those with a less stringent risk management behaviour Chisinau, 15 May 2012

  6. Corporate Governance for Financial Institutions 1. General Remarks – Corporate Governance Players • Organisation for Economic Co-operation and Development (OECD), Financial Stability Board (FSB), G 8, G 20 • Basel Committee on Banking Supervision (BCBS), International Association of Insurance Supervisors (IAIS), International Accounting Standards Board (IASB) • European Commission (EC), European Corporate Governance Forum (ECGF), European Council, European Parliament • European System of Financial Supervision • European Banking Authority (EBA) • European Insurance and Occupational Pensions Authority (EIOPA) • European Securities and Markets Authority (ESMA) • Governments, Parliaments in Member States • Financial Markets Regulators in Member States • Austrian Working Group for Corporate Governance • Industry (credit institutions, insurance companies, listed companies, investment firms, etc) Chisinau, 15 May 2012

  7. Corporate Governance for Financial Institutions 1. General Remarks – Corporate Governance Players • Useful link (ECGF) • http://ec.europa.eu/internal_market/company/ecgforum/index_en.htm Chisinau, 15 May 2012

  8. Corporate Governance for Financial Institutions 1. International Supervisory Architecture Chisinau, 15 May 2012

  9. Corporate Governance for Financial Institutions 2. European Financial Markets Regulation types of rules: • rules regarding the markets and certain market activities • e.g. how to issue securities to the public, how to provide regular reports and ad hoc releases to the public • rules regarding financial institutions • e.g. “fit and proper test”, licensing requirements • rules regarding the activities of financial institutions • e.g. collecting deposits, concluding insurance contracts, giving investment advice Chisinau, 15 May 2012

  10. Corporate Governance for Financial Institutions 2. European Financial Markets Regulation levels of regulation (as rules): • supranational level • e.g. EU regulations, EU directives, Basel recommendations • national level • e.g. acts/laws of parliament, regulations/ordinances by government and/or ministry, laws/regulations/ordinances/recommendations by national supervisor Chisinau, 15 May 2012

  11. Corporate Governance for Financial Institutions 2. European Financial Markets Regulation EU level • Treaty on European Union (consolidated version OJ 30 March 2010, C 83/13) (TEU) • Treaty on the Functioning of the European Union (consolidated version OJ 30 March 2010, C 83/47) (TFEU) regulations, directives Chisinau, 15 May 2012

  12. Corporate Governance for Financial Institutions 2. European Financial Markets Regulation • levels of regulation/supervision (as regulatory authorities): • supranational level • European regulators: • European Banking Authority (London) (EBA) • European Insurance and Occupational Pensions Authority (Frankfurt) (EIOPA) • European Securities and Markets Authority (Paris) (ESMA) • European Systemic Risk Board (Frankfurt) (ESRB) • national level • national supervisory authorities • independent entity and/or the Ministry of Finance and/or the Central Bank Chisinau, 15 May 2012

  13. Corporate Governance for Financial Institutions 2. European Financial Markets Regulation Lámfalussy process (four-level approach for European legislation in the field of financial services) • Level 1: • high level objectives • framework • directive or regulation • Level 2: • technical details • set out by the European Commission • Level 3: • common standard and guidelines • to ensure uniform implementation • CEBS (Committee of European Banking Supervisors), CEIOPS (Committee of European Insurance and Occupational Pensions Supervisors, CESR (Committee of European Securities Regulators) • Level 4: • enforcement of the high-level objectives • Member States’ reporting obligations Chisinau, 15 May 2012

  14. Corporate Governance for Financial Institutions 2. European Financial Markets Regulation • response to the financial crisis • de Larosière Report (Report of the High-Level Group on Financial Supervision in the EU published on 25 February 2009): “There is a Single Market, and financial institutions operate across borders, but supervision remains mostly at national level, uneven and often uncoordinated.” • result: new European supervisory architecture (“institutionalisation” of CEBS, EIOPA, CESR) • aiming at coherent cross-border supervision Chisinau, 15 May 2012

  15. Corporate Governance for Financial Institutions 2. European Financial Markets Regulation Latest developments – new European supervisory architecture • European System of Financial Supervision – microprudential (Directive 2010/78/EU of 24 November 2010 – “Omnibus-I-Directive”) • ESMA (Regulation (EU) No 1095/2010) • EBA (Regulation (EU) No 1093/2010) • EIOPA (Regulation (EU) No 1094/2010) • European Systemic Risk Board – macroprudential (Regulation (EU) No 1092/2010) Chisinau, 15 May 2012

  16. Corporate Governance for Financial Institutions 2. European Financial Markets Regulation New European Supervisory Architecture - since 1 January 2011 Chisinau, 15 May 2012

  17. Corporate Governance for Financial Institutions 2. European Financial Markets Regulation Updated legislation process Chisinau, 15 May 2012

  18. Corporate Governance for Financial Institutions 3. Are financial institutions different? • key role of financial intermediaries in every economy • basic principles • Banks must not go bankrupt. • (Insurance) companies shall (be able to) fulfil their obligations. • financial crisis • collapse of financial markets in autumn 2008 • credit crunch Chisinau, 15 May 2012

  19. Corporate Governance for Financial Institutions 3. Financial Crisis • de Larosière Report • multiple, often inter-related, factors at both macro- and micro-economic levels • in particular accumulation of excessive risk in the financial system • excessive accumulation of risk in part due to the weaknesses in corporate governance of financial institutions, especially in banks • BCBS: "a number of corporate governance failures and lapses” • OECD • Corporate Governance Lessons from the Financial Crisis (11 February 2009) • Corporate Governance and the Financial Crisis: Key Findings and Main Messages (29 May 2009) • Corporate Governance and the Financial Crisis – Conclusions and Emerging Good Practices to Enhance Implementation of the Principles (17 February 2010) Chisinau, 15 May 2012

  20. Chisinau, 15 May 2012

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  23. Corporate Governance for Financial Institutions 3. European Commission’s work on corporate governance • strengthening corporate governance as priority for the EC, especially in the context of its financial markets reform and crisis prevention program • Green Paper – Corporate governance in financial institutions and remuneration policies (COM (2010) 284 final of 2 June 2010) • CRD III - remuneration policies (Directive 2010/76/EU of the European Parliament and of the Council of 24 November 2010 amending Directives 2006/48/EC and 2006/49/EC as regards capital requirements for the trading book and for re-securitisations, and the supervisory review of remuneration policies) • CRD IV proposal (COM(2011) 453 final of 20 July 2011 - Proposal for a Directive of the European Parliament and of the Council on the access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms and amending Directive 2002/87/EC of the European Parliament and of the Council on the supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate) Chisinau, 15 May 2012

  24. Corporate Governance for Financial Institutions 3. European Commission’s work on corporate governance • Green Paper on the EU corporate governance framework (general paper) • Online consultation on EU company law • Review of the Takeover Bids Directive • Transparency – Modification of the Transparency Directive Chisinau, 15 May 2012

  25. Corporate Governance for Financial Institutions 4. Sound corporate governance (credit institutions) • BCBS Principals for Enhancing Corporate Governance (BCBS October 2010) • EBA Guidelines on Internal Governance (27 September 2011) • CRD III – remuneration (24 November 2010) • CRD IV Proposal (20 July 2011) Chisinau, 15 May 2012

  26. Corporate Governance for Financial Institutions 4.1 BCBS Principals for Enhancing Corporate Governance • Principle 1 - The board has overall responsibility for the bank, including approving and overseeing the implementation of the bank’s strategic objectives, risk strategy, corporate governance and corporate values. The board is also responsible for providing oversight of senior management. • Principle 2 - Board members should be and remain qualified, including through training, for their positions. They should have a clear understanding of their role in corporate governance and be able to exercise sound and objective judgment about the affairs of the bank. • Principle 3 - The board should define appropriate governance practices for its own work and have in place the means to ensure that such practices are followed and periodically reviewed for ongoing improvement. • Principle 4 - In a group structure, the board of the parent company has the overall responsibility for adequate corporate governance across the group and ensuring that there are governance policies and mechanisms appropriate to the structure, business and risks of the group and its entities. • Principle 5 - Under the direction of the board, senior management should ensure that the bank’s activities are consistent with the business strategy, risk tolerance/appetite and policies approved by the board. Chisinau, 15 May 2012

  27. Corporate Governance for Financial Institutions 4.1 BCBS Principals for Enhancing Corporate Governance • Principle 6 - Banks should have an effective internal controls system and a risk management function (including a chief risk officer or equivalent) with sufficient authority, stature, independence, resources and access to the board. • Principle 7 - Risks should be identified and monitored on an ongoing firm-wide and individual entity basis, and the sophistication of the bank’s risk management and internal control infrastructures should keep pace with any changes to the bank’s risk profile (including its growth), and to the external risk landscape. • Principle 8 - Effective risk management requires robust internal communication within the bank about risk, both across the organisation and through reporting to the board and senior management. • Principle 9 - The board and senior management should effectively utilise the work conducted by internal audit functions, external auditors and internal control functions. • Principle 10 - The board should actively oversee the compensation system’s design and operation, and should monitor and review the compensation system to ensure that it operates as intended. Chisinau, 15 May 2012

  28. Corporate Governance for Financial Institutions 4.1 BCBS Principals for Enhancing Corporate Governance • Principle 11 - An employee’s compensation should be effectively aligned with prudent risk taking: compensation should be adjusted for all types of risk; compensation outcomes should be symmetric with risk outcomes; compensation payout schedules should be sensitive to the time horizon of risks; and the mix of cash, equity and other forms of compensation should be consistent with risk alignment. • Principle 12 - The board and senior management should know and understand the bank’s operational structure and the risks that it poses (ie “know-your-structure”). • Principle 13 - Where a bank operates through special-purpose or related structures or in jurisdictions that impede transparency or do not meet international banking standards, its board and senior management should understand the purpose, structure and unique risks of these operations. They should also seek to mitigate the risks identified (ie “understand-your-structure”). • Principle 14 - The governance of the bank should be adequately transparent to its shareholders, depositors, other relevant stakeholders and market participants. Chisinau, 15 May 2012

  29. Corporate Governance for Financial Institutions 4.1 BCBS Principals for Enhancing Corporate Governance – the Role of Supervisors • 1. Supervisors should provide guidance to banks on expectations for sound corporate governance. • 2. Supervisors should regularly perform a comprehensive evaluation of a bank’s overall corporate governance policies and practices and evaluate the bank’s implementation of the principles. • 3. Supervisors should supplement their regular evaluation of a bank’s corporate governance policies and practices by monitoring a combination of internal reports and prudential reports, including, as appropriate, reports from third parties such as external auditors. • 4. Supervisors should require effective and timely remedial action by a bank to address material deficiencies in its corporate governance policies and practices, and should have the appropriate tools for this. • 5. Supervisors should cooperate with other relevant supervisors in other jurisdictions regarding the supervision of corporate governance policies and practices. The tools for cooperation can include memorandum of understanding, supervisory colleges and periodic meetings among supervisors. Chisinau, 15 May 2012

  30. Corporate Governance for Financial Institutions 4.2 EBA Guidelines on Internal Governance • legal basis – Article 22 of Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions as amended by Directive 2010/76/EU (CRD III) • requires „that every credit institution has robust governance arrangements, which include a clear organisational structure with well defined, transparent and consistent lines of responsibility, effective processes to identify, manage, monitor and report the risks it is or might be exposed to, adequate internal control mechanisms, including sound administrative and accounting procedures, and remuneration policies and practices that are consistent with and promote sound and effective risk management.‟ • Article 73(3) of Directive 2006/48/EC requires that Article 22 also applies to parent undertakings and subsidiaries on a consolidated or sub-consolidated basis. Chisinau, 15 May 2012

  31. Corporate Governance for Financial Institutions 4.2 EBA Guidelines on Internal Governance • first chapter on „Corporate Structure and Organisation‟ • concept of checks and balances in group structures • „Know-your-structure‟ principle in order to remedy weaknesses of complex structures which have not been understood and counterbalanced sufficiently • limit opaque activities using non supervised structures • second chapter on „Management Body‟ • guidelines on the composition, appointment, succession and qualifications of the management body • focus more on the use of committees and the identification and management of conflicts of interest • lack of oversight - one of the most significant weaknesses identified in the financial crisis • ensure that members of the management body (especially in its supervisory function) devote sufficient time to their functions • responsibilities of the management body regarding outsourcing and setting the remuneration policy • references to still applicable separate CEBS guidelines Chisinau, 15 May 2012

  32. Corporate Governance for Financial Institutions 4.2 EBA Guidelines on Internal Governance • third chapter on „Risk Management‟ • Inclusion of large parts of the High Level Principles on Risk Management • high level principles on „governance and risk culture‟ • „risk models and integration of risk management areas‟ • „new product approval policy and process‟ • parts of the former high level principles on „risk appetite and risk tolerance‟ assigned to the new guidelines on the risk management framework • fourth chapter on „Internal Control‟ • role of Chief Risk Officer • risk management function • ensuring the proper staffing of the control function • one weakness was that the control functions were not given sufficient resources to fulfil their duties • issue of unapproved exposures • implementing adequate processes for monitoring the set limits and taking appropriate actions where necessary Chisinau, 15 May 2012

  33. Corporate Governance for Financial Institutions 4.2 EBA Guidelines on Internal Governance • fifth chapter on „Systems and Continuity‟ • new guidelines on information and communication systems and business continuity management • Reference to generally accepted standards as regards IT systems • business continuity consistent with the BCBS „High Level Principles for Business Continuity‟ • sixth chapter on „Transparency‟ • “Public Disclosure and Transparency‟ from the former CEBS Internal Governance Guidelines • only limited amendments as the CEBS survey did not identify major weaknesses in this area Chisinau, 15 May 2012

  34. Corporate Governance for Financial Institutions 4.3 CRD III – remuneration policies • major legal consequence of the financial crisis • wrong/inappropriate financial incentives for board members/senior management/certain employees as reason for (huge) accumulation of risks • recommendations/self-regulation/market discipline did not work • need for legal framework - Directive 2010/76/EU • main purpose: establishment of risk-based remuneration policies and practices, aligned with the long-term interests of the bank in order to avoid excessive risk-taking • CEBS Guidelines on Remuneration Policies and Practices (10 December 2010) Chisinau, 15 May 2012

  35. Corporate Governance for Financial Institutions 4.4 EC CRD IV Proposal • Overarching goals • ensure that the effectiveness of risk governance in European credit institutions and investment firms is strengthened • help avoid excessive risk-taking by individual credit institutions and ultimately the accumulation of excessive risk in the financial system • Operational objectives • increasing the effectiveness of risk oversight by Boards • improving the status of the risk management function • ensuring effective monitoring by supervisors of risk governance Chisinau, 15 May 2012

  36. Corporate Governance for Financial Institutions 4.4 EC CRD IV Proposal • Recital 43: “Weaknesses in corporate governance in a number of institutions have contributed to excessive and imprudent risk-taking in the banking sector which led to the failure of individual institutions and systemic problems in Member States and globally. The very general provisions on governance of institutions and the non-binding nature of a substantial part of the corporate governance framework, based essentially on voluntary codes of conduct, did not facilitate the effective implementation of sound corporate governance practices by institutions. The absence of effective checks and balances within institutions resulted in a lack of effective oversight of management decision-making, which exacerbated short-term and excessively risky management strategies. The unclear role of the competent authorities in overseeing corporate governance systems in institutions did not allow for sufficient supervision of the effectiveness of the internal governance processes.” • Recital 44: “In order to address the potentially detrimental effect of poorly designed corporate governance arrangements on the sound management of risk, Member States should introduce principles and standards to ensure effective oversight by the management body, promote a sound risk culture at all levels of credit institutions and investment firms and enable competent authorities to monitor the adequacy of internal governance arrangements. These principles and standards should apply taking into account the nature, scale and complexity of institutions' activities.” Chisinau, 15 May 2012

  37. Corporate Governance for Financial Institutions 4.4 EC CRD IV Proposal • Article 73 – Procedures and internal control mechanisms (same wording as Article 22 of Directive 2006/48/EC) • What’s new? • delegation of legislative power to the EC • EBA to develop draft regulatory technical standards • more detailed rules in sub-section 3 (Governance) • Article 86 – governance arrangements • Article 87 – management body • Article 88 – remuneration policies • Article 89 – institutions that benefit from government intervention • Article 90 – variable elements of remuneration • Article 91 – remuneration committee • even more detailed rules to be implemented by technical standards Chisinau, 15 May 2012

  38. Corporate Governance for Financial Institutions 5. Supervision of financial intermediaries in Austria • In Austria, the job of supervising the financial markets is carried out by three institutions. In outline form, the tasks are as follows: • The Federal Ministry of Finance (BMF) develops and defines the legislative framework, which is then adopted by the Austrian parliament (legislative process). • The Oesterreichische Nationalbank (OeNB) monitors the stability of the financial market at a macro level. It is responsible for the supervision of payment systems, and is also involved in the supervision of banks. • The Financial Market Authority (FMA) monitors and checks the individual financial institutions and participants in the markets (micro level). • As an integrated supervisory institution, the FMA, which was founded in 2002, brings together responsibility for supervising all significant providers and functions under one roof. The authority supervises banks, insurance undertakings, pension fund companies, corporate provision funds, investment firms and investment service providers, investment funds, financial conglomerates and exchange operating companies. Chisinau, 15 May 2012

  39. Corporate Governance for Financial Institutions 5. Supervision of financial intermediaries in Austria FMA organisation chart Chisinau, 15 May 2012

  40. Corporate Governance for Financial Institutions 5. Supervision of financial intermediaries in Austria Banking supervision Chisinau, 15 May 2012

  41. Corporate Governance for Financial Institutions 5. Levels of supervision/responsibility (Austrian bank) Chisinau, 15 May 2012

  42. Corporate Governance for Insurance Companies 6. Solvency II - Reasons • various analyses • Müller Report (1997) • KPMG Study (2002) • Sharma Report (2002) – Conference of the Insurance Supervisory Services of the Member States of the European Union • reasons for most (financial) difficulties of insurance companies • not insufficient own funds, but • management mistakes and insufficient/bad risk management • Paul Sharma (former FSA): “We concluded that supervision will be most effective where we have the tools to tackle the full causal chain.” Chisinau, 15 May 2012

  43. Corporate Governance for Insurance Companies 6. Risk Map – Sharma Report 2002 • r Chisinau, 15 May 2012

  44. Corporate Governance for Insurance Companies 6. Solvency II • Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) • Recital 29: “Some risks may only be properly addressed through governance requirements rather than through the quantitative requirements reflected in the Solvency Capital Requirement. An effective system of governance is therefore essential for the adequate management of the insurance undertaking and for the regulatory system.” • Recital 30: “The system of governance includes the risk-management function, the compliance function, the internal audit function and the actuarial function.” • Recital 33: “The functions included in the system of governance are considered to be key functions and consequently also important and critical functions.” Chisinau, 15 May 2012

  45. Corporate Governance for Insurance Companies 6. Solvency II Chisinau, 15 May 2012

  46. Corporate Governance for Insurance Companies 6. Solvency II • Section 2 - System of governance • Article 41 - General governance requirements • Article 42 - Fit and proper requirements for persons who effectively run the undertaking or have other key functions • Article 43 - Proof of good repute • Article 44 - Risk management • Article 45 - Own risk and solvency assessment • Article 46 - Internal control • Article 47 – Internal audit • Article 48 - Actuarial function • Article 49 - Outsourcing • Article 50 - Implementing measures Chisinau, 15 May 2012

  47. Corporate Governance for Insurance Companies 6. Solvency II Article 41 (General governancerequirements): „1. Member States shall require all insurance and reinsurance undertakings to have in place an effective system of governance which provides for sound and prudent management of the business. That system shall at least include an adequate transparent organisational structure with a clear allocation and appropriate segregation of responsibilities and an effective system for ensuring the transmission of information. It shall include compliance with the requirements laid down in Articles 42 to 49. The system of governance shall be subject to regular internal review. 2. The system of governance shall be proportionate to the nature, scale and complexity of the operations of the insurance or reinsurance undertaking. 3. Insurance and reinsurance undertakings shall have written policies in relation to at least risk management, internal control, internal audit and, where relevant, outsourcing. They shall ensure that those policies are implemented. Those written policies shall be reviewed at least annually. They shall be subject to prior approval by the administrative, management or supervisory body and be adapted in view of any significant change in the system or area concerned. Chisinau, 15 May 2012

  48. Corporate Governance for Insurance Companies 6. Solvency II Article 41 (General governancerequirements) continued: 4. Insurance and reinsurance undertakings shall take reasonable steps to ensure continuity and regularity in the performance of their activities, including the development of contingency plans. To that end, the undertaking shall employ appropriate and proportionate systems, resources and procedures. 5. The supervisory authorities shall have appropriate means, methods and powers for verifying the system of governance of the insurance and reinsurance undertakings and for evaluating emerging risks identified by those undertakings which may affect their financial soundness. The Member States shall ensure that the supervisory authorities have the powers necessary to require that the system of governance be improved and strengthened to ensure compliance with the requirements set out in Articles 42 to 49.” Chisinau, 15 May 2012

  49. Corporate Governance for Insurance Companies 6. Solvency II Article 44 (Riskmanagement) „1. Insurance and reinsurance undertakings shall have in place an effective risk-management system comprising strategies, processes and reporting procedures necessary to identify, measure, monitor, manage and report, on a continuous basis the risks, at an individual and at an aggregated level, to which they are or could be exposed, and their interdependencies. That risk-management system shall be effective and well integrated into the organisational structure and in the decision-making processes of the insurance or reinsurance undertaking with proper consideration of the persons who effectively run the undertaking or have other key functions. 2. The risk-management system shall cover the risks to be included in the calculation of the Solvency Capital Requirement as set out in Article 101(4) as well as the risks which are not or not fully included in the calculation thereof. Chisinau, 15 May 2012

  50. Corporate Governance for Insurance Companies 6. Solvency II Article 44 (Riskmanagement) – continued: The risk-management system shall cover at least the following areas: (a) underwritingandreserving; (b) asset–liabilitymanagement; (c) investment, in particular derivatives and similar commitments; (d) liquidity and concentration risk management; (e) operational riskmanagement; (f) reinsurance and other risk-mitigation techniques. …” Chisinau, 15 May 2012

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