The Financial Stability Board (FSB) has today published two papers to assist supervisors in strengthening risk management practices at financial institutions:
1) Principles for an Effective Risk Appetite Framework - finalised document; and
2) Guidance on Supervisory Interaction with Financial Institutions on Risk Culture - for public consultation.
These papers form part of the FSB's initiative to increase the intensity and effectiveness of supervision, which is a key component of the policy measures to address systemically important financial institutions (SIFIs) that were endorsed by the G20 in November 2010 to address the problem of firms that are "too big to fail".
Julie Dickson, Superintendent of Canada's Office of the Superintendent of Financial Institutions and Chair of the FSB Supervisory Intensity and Effectiveness Group, noted: "The Principles and Guidance aim to support well-informed and forward-looking risk decisions by institutions, and to assist the understanding, by both the financial institution and the supervisor, of the institution's risk culture, in particular whether it supports appropriate behaviours and judgements within a strong risk governance framework".
The Principles for an Effective Risk Management Framework were issued for public consultation in July 2013 and have been revised in light of the comments received during that consultation. Respondents generally supported the overall direction of the draft Principles, but sought more clarity on the extent to which a financial institution's risk appetite should be cascaded to individual legal entities and business units. The responses to the public consultation are available on the FSB's website.
The level of risk appetite that a financial institution sets will be influenced by its risk culture, in other words the institution's attitude toward and acceptance of risk. The FSB is therefore issuing today for public consultation a Guidance Paper to assist supervisors in assessing the risk culture at financial institutions. The FSB invites comments on the draft guidance by 31 January, 2014.
Full press release
Principles for an Effective Risk Appetite Framework / press release
Guidance on Supervisory Interaction with Financial Institutions on Risk Culture
© FSB - Financial Stability Board
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