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Bank’s Risk Management and Compliance Function: A Strong Second Line of Defence
The [Bank Name] has a robust second line of defence in place to ensure that its risk management practices are monitored and reported effectively.
Components of the Second Line of Defence
- The Compliance Department works together with the Integrated Risk Management Department, Information Security Department, and Treasury Mid-Office to oversee all types of compliance issues and monitor risk-related practices.
- This second line of defence defines preventive and detective control requirements and ensures that such requirements are embedded in the policies and procedures of the first line.
Third Line of Defence: Internal Audit
The third line of defence is provided by the Bank’s Internal Audit Department, which performs independent periodic reviews of the first two lines of defence. The internal auditors assess the effectiveness of the Bank’s risk management processes, measurement systems, and compliance with regulatory guidelines. They provide assurance to the Board/Board level committees on the strength and potential weaknesses of the Bank’s risk management framework.
Product Development and Vetting Committee
The Product Development and Vetting Committee (PDVC) plays a crucial role in assessing the risks associated with new products and services prior to their launch. The committee ensures that mitigation measures are adopted to minimize potential risks.
Stress Testing Practices
The [Bank Name] has a comprehensive stress testing framework in place, which is designed to assess the impact of severe economic downturn on its financial position and capital. The stress test covers all material risks, including:
- Credit risk
- Market risk
- Operational risk
- Interest rate risk in banking book
- Liquidity risk
Key Risks and Mitigating Actions
The Bank’s key risks include:
- Credit risk
- Operational risk
- Market risk
To mitigate these risks, the Bank has implemented various measures, such as:
- Robust risk assessment and credit sanctioning processes
- Extensive credit controls
- Regular monitoring of credit portfolios
- Business Continuity Plan to ensure continued operability in the face of any emergency or crisis.
Conclusion
The [Bank Name]’s second line of defence is designed to provide an additional layer of assurance that its risk management practices are effective and compliant with regulatory guidelines. The Bank’s stress testing framework, product development and vetting committee, and internal audit department all contribute to its robust risk management framework.