China’s Banking Sector Faces Compliance Risks: Bank of China’s Risk Management Strategies in Focus

As one of China’s largest banks, Bank of China has taken a proactive approach to managing compliance risks and ensuring prudence in its operations. In this article, we will delve into the bank’s risk management strategies and explore how they prioritize shareholders’ interests while adhering to regulatory requirements.

Balancing Risk and Return

Bank of China maintains a “neutral” risk appetite, which means that it balances risk and return to ensure prudence in its operations. This approach enables the bank to prioritize shareholders’ interests while meeting regulatory requirements.

Risk Management Framework

The bank’s risk management framework is structured around a board-level Risk Policy Committee, supported by various committees and departments. The committee is responsible for setting the overall direction of the bank’s risk management strategy.

Credit Risk Management

Centralized Credit Approval

Bank of China has implemented centralized credit approval processes to ensure that all loan applications are reviewed and approved in a consistent and systematic manner.

Sophisticated Examiner Systems

The bank uses sophisticated examiner systems to monitor and analyze credit risk, enabling it to identify potential issues early on and take corrective action.

Market Risk Management

Comprehensive Policy

Bank of China has formulated a comprehensive policy outlining market risk measurement, credit limit structures, and monitoring procedures. This policy ensures that the bank’s investments are managed in a prudent and responsible manner.

Liquidity Risk Management

Centralized and Standardized Approach

The bank’s liquidity risk management approach is characterized by high degrees of centralization and standardization, ensuring effective risk measurement and mitigation.

Internal Control System

Bank of China has established three defense lines for internal control:

First Defense Line: Self-Control Mechanisms

Institutions at all levels, business management departments, and staff are responsible for implementing internal controls. The Legal Compliance Department and Business Line Department oversee the establishment of internal controls, providing guidance, inspection, supervision, and evaluation.

Second Defense Line: Review and Assessment

The Legal Compliance Department and Business Line Department review and assess internal control systems to ensure their effectiveness.

Third Defense Line: Audit Department

The Audit Department conducts systematic and standardized evaluations of business operations, risk management, internal controls, and corporate governance across the entire bank.

Anti-Money Laundering System

Bank of China has also established a comprehensive anti-money laundering system. In 2001, the bank set up an Anti-Money Laundering Committee, supported by dedicated teams at both domestic and overseas branches.

Clear Framework

The bank’s Anti-Money Laundering Policy provides a clear framework for anti-money laundering activities, enabling effective performance of this critical function.

Conclusion

As China’s banking sector continues to evolve, Bank of China’s proactive approach to compliance risk management serves as an important model for the industry. By prioritizing prudence and regulatory compliance, the bank is well-positioned to navigate the complex regulatory landscape and maintain its position as a major player in China’s financial sector.