Senior Managers Must Implement Procedures and Controls to Comply with Adopted Policies
As part of a broader effort to strengthen risk management practices, senior managers at financial institutions have been tasked with implementing strategies that limit risks associated with each activity while ensuring compliance with laws and regulations.
Understanding Banking and Financial Market Activities
To effectively implement these strategies, senior managers must have a thorough understanding of banking and financial market activities as well as detailed knowledge of the institution’s operations. This includes:
- Familiarity with various financial products and instruments
- Knowledge of market trends and conditions
- Understanding of regulatory requirements and industry standards
Establishing Effective Internal Controls
According to recent guidelines issued by regulatory bodies, senior managers must establish and maintain an effective system of internal controls, including:
- Enforcement of official lines of authority
- Separation of duties to prevent conflicts of interest
- Regular testing of internal controls by an independent internal auditor
Failure to implement and maintain adequate segregation of duties can constitute an unsafe and unsound practice, potentially leading to serious losses or compromising the financial integrity of the institution.
Importance of Independent Audits
The guidelines emphasize the importance of testing internal controls by an independent internal auditor who reports directly to the institution’s board of directors or audit committee. The results of audits or reviews must be adequately documented, as should management’s responses to them.
Adequate Internal Controls and Audit Procedures
To ensure the adequacy of internal controls and audit procedures, financial institutions are expected to:
- Establish a system that is appropriate to the type and level of risks posed by their activities
- Have clear lines of authority and responsibility for monitoring adherence to policies, procedures, and limits
- Implement reporting lines that provide sufficient independence from business lines
Compliance with Laws and Regulations
Institutions must also have adequate procedures in place for ensuring compliance with applicable laws and regulations, as well as internal controls and information systems that are adequately tested and reviewed.
Risk Management Function
The guidelines highlight the importance of having a risk management function in place, which is responsible for:
- Identifying current and emerging risks
- Developing risk assessment and measurement systems
- Establishing policies and practices to manage risks
- Reporting results of risk monitoring to senior management and the board
Conclusion
Overall, the guidelines aim to ensure that financial institutions have robust risk management frameworks in place, which are designed to protect their customers, employees, and shareholders from potential losses or other harm. By implementing effective procedures and controls, senior managers can help ensure compliance with adopted policies and maintain a strong reputation for the institution.