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Banking Compliance Procedures in Liechtenstein: A Close Look at LLB AG’s Risk Management Practices

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Liechtenstein, a small European principality nestled between Switzerland and Austria, has a thriving financial sector that adheres to some of the most stringent regulatory requirements globally. At the forefront of this sector is LLB AG, one of the country’s leading banks, which operates under a robust risk management policy that ensures compliance with local laws as well as international banking standards.

Risk Management Oversight: A Board-led Approach

The ultimate responsibility for managing risks at LLB AG lies with its Board of Directors. This governance structure is supported by the Risk Committee, which is tasked with continuously monitoring the bank’s exposure to various types of risk. The Board of Management, led by expert committees focused on credit and operational risk management, also plays a pivotal role in overseeing these efforts.

Market Risks: Mitigated through Sensitivity Analysis

As a financial institution, LLB AG is primarily exposed to market risks associated with interest rate fluctuations, currency exchange rates, and share prices. To manage these risks effectively, the bank employs sensitivity analysis and value-at-risk (VaR) assessments. The Group Risk Management Committee, supported by the Asset & Liability Committee, utilizes these tools to limit exposure and ensure that the bank remains within established risk tolerance levels.

Credit Default Risks: A Conservative Approach

In line with best practices in the banking industry, LLB AG adopts a conservative approach to credit default risks. This involves extending credits primarily on a secured basis, mainly through interbank transactions, private client business, and public authority dealings. The Group Credit Risk Committee is responsible for managing these risks, employing an internal rating system to determine risk-related terms and conditions.

Real Estate Valuation: A Critical Component

Responsible lending practices at LLB AG involve thorough property valuation and loan-to-value ratio assessments. Each property must be valued in accordance with local market conditions, ensuring that the bank extends loans within prudent boundaries. The internal directive “Real Estate Valuation” provides a framework for determining market-conforming loan-to-value ratios for properties in Switzerland and Liechtenstein.

Operational and Legal Risks: Proactive Management

Internal regulations and directives are employed to limit exposure to operational and legal risks at LLB AG. Compliance with these regulations is regularly monitored by the Group Compliance, Group Operational Risk / ICS departments, and Group Internal Audit. External legal experts are brought in on a case-by-case basis to manage specific risks.

Liquidity Risks: A Proactive Approach

Liquidity risks at LLB AG are managed in accordance with banking law provisions, ensuring that the bank maintains adequate liquidity buffers. This proactive approach helps mitigate potential risks associated with sudden changes in market conditions or client withdrawal patterns.

Derivative Financial Instruments: Hedging and Client Transactions

Within balance sheet management, interest rate swaps are employed to hedge against interest rate fluctuations. Derivative financial instruments are primarily used within client transactions, with standardised and OTC derivatives traded for the account of clients.

Conclusion

LLB AG’s robust risk management practices in Liechtenstein demonstrate a commitment to adherence with regulatory requirements and best industry standards. This approach not only ensures compliance but also provides a solid foundation for maintaining stakeholder trust, minimizing potential losses, and supporting long-term business success.