Risk-Based Supervision Programme for Banking, Trust, Corporate Services and Investment Firms
The Bermuda Monetary Authority (BMA) has implemented a comprehensive risk-based supervision programme for banking, trust, corporate services and investment firms under its purview. The programme is designed to assess the risks inherent in these sectors and ensure that they are adequately supervised to maintain financial stability.
Key Components of the Programme
The programme consists of six stages:
- Identifying Risk Impact Groups and Prioritisation
- Identify existing and potential problems in supervised companies
- Prioritize supervision based on factors such as statutory returns, financial statements, prudential information, market conditions, and industry trends
- Fundamental Monitoring
- Monitor financial ratios
- Conduct peer analysis, trend analysis, and stress testing to identify potential areas of weakness
- Risk Model Application
- Apply the Authority’s risk assessment model, CAMELBCOM, to evaluate nine risk factors:
- Capital
- Assets
- Market risk
- Earnings
- Liabilities
- Business
- Internal controls
- Organisation
- Management risk
- Apply the Authority’s risk assessment model, CAMELBCOM, to evaluate nine risk factors:
- Planning
- Analyze the results of the risk model and assess all data captured up to this point
- Enhanced Monitoring
- Conduct on-site visits by supervisory teams to clarify further points arising from desk-based work
- Schedule meetings with firms’ management teams to update the risk model based on findings
- Reporting and Risk Mitigation
- Prepare written reports highlighting issues or concerns identified during the risk assessment process, which may warrant corrective attention
Insurance Sector Supervision
The Authority has established a flexible plan for its supervision of the insurance sector, which is based on nine phases:
- Planning and Prioritisation
- Determine priorities in the plan and scope of work for each insurer
- Risk Impact Group
- Insurers are assigned to groups based on their size, nature, and complexity
- Fundamental Monitoring
- Perform off-site monitoring of all insurers to ensure they satisfy threshold conditions of their licence
- Prudential Visits
- Initiate prudential visits to establish or maintain relationships with key management
- Enhanced Monitoring
- Conduct off-site and on-site reviews to gather additional information
- Composite Risk Rating
- Prepare a summary summarizing all data gathered in preceding phases
- Supervisory Attention Ranking
- Determine the nature and extent of regulatory action required based on the Composite Risk Rating or other information brought to the BMA’s attention
- Supervisory Actions
- Regulatory actions may include fundamental, enhanced, oversight, mandated improvement, or restructuring
- Follow-up
- Ensure that all necessary actions have been taken to complete the risk-based review of the subject company
Conclusion
The BMA’s risk-based supervision programme is designed to ensure that banking, trust, corporate services and investment firms under its purview are adequately supervised to maintain financial stability. The programme involves a comprehensive evaluation of risks inherent in these sectors and ensures that regulatory actions are taken where necessary.