Licensed Financial Institution Copes with Risks, Boosts Supervisory Confidence

GEORGETOWN, GUYANA

A recent assessment by the Bank of Guyana has found that a licensed financial institution has taken steps to address minor risk management weaknesses, demonstrating its ability to successfully manage existing and foreseeable exposure.

Effective Risk Management Practices

The assessment highlighted that while the institution may have some minor risk management shortcomings, these issues are being addressed through effective board oversight, policies, limits, and risk monitoring procedures. As a result, risks are being controlled in a manner that does not require more than normal supervisory attention.

Potential Risks and Consequences

However, another scenario was also considered - one where risk management systems are lacking significant improvements, resulting in the need for more than normal supervisory attention. In this case, internal controls may be inadequate, leading to continued control exceptions or failure to adhere to written policies and procedures. If left unaddressed, these deficiencies could have adverse effects on the safety and soundness of the institution or lead to material mis-statement of financial statements.

Next Steps

The Bank of Guyana will discuss its findings with the board of directors and senior management of the licensed financial institution to ensure that they are taking necessary steps to address any identified weaknesses.

Best Practices in Risk Governance and Management

In a related development, the bank has published a set of questions for board members to ask senior management on risk governance and risk management. The questions cover areas such as strategic planning, risk management processes, and risk monitoring and reporting, and aim to help boards fulfill their stewardship and governance responsibilities.

Questions for Board Members

Here are some key questions that board members should ask senior management:

• What are the institution’s key business risks as a deposit-taking institution and deliverer of banking and/or financial services?
• How effective is the institution in identifying and assessing its business risks?
• How does the institution integrate risk management into developing its corporate strategic direction and plan?
• How is risk management coordinated across the institution?
• How does the institution manage its business risks to ensure an appropriate level of risk is established for approval by the board of directors?

Additional Questions

1. Does senior management have a good understanding of the institution’s business and operational risks?
2. How does senior management ensure that risk management is an integral part of the planning and day-to-day operations of individual business units?
3. How do board members ensure that their expectations for risk management are communicated to and followed by management and employees?
4. How do board members ensure that executives and employees act in the best interests of the institution?
5. How do board members ensure that the institution is performing according to its business plan and within approved risk tolerance limits?
6. How do board members monitor and evaluate changes in the external environment and their impact on the strategy and risk management practices of the institution?
7. What information about the risks facing the institution does the board receive from management to help them fulfill their stewardship and governance responsibilities?

Conclusion

The Bank of Guyana is committed to promoting a robust risk management culture among licensed financial institutions in Guyana, and will continue to work with these institutions to ensure that they are adequately equipped to manage risks and maintain their safety and soundness.