Financial Crime World

Myanmar: Central Bank Issues Guidelines for Risk Management Practices

Enhancing Risk Management Systems in Myanmar’s Banking Sector

The Central Bank of Myanmar (CBM) has issued guidelines on risk management practices for banks in the country, aiming to promote a sound risk management culture and ensure compliance with regulatory requirements.

Key Objectives

  • Require banks to ensure their risk management systems are appropriate to their business size and complexity
  • Encourage banks to enhance their risk management practices
  • Set out standards for assessing risk management systems under the CBM’s risk-based supervision approach

Guidelines Coverage

The guidelines cover a range of topics, including:

  • Risk management systems
  • Risk governance
  • Risk appetite framework
  • Monitoring and management information systems
  • Internal controls
  • Stress testing
  • External audit
  • Capital management plan
  • CBM supervision

Key Requirements

Some key guidelines to note include:

  • Bank Boards of Directors must approve their risk appetite frameworks and comprehensive risk strategies
  • Boards are expected to establish a Risk Management Committee, with an independent non-executive director as its chairperson
  • Senior management is responsible for implementing the bank’s risk management system
  • Banks must establish an independent function to oversee overall bank-wide risk management
    • This function should be responsible for providing oversight of risks inherent in the bank’s activities and have the authority to take corrective action when necessary

Stress Testing Requirements

Banks are required to develop a rigorous stress testing framework that is proportionate to their operations and material risks. Separate guidelines will be issued by the CBM outlining detailed requirements.

Defining Financial Risks

The guidelines define key financial risks that banks must establish systems to manage, including:

  • Credit risk
  • Market risk
  • Liquidity risk
  • Operational risk
  • Legal, regulatory, and reputational risk
  • Strategic risk
  • Group and related parties risk

Consequences of Non-Compliance

Failure to comply with the guidelines constitutes a violation subject to corrective actions or sanctions under sections 94 and 96 of the Financial Institutions Law (FIL) and administrative penalties under section 154 of the FIL.

Effective Date

The guidelines will come into effect on May 20, 2021.