Swedish Bank’s Risk Management Framework and Governance Structure

In a bid to ensure the stability and sustainability of its operations, Swedish Bank has implemented a robust risk management framework that encompasses strategies, processes, procedures, internal rules, limits, controls, and reporting procedures.

Separation of Functions

The bank’s risk control function, compliance function, and internal audit function are separate entities. The former is responsible for identifying, measuring, governing, and controlling risks. The compliance function ensures that the bank adheres to regulatory requirements, while the internal audit function monitors and evaluates the effectiveness of internal controls.

Senior Management Oversight

The Swedish Financial Supervisory Authority (SFSA) is responsible for overseeing the appointment of senior management at Swedish banks. As part of this process, the SFSA:

• Assesses the suitability of candidates for key positions, including chairman of the board, board members, alternate board members, managing director, and deputy managing director
• Collects information from various sources, including:
  • Swedish Police
  • Swedish Companies Registration Office
  • Swedish Tax Agency
  • Credit reporting agencies
• Requires the bank to submit an application for suitability assessment, which must include details about the candidate’s employment history, education, work experience, and other relevant information

Remuneration Requirements

Swedish banks are subject to strict remuneration requirements aimed at promoting sound risk management practices. The board of directors is responsible for establishing a documented remuneration policy that ensures fair compensation for employees while also discouraging excessive risk-taking behavior.

• The remuneration policy must be aligned with the bank’s risk management framework and ensure that total variable remuneration does not compromise the bank’s ability to maintain a sufficient capital base
• The control function is responsible for reviewing the remuneration structure annually to ensure compliance with the remuneration policy

Specially Regulated Staff

Senior management and employees in specific categories of staff, including risk takers and those with total remuneration exceeding SEK100,000, are identified as specially regulated staff. Their variable remuneration is based on both individual performance and overall business unit and company performance, with a maximum limit of fixed compensation.

• At least 40% of the variable remuneration for these employees must be deferred over a period of three to five years before it can be paid or vested in their name
• This ensures that these employees are incentivized to prioritize long-term sustainability over short-term gains

Conclusion

Swedish Bank’s risk management framework and governance structure demonstrate its commitment to ensuring the stability and sustainability of its operations. By implementing robust risk management practices, establishing a documented remuneration policy, and deferring variable compensation for specially regulated staff, the bank is well-positioned to navigate the complex financial landscape while maintaining public trust and confidence.