Swedish Bank’s Risk Management Framework Under Scrutiny

In a move to ensure the stability and integrity of the financial system, Swedish banks are required to implement a robust risk management framework that comprises strategies, processes, procedures, internal rules, limits, controls, and reporting procedures.

Risk Control Function

The framework includes a dedicated risk control function, which is responsible for identifying, measuring, governing, and controlling risks that could impact the bank’s operations. This function works separately from other control functions, including compliance and internal audit, to ensure independence and objectivity.

Outsourcing Arrangements

To manage outsourcing agreements effectively, Swedish banks must establish internal rules for monitoring and controlling third-party relationships. The banks must exercise due skill, care, and diligence when entering into, managing, and terminating these agreements, particularly those that are material to the bank’s operations.

Senior Management Oversight

The appointment of senior management is subject to regulatory approval by the Swedish Financial Supervisory Authority (SFSA). To ensure suitability, candidates must possess sufficient insight and experience to participate in the management of a bank. The SFSA assesses the suitability of senior managers, including board members, managing directors, and key function holders.

Accountability

The board of directors is accountable for ensuring compliance with regulatory requirements and maintaining a healthy capital base. In cases of non-compliance, the SFSA may intervene, and senior management may be held liable for damages caused by intentional or grossly negligent breaches of regulations.

Remuneration Requirements

Swedish banks must establish remuneration policies that promote sound risk management and counteract excessive risk-taking behavior. The board of directors is responsible for deciding on remuneration structures, including fixed and variable components, which must be aligned with the bank’s risk profile and capital requirements.

Specially Regulated Staff

Senior management and employees in strategic management positions, control functions, or those whose total remuneration exceeds that of senior managers are considered specially regulated staff. Their variable remuneration is subject to stricter criteria, including performance assessments based on risk-adjusted profit measures and deferral periods.

In conclusion, Swedish banks must adhere to these stringent requirements, ensuring that their risk management frameworks, governance structures, and remuneration policies are aligned with regulatory expectations. The SFSA will continue to monitor compliance and take enforcement action where necessary to maintain market stability and protect consumers’ interests.