MFSA Newsletter - Issue of new banking rules
The MFSA has issued Banking Rule BR/12 - The Supervisory Review Process of Credit Institutions authorised under the Banking Act 1994. The rule is being made pursuant to Article 17C of the Act and relates to the robustness of a credit institution's...
The MFSA has issued Banking Rule BR/12 - The Supervisory Review Process of Credit Institutions authorised under the Banking Act 1994. The rule is being made pursuant to Article 17C of the Act and relates to the robustness of a credit institution's internal governance process which is invariably an essential component of the institution's internal capital adequacy assessment process (ICAAP). Article 17B of the Act requires every credit institution to put in place robust governance arrangements while Article 17C requires credit institutions to establish their own ICAAP.
The rule aims to amplify on the main attributes of an institution's ICAAP and provides directions inter alia in relation to the setting of an institution's business objectives and risk appetite, how its business is organised, how responsibilities and authority are allocated, how reporting lines are set up and what information they convey and how internal control (including risk control, compliance and internal audit) is organised.
In accordance with Article 17D, the authority shall carry out a supervisory review and evaluation process (SREP) over licensed credit institutions. Notwithstanding that the principles underlying the rule relate to obligations of both credit institutions and the authority, the MFSA has deemed that disclosure of its obligations in the rule would provide licence holders and other stakeholders with information as to how it would undertake its SREP.
The banking rule has been modelled on the requisites of the CEBS Guidelines on the Supervisory Review Process (SRP) and on the application of the SRP in relation to Interest Rate Risk in the Banking Book (IRRBB) and Concentration Risk, under Pillar 2.
The rule has also adopted the additional technical guidance issued by the CEBS to complement its guidelines in the area of stress testing on the SRP issued in January 2006.
The rule aims to amplify on the main attributes of an institution's ICAAP and provides directions inter alia in relation to the setting of an institution's business objectives and risk appetite, how its business is organised, how responsibilities and authority are allocated, how reporting lines are set up and what information they convey and how internal control (including risk control, compliance and internal audit) is organised.
In accordance with Article 17D, the authority shall carry out a supervisory review and evaluation process (SREP) over licensed credit institutions. Notwithstanding that the principles underlying the rule relate to obligations of both credit institutions and the authority, the MFSA has deemed that disclosure of its obligations in the rule would provide licence holders and other stakeholders with information as to how it would undertake its SREP.
The banking rule has been modelled on the requisites of the CEBS Guidelines on the Supervisory Review Process (SRP) and on the application of the SRP in relation to Interest Rate Risk in the Banking Book (IRRBB) and Concentration Risk, under Pillar 2.
The rule has also adopted the additional technical guidance issued by the CEBS to complement its guidelines in the area of stress testing on the SRP issued in January 2006.