By MICHAEL EBOH & WILLIAM JIMOH
The Joint Forum, comprising the Basel Committee on Banking Supervision, the International Organization of Securities Commissions, IOSCO and the International Association of Insurance Supervisors, has issued its final report on the principles for the supervision of financial conglomerates.
The report emphasized the need for financial conglomerates to properly measure and manage liquidity risks among others.
According to a statement signed by Carla Vitzthum, spokesperson, IOSCO, the updated principle is aimed at closing regulatory gaps, eliminating supervisory ‘blind spots’ and ensuring effective supervision of risks arising from unregulated financial activities and entities.
She noted that the principles are structured in a manner that should facilitate their implementation across jurisdictions and over time.
Dr. Therese Vaughan, Chair of the Joint Forum and Chief Executive Officer of the US National Association of Insurance Commissioners, stated that the principles are very useful, especially as it can be applied to large internationally active financial conglomerates.
She said, “The global adoption of these supervisory principles and their application in proportion to the risks posed will help strengthen the global financial system.”
Vitzthum noted that the principles are organized into key sections — supervisory powers and authority, supervisory responsibility, corporate governance, capital adequacy and liquidity and risk management.
On the issue of supervisory responsibility, the principles reaffirm the importance of supervisory cooperation, coordination and information exchange. They clarify the importance of identifying a group-level supervisor whose responsibility is to focus on group-level supervision and the facilitation of coordination between relevant supervisors.
New principles have been included which relate to the role and responsibilities of supervisors in implementing minimum prudential standards, monitoring and supervising activities of financial conglomerates and taking corrective action as appropriate.
On corporate governance, the principles underscore the importance of fit and proper principles and also provide, through a series of new principles, guidance for supervisors intended to ensure the existence of a robust corporate governance framework for financial conglomerates.
These new principles relate to the structure of the financial conglomerate, the responsibilities of the board and senior management, the treatment of conflicts of interest and remuneration policy.
In the area of capital adequacy and liquidity, the principles highlight the role of supervisors in assessing capital adequacy on a group basis, taking into account unregulated entities and activities and the risks they pose to regulated entities. They include new principles on group-wide capital management.
The principles also provide guidance on internal capital planning processes that rely on sound board and management decisions, incorporate stressed scenario outcomes, and are subject to adequate internal controls.