A strong automated control framework, for example, can reduce human intervention, tying risks to specific process break points. As the pressure to reduce costs will persist, the risk function will need to find further cost-savings opportunities in digitization and automation while delivering much more for much less.
Preparing for change
The six trends suggest a vision for a high-performing risk function come Its ability to manage multiple risk types while complying with existing regulation and preparing for new rules will make it more valuable still, while its role in fulfilling customer expectations will probably render it a key contributor to the bottom line. For most banks, their risk function is some way off from being able to play that role.
The optimal function would have the following attributes and capabilities:. To put all this in place, risk functions will need to transform their operating models. How can they begin?
They cannot prepare for every eventuality, but initiatives can be implemented that will bring short-term business gains while helping build the essential components of a high-performing risk function over the next decade. Here are some examples of such initiatives that can be launched immediately:. Digitize core processes. Simplification, standardization, and automation are key to reducing nonfinancial risk and operating expenses.
To that end, the risk function can help speed the digitization of core risk processes, such as credit applications and underwriting, by approaching businesses with suggestions rather than waiting for the businesses to come to them. Increased efficiency, a superior customer experience, and improved sales will likely be additional benefits. Experiment with advanced analytics and machine learning.
In the same vein, risk functions should experiment more with analytics, and particularly machine learning, to enhance the accuracy of their predictive models.
12222 Banking Regulatory Outlook
Risk functions can be expected to use these models for a number of purposes, including financial-crime detection, credit underwriting, early-warning systems, and collections in the retail and small-and-medium-size-enterprise segments. Enhance risk reporting. Ever-broader regulation and the need to adjust to market developments require rapid, fact-based decision making, which means better risk reporting.
While regulatory requirements have already done much to improve the quality of the data used in risk reports and their timeliness, less attention has been given to the format of reports or how they could be put to better use for making decisions.
Replacing paper-based reports with interactive tablet solutions that offer information in real time and enable users to do root-cause analyses would enable banks to make better decisions faster and to identify potential risks more quickly as well. Collaborate for balance-sheet optimization. Given regulatory constraints, balance-sheet composition is arguably more important than ever in supporting profitability.
The risk function can help optimize the asset and liability composition of the balance sheet by working with finance and strategy functions to consider various economic scenarios, regulation, and strategic choices. How prepared would the bank be, for example, if the loan portfolio were contracted or expanded? Such analyses, optimized with analytical tools, can help banks find ways to improve returns on equity by 50 to basis points, while still fulfilling all regulatory requirements.
Refresh the talent pool. Building the right mix of talent is equally important. Data scientists with advanced mathematical and statistical knowledge are needed to collaborate across the bank in the conversion of data insights into business actions. Risk managers will become trusted counselors to business areas, while traditional operational areas will require fewer staff. Attracting talented employees will itself be a challenge, as potential candidates would tend to prefer technology firms unless banks strengthen their value propositions.
Build a strong risk-management culture. The detection, assessment, and mitigation of risk must become part of the daily job of all bank employees and not only those in risk functions. With automation and more sophisticated analytical and technical capabilities, human intervention is needed to ensure appropriate and ethical application.
The risk function will have a dramatically different role by To get there, needed changes will take several years, so time is already short. The actions recommended here can equip the risk function with the capabilities it needs to cope with new demands and help the bank to excel among its competitors.
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It measures the maturity allocation structure of major assets and liabilities of banks and is applicable to all commercial banks. The liquidity matching ratio will be implemented starting from January 1, and will be temporarily monitored until Liquidity risk supervision indicators in China include liquidity coverage ratio, net stable funding ratio, liquidity ratio, liquidity matching ratio, and high liquidity asset adequacy ratio.
Banking Laws and Regulations | USA | Laws and Regulations | GLI
In China, only financial institutions licensed by PBOC can take deposits from the general public, although some other financial institutions e. At a time when the banking sector was rolling out the welcome mat for more private sector investment, the plan to launch a deposit insurance system had been announced by CBRC as one of the steps for further promoting the reform of the interest rate system. In the absence of a formal deposit insurance scheme in China, the Chinese government plays the role of a lender of last resort in the event of a crisis. In the wake of the global financial crisis in , the Chinese government provided an implicit guarantee for retail deposits to insure against the unravelling of the financial system and economy.
On February 17, , the State Council promulgated the Deposit Insurance Regulations, in accordance with which each bank shall maintain insurance coverage for money deposited with it, and each depositor will be compensated for losses up to RMB , in case such bank becomes insolvent or goes bankrupt.
The future of bank risk management
The Deposit Insurance Regulations had come into force on May 1, According to the Commercial Bank Law, unless otherwise permitted, a commercial bank must not engage in trust investment business or securities business, or make investments in non-self-use real estate properties, nor invest in non-bank financial institutions or other enterprises.
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Free Newsletter. About Us Contact Us Partners. Toggle navigation. Sign up for free newsletter. Home Practice areas Banking Regulation China. Banking Regulation China. Regulatory architecture: Overview of banking regulators and key regulations. Key China banking regulations. Recent regulatory themes and key regulatory developments in China. Bank governance and internal controls. Bank capital requirements. Back to top. Reform of the regulatory structure The most substantial regulatory development in the past few years in China was the reform of the regulatory structure including the creation of FSDC, merger of CBRC and CIRC, and a reshuffle of powers among the main banking regulators, which we have discussed in detail above.
Tightening control over of P2P lending As one of its continuous efforts to address risks of shadow banking, CBRC has released a number of rules targeting peer-to-peer P2P lending since August Resolving non-performing loans In order to tackle the risk of proliferating non-performing loans NPL in the banking system, the Chinese government had introduced a market-oriented debt-for-equity swap mechanism to the banking sector. Such enterprises included: enterprises in difficulties caused by the cyclical fluctuation of industries but still having the opportunity to take a turn for the better; growing enterprises with heavy financial burdens resulting from heavy debt, especially growing enterprises in strategic emerging industries and fields; key enterprises with heavy debts but leading the pack in industries of excess production capacity; and strategic enterprises relating to national security.
Certain committees are required to be maintained The board of directors shall, according to the actual situation of a commercial bank, set up specialised committees, such as an audit committee, a risk management committee, a remuneration committee, and so on. Restrictions on remuneration CBRC has issued guidance with a view to ensuring that the incentivising compensation policies adopted by a commercial bank do not encourage imprudent risk-taking. Register now Login. Close Notice of updates! Since the last time you logged in our privacy statement has been updated.
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