RiskBased Integrity Supervision Sherilina Schmidt Deputy Manager Integrity

Risk-Based Integrity Supervision Sherilina Schmidt, Deputy Manager Integrity Supervision Department October 12, 2015 1

Contents of presentation I. What is a Risk-Based Approach? II. Elements of a Risk-Based Supervisory framework III. Benefits and challenges of a Risk-Based Approach IV. Risk-Based Supervision of the CBA October 12, 2015 2

I. Risk-Based Supervision What is a Risk-Based Approach? October 12, 2015 3

I. Risk-Based Supervision Cont. 'd Key words • • Risks Likelihood of default Impact Scarse resources October 12, 2015 4

I. Risk-Based Supervision Cont. 'd Risk-Based Supervision: Risk-based supervision is a mechanism whereby the supervisory authority assesses an institution's likelihood of default and the implications of defaulting whereby allocating its scares resources in the most effective manner to the institutions under its supervision. October 12, 2015 5

I. Risk-Based Supervision Cont. 'd October 12, 2015 6

II. Elements of a Risk-Based Supervisory framework October 12, 2015 7

II. Elements Cont. 'd Dimensions of a Risk-Based Supervisory framework: • Probability of default • Impact October 12, 2015 8

II. Elements cont. 'd A Risk-Based supervisory framework involves the following elements: • Identifying significant operations; • Risk identification and assessment; - Sector wide risks - Risk affecting individual firms • Risk management controls and mitigating factors; • Net risk; • Overall assessment. October 12, 2015 9

III. Benefits and challenges Benefits of and challenges of a Risk. Based Approach Benefits • Cost effective; • Early identification of emerging risks; • Better appreciation by the supervisors. October 12, 2015 10

III. Benefits and challenges Cont. ’d Benefits of and challenges of a Risk. Based Approach Challenges • Staffing; • Supervisory judgment. October 12, 2015 11

IV. Risk-Based Approach and the CBA Risk-Based Supervision of the CBA October 12, 2015 12

IV. Risk-Based Approach and the CBA Cont. ’d 1. Risk assessment and analysis 2. Planning (prioritize) 4. Evaluation 3. Supervision (on- and offsite) October 12, 2015 13

IV. Risk-Based Supervision of the CBA Cont. ’d Risk-Based Supervision and the CBA • • Allocation of resources; High risk institutions/ more attention Targeted on-site examination Risk tool October 12, 2015 14

IV. Risk-Based Supervision of the CBA Cont. ’d Risk Tool: Risk Tracker October 12, 2015 15

Risk-Based Integrity Supervision October 12, 2015 16