Central Bank tightening up
The financial institution has issued a new “consolidated supervision framework” suggesting the opposite — increased oversight especially in the area of cross-border banking operations
The organisation’s Bank Supervision Department, identifying a need to increase the focus on this area, outline the new 30-page framework, which focusses on legal and prudential infrastructure, accounting standards, and a system for supervisory cooperation.
“Due to their nature, cross-border operations of international banking groups present unique challenges to supervisors in conducting effective supervision, which are not encountered with solo monitoring,” it noted.
“The pace of change and innovation over the past few decades has reshaped the face of the business environment. Globalisation, financial liberalisation, and cross-border operations have led to the evolution of large and complex financial institutions and structures, which require a consolidated view of business operations.
“The concepts of consolidated supervision can be defined as a group-wide approach to supervision, which takes all the risks that a banking group is exposed to into account, wherever they are booked. It allows for the assessment of the risks posed to a bank as a consequence of being a member of a larger group,” it added.
These risks included a damaging loss of confidence if other members of the group get into difficulties, that risks undertaken by other group members could negatively affect the entire group, risks caused by intra-group transactions, and problems with conflicts of interest.
“The purpose of consolidated supervision is essentially threefold, … to support the principle that no banking operation, wherever located, should escape supervision altogether…, to prevent double-leveraging of capital… and to ensure that all the risks incurred by a banking group, no matter where they are booked, are evaluated and controlled on a global basis,” the bank said. It said consolidated supervision was “not intended as a means to supervise all the members of the entire group, but rather to supervise the bank as part of the group” and that it “is not a substitute for solo supervision”.
“This framework will apply to all financial institutions that engage in banking business as defined under the Financial Institutions Act, 1996-16 or engage in international banking business as defined under the International Financial Services Act, 2002-5,” it noted. (SC)