Risk Based Supervision

What is a supervisory framework? Wow what a serious matter to be delivered.

A supervisory framework is a frame of the way of supervisory run. The framework of supervision would be a kind of duties that should be implemented by the players.

 Today, the supervisory framework of financial institution was changed globally. About 10 years ago, the compliance method was a favor to do. Regulations were some kind of the ‘queen’. Regulations were to be the first vehicles to enforce mistakes and other misses.

The compliance methods would be considered to be powerful if the financial services were new things. Meanwhile, the progress of financial services was stepped out beyond. The players and the supervisors did not expect that the progress was really fast. If we look at the products, there will be piles of varieties. Not only have the products been generated the inside company, the products have been across the border of the industry.

Have you ever been heard about unit linked? Have you ever been heard bancassurance? Think elses that financial services have supplied broader more. The compliance methods would not be robust and encouraging to be implemented for the instrument of supervision.

Why? Since the compliance methods only covered issues controlled, the practices of the players, especially behavior, would not be touched by regulations. Saying that there was a change of supervisory framework, the change would be a risk based supervision. The main difference of them is the coverage. The risk based supervision would be concealed with the matters of players done even though there would be no rules on. The compliance based supervision would cover up some issues on the law.

As mentioned risk, the risk based supervision would enhance risks to be focused on the framework of supervision.  The step to get the risk based supervision, we have to identify the ultimate risk. After that we can classify risks meeting with the subject to be supervised. Then we calculate the risk. Then we find the total risk. Related to the Law, the impact of risks should be regulated. Therefore, the players could not play the game.

But is it influential to enforce? We’ll see then.