The Financial Stability Board (FSB) has published two documents in the context of its on-going work to address systemically important financial institutions (SIFIs):
- Guidance on supervisory interaction with financial institutions on risk culture (the Guidance); and
- Progress report on strengthening supervisory intensity and effectiveness (Progress Report).
The Guidance sets out a framework to assist supervisors in their assessment of risk culture. It identifies a number of different areas that need consideration, which consist of the following:
- foundational elements of a sound risk culture;
- indicators of a sound risk culture;
- general supervisory guidance;
- tone from the top;
- effective communication and challenge; and
The Progress Report describes the changes in supervisory practices since the financial crisis and identifies areas where more work is needed. In the Progress Report, the FSB through the Supervisory Intensity and Effectiveness group explored:
- the interaction between supervisors and boards, senior management and control functions such as compliance and audit;
- the formulation of enhanced supervisory expectations for institutions’ risk governance framework; and
- on-going focus on rigorous financial/business model analysis and other forward looking risk analysis tools such as stress testing to detect early weaknesses or problems.