MORNBFI Vol. 1 - Planters Development Bank

APP. Q-1509.12.31should be an established reportingmethodology to ensure that the BODreceives, on a continuing basis, detailedinformation regarding the FI’s risk exposuresfrom derivatives, including the impact to theFI’s overall risk profile, earnings and capital.These reports should include both normaland stress scenarios.Pursuant to the general policy or policydirection on risk management set by theBOD, senior management must adoptadequate policies and procedures forconducting the FI’s derivatives activities onboth a long-range and day-to-day basis.Policies should clearly delineateresponsibility for managing risk, and provideeffective internal controls and acomprehensive risk-reporting process.Policies must also keep pace with thechanging nature of derivatives products andmarkets and therefore must be reviewed onan on-going basis. Senior managementshould ensure that the various componentsof an FI’s risk management process areregularly reviewed and evaluated. Internalevaluations may be supplemented byexternal auditors or other qualified outsideparties.The quality of oversight provided by theBOD and senior management to an FI’sderivatives activities will be reflected in theoverall risk management process, theadequacy of resources (financial, technicalexpertise, and systems technology) devotedto handle derivatives activities and its useof the monitoring reports. The BOD andsenior management shall be responsible forensuring that FI personnel comply withprescribed risk management standards andsales and marketing guidelines.b. Adequate risk managementpolicies and proceduresAn FI must establish policies andprocedures to guide its personnel inconducting derivatives activities. These riskmanagement policies must be reflective ofan FI’s current strategy and practice.An FI should not issue policies andprocedures for derivatives in isolation. Allaspects of the risk management processfor derivatives activities should beintegrated into the FI’s over-all riskmanagement system to the fullest extentpossible using a conceptual frameworkcommon to the FI’s other activities. Riskmanagement policies should becomprehensive, covering all activities ofthe FI. The BSP will evaluate the degreeto which controls covering derivativesactivities have been integrated in otherissuances of the FI covering aggregate risktakingactivities.For FIs that conduct derivativestransactions with subsidiaries and affiliates,there should be policies and procedures thatdescribe the nature, pricing, monitoring, andreporting of acceptable related-partytransactions.All risk management policies andprocedures must be written, wellcommunicatedto all personnel involved inthe derivatives activities and readily availablein user-friendly form, whether the same is ahard or soft copy thereof. An FI must alsoput up systems and procedures to ensurean audit trail evidencing the disseminationprocess for new and amended policies andprocedures.At a minimum, an FI is expected to have:(1) Comprehensive, updated andrelevant risk policy manual(s);(2) Operations manual(s) or similardocuments that describe the flow oftransactions among and between therelevant units and personnel in an FI’streasury (front office, back office andaccounting) and risk management unit;(3) Approved product manual(s) thatincludes product definition, benefits andrisks, pricing mechanisms, risk managementprocesses, capital allocation guidelines, taximplications and other operatingprocedures and controls for the FI’sderivatives activities.Manual of Regulations for Non-Bank Financial InstitutionsQ RegulationsAppendix Q-15 - Page 3