MORNBFI Vol. 1 - Planters Development Bank

APP. Q-1509.12.31deteriorating positions, as well as othersignificant issues arising from theirpositions, to the risk control function andresponsible management.(4) Management information systemAn FI must institute an informationsystem that generates accurate and incisivereports to ensure that management and theBOD are timely and regularly apprised ofthe FI’s derivatives exposures. An FI isexpected to have policies and procedurespertaining to the derivatives reportingspecifying, among others, the types ofderivatives reports to be generated, thepurpose and contents thereof, responsibleunits that will generate the reports, frequencyand deadlines of reports, recipients/users ofreports, and the type of action expected fromthe users of the report. At a minimum,management reports should contain thefollowing: outstanding derivatives positions,compliance with or status of positions asagainst limits, analysis of derivatives positions,along with other FI exposures, in relation tothe impact to earnings and capital, monitoringof trigger events, and deviations fromestablished policies and procedures andjustifications thereof.The management information systemmust be able to translate the measured risksfrom derivatives activities from a technicaland quantitative format to one that can easilybe read and understood by senior managersand directors, who may not have specializedand technical knowledge of derivativesproducts. Such a system enablesmanagement and the BOD to judge thechanging nature of the FI’s risk exposures.The electronic data processing capabilitymust be commensurate to the volume andcomplexity of the FI’s derivatives activitiesto facilitate the generation of needed reports.The frequency and content of BOD andmanagement reporting will ultimatelydepend upon the nature and significance ofderivatives activities. Where applicable,BOD and management reports shouldconsolidate information across functionsand divisions. BOD and managementreporting should be tailored to the intendedaudience, providing summary informationto senior management and the BOD andmore detailed information to FI traders.Management reports should begenerated by control departmentsindependent of the risk-takers. When risktakersprovide information (e.g., valuationsor volatilities on thinly traded derivativescontracts) for management reports, seniormanagement should be informed ofpossible weaknesses in the data, and thesepositions should be audited frequently.d. Comprehensive internal controlsand independents audits.A sound system of internal controlspromotes effective and efficient operations,reliable financial and regulatory reporting, andcompliance with relevant laws, regulationsand policies of the FI. In determining whetheran FI’s internal controls meet these objectives,the BSP will consider the overall controlenvironment of the FI, particularly, the processof identifying, measuring, analyzing andmanaging risk, the adequacy of managementinformation systems, and degree of adherenceto control activities such as approvals,confirmations and reconciliations. Control ofthe reconciliation process is particularlyimportant where there are differences in thevaluation methodologies or systems used bythe front and back offices.(1) Risk controlAn FI should have an independent riskcontrol unit responsible for the design andimplementation of the FI’s risk managementsystem. A strong risk control function is akey element in fulfilling the oversightresponsibilities of BOD members and seniormanagers. This unit must be independentfrom business trading units and shouldreport directly to the BOD. The role andstructure of risk control function should becommensurate to the nature, complexityand extent of an FI’s derivatives activities.Q RegulationsAppendix Q-15 - Page 6Manual of Regulations for Non-Bank Financial Institutions