MORNBFI Vol. 1 - Planters Development Bank

APP. Q-1509.12.31(c) Competent and adequate personnelwho are properly supervisedThe increased complexity of derivativesactivities requires highly skilled staffparticularly in the risk-taking, risk control,and operational functions. Managementshould regularly review the knowledge,skills and number of people needed toengage in the FI’s derivatives activities. Thestaff must be appropriately balanced amongthe different areas involved in derivativesactivities such that no area is understaffedin terms of number or skill.Staff turnover can create seriousproblems, especially if knowledge isconcentrated in a few individuals. Theimpact of staff turnover can be particularlyacute in specialized trading markets whereFI traders are in high demand and are oftenrecruited in teams.To mitigate business continuity andsuccession risk arising from a high staffturnover, an FI should devise a system ofbuilding technical expertise across involvedpersonnel through continuous technicaltraining, periodic rotation and cross-trainingof staff members performing key functionsand developing understudies.The BOD should ensure that the powerand control delegated to these expertpersonnel are not abused. Therefore, theBOD must establish appropriate controlsover their activities.(d) Independent control functions or unitsThe risk control and audit units shouldpossess the authority, independence, andcorporate stature to enable them to identifyand report their findings, unimpeded by FItraders. It is equally important to employindividuals with sufficient experience andtechnical expertise to be credible to thebusiness line they monitor and seniorexecutives to whom they report.(2) AuditAudit should be conducted by qualifiedprofessionals who are independent of thebusiness line being audited. Audits shouldsupplement, and not be substitute for riskcontrol function.The scope of audit coverage should becommensurate with the level of risk andvolume of derivatives activity. The audit shouldinclude an appraisal of the effectiveness andindependence of the FI’s risk managementprocess; the adequacy of operations,compliance, accounting and reportingsystems; propriety of risk measurementmodels; and the effectiveness of internalcontrols. Auditors should test compliance withthe FI’s policies, including limits.The level of auditor expertise should beconsistent with the level and complexity ofactivities and degree of risk assumed. An FImay choose to outsource audit coverage toensure that the professionals performing thework possess sufficient knowledge andexperience.Procedures should be in place to ensurethat auditors are informed of significantchanges in product lines, risk managementmethods, risk limits, operating systems, andinternal controls so that the auditors canupdate their scope and proceduresaccordingly. Auditors should periodicallyreview and analyze performance and riskmanagement reports to ensure that areasshowing significant changes are givenappropriate attention.The audit function must have the supportof management and the BOD in order to beeffective. Management should respondpromptly to audit findings by investigatingidentified system and internal controlweaknesses and implementing correctiveaction. Thereafter, management shouldperiodically monitor newly implementedsystems and controls to ensure they areworking appropriately. The BOD, ordesignated committee, should receivereports tracking management’s actions toaddress identified deficiencies.(As amended by Circular No. 668 dated 02 October 2009)Q RegulationsAppendix Q-15 - Page 8Manual of Regulations for Non-Bank Financial Institutions