MORNBFI Vol. 1 - Planters Development Bank

APP. Q-4308.12.31Lines of responsibility and authorityFIs should clearly define the individualsand/or committees responsible formanaging market risk and should ensurethat there is adequate separation of dutiesin key elements of the risk managementprocess to avoid potential conflicts ofinterest. Management should ensure thatsufficient safeguards exist to minimize thepotential that individuals initiating risktakingpositions may inappropriatelyinfluence key control functions of themarket risk management process. FIsshould therefore have risk measurement,monitoring, and control functions withclearly defined duties that are sufficientlyindependent from position-takingfunctions of the FI and which report riskexposures directly to the board of directors.The nature and scope of safeguards tominimize potential conflicts of interestshould be in accordance with the size andstructure of an FI. Larger or more complexFIs should have a designated independentunit responsible for the design andadministration of the FI’s market riskmeasurement, monitoring and controlfunctions.B. Adequate risk managementpolicies and proceduresAn FI’s market risk policies andprocedures should be clearly defined,documented and duly approved by theboard of directors. Policies and proceduresshould be consistent with the nature andcomplexity of the FI’s activities. Whenreviewing banking groups, the BSP willassess whether adequate and effectivepolicies and procedures have been adoptedand implemented across all levels of theorganization.Policies and procedures shoulddelineate lines of responsibility andaccountability and should clearly defineauthorized instruments, hedging strategies,position-taking opportunities, and themarket risk models used to quantifymarket risk. Market risk policies shouldalso identify quantitative parameters thatdefine the acceptable level of market riskfor the FI. Where appropriate, limitsshould be further specified for certaintypes of instruments, portfolios, andactivities. All market risk policies shouldbe reviewed periodically and revised asneeded. Management should define thespecific procedures to be used foridentifying, reporting and approvingexceptions to policies, limits, andauthorizations.It is important that FIs identify marketrisk, as well as other risks, inherent in newproducts and activities and ensure theseare subject to adequate procedures andcontrols before the new products andactivities are introduced or undertaken.Specifically, new products and activitiesshould undergo a careful pre-acquisitionreview to ensure that the FI understandstheir market risk characteristics and canincorporate them into its risk managementprocess. Major hedging or riskmanagement initiatives should beapproved in advance by the board or itsappropriate delegated committee.Proposals and the subsequent newproduct/activity review should be formaland written. For purposes of managingmarket risk inherent in new products,proposals should, at a minimum, containthe following features:1. Description of the relevantproduct or strategy;2. Use/purpose of the new product/activity;3. Identification of the resourcesrequired and unit/s responsible forestablishing sound and effective marketrisk management of the product or activity;4. Analysis of the reasonableness ofthe proposed activities in relation to theFI’s overall financial condition and capitallevels; andQ RegulationsAppendix Q-43 - Page 8Manual of Regulations for Non-Bank Financial Institutions