Annual Report 2012 - The Cyprus Development Bank

annual report 2012NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 December 201231. FINANCIAL RISK MANAGEMENT (continued)(d) Operational riskOperational risk is the risk of loss arising from a variety of causes associated with the Group’s processes, personnel, technologyand infrastructure, and from other external events. It is inherent in every business organisation and covers a wide range ofissues.The Group establishes policies and procedures for managing operational risk and ensures that these are adhered to in theconduct of the Group’s operations. Operational risk is managed by establishing internal processes and controls involving:• Segregation of duties, including independent authorisation of transactions, the reconciliation and monitoring of transactions,documentation of controls and procedures• Compliance with regulatory and other legal requirements• Development of business continuity plans and disaster recovery plans• Personnel training• Risk mitigation by taking out insurance coverInternal Audit has the responsibility of reviewing periodically the above procedures and controls.Business Continuity Plans and Disaster Recovery Plans are being developed by the Group and regularly updated to ensurecontinuity and timely recovery of operations after a catastrophic event.(e) Capital managementThe Central Bank of Cyprus sets and monitors capital requirements for the Group and for the Company. The individual capitalrequirements of the subsidiary company cdbbank Russia are set and monitored by the Central Bank of the Russian Federation.The capital requirements of the subsidiary companies Global Capital Ltd and PCM Advisers Limited are set and monitored bythe Cyprus Securities and Exchange Commission. All Group subsidiaries adhere to the mandatory capital requirements of therespective supervisory authorities.The Central Bank of Cyprus requires the Group to maintain a prescribed capital adequacy ratio, which is the ratio of totaleligible capital to total risk-weighted assets, in accordance with its Directive for the calculation of the capital requirements andlarge exposures of banks of 2006 to 2012.The Central Bank of Cyprus requires the Group to maintain a minimum Core Tier I ratio of 8.01%, Tier I ratio of 9.51% and TotalCapital Adequacy ratio of 11.51%. The Central Bank of Cyprus may impose additional capital requirements for risks not coveredby Pillar I. The Group and the Company adopted the Standardised Approach for credit risk and market risk and the BasicIndicator Approach for operational risk.59