1.A Bank must establish, implement and maintain an interest rate and rate of return risk governance framework, which enables it to identify, assess, monitor, mitigate and control interest rate risk. The interest rate and rate of return risk governance framework consists of policies, processes, procedures, systems and controls.
2.The interest rate and rate of return risk governance framework must be documented and approved by the Board of the Bank and must provide for a sound and well-defined framework to address the Bank’s interest rate and rate of return risk.
3.A Bank’s Board is responsible for establishing, maintaining and overseeing a robust interest rate and rate of return risk governance framework which must take into account the risk profile, nature, size and complexity of the Bank’s business and structure.
4.A Bank’s interest rate and rate of return risk governance framework must address the following with respect to IRRBB:
a.Effective oversight by the Board;
b.Adequate risk management policies and procedures;
c.Larger and more complex Banks must address IRRBB as part of the asset and liability management process, which must include an Assets and Liability Management Committee (ALCO) or other designated committee;
d.Capturing all material sources and accurately measuring IRRBB;
e.Effective processes for analyzing and assessing IRRBB;
f.Regular monitoring of the IRRBB profile;
g.Monitoring and enforcement of IRRBB limits;
h.Stress-testing of IRRBB and use of results in decision-making;
i.Oversight by the risk management function;
j.Independent assurance by the internal audit function; and
k.Regular reporting to Senior Management and the Board.
5.The Board-approved risk appetite statement must specify authorized activities, investments and instruments and specify any activities, investments and instruments, which are not consistent with the Bank’s risk appetite.
6.A Bank must clearly define the individuals, functions and/or committees responsible for managing interest rate risk and must ensure that there is adequate separation of duties in the risk management process to avoid conflicts of interest.
7.A Bank must have risk measurement, monitoring and control functions with clearly defined duties that are sufficiently independent from position-taking functions and the finance function and which report interest rate risk exposures directly to Senior Management and the Board.