A Bank must have an appropriate market risk strategy and market risk governance framework that provides a Bank-wide and, if applicable, Group-wide view of market risk. This includes policies, processes, procedures, systems and controls to identify, measure, evaluate, monitor, report and control or mitigate material sources of market risk on a timely basis.
The Board must approve the Bank’s strategies, policies and processes for the management of market risk, which must be reviewed annually.
The Board must ensure that the Bank has in place adequate systems to identify, measure and manage market risk. Roles and responsibilities must be clearly articulated and provisions must be made for adequate separation of duties and avoiding conflicts of interest.
The Board must ensure that the Bank has appropriate market risk management processes that provide a bank-wide and, if applicable, Group-wide view of market risk exposure. These must be consistent with the risk appetite statement, risk profile, systemic importance and capital strength of the Bank, take into account market and macroeconomic conditions and the risk of a significant deterioration in market liquidity.
Senior Management must ensure that the strategy, policies and procedures are developed and implemented effectively. The Board must oversee the Senior Management to ensure that the strategies, policies and processes are implemented effectively and fully integrated into the Bank’s overall risk management process.
A Bank’s policies and processes must establish an appropriate and properly controlled market risk environment, including, at a minimum, the following items:
Effective information systems for accurate and timely identification, aggregation, monitoring and reporting of market risk exposure to the Board and Senior Management;
Appropriate market risk limits consistent with the Bank’s risk appetite, risk profile and capital strength and with the management’s ability to manage market risk and which are understood by and regularly communicated to, relevant staff;
Exception tracking and reporting processes that ensure prompt action at the appropriate level of the Senior Management or Board, where necessary;
Effective controls around the use of models to identify and measure market risk and set limits; and
Sound policies and processes for allocation of exposures to the trading book.
A Bank must ensure that intra-day exposures are managed within limits established by the Board-approved market risk policies.
A Bank wishing to establish a trading book must submit for the Central Bank’s review a trading book policy statement that specifies those activities that belong in the trading book. Any significant change in a Bank’s existing trading book policy must be promptly submitted to the Central Bank for review.