UAE Central Bank- Banking Supervision & Examination Department (BSED) Press Conference -- 1st March 2003, Royal Mirage Dubai, Arabian Court
The Central Bank of the UAE Business Risk Review team has been piloting the End-to- End Business Risk Review Process.
Background
Based on global best practice and leading risk ideology, the methodology incorporates Basel II and has been piloted at approximately 17 UAE banks over the last 18 months.
The new process will offer increased risk awareness across the U.A.E banking sector, robust supervision, more focused. monitoring of risk and an opportunity for banks to reduce their capital charges by improving their risk profile. In addition, the process ensures that the Central Bank of the UAE positions itself as among the leading world-class regulators.
The Business Risk Review team have formulated and developed the methodology in-house during the pilot phase. .
The Business Risk Review team was formed by H.E. The Governor to undertake this project and is headed by Mr.Mark Markani, who is Head of the Business Risk Review team . The other key members of the team are Deputy - Mr. Naveed Siddiqi, Mr. Peter Egginton, Mr. Martin Williams and Mr. Rajesh Chudgar.
Commencing March 2003, the Central Bank's Banking Supervision & Examination Department will adopt the risk-based methodology as its banking supervisory process.
Risk Based Methodology
The methodology reviews management of credit, market and operational risks covering end - to - end processes and quality drivers across the bank, identifying high-level risk in a timely and efficient manner using a balanced scorecard approach.
It is a truly holistic, integrated forward-looking and process oriented approach that aligns strategy, processes, people, technology and knowledge. The process starts with a comprehensive top down view to target the most significant areas.
The key tools of this process are the Balanced Scorecards, Risk Maps and Quarterly Dashboards.
Risk Map
Risk mapping is by far the most useful and widely deployed tool for risk identification and prioritisation.
Credit/Market/Operational Risk Reviews are conducted to evaluate and score risks in business processes and quality drivers using balanced scorecards. These are then mapped onto a Risk Map.
All reviews will include an assessment of the effectiveness of management controls in relation to risk in the process (eg. Credit Processes and Business Support & Planning, Origination, Credit Assessment, Sanction & draw down, Control and Collection & recoveries). ????
The quality drivers are consistent for all the areas of risk, within the Bank. They will be assessed via a thorough review of the following functions: People, Infrastructure, Sub-processes and Compliance.
1. The review will commence with a bank self assessment for each risk area by key bank staff. The self-assessment is a critical component of the Review. This is followed by an independent Central Bank review of the bank. (Gap analysis).
2. Selected Managers are interviewed to ascertain the effectiveness of the processes and drivers within their functions. The information volunteered during these discussions is verified against practice in the bank.
3. The review team carrying out "walk through" tests of the processes/drivers undertakes a verification exercise. This exercise includes a review of actual transactions as well as documentation.
4. The results are scored on to a Risk Map using the balanced scorecard developed by the Business Risk Review of BSED. The scorecard is based on global best practice and scores processes /drivers from 1 to 4, 1 being best practice and 4 being worst case.
The Risk Map encapsulates risks for each area of the business, identifying areas of high risk. The identified risks will drive the action to be taken by the Central Bank as the regulator in terms of increased supervision etc.
Quarterly Management Dashboard
The quarterly dashboard consists of numerous key risk indicators based on criteria defined by Banking Supervision and Examination Department, it will be populated with information from many sources (Trading Systems, Risk Systems, Human Resources,Technology etc).
Risks in the Quarterly Dashboards are classified as High (Red Alert), Medium (Amber Alert) and low (Green Alert) using a traffic light system and are driven from a set of Policy Guidelines prepared by the Central Bank.
The dashboards provide timely information about the current state of the banks business and are prepared in addition to the existing Central Bank Returns.
The dashboard will assist in constant supervisory monitoring with key issues being highlighted on a timely basis. Any issues arising from the dashboards would be actioned by Central Bank supervisors as and when they arise.
-Ends-
© Press Release 2005
