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The European Central Bank (ECB) recently published a draft guide highlighting the crucial role of good governance and risk culture for EU banks. This guidance is essential for maintaining the stability of the financial system and public trust. Poor governance and risk culture can lead to detrimental decision-making and excessive risk-taking, potentially jeopardizing a bank's capital and operational resilience. The ECB's guide outlines key supervisory expectations, focusing on four dimensions of risk culture: leadership tone from the top, effective communication, diversity and challenge, accountability for risks, and appropriate incentives. Key Implications for Banks: 1. Enhanced Governance Frameworks: Banks must implement strong governance structures, clear organizational roles, effective risk management processes, and robust control mechanisms. 2. Strong Risk Culture: A culture of prudent risk-taking should be fostered, with leadership promoting open communication and accountability. Employees must understand and adhere to risk management principles. 3. Risk-Aligned Incentives:Compensation and incentive structures should align with the bank's long-term goals and risk profile, discouraging excessive risk-taking. 4. Regulatory Compliance: Banks are required to comply with EU regulations and guidelines on governance and risk culture, including those from the EBA and ECB. 5. Supervisory Scrutiny:The ECB will closely monitor banks' adherence to these guidelines. Banks need to be prepared to demonstrate compliance and address any identified issues. #Banking #FinancialStability #Governance #RiskManagement #ECB

The European Central Bank (ECB) has published a guide emphasizing the importance of good governance and risk culture for banks in the EU. This is crucial for maintaining the financial system's stability and public trust. Deficiencies in governance and risk culture can lead to poor decision-making and excessive risk-taking, potentially threatening a bank's capital and operational resilience. The ECB guide outlines key supervisory expectations when assessing governance and risk culture, highlighting four dimensions of risk culture: tone from the top and leadership, a culture of effective communication, challenge diversity, accountability for risks, and appropriate incentives. Firm Implications: Enhanced Governance Frameworks: Banks must establish robust governance arrangements, including clear organizational structures, well-defined responsibilities, effective risk management processes, and control mechanisms. Strong Risk Culture: Banks should foster a culture of prudent risk-taking through solid leadership, open communication, and a focus on accountability. They must ensure that employees understand and adhere to risk management principles. Risk-Aligned Incentives: Remuneration and incentive structures should be aligned with the bank's long-term interests and risk profile, discouraging excessive risk-taking. Regulatory Compliance: Banks must comply with EU regulations and guidelines on governance and risk culture, including those issued by the EBA and the ECB. Supervisory Scrutiny: The ECB will increasingly scrutinize banks' governance and risk culture practices. Banks should be prepared to demonstrate their adherence to the guidelines and address any identified weaknesses. Proportionality: While the guidelines apply to all banks, the specific governance arrangements and mechanisms should be proportionate to the nature, scale, and complexity of the bank's activities and risks. The ECB guide aims to promote a more sustainable banking sector by ensuring banks have strong internal governance and a sound risk culture. This will contribute to financial stability and public confidence in the banking system. #ECBBankingSupervision #GovernanceAndRiskCulture #BankingRegulation #RiskManagement #FinancialStability #EUGovernance #BankingIndustry #Compliance #CorporateGovernance

🏦 ECB consults on governance and risk culture The European Central Bank (ECB) has launched a public consultation on its new draft Guide on governance and risk culture, inviting feedback from banks and stakeholders until October 16, 2024. This initiative aims to replace the 2016 supervisory statement and outlines updated expectations for banks' internal governance. Key highlights include: - Focus on Diversity and Effectiveness: The Guide emphasizes the need for diverse and effective management bodies, a priority for the Single Supervisory Mechanism (SSM). - Clarified Expectations: It details how management bodies should operate, the roles of internal control functions, and the importance of a robust risk culture. - Practical Reference: The Guide serves as a roadmap for banks, incorporating recent updates from the European Banking Authority and examples of best practices. - Ongoing Scrutiny: The ECB will intensify its oversight to ensure banks implement necessary governance improvements, particularly in light of past financial crises. A stakeholder meeting is scheduled for September 26, 2024, to discuss these developments further. This consultation marks a significant step towards strengthening governance standards in the European banking sector. Link - https://lnkd.in/gbZfJe4u #riskspotlight #operationalrisk #operationalriskmanagement #riskculture #riskgovernance #riskmanagement

The ECB has released its 2025 – 2027 supervisory priorities, focusing on resilience to macro-financial risks and severe geopolitical shocks, addressing governance and climate-related challenges, and strengthening digital and operational resilience. Read KPMG’s latest insights on the priorities and the key recommendations for banks to consider in the short to medium-term here: https://shorturl.at/Ilhp4 #SSM #ECB #BankingSupervision

In the wake of #Europe’s biggest #banking crisis in more than a decade, the European Central Bank is ushering in a new era of heightened supervision. As a result, #risk managers need to enhance their strategies to comply with the #ECB's regulatory Supervisory Review and Evaluation Process. A successful #SREP response will not only satisfy supervisors but also support a financial institution’s ability to weather disruption in the marketplace. This article by McKinsey & Company's Mina Jurišić, Javier Martinez Arroyo, João Paixão Moreira, and Roland Schneider highlights recommendations and outlines the changes and actions needed to address the latest round of ECB review. The authors identify four “secret ingredients” that support a successful response to both SREP and the ECB's Pillar 2 requirements. They also offer their thoughts on how #banks can better prepare for and deliver against the European Banking Authority or ECB regulatory stress tests and improve Pillar 2 guidance: https://lnkd.in/dAYU9tcg McKinsey Financial Services #RiskManagement

Important lecture for all ECB supervised banks! 🙏 Thanks for sharing with your detailed evaluation, Henning Dankenbring .

📍The European Central Bank are taking a proactive approach to enhancing risk data aggregation and reporting (RDARR) processes. 💡 In today's ever-evolving financial landscape, robust risk management practices are non-negotiable. Despite advancements, many banks still grapple with addressing weaknesses in RDARR, prompting the ECB to take action. 🎯 Key among the ECB's priorities is the integration of internal risk reporting mechanisms throughout banking institutions. 🔄 This entails not only fortifying internal risk management systems but also harmonising them with regulatory reporting processes, leveraging digital, XBRL-based formats for enhanced efficiency and accuracy. 🚀 By bridging the gap between internal and regulatory risk reporting, the ECB aims to ensure seamless data flow, empowering both banks and supervisors with comprehensive insights into the sector's risk landscape. 👉 Read more here: https://zurl.co/RlCu #ECB #riskmanagement #banking #supervision #riskdata #regulatoryreporting #finance #leadership #innovation #bankingregulation #financeindustry

⬇️Learn about the new ECB SREP changes⬇️

In a speech at the 23rd FED-IMF-World Bank Annual International Conference on Policy Challenges for the Financial Sector, IMF Financial Counsellor Tobias Adrian discussed the overall global financial environment that currently sets the scene for the risk landscape in the financial sector. He also underscored the importance of full, timely, and consistent implementation of the Basel standards. This year’s conference theme centered around the importance of strengthening fundamentals to better adapt to the evolving risk landscape. The conference’s objective is to discuss how central banks and financial sector supervisors and regulators are responding to financial stability risks from an ongoing challenging macroeconomic environment while continuing to make progress on longer-term priorities, including challenges arising from technological and climate-related financial risks in the financial sector. Key financial stability risks, supervisory and regulatory issues, as well as crisis management preparedness were explored. Read the speech 👉 https://lnkd.in/eJ9BN42a

The ECB has published its 2025 – 2027 supervisory priorities, calling on banks to focus on resilience to macro-financial risks and severe geopolitical shocks, tackling governance (incl. RDARR expectations) and climate-related shortcomings, and driving digital strategies to address emerging challenges. This includes sharpening risk management frameworks, aligning with supervisory standards on climate risk, and adapting to new technologies. Explore KPMG’s latest insights on the ECB’s supervisory priority areas for 2025 – 2027 and crucial recommendations for banks to consider: https://shorturl.at/Ilhp4 #SSM #ECB #BankingSupervision