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Governance and risk culture remain insufficient at European banks, even though progress has been made in these important areas. As Marco Folpmers highlights here, in its new guidelines, the European Central Bank (ECB) introduces an important additional layer of criteria that financial risk managers (FRMs) can use to evaluate a bank’s risk culture. However, as Marco further comments, whilst it doesn’t provide a comprehensive description of a "bad bank," it does offers insight on potential red flags, enabling FRMs to incorporate a valuable new tool: the negative checklist.

The European Central Bank has released its new Draft Guide on #governance and #RiskCulture, replacing the 2016 SSM Supervisory Statement. This guide emphasizes the importance of robust governance frameworks in risk management, highlighting the principle that "well-run banks mean safer banks". The guide aims to bolster the stability and #resilience of the #EU's #banking sector, ensuring a secure #financial system. The consultation period runs until 16 October 2024. For more details, read the full article here: https://lnkd.in/dADfgiCa #GTG #FinancialServices #Fintech #DORA #ECB #RiskManagement #RiskCulture Ian Gauci l Cherise Abela Grech l J.J. Galea

Traditionally, when providing guidance on risks related to culture and governance, regulators have emphasized positive attributes that banks should adopt. But in a recent paper, the European Central Bank highlighted the red flags that firms should be wary of, demonstrating the value of a so-called negative checklist. https://lnkd.in/eKvPX85r #creditrisk #riskmanagement #riskculture #financialrisk #ECB

As the financial crisis and subsequent financial failings have shown, cohesive corporate governance and strong #Risk culture are at the heart of effective business practices and the top of the #Regulatory agenda. To emphasise this, on 24 July 2024, the European Central Bank (ECB) issued their draft guidance on governance and risk culture. This guidance sets out expectations of supervised banks in the form of a practical tool, inviting feedback from the industry by 16th October 2024. The ECB guidance outlines four key areas: 1. Governance and risk culture: importance for banks 2. Functioning and effectiveness of the management bodies 3. Internal control functions 4. Risk Appetite Framework Find out more 👉 https://lnkd.in/eKRZWvGM Kevin Coleman Amanda Ward Claire Miller Dwayne Price

ECB Launches Consultation on Governance and Risk Culture On July 24, 2024, the European Central Bank (ECB) unveiled a draft Guide on governance and risk culture, inviting feedback from banks and stakeholders. This new Guide supersedes the 2016 supervisory statement, aiming to enhance internal governance and risk culture within banks. The Guide underscores the ECB's commitment to diverse, effective management bodies as a core priority of the Single Supervisory Mechanism (SSM). It details supervisory expectations, offering banks a clear roadmap for strengthening governance and risk management. Key points: - Management Composition and Function: Clarifying roles and responsibilities of internal control functions and management bodies. - Risk Culture Importance: Emphasizing robust risk appetite frameworks and decision-making processes. - Adherence to Updated Standards: Reflecting recent updates from the European Banking Authority (EBA) and showcasing good practices observed by the ECB. Past financial crises have highlighted the critical need for sound internal governance and risk culture. The ECB expects continuous improvement from banks, ensuring a balance between risk-taking and control to safeguard capital and operational resilience. #BankingSupervision #Governance #RiskManagement #FinancialStability #ECB #RiskCulture #BankingSector #Compliance #FinancialServices https://lnkd.in/etYrAWfd

The Evolving Role of G-SIBs: Is Big Beautiful Again? There is a growing appreciation for global systemically important banks. But G-SIBs still face tough risk management standards and high capital requirements, and there is evidence that some extremely large banks are attempting to game the system, potentially increasing systemic risk.

Today the European Central Bank reiterated that a comprehensive materiality assessment is a key prerequisite for managing climate-related and environmental risks in the banking sector. It also highlighted common shortcomings, including overlooking certain risk types, performing “net” rather than “gross” risk assessment, and relying on historical data without adequate forward-looking analysis. Banks are expected to address these gaps to align with regulatory expectations and ensure sound risk management. #ECB #ClimateRisk #EnvironmentalRisk

Network for Greening the Financial System (NGFS) released the second edition of the report, "Guide on climate-related disclosure for central banks". This second edition updates and revises the previous guide, including a new chapter on metrics and targets.  Summary: Organised around four thematic areas (Governance, Strategy, Risk management, and Metrics and targets), the guide introduces a distinction between “baseline” and “building block” disclosure recommendations. Key takeaway 1. Governance: Disclose the institutional climate-related goals, targets, and processes for informing the board and management on climate-related issues as well as climate-related governance structures for specific areas and functions 2. Strategy: Disclose climate-related impacts related to the central bank as well as the strategy – in terms of adaptation, capacity building and communication – for handling these impacts 3. Risk management: Disclose the processes for managing climate-related risks at the central bank, focusing on identification, assessment, and integration into risk management. 4. Metrics and targets: Disclose metrics and targets relating to the central bank’s management of climate-related risks and exposure to climate-related risks and opportunities. Full report attached.

The European Central Bank: "The ECB strongly recommends that significant institutions make substantial progress in improving their data aggregation capabilities and internal risk reporting practices and has identified seven key areas of concern." The guide on "Effective risk data aggregation and risk reporting" can be found in the link below. 📢 The ANSWER to "Effective risk data aggregation and risk reporting" is ActiveViam Atoti. 💡 🔎 ✅ #riskmanagement #bcbs239 #marketrisk #creditrisk #liquidityrisk #balancesheetrisk #riskanalytics #collateral #datamanagement #bigdata #frtb