Carry out spot checks on Systemically Important Financial Institutions to ensure your risk management practices are compiled in practice

Regardless of the drama and conjecture within the debates there is one certainty already evident – local supervisors are carrying out spot checks on Systemically Important Financial Institutions (SIFIs), to ensure that their risk management policies and practices are comprehensive, documented and are being complied in practice. 

Can you Benefit from a Supervisory Spot Check? Download whitepaper to find out

It is common for departments or individuals to maintain a repository in isolation, feeling that they are the safest guardian of such information, but those with ultimate responsibility might not even know of its existence. With this as a starting point it’s not surprising that supervisory spot checks generate nerves among executives.

Having a complete, documented risk and finance architecture means that anyone responsible for compliance or for introducing true enterprise or integrated risk management throughout the institution has access to all the reference, planning, communication and training materials they might need. As with any intention or obligation that cannot be put in place with a one-off exercise, the key is building, maintaining and deriving value from such a resource by making it accessible to, and winning adoption from across, the risk, finance, IT, compliance and strategic planning functions.

In Germany these spot checks are commonly referred to as ’44 Assessments’. The term stems from article 44 of the Kreditwesengesetz (KWG). This is part of the German banking license and article 44 gives Bafin, the local supervisor, the right to enter an institution at any time without notice to undertake a review of any part of the organisation it pleases. This is a common right among supervisors and many are exercising it on the global and domestic systemically important institutions in their territory. In Germany the arrival of Bafin, or even the rumour that Bafin is considering a 44 Assessment, is enough to send senior managers in risk, finance, compliance, IT and strategic planning into a cold sweat. This reaction indicates that regardless as to how well a firm is operating they have often been too busy with the day job to keep all the policies and controls up to date, documented, communicated and available for reference and review. And there is always a lot to keep up to date - after all, an institution wouldn’t be systemically important if it weren’t large and/or complex. 

Supervisory spot checks can be a distraction, but enabling the maintenance of risk and finance policies and procedures to be part of a business as usual view of the business architecture there can be many strategic business benefits to be gained. It will also diminish the cold sweats that, in future, might transmit the smell of fear that triggers a less than constructive supervisory discussion.

Avoid sleepless nights contact SecondFloor.


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