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  • Rory Roberts

Regulatory requirements for Risk Identification

EU Requirements for Risk identification

There are several EU regulatory requirements that relate to risk identification in the banking sector. Some of the main requirements include:


1. The Capital Requirements Directive (CRD) and the Capital Requirements Regulation (CRR): These directives and regulations establish a framework for banks to manage their capital and liquidity in a way that reflects the risks they face. They require banks to have in place a robust risk management framework that includes processes for identifying, assessing, and managing risks.

2. The Single Supervisory Mechanism (SSM): The SSM is the European Central Bank's (ECB) framework for supervising banks in the eurozone. It requires banks to have in place effective risk management processes, including processes for identifying and assessing risks.

3. The Basel III framework: This framework, developed by the Basel Committee on Banking Supervision, sets out minimum capital and liquidity requirements for banks. It also includes principles for effective risk management, including the requirement for banks to have in place a process for identifying and assessing risks.

4. The EU Banking Recovery and Resolution Directive (BRRD): This directive sets out a framework for the resolution of failing banks in the EU. It requires banks to have in place a risk assessment process that takes into account the potential impact of various risks on the bank's viability.


UK Requirements for Risk identification

There are several UK regulatory requirements that relate to risk identification in the banking sector. Some of the main requirements include:


1. The Prudential Regulation Authority (PRA) Rulebook: The PRA Rulebook sets out the regulatory requirements for banks and other financial institutions in the UK. It includes principles for effective risk management, including the requirement for firms to have in place a process for identifying and assessing risks.

2. The Financial Conduct Authority (FCA) Handbook: The FCA Handbook sets out the regulatory requirements for firms in the UK that conduct business in the financial services sector. It includes principles for effective risk management, including the requirement for firms to have in place a process for identifying and assessing risks.

3. The Basel III framework: This framework, developed by the Basel Committee on Banking Supervision, sets out minimum capital and liquidity requirements for banks. It also includes principles for effective risk management, including the requirement for banks to have in place a process for identifying and assessing risks.


US Regulatory requirements for Risk identification

There are several US regulatory requirements that relate to risk identification in the banking sector. Some of the main requirements include:

1. The Federal Reserve's Supervision and Regulation Letter (SR) SR 11-7: This letter outlines the Federal Reserve's expectations for banks' risk management practices, including their processes for identifying, assessing, and managing risks.

2. The Federal Deposit Insurance Corporation (FDIC) Handbook: The FDIC Handbook sets out the regulatory requirements for banks in the US. It includes principles for effective risk management, including the requirement for banks to have in place a process for identifying and assessing risks.

3. The Basel III framework: This framework, developed by the Basel Committee on Banking Supervision, sets out minimum capital and liquidity requirements for banks. It also includes principles for effective risk management, including the requirement for banks to have in place a process for identifying and assessing risks.

4. The Dodd-Frank Wall Street Reform and Consumer Protection Act: This act established the Financial Stability Oversight Council (FSOC), which is responsible for identifying and mitigating systemic risks in the financial system. It requires banks to have in place processes for identifying and managing risks, including operational, credit, market, and liquidity risks.

5. The Comprehensive Capital Analysis and Review (CCAR) is a regulatory process in the US that requires banks to demonstrate their ability to maintain sufficient capital and liquidity in a stress scenario. CCAR has several requirements related to risk identification that banks must meet in order to participate in the process. Some of these requirements include:


a. Stress testing: CCAR requires banks to conduct stress tests to evaluate the impact of potential scenarios on their operations and financial performance. This includes identifying and assessing the risks that could affect the bank's capital and liquidity during the stress scenario.

b. Risk management framework: CCAR requires banks to have in place a robust risk management framework that includes processes for identifying, assessing, and managing risks.


c. Risk assessment process: CCAR requires banks to have a process in place for assessing the risks that could affect their capital and liquidity during the stress scenario. This includes evaluating the likelihood and potential impact of identified risks.

d. Risk appetite and limits: CCAR requires banks to have in place a framework for managing risks within their risk appetite and limits. This includes setting limits on the level of risk that the bank is willing to accept and implementing controls to ensure that risk is managed within those limits.

e. Documentation: CCAR requires banks to provide documentation related to their risk identification processes, including risk assessments, stress testing results, and risk management policies and procedures.

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