Commission Publishes Guide to Risk Based Supervision
10th February 2016The Commission has today published a short guide which explains what risk based supervision is and what it means for licensees. Please click here.
At its core, risk based supervision accepts the premise that resources are finite, that there is no unlimited pool of public or industry funding on which to draw and that every regulator has to make choices about what it will do and what it will not do. It makes no prior judgement on what the right level of resources should be but seeks to deploy the available resources in the most efficient fashion.
Risk based supervision encourages supervisors to concentrate on the issues which really count and to address them effectively. Such issues are much broader than solely compliance with rules and encompass both prudential and conduct risks.
The Commission’s approach is underpinned by a system known as PRISM which provides an engagement model for the supervision of regulated firms and tools to facilitate a detailed probability risk assessment of these firms. This requires supervisors to challenge firms, to form judgements about the risks each firm presents and then to develop appropriate outcome-focused risk mitigation programmes to reduce unacceptable risks to an acceptable level, with those risk mitigation programmes subject to appropriate quality control mechanisms.
Risk based supervision underpins the Commission’s commitment to maintain financial stability, protect consumers and combat financial crime.
At its core, risk based supervision accepts the premise that resources are finite, that there is no unlimited pool of public or industry funding on which to draw and that every regulator has to make choices about what it will do and what it will not do. It makes no prior judgement on what the right level of resources should be but seeks to deploy the available resources in the most efficient fashion.
Risk based supervision encourages supervisors to concentrate on the issues which really count and to address them effectively. Such issues are much broader than solely compliance with rules and encompass both prudential and conduct risks.
The Commission’s approach is underpinned by a system known as PRISM which provides an engagement model for the supervision of regulated firms and tools to facilitate a detailed probability risk assessment of these firms. This requires supervisors to challenge firms, to form judgements about the risks each firm presents and then to develop appropriate outcome-focused risk mitigation programmes to reduce unacceptable risks to an acceptable level, with those risk mitigation programmes subject to appropriate quality control mechanisms.
Risk based supervision underpins the Commission’s commitment to maintain financial stability, protect consumers and combat financial crime.