AMF Reinstates Market Risk Multiplier, Issues Guideline on Governance
AMF announced that, effective May 01, 2021, the concerned financial institutions must return to using the stress Value at Risk (sVAR) multiplier of 3. AMF had, in March 2020, allowed the financial institutions to temporarily lower the sVAR multiplier from 3 to 1 in response to the COVID-19 pandemic. AMF also set out its expectations for financial institutions in the guideline on governance. The guideline is line with the core principles and guidance published by BCBS and IAIS, which clearly identify the need for financial institutions to implement sound governance practices and for regulatory authorities to provide the frameworks required to do this.
In the guideline, AMF describes the components that are essential for ensuring effective and efficient governance of a financial institution and expects financial institutions to:
- implement effective and efficient governance supported by a corporate culture that considers their and their clients’ long-term interests.
- clearly define and segregate the roles and responsibilities of the board and senior management to ensure competent and independent performance of their duties.
- develop, implement, and ensure the effectiveness of a governance framework tailored to their nature, size, operational complexity, and risk profile.
- implement internal controls that meet and support the achievement of established objectives.
- establish a risk management function that is supported by sound governance involving the board of directors and senior management.
- set up a compliance function in charge of establishing compliance management policies and procedures involving legal, regulatory, and normative requirements covering all their activities and to ensure that these policies and procedures are updated periodically.
- set up an independent internal audit function capable of providing objective assurance on the effectiveness of governance, risk, and compliance management processes and internal controls.
- ensure that members of the board, members of senior management, and key persons in control functions demonstrate integrity and competency at all times.
- implement remuneration practices that do not encourage excessive or inappropriate risk-taking and that consider the long-term interests of the institution and its stakeholders.
- disclose the main aspects of its governance framework and be sufficiently transparent to all stakeholders, while considering the nature of their activities.
Keywords: Americas, Canada, Quebec, Banking, COVID-19, Market Risk, Regulatory Capital, Governance, Internal Control, Stressed Value at Risk, Basel, AMF
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