MAS and The Association of Banks in Singapore (ABS) jointly issued a paper that sets out good practices for the management of operational and other risks stemming from new work arrangements adopted by financial institutions amid the COVID-19 pandemic. The paper covers operational risks associated with outsourcing and other third-party arrangements, along with risks in the areas of information/data governance, cybersecurity, fraud and staff misconduct, and legal and regulatory compliance. The paper shares good practices adopted by financial institutions to mitigate such risks and encourages institutions to adopt these risk-mitigation practices on a risk-proportionate basis, according to their risk profiles and business activities. The mitigation practices set out in the paper are also applicable to non-bank financial institutions.
The paper predominantly focuses on the areas of risks where changes, due to remote working, have a direct impact on the risks and risk management challenges faced by financial institutions (referred to as direct risks). However, poorly managed direct risks of remote working could lead to heightened risks in areas that may not be directly impacted by remote working (referred to as indirect risks). The paper provides examples of indirect credit, market, and reputational risks. For instance, changes in validation processes that are conducted for credit assessment and monitoring purposes, such as replacement of customer site visits (for example, to ascertain existence of collateral pledged) with customer calls, could affect the ability of a financial institution to identify red flags in customer circumstances. The paper sets out the key actions that financial institutions are encouraged to adopt to manage remote working risks and these actions include the following:
- With respect to establishing appropriate internal control mechanisms, financial institutions are encouraged to implement compensating controls to manage identified risks within risk appetite statements approved by Board and senior management. Financial institutions are also encouraged to adopt robust change management procedures so that staff members understand and implement the new processes and controls as intended.
- With respect to outsourcing and other third-party arrangements, financial institutions should evaluate changes to vendor risk profiles with remote working, such as by assessing vendors’ remote working controls and operational resilience. Financial institutions should also implement appropriate safeguards and contingency plans to ensure continuity of services.
- For appropriate data/information governance, financial institutions should assess the risks and implications of information loss when determining which activities can be performed remotely. Financial institutions need to strengthen preventive and detective controls to mitigate these risks.
- To mitigate cyber risk, financial institutions are encouraged to implement controls to ensure that remote working infrastructure of staff, including personal devices, are secured. Financial institutions should also continue to adopt sound and robust technology risk management practices, to manage hardware and software deployed to facilitate large-scale remote working, including during the pandemic.
Keywords: Asia Pacific, Singapore, Banking, Insurance, Securities, COVID-19, Operational Risk, Operational Resilience, Technology Risk, Cyber Risk, Outsourcing Arrangements, Internal Controls, MAS
The European Commission (EC) published a report summarizing responses to the targeted consultation on the supervisory convergence and the single rulebook in the European Union (EU).
The Office of the Superintendent of Financial Institutions (OSFI) published an update on the discussion paper that intended to engage federally regulated financial institutions and other interested stakeholders in a dialog with OSFI, to proactively enhance and align assurance expectations over key regulatory returns.
The European Central Bank (ECB) published its opinion on a proposal for a regulation on European green bonds, following a request from the European Parliament.
The Advisory Scientific Committee (ASC) of the European Systemic Risk Board (ESRB) published a report that explores the expected impact of digitalization on provision of financial and banking services, and proposes policy measures to address the risks stemming from digitalization.
The European Banking Authority (EBA) announced that the guidelines on the reporting and disclosure of exposures subject to measures COVID-relief measures shall continue to apply until further notice.
The Swedish Financial Supervisory Authority (FI) announced that the capital adequacy reporting as at December 31, 2021 must be done by February 11, 2022.
The Central Bank of the Philippines (BSP) issued communications covering developments related to online lending platforms, open finance framework and roadmap, and on the expected regulations in the area sustainable finance.
The Board of Governors of the Federal Reserve System (FED) published the final rule that amends Regulation I to reduce the quarterly reporting burden for member banks by automating the application process for adjusting their subscriptions to the Federal Reserve Bank capital stock, except in the context of mergers.
The European Banking Authority (EBA) published its assessment of risks through the quarterly Risk Dashboard and the results of the Autumn edition of the Risk Assessment Questionnaire (RAQ).
The Malta Financial Services Authority (MFSA) updated the guidelines on supervisory reporting requirements under the reporting framework 3.0.