What is an internal control system? Do commercial banks have to submit internal control reports to the State Bank of Vietnam?
What is an internal control system?
According to the provisions of Clauses 1 and 3, Article 3 of Circular No. 13/2018/TT-NHNN, an internal control system is a combination of mechanisms, policies, processes, internal regulations, and organizational structures of a commercial bank or a foreign bank branch which follows the regulations of the Law on Credit Institutions, this Circular and other relevant regulations of law and is implemented for control, prevention, detection and handling of risks, fulfilling the set requirements. The internal control system carries out senior management oversight, internal control, risk management, internal capital adequacy assessment and internal audit.
In which, internal control is inspection and oversight of individuals and departments in implementation of mechanisms, policies, internal regulations, work ethics and control culture in order to control conflict of interest and risks, ensuring that the activities of the commercial bank or the foreign bank branch fulfill the set requirements as well as comply with the law.
What is an internal control system? Do commercial banks have to submit internal control reports to the State Bank of Vietnam?
Do commercial banks have to submit internal control reports to the State Bank of Vietnam?
Pursuant to the provisions of Article 7 of Circular No. 13/2018/TT-NHNN (amended by Clause 9 Article 1 of Circular No. 14/2019/TT-NHNN) on submission of internal control reports as follows:
Submission of internal control reports to the State Bank of Vietnam
1. The commercial banks, foreign bank branches must produce the physical reports and submit directly or via the postal service to the State Bank of Vietnam (the Bank Supervision and Inspection Agency) on the internal control systems specified in Clauses 2, 3 and 4 of this Article.
2. The internal control report includes:
a) Annual self-inspection and self-assessment results, as specified in Appendix 1 issued together with this Circular;
b) Annual risk management report, as specified in Appendix 2 issued together with this Circular;
c) Annual internal capital adequacy assessment report, as specified in Appendix 4 issued together with this Circular;
d) Annual internal audit report, as specified in Appendix 5 issued together with this Circular, alongside unscheduled internal audit report.
3. Report submission period:
a) In the case of reports mentioned in Points a, b and c, Clause 2 of this Article: The commercial bank/foreign bank branch shall submit the fiscal year’s report within 45 days after the end of that fiscal year.
b) In the case of reports mentioned in Points d, Clause 2 of this Article:
(i) The commercial bank shall submit the fiscal year’s internal audit report within 60 days after the end of that fiscal year.
(ii) The foreign bank branch shall submit the fiscal year’s internal audit report within 60 days after the internal audit’s date of completion. No submission is required if there is no internal audit in that fiscal year;
(ii) The commercial bank/foreign bank branch shall submit the unscheduled internal audit report within 07 working days after the unscheduled internal audit’s date of completion.
4. The internal control report mentioned in Clause 2 of this Article must update the problems, limitations and risks that recently arose in the internal control system of the whole commercial bank, including the departments of the headquarters, branches and other affiliates specified in the State Bank of Vietnam's regulations on commercial banks’ operational networks (hereinafter referred to as other affiliates) and foreign bank branch.
Thus, the commercial banks, foreign bank branches must produce the physical reports and submit directly or via the postal service to the State Bank of Vietnam (the Bank Supervision and Inspection Agency) on the internal control systems.
What are the regulations on the principles of operation of the internal control system in Vietnam?
According to Article 4 of Circular No. 44/2011/TT-NHNN on the principles of operation of the internal control system in Vietnam as follows:
Requirements and principles of operation of the internal control system
1. Any risk that is potentially harmful to the efficiency and operation objectives of the credit institution, foreign bank branch shall be identified, measured, assessed on a regular and ongoing basis so as to timely detect, prevent and prepare appropriate measures for risk management. Upon any change in business target, product, service and new business line, the credit institution, foreign bank branch shall check, identify any related risk in order to set up, amend, supplement their mechanisms, processes, regulations on internal control accordingly.
2. Operation of the internal control system shall be an integral part of daily activities of a credit institution, foreign bank branch. Internal control shall be designed, installed and implemented immediately in all operational processes at all units, divisions of the credit institution, foreign bank branch in various forms, such as:
a) Clear and explicit power delegation; ensuring to clearly separate the duties and powers of individuals, divisions in the credit institution, foreign bank branch;
b) Regulation on the specific risk limit for each individual, division in the performance of transactions;
c) Process on the appraisal and approval of transactions; a process should be ensured to have the involvement of at least 02 officers, one performs and the other controls the transaction. Any individual shall be prohibited from performing and deciding an operational process, a specific transaction alone, except for transactions within the limit approved by the credit institution, foreign bank branch in accordance with provisions of applicable laws.
3. The power delegation shall be established and implemented on a reasonable, detailed and clear basis so as to avoid conflict of interests; ensuring the principle that one officer shall not concurrently assume different positions, duties with the contradictory or overlapped purpose and interests; ensuring that any officer in the credit institution, foreign bank branch shall not be facilitated to control activities, suppress information for personal purpose or conceal acts of violation of laws and internal regulations of the credit institution, foreign bank branch.
4. Ensuring the implementation of accounting regime in line with applicable provisions and there should be an internal information system on finance, operation, compliance performance at the credit institution, foreign bank branch and on the outside economic, market situation that is sensible, reliable and timely for an efficient administration and management task.
5. The information system, information technology of the credit institution, foreign bank branch shall be monitored and protected in an appropriate and safe manner. There should be an independent back-up management mechanism in order to timely cope with unexpected situation, including natural disaster, fire, explosion, hacker… so as to ensure the compliance with provisions on safety and security of the bank's information technology system, ensure the business of the credit institution, foreign bank branch to be regular and uninterrupted.
6. Ensuring that every staff of the credit institution, foreign bank branch shall be aware of the importance of internal control activity; role of each individual in the internal control process relating to their function, duty, and fully and efficiently implement relevant regulations, processes of internal control.
7. Manager of divisions, operational units and related individuals shall regularly review and assess the effectiveness and efficiency of the internal control system; any shortcoming of the system shall be timely reported to the management in charge; major shortcomings that may be harmful or be risky shall be immediately reported to the General Director (Director), Board of Directors, Board of Members, Controllers' Committee.
8. Any individual, division of any level of the credit institution, foreign bank branch shall, regularly and constantly, inspect and self inspect the implementation of related internal regulations, processes and be responsible for the result of their operational performance to the credit institution, foreign bank branch and to the law.
9. Head of units, divisions of the credit institution, foreign bank branch shall be responsible
for reporting the result of their assessment on the internal control of their unit; recommending solution for shortcomings, inadequacies (if any) to the management in charge, on a periodical or unexpected basis, upon request by the management in charge.
Thus, the internal control system in credit institutions must be implemented according to the above principles.
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