What are regulations on market risk measurement, monitoring and control of banks in Vietnam?
Hello Lawnet. I have a question related to internal control systems of commercial banks and foreign banks’ branches. There will be new regulations next year. What are regulations on market risk measurement, monitoring and control of banks in Vietnam? Thank you!
Thanh Ha - Dong Nai
What are regulations on market risk measurement, monitoring and control of banks in Vietnam? - image from internet
Pursuant to Article 39 of the Circular 13/2018/TT-NHNN on internal control systems of commercial banks and foreign banks’ branches issued by the Governor of the State Bank of Vietnam (effective from 01/01/2019), the regulations on market risk measurement, monitoring and control of banks in Vietnam are as follows:
1. The commercial bank/foreign bank's branch measures, monitor and control market risk as follows:
a) The individual and division measuring, monitoring and controlling market risk must be independent from the proprietary transaction unit;
b) There are information technology infrastructure and database for market risk measurement, monitoring and control;
c) Allocate specific competence to approve, implement market risk prevention measures;
d) If the commercial bank/foreign bank's branch employs the mark-to-model method specified in the State Bank’s regulations on capital safety ratio in commercial banks and foreign banks’ branches, the model must fulfill the following requirements:
(i) Fully assess factors affecting values of proprietary transactions and underlying assets;
(ii) Estimation is based on information and data from trusted sources. Market information and data must be independently assessed on their reliability and appropriateness as specified in the commercial bank’s/foreign bank's branch’s internal regulations;
(iii) Subject to unscheduled or scheduled (at least on an annual basis) reviews and assessments in order to determine the model's accuracy and limitations, so that appropriate adjustments can be made.
2. The method and model for market risk measurement and monitoring based on interest rate, exchange rate, share price and commodity price risks must fulfill the following requirements:
a) Measure and monitor the market risk position associated with each financial asset, liability and off-balance item;
b) Parameters and assumptions must be inspected and adjusted, based on comparisons between the result of the method/model and actual events.
3. Market risk control must fulfill the following conditions:
a) Give early warnings about probability of violation against market risk limit;
b) At the end of each transaction date, the commercial bank/foreign bank's branch must assess compliance to market risk limit, based on the actual market risk position (also including market risk-prevention transactions) and adjust the market limit if necessary;
c) Adjustments to market risk limit must be timely informed to the transactor, transacting unit as well as related individuals and divisions in order to carry out proprietary transactions and market risk control for the next transaction date.
Above are regulations on market risk measurement, monitoring and control of banks in Vietnam. Please refer to the Circular 13/2018/TT-NHNN for further information.
Best regards!
