The Chinese regulator (the Chinese Banking Regulatory Commission – the CBRC) has issued its "Guidelines on Operational Risk Management of Commercial Banks" (full document currently only in Chinese) in preparation for the planned adoption of Basel II guidelines from 2010 (see announcement of 19th March 2007).
The CBRC has followed up on its earlier guidelines on market and credit risk with guidelines designed to strengthen the operational risk management of commercial banks, and improve corporate governance and overall risk management capability. The CBRC has noted an increase in operational risks in China and, in 2005, issued the Notice of Enhancing Operational Risk Control. These latest guidelines, based on local experiences and foreign practices, are a bid to combat these risks and get commercial banks to improve their internal controls.
The Guidelines consist of thirty-one articles in four chapters, covering scope and objectives, operational risk management, supervision of operational risk and the explanations of relevant concepts. Banks are required to set up appropriate operational risk management systems "suitable for their own business scale and complexity". They are also required to have mechanisms for reporting operational risk events. The CBRC confirms that it will follow required Basel II practices of making regular checks on banks' risk policies, procedures and practices.
This announcement is part of a general global increase in the attention that regulators are paying to operational risk practices (as opposed to capital approaches) with both the UK's FSA and Singapore's MAS formally announcing their risk assessment framework. [Apologies for stating that the UK was first. Singapore must take that credit.]
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