Watchdogs call for wider power

Tim Wallace
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GLOBAL financial authorities yesterday moved to extend their reach beyond regulated institutions and into all parts of major financial groups.

The officials warned that problems building in lightly regulated units of financial conglomerates could slip under the radar and threaten the stability of the overall entity.

The Basel Committee, the International Organisation of Securities Commissions and the International Association of Insurance Supervisors also said national authorities must work more closely together to avoid blind spots being developed when such conglomerates spread across borders.

That means regulators will be expected to make stress tests group-wide, rather than simply covering the regulated parts of a finance firm, or just those parts within the same country as the national regulator.

The new guidelines are also intended to ensure the culture within a banking groups extends to all corners of the conglomerate.

This means firms must “develop a sound group-wide risk management culture, to establish a risk appetite policy and define appropriate group-wide risk tolerance levels,” even covering outsourced activities, and “bringing off-balance sheet activities within the scope of group-wide supervision.”

And the group of regulators warned that unregulated entities, like subsidiaries or holding companies associated with the financial groups, could present a huge range of threats to the overall group.

These include contracts linked with the group; “interconnectedness of the firms; risk exposure; risk concentration; risk management; intra-group transactions and exposures; strategic risk; and reputation risk,” the authorities warned.

“It is intended that these issues be considered in the widest sense,” they added.