New Risk-Based Supervision Framework
The Central Bank has launched its new risk-based supervision
framework, PRISM (Probability Risk and Impact System). The
framework establishes a new approach for supervisory engagement
with regulated entities.
According to the Central Bank, under the PRISM system:
- The Central Bank's supervisory activities will be focused on the firms which are most significant and on the risks that pose the greatest threat to financial stability and consumers.
- The system categorises all regulated firms into four separate impact categories, which are based on the level of damage a firm could cause to the financial system, economy and consumers were it to fail. Firms will be categorised by the Central Bank as high impact, medium-high impact, medium-low impact or low impact. This categorisation will determine the number of supervisors assigned and level of interaction to each firm.
- The Central Bank will engage with firms at a level that corresponds to their impact category; the higher the impact, the higher the level of engagement. Engagement will involve reviews, inspections and meetings, and the frequency and level of engagement will be associated with the firms' impact rating.
- All firms in the impact categories high, medium-high and medium-low will have their risks assessed across ten risk categories. According to the Central Bank, its supervisors will form judgements on the risks posed and will issue firms with a 'report card' with views on the risks.
- Firms will also receive a 'to do list', outlining the actions that need to be taken to address any risks the Central Bank finds to be unacceptable. Firms will be required to take action to address these risks and bring them to an acceptable level.
The PRISM system has been implemented for all banks and insurance firms and will be introduced to all supervised firms by the end of June 2012.
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