Autumn
2006 Training Course/Seminar Series
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Implementing Effective, Risk-Based Supervision
4-day intensive residential programme, 5 - 8 September
2006
Venue: King’s College, Cambridge University
Course Director: Kern Alexander, Senior Research Fellow, Judge Business
School, Cambridge University
Course Advisor: Charles Goodhart, CBE, Professor Emeritus, London School
of Economics, University Financial Markets Group
Details of how to register
are here
IMPLEMENTING EFFECTIVE, RISK-BASED SUPERVISION
The near-term prognosis for the international financial system, according to the International Monetary Fund in April 2006, is “as good as it gets”.
This is fortunate, because financial supervisors face an unprecedented workload. As the deadline for G10 adoption of the new Basel capital accord looms, supervisors around the world are struggling to put in place the risk-based supervision framework which is now required. Moving away from a rigid, rules-based style of regulation to one more reliant on the supervisor’s discretion and professional judgement is one aspect. Coordinating supervision of cross-border banks among dozens, even hundreds, of supervisors is another.
Meanwhile many regulators face the dual challenge of implementing new banking supervision rules just as international financial reporting standards are also being rolled out around the world. Demands and pressures on financial supervisors have rarely been greater.
This makes it all the more important for supervisors to take a moment to pause, meet, and discuss together how some of the common challenges being thrown up by this changing environment can be met. The 2006 financial regulation seminar, Implementing Effective, Risk-Based Supervision, is designed to help supervisors do just this.
It brings together a world-class panel of regulators, academics and practitioners to evaluate the changing demands on financial market authorities. Sessions are led by a world class group of presenters, including: Charles Freeland, deputy secretary general of the Basel Committee since 1989; Avinash Persaud (chairman of Intelligence Capital Limited, founding director of the Global Association of Risk Professionals, and a former Gresham professor of commerce); John Tattersall, partner and chairman of PWC’s Financial Services Regulatory Practice; and Daniel Sigrist, head of the risk management group of the Swiss Federal Banking Commission.
Through a series of case studies, the course explores practical solutions to common supervisory dilemmas with particular emphasis on:
- the use of supervisory discretion under the Basel II accord;
- the importance of regulatory governance and good technology for supervision;
- assessment of supervised entities’ risk management; and
- coordinating the supervision of cross-border conglomerates.
We look forward to welcoming you to Cambridge.
Yours sincerely,
William Clarke,
CBE, PhD Chairman
New risks
in international capital markets implications for regulators
Avinash
Persaud
Chairman, Intelligence Capital
What will be the dominant trends
driving change in money and capital markets until 2010? What are the
implications of continuing imbalances in global markets? How will the
new Basel capital accord affect banks and financial conglomerates when
implementation begins in January 2007? This session sets the scene for
those that follow by exploring the changing financial landscape in international
capital markets, in particular examining likely developments within
both advanced and emerging markets.
How supervisors can manage national and international challenges
Roundtable discussion led by
Kern
Alexander
Chairman
What are the key challenges currently
confronting supervisors in their home institutions and jurisdictions?
This session offers delegates an opportunity to benefit from each other’s
expertise and experience in confronting common problems. Delegates will
be expected to give a brief account of their local regulatory system
and explain the most pressing current issues affecting their home institution.
Peter Hayward
Consultant and former Secretary General of the Basel Committee on Banking Supervision
Political interference in financial sector regulation and supervision has exacerbated nearly all of the financial crises of the past decade. As a result, supervisors are becoming increasingly aware of the need for good regulatory governance. Above all, this requires structures and procedures which insulate regulators and supervisors from improper influence. However, governance arrangements for financial supervision must be tailored to national circumstances; there is no universally applicable template. How then, in practice, can supervisors ensure effective regulatory governance? This session explores some of the practical ways in which revised governance procedures can contribute to effective supervisory outcomes.
What the updated Basel Core Principles mean for supervisors
Betsy Roberts
Director, Financial Stability Institute (to be confirmed)
The Core Principles for Effective Banking Supervision issued by the Basel Committee on Banking Supervision in September 1997 provide the key benchmark for banking supervisors to assess the quality of their supervisory systems. In 2006 these principles have been revised in the light of recent banking-market developments. What are the implications for supervisors? How and when will national financial authorities be expected to implement the new standards? This session looks at the rationale for, and key tenets of, the updated core principles; considers what changes may be needed for countries to achieve a baseline level of compliance; and investigates how international organisations like the IMF plan to use them.
Regulating remittances and informal money transfer systems
Veronica Fucile
Bank of Italy (invited)
Officially recorded remittances to developing countries exceed $100 billion annually. Unrecorded transfers through informal channels dwarf this figure. For regulators, there is a need to strike a balance between a regulatory regime that minimises money laundering, terrorist financing, and general financial abuse, and one that facilitates the flow of funds between migrants and their families back home. How can financial authorities satisfy themselves that these informal systems are not being abused? Can the formal remittance infrastructure be strengthened sufficiently to shift flows from the informal to the formal sector? This session studies the emerging challenges of regulating the informal banking sector.
IFRS and Basel II: interlinkages, complications and practicalities
John Tattersall
Partner and Chairman, Financial Services Regulatory Practice,
PricewaterhouseCoopers LLP
The simultaneous implementation of two major international regulatory initiatives, International Financial Reporting Standards (IFRS) and Basel II, is taxing both supervisors and banks alike. The similarities and differences between the two standards are of key significance to all organisations which work simultaneously on achieving compliance with both IFRS and Basel II minimum capital requirements. For supervisors however the questions are, perhaps, even more complex. Not only does IFRS change many key supervisory ratios which regulators use in their analysis, it also relies on a very different valuation philosophy to that typically applied by banking supervisors. Incentives for loan provisioning, for instance, are opposite under the two approaches. This session considers how supervisors can manage the challenge of these two major regulatory initiatives.
The
reality of Basel II – new judgements, new skills, new staff
Charles
Freeland
Deputy Secretary General
of the Basel Committee
Basel II implementation: technology issues
Kannan Amaresh
Banking Group Leader, Infosys Domain Consultancy Group
Around the world, banks and technology companies are working hard to develop and apply appropriate technology solutions which will provide meaningful insight into their risks under the Basel II framework. For supervisors however, the challenge is somewhat different. Most importantly they must satisfy themselves that banks understand fully the technology they are using, and that any models employed are capable of validation. This session focuseson some of the emerging technology issues involved with Basel implementation and asks how supervisors, bankers and IT companies can best manage their joint responsibilities.
Coordinating home/host supervision
David Schraa
Institute of International Finance (to be confirmed)
Some of the most pressing unanswered questions about how, in practice, Basel II will work relate to the matrix of supervisory relationships and procedures which need to be put in place to supervise the largest cross-border banks. Issues concerning home/host relationships, in particular regarding model validation and the rights of host supervisors have proven extremely tricky to resolve. As well as supervisors, banks themselves clearly have an interest in promoting a workable framework for interaction and information sharing with supervisors internationally. How are these banks approaching the challenges of effective cross-border implementation arrangements? How can banks and supervisors can keep each other informed and most effectively coordinate their efforts?
Coordinating supervisory relationships
Syndicate group workshops
The new Basel capital accord requires extensive cooperation between supervisors in the areas of supervisory review, model validation and home/host collaboration. In Europe and around the world this raises complex issues for all supervisors. Drawing on case studies presented by participants, this session will explore the critical issues now coming to the fore regarding supervisory coordination, in particular: how can hundreds of supervisors working around the world effectively coordinate the implementation of the new Basel accord?
US plans
for Basel II implementation
Keith Ligon
Chief, Policy Unit, Division of Supervision, Federal Deposit Insurance
Corporation(invited)
Despite changes to the timetable, US
preparations for Basel II implementation continue. As is well known, US
supervisors will require only a limited number of the country’s
largest and most internationally active banks to adopt the accord, and
will permit them to deploy only the advanced versions of the accord (in
addition to which they plan to offer a revised version of the original
accord for banks not adopting Basel II). This session will explore the
latest thinking of the US federal banking regulators (in particular the
FDIC) and the implications for foreign supervisors of the US plans and
timescale.
The Swiss approach to Basel II implementation
Daniel Sigrist
Head of Risk Management Group, Swiss
Federal Banking Commission
As is the case with all the members
of the Basel committee (except the US), Switzerland will incorporate all
the approaches in the Basel II menu into its regulation. Approaches for
IRB and operational and market risks will be adopted from Basel II in
unmodified form. However, Switzerland additionally plans to have a bank-specific
multiplier for the IRB, allowing the SFBC to give banks more flexibility
while at the same time preventing distortions of competition at national
level. The speaker will discuss the preparations and processes that the
Swiss authorities have made for a “Swiss finish” to the Basel
II accord, and more generally the rationale for banking supervisors to
tailor implementation to national circumstances.
Assessing and validating risk management
systems
Stefan Friesenecker
Head, Group CRO Program Management,
UBS AG
For the world’s largest banks the implementation
of Basel II represents a huge investment. The development and implementation
of advanced risk models will involve significant changes in the bank’s
overall risk management practices. Likewise, the overall supervisory process
for banks adopting economic capital models can be affected as examination
focus may shift more to process evaluation. As both supervisors and banks
themselves undergo these twin upheavals, management on both sides will
need to work hard to ensure that risks are contained. This session explores
how one of the world’s largest banks plans to implement Basel II
across its international operations and examines how supervisors around
the world can satisfy themselves as to the validity and robustness a cross-border
bank’s risk management systems.
Course round-up
Roundtable discussion led by Kern
Alexander
Chairman
This final discussion session provides
the group with an opportunity to pull together key themes and issues from
the course. Delegates will be asked to review the week’s discussions
and encouraged to formulate key conclusions into an action plan to take
back to their home institutions.
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