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6 Key Areas to Consider When Preparing Your Firm for a CBI Inspection
Introduction
In today’s business world Regulators, from a supervisory perspective, keep a close eye on regulated firms to ensure that they are operating in a safe and sound manner, and are complying with all relevant laws, regulations, and standards. Failures or deficiencies uncovered during a regulatory examination by the Central Bank of Ireland (CBI) can expose a regulated firm to significant sanctions, including fines which can deliver quite a punch. Preparation is everything. Here we take a closer look at the key areas to think about when your firm is preparing for a CBI inspection, and consider how we at Nexus Assurance can help:
- Adherence to Regulation:
We live in a fast-changing world and one where increasing, and more stringent regulations drive reform. It is essential for financial services firms to keep up with the pace of regulatory change, and to demonstrate that they are compliant with all relevant regulations, including those related to anti-money laundering, outsourcing, risk management, and IT and operational resilience. The firm’s policies and procedures must be up to date and these policies must be followed. Firms should always be able to evidence complete compliance with their regulatory requirements in their day-to-day operations. - The Importance of the Risk Management Framework:
Risk is all around us. It is inherent to all products, activities, processes, and systems within a firm, and is generated in all business and support areas. The variety of risk exposures for a firm is huge and the impact of an event can be devastating. Sound risk management allows a firm to better understand and mitigate its risk profile, while also working to ensure that opportunities (the upside of risk) are realised. In doing so it protects brand and shareholder value in the long-term. Effectively managing risk across the organisation is a key enabler for enhanced business performance. It is also a regulatory expectation. Firms must have robust risk management systems in place to identify, assess, prioritise, manage, and monitor exposures as they evolve. The CBI conducts inspections to assess the effectiveness of these risk management systems and looks for evidence to ensure that firms are properly managing all risks associated with their operations. Management of these risks should be woven into the operational fabric of the firm so that risks are triggered as the nature, scale, and complexity of the firm changes. - First Line of Defence:
Firms must have sound and effective internal control programmes in place. Up to date, clearly documented, and well communicated policies and procedures work to ensure compliance with relevant legal and regulatory requirements. These also ensure that all operations of the firm are conducted in a safe, secure, and effective manner. The firm will need to demonstrate that strong internal controls are documented, can be evidenced, and are firmly embedded into day-to-day business operations. The CBI inspections will always assess the adequacy of internal controls to ensure that all processes are properly monitored and managed. - Governance:
The 2008 global financial crisis was a catalyst for change. In its wake stakeholders, including regulators, began to ask hard questions about firm’s corporate governance. Today corporate governance remains in the regulatory spotlight. Effectively it relates to the management and control of a company – the system of rules, practices, policies, procedures, and processes used to navigate and control the firm. Good governance is an absolute must when it comes to ensuring that all operations of the firm are conducted in accordance with their contractual and regulatory responsibilities, in building trust, and in delivering value. Bad governance decision making can be fatal. Ultimate responsibility here lies with the Board who plays a key role in driving good governance, shaping the right culture, and embedding a comprehensive governance framework into the firm’s policies, processes, and systems. A key focus of any CBI review will be the quality and effectiveness of governance structures (which includes the Board) and how firms are meeting their regulatory, client, and contractual obligations. The firm will need to evidence that it has a strong governance framework in place driving the organisation forward – one that includes a comprehensive and transparent organisational structure and well-functioning risk management, compliance, and audit functions. Well-functioning supporting sub-committees (such as the audit, remuneration, nomination, and risk committee’s) also play a key role in supporting and demonstrating good governance. - Operational Resilience:
Business disruption is inevitable, and firms should assume it will happen. Operational resilience is about how the firm will respond in time of crisis – can it stay agile, absorb shocks, and recover quickly? Success in the context of operational resilience requires the firm to understand its various risk exposures and be ready for them. Although risk management and operational resilience address different goals, they are interconnected. An effective risk management system and a robust level of operational resilience work together to reduce the frequency and impact of operational risk events. The CBI may examine the firm’s operational resilience, and this will include its ability to bounce back from adverse risk events such as cyber-attacks, natural disasters, and operational disruptions (including those caused from dependencies on outsourcing providers for the delivery of critical operations). The firm should be able to demonstrate that regular scenario analysis and stress tests are conducted to identify potential weaknesses in its operational resilience, and to take steps to address any vulnerabilities to minimise their impact on delivering important business services through disruption. - Connecting the Dots:
Firms should ensure Board, Committee, and governance reporting highlights effective oversight of parties, risk management, challenge of processes, and regulatory obligations. Clear procedures should be in place across the organisation to elevate the right information to the board quickly. Effective monitoring and reporting directly to the Board and executives enable firm’s to make better informed decisions, allocate resources effectively, minimise the impact of potential risk exposures, and ensure ongoing compliance. Marrying reporting from first and second lines of defence plays a crucial role when demonstrating ongoing governance as part of any CBI inspection.
How Can Nexus Assurance Help?
Our innovative digital control and governance platform, Navigator, is a powerful tool that can help your firm implement its compliance, demonstrate this compliance at a click, and be CBI inspection ready. The platform’s intuitive capabilities deliver efficient protection to regulated entities, and will transform your firm’s risk, compliance, and governance frameworks. Navigator delivers a comprehensive, integrated, transparent, and secure regulatory solution that gives instant transparency of actual performance across the key areas of focus as discussed, and against regulations, agreements, SLAs, and best-practice policies.
