Page 32 - Annual Report 2019

29 ANNUAL REPORT 2019 SUPERVISION AND AUTHORISATION

Bank Supervision

The Bank Supervision team was responsible for the ongoing supervision
of 24 banking and advisory firms in 2019. Activities included regular
review and monitoring of prudential returns, high-level meetings with
senior management, bilateral and trilateral meetings with governing
bodies and external auditors, as well as areas of focus highlighted here.

Analysis of banks business models Thematic review on IFRS 9 implementation
and profitability drivers The Regulatory Authority completed its thematic review on
During the year, the department completed its assessment of the implementation of expected credit loss (ECL) frameworks
business models of QFC banks. The identification and assessment and issued additional guidance to regulated firms on
of banks business models is an integral part of Regulatory Authority practices that required the following improvements:
supervisory priorities and is critical to understanding bank operations
and attendant risks. Through this assessment, the Regulatory • Migration of exposures and the treatment of
Authority developed an understanding of the various operational restructured exposures with specific requirements
structures of banks and the evolution of a particular business model on a cooling-off period of 12 months from the date of
as a result of strategic choices made by an institution in response restructuring before exposures can be migrated.
to its operating environment. These insights led, in turn, to bespoke • Assessment of significant increase in credit risk must be
supervisory engagements designed to assess vulnerabilities and supported by clear and unambiguous procedures and
the viability and sustainability of an institution’s strategic plans. must be formally documented and clearly justified.
• Independence of the external audit function and
Leverage ratio framework prohibition of consulting services to regulated
institutions by their external auditors.
The Regulatory Authority finalised its leverage ratio framework • Prudential reporting with additional requirements
after extensive consultation. The leverage ratio serves as a prudential that the level of provisions shall be the higher of the
retainer to inhibit the build-up of leverage in the banking sector. output from the firm’s ECL mode and the Regulatory
It also serves the purpose of shielding the broader financial system Authority-prescribed regulatory provisions.
and the economy from leveraging’s negative effects. The leverage
ratio rules are aligned with the Basel III requirements and were
supported by a quantitative impact study to evaluate the implication
on firms operating in the QFC.