Risk based Supervision is a supervisory approach or framework in which the supervisor assesses the different business areas of financial entities, the quality of the systems and the internal controls, in order to identify the major areas of concern and risk. RBS looks for a robust supervisory framework for monitoring the risk levels in the operations of financial entities.
Compliance-based supervision, is a method of regulation which involves checking for and enforcing compliance with rules –legislation, regulations or policies – that apply to an entity. Compliance-based is a supervisory approach which mainly centers on the extent to which entities comply/adhere to rules, requirements and directives.
RBS has become a widely used supervisory approach globally. More emerging and developing markets have or are in the process of adopting the RBS framework. IOSCO also encourages its members (to which the Commission is a member) to adopt RBS.
The Commission will roll out RBS to the market in April 2022. Following the roll out, it will begin to use the RBS methodology in its supervision
The Commission has adopted an RBS supervisory approach as it believes that this will add a lot of value to market supervision. The Commission intends to leverage the benefits that RBS offers.
Yes, RBS will apply to all Capital Market Operators e.g., licenced dealers, stockbrokers, fund managers, trustees, custodians, investment advisers, transfer agents, exchanges, venture capital funds, private equity funds, commercial banks that have capital markets dealers’ licences as well as Issuers (entities with registered securities) e.g., listed companies, quoted companies, depository receipts, debt issuers.
The following characteristics of RBS allows it to be beneficial to the Commission.
- Risks are addressed in a systematic way giving priority to what matters most.
- RBS is dynamic and forward looking. It creates an environment where risks can be identified early enough and be attended to early.
- RBS supports improved decision making and the most effective use of scarce supervisory resources.
The migration to RBS for all CMOs means that the supervisory approach by the Commission has been enhanced. RBS will help your institution to move towards a more preemptive approach towards compliance as it encourages a more in-depth focus on eminent risks and the robustness and effectiveness of measures that your institution has in place to mitigate them.
The Commission has put in place a roll out and implementation plan which covers the aspect of capacity building for the market players. The plan has a number of capacity building engagements that have been planned to be undertaken throughout the year ranging from one-on-one meetings, monthly themed meetings, masterclasses etc.
Yes, it is crucial to implement RBS now. Supervision is integral to a balanced and effective regulatory framework. Inordinately conservative or permissive supervision can undermine well designed proportionate regulations. Some examples of supervisory actions either blocking the entry of responsible providers, letting innovative products go unchecked, market failures evidenced in our market and thereby result in the harm of large numbers of consumers.
Note: The FAQs will be updated as we go. Should you have any questions you would like answered please send them to info@seczambia.org.zm