The Central Bank has proposed some amendments to Circular 44 of 2011, aiming to set up internal control systems at non-bank credit institutions (NBCIs) according to international practices, specifically, the Basel Accords.
As per the draft, in order to raise responsibilities of NBCIs’ leaders, the State Bank of Vietnam (SBV) adds “oversight by senior management” to the internal control system of an NBCI, which would consequently include oversight by senior management, internal control, and risk management and internal audit.
Specifically, oversight by senior management means the oversight by the Board of Directors, Members’ Council, Director General (Director) of internal control and risk management, and the supervision by the Control Board of the internal control system and internal audit of the NBCI.
Noteworthily, the SBV proposes adopting a three-lines-of-defense model for internal control systems of NBCIs.
The first line of defense has the functions of identifying, controlling and mitigating risks, which would be performed by the sales section, revenue-generating section, and section in charge of implementing risky decisions; section functioned to allocate risk limits and control and minimize risks (that might be an independent section or a unit under the sales section) for each type of transaction and business activity; human resource section and accounting section.
The second line of defense with the role of formulating risk management policies and internal rules on risk management and measuring and monitoring risks and regulatory compliance would be managed by compliance and risk management sections.
The third line of defense, internal audit, would be assigned to the internal audit section.
As explained by the central bank, the three-lines-of-defense model would help enhance the linkage and interaction in risk management between sections involved in the operation and governance of NBCIs, thereby contributing to their sustainable development. Under the model, the roles of managers of different levels in an NBCI would be clearly defined, covering also the oversight by the Board of Directors/Members’ Council over the Director General and by the Director General over sections regarding risk and compliance activities (roles of the first and second lines); while independent supervision through internal audit (the role of the third-line).
The draft also adds some other provisions relating to the concept of operational risk, data cut-off date, and reporting deadlines so as to ensure consistency with other relevant laws.- (VLLF)