Title[ Part 3: The Second Pillar - Supervisory Review Process
Section[ Principle 1: 5. Internal control review
744. The bank’s internal control structure is essential to the capital assessment process. Effective control of the capital assessment process includes an independent review and, where appropriate, the involvement of internal or external audits. The bank’s board of directors has a responsibility to ensure that management establishes a system for assessing the various risks, develops a system to relate risk to the bank’s capital level, and establishes a method for monitoring compliance with internal policies. The board should regularly verify whether its system of internal controls is adequate to ensure well-ordered and prudent conduct of business.
745. The bank should conduct periodic reviews of its risk management process to ensure its integrity, accuracy, and reasonableness. Areas that should be reviewed include:
w Appropriateness of the bank’s capital assessment process given the nature, scope and complexity of its activities;
w Identification of large exposures and risk concentrations;
w Accuracy and completeness of data inputs into the bank’s assessment process;
w Reasonableness and validity of scenarios used in the assessment process; and
w Stress testing and analysis of assumptions and inputs.
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