Add 3 lines of defense for non-bank credit institutions

The State Bank has just issued Circular 14/2023/TT-NHNN regulating the internal control system of non-bank credit institutions, effective from October 1, 2024.

The Circular stipulates that non-bank credit institutions include financial companies and financial leasing companies; Organizations and individuals related to the internal control system of non-bank credit institutions.

According to Circular 14, the internal control system of the above organizations must have 3 independent lines of protection.

The first line of defense has the function of identifying, controlling and minimizing risks performed by the following departments: (1) business departments (including product development departments), departments with Other revenue generating functions; (2) departments that carry out risky decisions; (3) departments with the function of allocating risk limits, controlling risks, and minimizing risks (belonging to business departments or independent departments) for each type of transaction and business activity; (4) human resources department, accounting department.

The second line of defense has the function of developing content related to risk management, internal regulations on risk management, risk monitoring and compliance with legal regulations implemented by the following departments. : (1) department complies with regulations in Article 16 of Circular 14; (2) risk management department specified in Article 18 of Circular 14.

The third line of defense has the internal audit function performed by the internal audit department according to the provisions of the Law on Credit Institutions and Circular 14.

Discussions and conclusions about the internal control system in meetings of the Board of Directors, Board of Members, Supervisory Board, Risk Management Committee, and Human Resources Committee must be recorded in minutes. which clearly states the agreement and disagreement of each member.

The independent assessment of the internal control system is carried out in accordance with the State Bank’s regulations on independent audit of credit institutions and foreign bank branches.

The Circular clearly states that the internal control system of non-bank credit institutions must meet the following requirements: a) Requirements on internal control system according to the provisions of the Law on Credit Institutions; b) Suitable for the scale, conditions and complexity of business activities of non-bank credit institutions; c) Have sufficient financial, human, and information technology resources to ensure the effectiveness of the internal control system; d) Build and maintain a control culture and professional ethical standards for non-bank credit institutions.

Non-bank credit institutions must have internal regulations according to the provisions of the Law on Credit Institutions. Internal regulations must ensure compliance with the provisions of Circular 14 and relevant laws.

The Board of Directors and the Board of Members promulgate regulations on the organization, administration and operations of non-bank credit institutions, except for issues falling under the authority of the General Meeting of Shareholders and owners; The Supervisory Board promulgates internal regulations of the Supervisory Board; The General Director (Director) promulgates regulations, processes and operational procedures (internal processes).

Internal regulations are periodically evaluated according to the provisions of Circular 14 and regulations of non-bank credit institutions for appropriateness, compliance with legal regulations and amendments and supplements (if necessary). ).

Non-bank credit institutions have internal regulations on the management and storage of records and documents on the internal control system.

The management and storage of records and documents on the internal control system of non-bank credit institutions ensures compliance with legal regulations; Fully archived to provide at the request of internal audit, independent audit organization, competent authority during the process of internal audit, independent audit, inspection, inspection and supervision.

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