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RESOLUTION OF BOARD OF THE NATIONAL BANK OF UKRAINE

of June 11, 2018 No. 64

About approval of the Regulations on the organization of risk management system in banks of Ukraine and banking groups

(as amended on 26-01-2021)

According to Articles 7, 15 and 56 Laws of Ukraine "About the National Bank of Ukraine", to articles 44 and 66 of the Law of Ukraine "About banks and banking activity", for the purpose of enhancement in banks of Ukraine taking into account the principles and recommendations of Basel Committee on Banking Supervision the board of the National Bank of Ukraine decides risk management systems:

1. Approve Regulations on the organization of risk management system in banks of Ukraine and banking groups (further - the Provision) which are applied.

2. To banks of Ukraine / to responsible persons of banking groups to develop/finish and implement intra bank/intra group bank documents on risk management, to execute actions for implementation of requirements of the Provision in the terms established in the schedule which is attached.

3. To department of methodology (Ivanenko N. V.) after official publication to inform banks of Ukraine information on adoption of this resolution.

4. To impose control over the implementation of this resolution on the vice-chairman of the National Bank of Ukraine Rozhkova K. V.

5. The resolution becomes effective from the date of, its official publication following behind day.

Chairman

Ya. V. Smoly

Appendix

to the Resolution of Board of the National Bank of Ukraine of June 11, 2018 No. 64

The schedule of accomplishment by banks of Ukraine and banking groups of actions for implementation of requirements of the Regulations on the organization of risk management system in banks of Ukraine and banking groups

No. of payment order

Action

Completion date bank

Completion date banking group

1

2

3

4

1

I. The first stage - implementation of organizational actions

   

2

1. Reduction of organizational structure of risk management system in compliance with requirements of the Regulations on the organization of risk management system in banks of Ukraine and banking groups (further - the Provision) and approval of changes in the budget of bank (if necessary), including:

3

1) creation of committee of council of the bank on risk management (in case of adoption of such decision by council of the bank)

Till March 30, 2019

Till April 30, 2019

4

2) creation of division of control of observance of regulations (komplayens)

Till March 30, 2019

Till April 30, 2019

5

3) ensuring sufficient number of personnel of proper qualification

Till March 30, 2019

Till April 30, 2019

6

4) determination of functions, obligations, powers and responsibility of persons involved in risk management system

Till March 30, 2019

Till April 30, 2019

7

5) determination of mechanisms and responsible persons for proper ensuring cooperation between divisions of bank at all organizational levels using model of three lines of protection

Till March 30, 2019

Till April 30, 2019

8

2. Provision by bank and responsible person of banking group to the National Bank of Ukraine of information on accomplishment of the first stage of implementation of the Provision

Till April 15, 2019

Till May 15, 2019

9

II. The second stage - implementation of culture of risks

   

10

1. Development/completion, approval and implementation of culture of risk management, including:

   

11

1) code of behavior (ethics)

till March 30, 2019

till June 30, 2019

12

2) to the politician of conflict prevention of interests

till March 30, 2019

till June 30, 2019

13

3) procedure of transactions with the faces tied with bank

till March 30, 2019

till June 30, 2019

14

4) the mechanism of the confidential message on unacceptable behavior in bank (whistleblowing policy mechanism)

till March 30, 2019

till June 30, 2019

15

5) the training program and advanced trainings of employees of bank concerning risk management

till March 30, 2019

till June 30, 2019

16

2. Provision by bank and responsible person of banking group to the National Bank of Ukraine of information on accomplishment of the second stage of introduction of the Provision

till April 15, 2019

till July 15, 2019

17

III. The third stage - implementation of strategy, policy, techniques and procedures

   

18

1. Development/completion, approval and implementation of intra bank/intra group bank documents on risk management, including:

   

19

1) strategy of risk management; policy and procedures of introduction of new products and considerable changes in activities of bank; procedures of escalation of violations of limits of risks; procedure, forms, filling and frequency of provision of reports to subjects of risk management system

till March 30, 2019

till June 30, 2019

20

rather credit risk:

   

21

2) to the politician of credit risk management

till March 30, 2019

till June 30, 2019

22

3) techniques, methods, obligatory tools

Till October 30, 2019

Till January 30, 2020

23

4) processes, information systems and reporting

Till October 30, 2019

Till January 30, 2020

24

concerning liquidity risk:

   

25

5) liquidity risk management policy, funding plan in crisis situations

till March 30, 2019

till June 30, 2019

26

6) techniques, methods, obligatory tools

till September 30, 2019

till December 30, 2019

27

7) processes, information systems and reporting

By November 30, 2019

By February 28, 2020

28

rather interest risk of the bank book:

   

29

8) to politician of the interest risk management of the bank book

till March 30, 2019

till June 30, 2019

30

9) techniques, methods, obligatory tools

till September 30, 2019

till December 30, 2019

31

10) processes, information systems and reporting

till November 30, 2019

till February 28, 2020

32

on market risks:

   

33

11) to the politician of market risk management

till March 30, 2019

till June 30, 2019

34

12) techniques, methods, obligatory tools

till September 30, 2019

till December 30, 2019

35

13) processes, information systems and reporting

till November 30, 2019

till February 28, 2020

36

rather operational risk:

   

37

14) policy of management of operational risk, plan of ensuring continuous activities

Till October 30, 2019

Till January 30, 2020

38

15) techniques, methods, obligatory tools

Till October 30, 2019

Till January 30, 2020

39

16) processes, information systems and reporting

till November 30, 2019

till February 28, 2020

40

on komplayens-risk:

   

41

17) policy of management of komplayens-risk

Till October 30, 2019

Till January 30, 2020

42

18) techniques, methods, obligatory tools

Till October 30, 2019

Till January 30, 2020

43

19) processes, information systems and reporting

till November 30, 2019

till February 28, 2020

44

concerning other substantial risks:

   

45

20) technique of identification of substantial risks

Till October 30, 2019

Till January 30, 2020

46

21) policy of management of other substantial risks

Till October 30, 2019

Till January 30, 2020

47

22) techniques, methods, obligatory tools

till November 30, 2019

till February 28, 2020

48

23) processes, information systems and reporting

till November 30, 2019

till February 28, 2020

49

2. Provision by bank and responsible person of banking group to the National Bank of Ukraine of information on accomplishment of the third stage of introduction of the Provision

till December 15, 2019

till March 15, 2020

50

IV. The fourth stage - introduction of the declaration of risk exposure and other requirements of the Provision

   

51

1. Development, approval and introduction of the declaration of risk exposure

till January 30, 2020

till August 31, 2020

52

2. Development/completion and approval of other intra bank/intra group bank documents by council of the bank on risk management and implementation of other requirements of the Provision

till January 30, 2020

till August 31, 2020

53

3. Provision by bank and responsible person of banking group to the National Bank of Ukraine of information on accomplishment of the fourth stage of implementation of the Provision

till February 15, 2020

till September 15, 2020

Director of the department of methodology

N. V. Ivanenko

Approved by the Resolution of Board of the National Bank of Ukraine of June 11, 2018 No. 64

Regulations on the organization of risk management system in banks of Ukraine and banking groups

I. General provisions

1. Basic provisions and terms

1. This Provision is developed according to requirements of the Law of Ukraine "About the National Bank of Ukraine", the Law of Ukraine "About banks and banking activity" and taking into account the principles and recommendations of Basel Committee on Banking Supervision about corporate management and risk management in banks and banking groups.

2. This Provision determines main objectives and the principles of risk management which arise on all activities of bank and banking group at all organizational levels, and establishes the minimum requirements on the organization in bank and banking group of complex, adequate and effective risk management system.

3. The terms used in this Provision are used in the following values:

1) aggregation of data on risks - identification, collection and data processing about risks, considering requirements for creation of the reporting on risks, allows to estimate activities of bank taking into account risk appetite. Aggregation of data on risks includes also classification, segmentation, associations or breakdown of data on risks;

1-1) active banking activities - the term are applied in the value determined in Regulations on the determination by banks of Ukraine of the extent of credit risk on active banking activities approved by the resolution of Board of the National Bank of Ukraine of June 30, 2016 No. 351 (with changes) (further - No. Provision 351);

2) the outsourcer - the organization of any pattern of ownership, the physical person entrepreneur or person performing independent professional activity chosen by bank for execution on the terms of outsourcing of separate works / functions (further - functions) bank;

3) outsourcing - transfer of function of bank on accomplishment to the outsourcer on contractual and regular basis for the purpose of cost optimization and processes in bank;

4) the bank book - assets and liabilities of bank (both balance sheet, and off-balance) which are not included in the trade book;

5) business process - set of the interconnected or interacting types of activity directed to creation of certain product or service;

5-1) verification of property value - check of reliability of the market (fair) property value determined by the appraiser when implementing of property assessment by him;

5-2) chief risk manager (CRO) - the main official of bank responsible for risk management;

5-3) chief komplayens-manager (CCO) - the main official of bank responsible for control of observance of regulations (komplayens);

6) the risk exposure right (RAS - Risk Appetite Statement) - the intra bank/intra group bank document which determines cumulative size risk appetite, types of risks which the bank will accept or avoid for the purpose of achievement of its business objectives, and level risk appetite on each of them (individual level);

7) diversification - restriction of influence of risk factor due to avoidance of excessive concentration on one portfolio by search and combination of portfolios which under identical conditions bring to various is not obligatory for opposite results. Diversification is risk mitigation method which is applied as to active, and passive transactions;

8) admissible risk level (Risk Capacity) - the maximum extent of risk which the bank is able to accept by all types of risks, considering the level of its capital, capability adequately and effectively to manage risks, and also taking into account regulating restrictions;

9) yield to maturity (YTM - Yield to Maturity) - the cumulative size of profitability as a percentage annual which the bank will receive in case of acquisition in property of the bond or other debt instrument for date of assessment of the current market (fair) value in case of condition of keeping of such tool before repayment;

10) duration - the weighted average term before receipt of cash flows on the bond or other financial instruments with the fixed income;

11) economic capital cost (EVE - Economic Value of Equity) - this cost of pure future cash flows on financial instruments of the bank book;

12) information system on risk management - set of the technical means, methods and procedures providing registration, storage, processing, monitoring and timely forming of reliable information for the reporting (informing), the analysis and acceptance of timely and adequate management decisions on risk management;

13) information risk (component of operational risk) - probability of emergence of losses or additional losses or short-reception of the planned income owing to emergence of external or internal events, change of business environment and/or information technologies or inadequate or wrong internal processes relatively:

functioning of information systems and other information resources of bank and management of them (risk of information and communication technologies);

preserving confidentiality, integrity and availability of information of bank (risk of information security);

14) komplayens-risk - probability of emergence of losses/sanctions, additional losses or short-reception of the planned income or loss of reputation owing to failure to carry out by bank of requirements of the legislation, regulatory legal acts, market standards, rules of fair competition, rules of corporate ethics, emergence of conflict of interest, and also intra bank/intra group bank documents of bank;

15) the credit - the term is applied in the "credit operation" value determined in the Provision No. 351;

16) credit risk - probability of emergence of losses or additional losses or short-reception of the planned income owing to failure to carry out by the debtor/partner of the undertaken obligations in accordance with the terms of the agreement. The credit risk arises on all active banking activities, except for debt securities and other financial instruments in the trade book of bank;;

17) culture of risk management - respect for the principles determined by bank, rules, regulations of bank directed to knowledge of all employees of bank on acceptance of risks and risk managements;

18) risk limit - the restrictions set by bank for control of size of risks to which the bank during the activities is exposed;

19) the modified duration - the indicator reflecting influence of change of yield to maturity on bond value or other financial instrument with the fixed income;

20) the encumbered assets - assets of bank on which there are no legal, regulatory or operational obstacles for provision them as pledge for attraction of financing or sale to other party;

21) dormant assets - the assets of bank determined as the unemployed according to requirements of the Provision No. 351;

22) operational risk - probability of emergence of losses or additional losses or short-reception of the planned income owing to shortcomings or mistakes of the organization of internal processes, intentional or unintentional actions of employees of bank or other persons, failures in work of information systems of bank or as a result of impact of external factors. The operational risk includes legal risk, however shall exclude risk of reputation and strategic risk;

23) camber (convexity) - the indicator characterizing sensitivity of duration of the bond or other financial instrument with the fixed income to change of yield to maturity also specifies influence of interest rates on current value of the bond or other tool with the fixed income;

24) transfer of risk - transfer by bank of the responsibility for risk to other persons for remuneration with preserving the existing risk level;

25) presettlement risk (Pre-Settlement Risk) - probability of emergence of losses or additional losses, or short-receptions of the planned income owing to default of the partner under the agreement prior to accomplishment of the obligations of the either party of the agreement;

26) division on risk management - the division headed by the chief risk manager or the division(s) headed by the head(s) of division(s) is also subordinated to the chief risk manager who, (which) provides (yut) accomplishment of the functions on risk management determined by the legislation of Ukraine and this Provision;

27) division of control of observance of regulations (komplayens) - the division headed by the chief komplayens-manager or the division(s) headed by the head(s) of division(s) is also subordinated to the chief komplayens-manager who, (which) provides (yut) accomplishment of the functions on management of komplayens-risk determined by the legislation of Ukraine and this Provision;

28) risks mitigation - complex of the actions directed to reduction of probability of emergence of risk and/or reduction of influence of risk by results of activities of bank;

29) acceptance of risks - content of risks at the level which is in limits of the risk exposure (risk appetite) determined by bank and does not create threat for interests of investors and other creditors, owners of bank and financial stability of bank;

29-1) troubled assets - the term are applied in the value determined in the Regulations on the organization of process of management of troubled assets in banks of Ukraine approved by the resolution of Board of the National Bank of Ukraine of July 18, 2019 No. 97 (with changes) (further - No. Provision 97);

30) risk profile - assessment of the general sensitivity level of bank to risks (before taking measures to risk minimization) or residual vulnerability to risk (after application of measures for risk minimization) in aggregative type and by all types of risks, carried out for certain date based on the current or forecast assumptions;

31) interest risk of the bank book - probability of emergence of losses or additional losses or short-reception of the planned income owing to influence of adverse interest rate realignments on the bank book. The interest risk of the bank book influences economic capital cost of bank and net interest income of bank;

32) risk - probability of emergence of losses or additional losses or short-reception of the income or failure to carry out of contractual commitments by the party owing to influence of negative internal and external factors;

33) risk appetite (tendency to risk) - cumulative size by all types of risks and separately on each of the risks determined in advance and within admissible risk level on which the bank made the decision on feasibility/need of their content for the purpose of achievement of its strategic objectives and accomplishment of the business plan;

34) country risk - probability of emergence of losses or additional losses or short-reception of the income owing to influence on activities of the debtor partner of adverse conditions in economic, social, political spheres of other country;

35) liquidity risk - probability of emergence of losses or additional losses or short-reception of the planned income owing to insolvency of bank to provide financing of growth of assets and/or accomplishment of the obligations in proper terms;

36) risk of reputation - probability of emergence of losses or additional losses or short-reception of the planned income owing to adverse perception of image of bank by clients, partners, shareholders, supervisory and monitoring bodies;

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