Rule on Investments, Securities, and Derivatives Risk Management for Banks

Summary

This is a short CIMA rule, dated November 2006, that sets binding requirements for how banks manage risk arising from investments, securities, and derivatives activities. It was issued under section 34 of the Monetary Authority Law (2004 Revision), which allows CIMA to issue rules governing licensee conduct after private sector consultation and Governor approval. The rule applies to all banks regulated by CIMA under the Banks and Trust Companies Law (2003 Revision), and it should be read together with CIMA's related Statement of Guidance on Investments, Securities and Derivatives, which provides more detailed guidance on meeting the rule's requirements.

• Board-approved framework: Banks must have board-approved strategies, policies, and procedures for managing investment, securities, and derivatives risk that are proportionate to the size, complexity, and nature of their business.
• Risk management: Banks must actively measure, monitor, and control the associated risks.
• Enforcement: Breaches of the rule are handled under CIMA's Enforcement Manual and other powers available under the Banks and Trust Companies Law and Monetary Authority Law.

The document is brief (two pages) and does not contain specific filing deadlines or transitional periods; it is a standing conduct-of-business rule rather than a one-off notice, so its obligations are of a continuing nature effective from issuance.

Key obligations

• A bank must establish, implement, and maintain strategies, policies, and procedures for investments, securities, and derivatives risk management appropriate to the size, complexity, and nature of its activities, creating an appropriate investment management process.
• Such strategies, policies, and procedures must be approved by the bank's board of directors.
• A bank must take necessary steps to measure, monitor, and control the risks associated with its investments, securities, and derivatives business.
• Banks should read and apply this rule in conjunction with the related Statement of Guidance on Investments, Securities and Derivatives.

Applies to

banks