Swiss Bankers Association Risk Management Guidelines for Trading and for the Use of Derivatives

Transcript

1 Swiss Bankers Association Risk Management Guidelines for Trading and for the Use of Derivatives Associazione svizzera dei banchieri Direttive applicabili alla gestione del rischio nell ambito commerciale (trading) e dell utilizzo di derivati SCHWEIZERISCHE BANKIERVEREINIGUNG ASSOCIATION SUISSE DES BANQUIERS SWISS BANKERS ASSOCIATION

2 Swiss Bankers Association Risk Management Guidelines for Trading and for the Use of Derivatives (Translation) 1

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4 Contents Page Introduction 5 I. Risk Management Principles 7 1. Risk Policy 7 2. Risk Identification and Measurement 8 3. Internal Control Systems 9 II. Valuation Valuation 10 III. Risk Measurement and Limitation Separation of Trading and Asset and Liability Management Market Risks in Trading Liquidity Risks Credit Risks Resulting from Trading and Derivatives Positions Operational Risks Legal Risks Stress Simulation 17 IV. Information Disclosure Principles 18 Effective Date 19 Glossary 21 3

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6 Introduction The present guidelines are designed to support banks in formulating directives for risk management. They apply to all banks active in trading with financial instruments, irrespective of whether the traded products are derivatives or not. They also apply to banks that use derivatives for asset and liability management. The purpose of these guidelines is not to establish a single set of risk management directives for members of the Swiss Bankers Association. It is left up to the individual banks to decide how to implement the guidelines in the most appropriate manner, in light of the risks that are relevant for each institution. The methods employed and the degree of detail of internal directives should be determined in accordance with the volume of trading and the extent of activities in derivatives, i.e. should be adequate for the risk exposure. If a banking group combines subsidiaries and branches in Switzerland and abroad into more than one risk management entity (overall bank), then in addition the overall risk management has to be performed on the group level. The principles which would apply in these instances are not contained in these guidelines; their establishment is the responsibility of the individual bank s board of directors in conjunction with the controlling and supervisory bodies of the individual banking group. The definitions as given in the glossary only are valid for the terms used in these regulations. 5

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8 I. Risk Management Principles 1. Risk Policy Recording, managing and limiting the risks resulting from trading and from the use of derivatives is a primary management task. Executive management formulates risk policy, which is approved and periodically assessed for its appropriateness by the board of directors. Executive management issues directions for the implementation of risk policy. These must specifically ensure that all risk is exclusively assumed by authorized persons. Limits must be established for all risks that are relevant to the bank. All persons that are entrusted with risk management must possess the necessary technical knowledge. Comments: The importance of risk management has increased with the introduction of new products, be it because it has become easier to assume risk, or because today many instruments are available for risk management. Risk management issues, particularly the formulation and the regular review of policy, are a primary management task. Risk policy should be part of general company policy. Specialist knowledge has to exist at both board of director and executive management levels and to appropriate degrees with line management. Periodic assessment of risk policy can be delegated by the board of directors to a committee. Remuneration systems can create incentives which make risk management more difficult. For this reason, performancerelated personnel salary systems require appropriate risk controls. 7

9 Comments: Risk management must be developed as a permanent process. Risk management requirements are to be documented in writing. Particular importance has to be given to expertise, systems and the organs of the bank entrusted with special risk management tasks. The activities required by these guidelines have to be adequately resourced. EDP systems must be consistent with the complexity of the financial products and their risks. The executive board must be informed periodically about the bank s overall risk position. It has to be ensured that the assessment of the overall risk situation includes all relevant information in a manner that is understandable and adequate at the different management levels. The standards of risk measurement have to be known at all levels of the bank. Moreover, provisions have to be made such that in extraordinary situations, the necessary decisions can be made rapidly and effectively, and appropriate measures can be taken. Before new products are traded or trading strategies are substantially changed, markets, business strategies and the functions of products must be understood, estimates on required resources and expected revenues made, and the risks involved analyzed. Each line manager should receive information on all risks involving his unit as periodic management information. In addition, it is recommended that profits and losses be analyzed and broken down into their constituent parts (price change, transaction result). Risk and return are linked and therefore must not be assessed separately. The board of directors is to be informed periodically about the overall risk situation Risk Identification and Measurement The identification of risks and their integration in risk-management and risk-reporting systems are to be recognized as permanent tasks and the functional responsibility of a member of the executive board. The measuring procedures should be designed adequately and should allow risk aggregation up to the overall bank level.

10 3. Internal Control Systems Compliance with internal instructions is controlled by units that are independent from trading. Organizational measures must ensure segregation of duties as well as an independent reporting line. Comments: Control, as part of the internal control system (ICS), must be performed by professionally qualified persons who do not report to trading, i.e. they must be independent from persons that assume risk positions. 9

11 II. Valuation 4. Valuation Trading positions are to be valued at least once daily on the basis of uniform criteria and market data. Profit and loss is to be calculated daily. Positions in derivatives, that are not part of the trading books, are to be valued at least periodically on the basis of market data and models that account for the specific characteristics of the business. Comments: Risk management requires the valuation of transactions and portfolios. The valuation together with realized cash flows (including possible financing cost) allow the economically correct determination of profit and loss. By this means, value changes due to market movements become immediately transparent. Valuations are to be standardized per type of position. To submit the effectiveness of the hedging measures to the market test, market valuations have to be done irrespective of the accounting treatment. The position values have to be adjusted for specific market and product features (e.g. market liquidity, position size). Daily valuations of trading positions are imperative; intra-day valuations may also be required depending on the market situation. If models are used for valuations (relevant in OTC business), the necessary updated parameters (volatility etc.) are to be procured from sources independent from trading. In addition to the assumptions and parameters used, the models should also be reviewed periodically (model risks). To identify quickly hedging gaps in derivatives positions, diverging market values of risk-producing transactions and hedging transactions, as well as erroneous valuations of a general kind, the risk-producing transactions and hedging transactions should be subject to one standardized valuation method. Again, any applied models are to be reviewed critically in order to avoid risk management failures as much as possible. 10

12 III. Risk Measurement and Limitation 5. Separation of Trading and Asset and Liability Management In terms of both operational responsibility and profit and loss measurement, trading portfolios must be clearly separated from the activity of managing the balance sheet structure. Comments: Clear separation is required between asset and liability management and trading activities. Evidence of this should include a clear segregation of duties and a separate allocation of limits. The risks and the profit and loss also have to be reported separately. In view of their similarity, trading risks and balance sheet risks should be aggregated at a higher level. In the accounting, a clear distinction has to be made between trading transactions, investment transactions (strategic positions) and balance sheet management. Profits resulting from the balance sheet management must be accounted for separately from trading profits. 11

13 6. Market Risks in Trading Limits are to be established for market risks. Risks are to be measured at least once a day on the basis of recognized methods; they are to be reported, controlled and periodically aggregated at the overall bank level. Comments: Positions in trading business have to be managed on a continuous basis. Measuring procedures and methods should be based on the best market practice. In addition, the models are to be checked periodically (using, for instance, the backtesting procedure). No trading should occur without correct measurement and representation of the risks of an instrument or product. Besides sensitivities and simulation calculations within a risk class, professional market participants should also implement cross-product approaches that serve specifically for aggregation purposes, provided these approaches are statistically sound. Recommended approaches include the value-at-risk method (statistical description of the portfolio risk) or similar, scenario-based approaches. 12

14 7. Liquidity Risks Suitable measures are to be adopted to take account of the risk of inadequate market liquidity in trading products. Comments: To provide for inadequate market liquidity, controls have to be applied to the relative share of the volume of individual issues, the absolute position size or the amount of the tolerable loss. Specific market liquidity risk has to be taken into account by means of value adjustments in profit and loss calculations. Funding risks are to be clearly distinguished from market liquidity risks which need to be taken into account in liquidity management. 13

15 8. Credit Risks Resulting from Trading and Derivatives Positions All credit risks resulting from trading and derivatives positions have to be measured, aggregated and periodically shown as overall exposure by counterparty and country on a consolidated basis. Comments: Transactions on markets without variation margins (especially in OTC trading) generate considerable implicit credit exposure, in particular, in forward contracts and swaps but also for long positions in options. Financial models permit these implicit credit exposures to be valued. Gross and net replacement values as well as their potential increase over time (e.g. by use of add-ons) can be quantified. The settlement risk, which from a risk point of view occurs at the conclusion of the transaction, has to be taken into account. Attention has to be paid to reducing credit risk (netting contracts, enforcing collateral). Recognized methods have to be applied to determine credit risks. The above-mentioned techniques (replacement values and the consideration of potential increase over time) are recommended together with simulation techniques. Credit risks are to be aggregated from trade and derivatives positions per counterparty and shown in connection with the limits. A further aggregation of credit risk is recommended (Federal Banking Commission) and is also partly required by the law. 14

16 9. Operational Risks Operational risks are to be limited by a suitable operational organization as well as integrated systems procedures. Comments: Organizational measures should be focused on establishing a suitable structure and procedures, segregation of duties as well as built-in systematic controls (See also guideline No. 3). Integrated EDP and automated procedures help to reduce error sources effectively. 15

17 10. Legal Risks Legal risks resulting from trading and from the use of derivatives should be controlled by means of appropriate documentation. Market-customary, standard master-agreements should be used if possible. Comments: Knowledge of the legal and economic environment of the counterparty constitutes the foundation for efficient legal risk management. Primarily in international business, the issues of (a) a binding contract and (b) the enforceability and netting of obligations from contracts are a matter of high priority. 16

18 11. Stress Simulation In order to be prepared for potentially extreme situations, additional analyses are to be performed regularly. Comments: Stress tests on an overall bank level should be performed to calculate potential extreme losses. Results should be evaluated with a view to taking appropriate measures. The emphasis of these stress analyses, which are based on economically and politically plausible scenarios, is on market risks. Sensitivity tests, such as the value-at-risk method, simulate small market movements in a stable environment. Strategically-relevant risks based on exceptional market movements require more comprehensive stress analyses. 17

19 IV. Information 12. Disclosure Principles Qualitative and quantitative information separated into credit and market risks is to be produced periodically and integrated into the notes of the annual report in suitable form. Adoption of internationally-accepted standards is recommended. Comments: Quantitative data has to be complemented by a qualitative description of methods and assumptions used in measuring risk. If market risk information is disclosed using for instance the value-at-risk concept, the underlying confidence interval, the observation period, the holding period as well as the aggregation method should be indicated. Credit risk information should include gross replacement values, contract values as well as the credit equivalent or the add-on, whereby the exposure is classified by counterparty quality and, if possible, contract maturity. Net replacement values may only be reported if there are legally enforceable netting agreements in place. 18

20 Effective Date The board of directors of the Swiss Bankers Association passed these Guidelines on January 31, They are effective as of July 1, If the risk management does not comply with the Guidelines, risk management and internal directives have to be adjusted to reflect the regulations without delay, otherwise the activity in question is to be restricted or abandoned altogether. Basel, January 31,

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22 Glossary Add-on Allowance for future potential credit risk during the remaining life of a contract. Backtesting Method for retrospectively testing the forecasting quality of a model. The validation analysis for value-at-risk models is carried out by comparing actual daily profit and loss figures with the computed daily value-at-risk figures. If profit and loss exceeds the value-at-risk more frequently than would be statistically predicted, the model is shown to underestimate risk. Balance sheet risks Interest and currency risks resulting from disequilibria in the balance sheet (including off-balance sheet positions). Credit equivalent An amount comparable to a loan which, during the life of a contract, a bank has as a receivable from a counterparty. It includes the present value of the contract and the potential value resulting from future market movements. Credit risk Possibility of default of a counterparty during the life of a loan. Or, the distribution of defaults within a particular credit-quality category around a long-term average. Derivatives Instruments whose values are derived from the values of underlyings (securities, currencies, commodities, etc.) or reference rates (interest rates, exchange rates indices, etc.). A basic distinction is made between futures (forwards, futures, swaps) and options. Forward contract Contract in which the date of transaction and that of settlement are not the same. 21

23 Funding risk Risk of default on payment. Hedging gaps Incomplete coverage of hedged positions. Hedging transaction Transaction to reduce the risk of an individual position or portfolio. Implicit credit exposure Credit risks which do not arise directly from issuing loans but which result from entering into transactions in financial instruments (in particular OTC derivatives). Internal risk control Units of the bank which measure, aggregate and report risks (also profit and loss) with the support of systems and processes and which enforce compliance with risk limits. Legal risks The danger inherent in the legal peculiarities of the country of the counterparty that contractually agreed claims are not recognized either because the counterparty was not authorized to enter into such an agreement, or because the contract was later discovered to be inadequate or because the financial instrument violated the provisions of the applicable law. Managing the balance sheet structure (asset and liability management) Management of all asset and liability positions on the balance sheet as well as all off-balance sheet positions in terms of interest and currency risks (excluding trading positions). Market liquidity risk Risk that an instrument to be delivered (received) cannot or can only be acquired (sold) partially or with large price concessions. 22

24 Model risks Valuations of derivatives require the use of models which constitute a risk dimension in themselves, since in certain circumstances the values and market risks computed by the model may only partially reflect real market conditions. The inherent risk is that decisions are based on model information which can later prove to be erroneous and costly (resulting in a loss). Netting Setting off between counterparties, on the basis of bilateral or multilateral contracts, of mutual payment obligations on expiry date, or in the case of default of a counterparty of unrealized profits and unrealized losses. Operational risk Risk arising from human error or from inadequate operating systems. Option The right to buy or sell a specified amount of a particular underlying instrument at a set price during a delimited time period or on a defined day. Over-the-counter (OTC) business Trade in non-standard financial instruments. In general, the counterparties decide all details of the transactions or agree to certain standardized market conventions. Overall bank A bank, including its domestic and foreign branches as well as its subsidiaries, which are grouped into a single entity for risk management purposes. The grouping may not conflict with the purpose of achieving adequate risk management. Replacement value Market value of open positions at a particular point in time. 23

25 Risk limits Quantitative limits setting the extent to which risk can be assumed for particular positions. Sensitivity Degree of value change resulting from defined price and/or interest rate changes. Settlement risk Risk that the counterparty does not fulfil its obligation in the settlement of a transaction. Stress simulation Process of simulating revaluation of trading positions on the basis of different scenarios. Scenarios generally replicate extreme historical events, or construct possible future events or extraordinary economic and political conditions. The process detects one-sided, potentially costly risk exposures. Swap Combination of purchase and sale contracts whose settlement dates do not coincide. Trading position Own positions in financial instruments which are entered into with the intention of making a short-term profit from real or expected differences in purchase and sale prices, or in order to hedge other elements of the trading inventory, or for a resale in the short term, or which are held for the purpose of making a transaction with a customer. Trading risks Potential losses (or profits) resulting from price movements and value changes on positions of the bank which are not completely hedged. 24

26 Value-at-risk Measure of the potential value change of a (trading) portfolio given certain assumptions regarding the factors determining value change of the portfolio (market prices, volatilities, correlations). Volatility Measure of the price variability of an instrument. 25

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28 Associazione svizzera dei banchieri Direttive applicabili alla gestione del rischio nell ambito commerciale (trading) e dell utilizzo di derivati (traduzione)

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30 Introduzione Pagina I. Principi relativi alla gestione del rischio Politica di rischio Identificazione e misurazione dei rischi Controllo interno dei rischi 36 II. Valutazione Valutazione 37 III. Misurazione e contenimento dei rischi Separazione tra la gestione della struttura di bilancio e l attività commerciale (trading) Rischi di mercato nell ambito commerciale (trading) Rischi di liquidità di mercato Rischi di credito sulle posizioni commerciali e in derivati Rischi operativi Rischi giuridici Simulazione di situazioni estreme («stress simulation») 45 IV. Informazione Principi relativi all informazione 46 Entrata in vigore 47 Glossario 49 29

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32 Introduzione Queste direttive si prefiggono di assistere le banche nel processo di elaborazione di regole interne concernenti la gestione del rischio. Esse si applicano a tutte le istituzioni attive nel commercio sia esso di derivati o meno e alle istituzioni che utilizzano i derivati nel quadro della gestione della struttura di bilancio. Queste direttive non hanno per obiettivo una gestione uniforme del rischio in seno alle banche membre. Gli istituti restano liberi di trasporre le direttive nella forma a loro più confacente, specialmente per ciò che concerne gli adattamenti concreti ai rischi principali corsi da ciascun istituto. La scelta dei metodi e del grado di precisione delle regole interne deve essere effettuata in funzione della situazione particolare, e cioè in funzione dei rischi corsi. Se in seno a un gruppo bancario, ai fini della gestione del rischio, alcune filiali o succursali svizzere o estere sono raggruppate (cfr. glossario «livello globale banca»), la gestione globale del rischio deve inoltre essere regolamentata a livello del gruppo. I principi determinanti a questo riguardo non sono oggetto delle presenti direttive. La loro fissazione è compito dell organo per la direzione superiore, la vigilanza e il controllo. I termini tecnici utilizzati nelle presenti direttive sono precisati in dettaglio nel glossario. 31

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34 I. Principi relativi alla gestione del rischio 1. Politica di rischio La determinazione, la gestione e la limitazione dei rischi legati al commercio e all utilizzo di derivati è un compito inalienabile dell alta Direzione. La direzione fissa la politica di rischio. L organo per la direzione superiore, la vigilanza e il controllo l approva e ne riesamina periodicamente la conformità. La direzione emana le prescrizioni necessarie alla sua esecuzione. Queste prescrizioni devono prevedere in modo particolare che ogni assunzione di rischio venga decisa unicamente dal personale autorizzato. Si devono fissare limiti per ogni rischio che sia giudicato essenziale per la banca. Tutte le persone preposte alla gestione del rischio devono disporre delle conoscenze specifiche richieste in quest ambito. Commento: Lo sviluppo di nuovi prodotti finanziari, il loro facile accesso e lo sviluppo di nuove tecniche e modelli di gestione e di misura dei rischi, hanno aumentato l importanza della gestione del rischio. Le questioni legate alla gestione del rischio, in particolare la determinazione e il controllo regolare della politica di rischio, costituiscono così un compito importante di direzione. La politica di rischio deve essere parte integrante della politica aziendale globale. Le competenze professionali sono richieste a ogni livello gerarchico, dall organo per la direzione superiore, la vigilanza e il controllo, al Comitato di banca, alla direzione fino al fronte. L organo per la direzione superiore, la vigilanza e il controllo può delegare a un Comitato il compito di adottare e di riesaminare periodicamente la politica di rischio. Il sistema di remunerazione del personale può creare degli incentivi che possono rendere difficoltoso il rispetto dei principi di gestione del rischio. Perciò sistemi basati sui risultati economici devono contemplare pure il controllo dei rischi impliciti. 33

35 2. Identificazione e misurazione dei rischi L identificazione dei rischi e la loro integrazione nei sistemi di gestione e di informazione devono essere posti sotto la continua responsabilità di un membro della direzione che abbia le necessarie conoscenze professionali. Le procedure di misurazione dei rischi devono essere concepite in modo appropriato e devono permettere l aggregazione dei rischi a livello globale banca. Commento: La gestione del rischio deve essere sviluppata come processo permanente. La gestione del rischio deve essere oggetto di una documentazione scritta. Un importanza appropriata deve essere assegnata alle competenze professionali, ai sistemi e agli organi incaricati di compiti speciali. Devono essere assicurate le risorse necessarie allo svolgimento dei compiti previsti dalle direttive. I sistemi informatici devono essere adattati alla complessità dei prodotti finanziari e dei rischi impliciti. La Direzione deve essere informata regolarmente sulla situazione globale di rischio della banca. Si deve garantire che il reporting contenga tutti i dati significativi per un apprezzamento globale del rischio in una forma accessibile e comprensibile a tutti i livelli. Gli standard di misurazione dei rischi devono essere conosciuti a tutti i livelli. Inoltre si devono creare le premesse affinché in caso di situazioni straordinarie sia possibile prendere le opportune decisioni ed applicare le misure corrispondenti in modo veloce ed in linea con gli obiettivi. Prima di sviluppare il commercio di nuovi prodotti oppure prima di procedere a modifiche importanti della strategia commerciale, la banca deve assicurarsi di capire a fondo i mercati, le funzioni dei prodotti e le strategie commerciali. Si deve eseguire una stima delle risorse necessarie e degli utili attesi; i rischi devono essere analizzati. Ogni responsabile del fronte dovrebbe essere informato periodicamente sui rischi concernenti la sua unità. Inoltre si raccomanda di analizzare gli utili e le perdite distinguendoli nelle 34

36 loro componenti (variazione di corso e risultato della transazione). Rischio e utile sono strettamente collegati tra di loro e di conseguenza non possono essere valutati separatamente. L organo per la direzione superiore, la vigilanza e il controllo deve essere informato regolarmente sull insieme dei rischi corsi dall istituto. 35

37 3. Controllo interno dei rischi Il rispetto delle prescrizioni interne è sorvegliato da unità indipendenti dal settore commerciale. In modo particolare, la separazione delle funzioni e un «reporting» indipendente devono essere garantiti per mezzo di misure organizzative. Commento: Questo controllo in quanto parte costituente del sistema interno di controllo deve essere affidato a persone che dispongono delle qualifiche necessarie e che sono gerarchicamente indipendenti dal settore commerciale: in altre parole il controllo deve essere affidato a persone indipendenti da quelle all origine delle posizioni a rischio. 36

38 II. Valutazione 4. Valutazione Le posizioni commerciali devono essere valutate almeno una volta al giorno, secondo criteri uniformi e sulla base dei dati di mercato. Utili e perdite devono essere stabiliti giornalmente. Per quanto riguarda le posizioni su derivati non contabilizzate nel libro di trading, è perlomeno necessario procedere ad una valutazione periodica basata su dati di mercato e modelli che tengono in considerazione le caratteristiche dell operazione. Commento: La gestione del rischio presuppone la valutazione delle transazioni e dei portafogli. Questa valutazione, assieme ai pagamenti ricevuti ed effettuati (compresi gli eventuali costi di finanziamento), permette di stabilire gli utili e le perdite in modo corretto da un punto di vista economico. Modifiche di valore causate dalle fluttuazioni di mercato diventano immediatamente visibili. Ogni tipo di posizione deve essere valutata secondo criteri uniformi. Indipendentemente dalla registrazione contabile, e al fine di controllare l efficacia delle misure di copertura, devono essere effettuate rivalutazioni ai prezzi di mercato. Se del caso, il valore delle posizioni deve essere corretto in funzione delle specificità del mercato e dei prodotti (per esempio la liquidità di mercato, l importanza delle posizioni, ecc.). Le posizioni commerciali devono essere rivalutate giornalmente; a seconda della situazione di mercato può rivelarsi necessario procedere ad una valutazione nel corso della giornata lavorativa. Se per valutare le posizioni si utilizzano dei modelli (in particolare nel campo delle operazioni OTC), i parametri necessari (volatilità, ecc.) devono essere ottenuti da fonti indipendenti. Oltre alle ipotesi e ai parametri utilizzati, anche i modelli devono essere riesaminati periodicamente (rischio di modello). 37

39 Al fine di identificare rapidamente eventuali lacune nella copertura delle posizioni in derivati, differenti evoluzioni del valore di mercato delle posizioni base rispetto alle transazioni di copertura, così come errori di valutazione di natura generale, la posizione di base e la transazione di copertura devono essere sottoposte ad una valutazione uniforme. A questo proposito i modelli utilizzati devono essere riesaminati con spirito critico, in modo da evitare nella misura del possibile un orientamento errato nella gestione del rischio. 38