The social development bank in Europe

Risk Management and Control Framework

Objective

The primary purpose of risk management is to ensure the Bank’s long-term financial sustainability and operational resilience while enabling the CEB to fulfil its social mandate. In striving to implement international best banking practices, the Bank promotes sound and prudent risk culture across all its business lines. 

Framework

Risk management at the Bank is based on a well-established and prudent Risk Management Framework through strong governance, policies, procedures, limits and controls that provide the CEB with the appropriate tools to identify, assess, monitor, report, mitigate and control risks throughout the Bank. While the Bank is not subject to member states’ regulations, it considers the European Union Directives on banking regulation and the recommendations from the Basel Committee on Banking Supervision as the reference for its Risk Management Framework. 

The Bank’s risk and control policies are based on international best banking practices and validated by internal committees composed of CEB’s senior management members and ultimately approved by the Bank’s governing bodies. 

The Bank continuously reassesses its Risk Management and Control Framework to ensure that it is able to fulfil its objective. 

In June 2016 the Bank adopted the new financial and risk policy, including adjustments of its prudential framework ratios. The key changes concern the interest rate risk through a balance sheet approach, the liquidity risk with a liquidity curve approach and the credit risk with the internal rating becoming the reference for the treasury activity. 

Recently, the Administrative Council has approved the CEB Risk Management Charter, a high level document which serves as a comprehensive tool to define the core principles of risk management governance and which enshrines the prudent approach that has always characterised the CEB.

Organisation

The Directorate for Risk and Control (R&C) is responsible for implementing the Risk Management Framework within the CEB and is independent from other operational and business directorates, reporting directly to the Governor. The departments within the Directorate for R&C are dedicated to specific risk areas: credit, operational risk, financial transactions, derivatives and collateral management. The Asset & Liability Management (ALM) Department in the Finance Directorate is in charge of market risk management (interest and currency exchange rates) as well as the liquidity risk incurred by the Bank. 

The Bank has set up decision-making committees, chaired by the Governor, in charge of defining and overseeing the Risk Management Framework.

  • The Regular Credit Risk Committee (CRC) meets on a weekly basis and takes credit decisions in relation to lending and treasury exposure, based on internal credit risk assessments and recommendations. In addition, a Special CRC meets on a monthly basis to cover topics of particular issues with an extended composition.
  • The Asset & Liability Committee (ALCO) meets on a monthly basis and formulates strategic orientations and addresses, on a forward-looking basis, interest rate, foreign exchange rate and liquidity risk throughout the balance sheet. In addition, on a quarterly basis, a “Special ALCO” addresses ALM and funding issues.
  • In addition, capital market information is provided to the weekly General Management Committee.
  • The Committee for Operational Risks & Organisation reviews operational risk issues at the CEB on a semi-annual basis and ensures that adequate steps are taken to mitigate, monitor and control these risks.
  • The IT Steering Committee reviews information systems issues and takes the appropriate actions to ensure operational resilience and business continuity.

Controlling bodies

  • Internal Audit and Compliance: these entities, with their respective accountabilities, complement the internal control framework set up by the CEB
  • Auditing Board: composed of three representatives from among the member states appointed on a rotating basis by the Governing Board for a three-year term (outgoing members act as advisors for an additional year), the Auditing Board examines the Bank’s accounts and checks their accuracy. The Auditing Board’s report, an excerpt of which is appended to the financial statements, is presented to the Bank’s governing bodies when the annual financial statements are submitted for approval.
  • External Audit: appointed by the Governing Board for a four-year term and renewable once for a three-year term, following a tender procedure, based on the Auditing Board’s opinion and recommendations by the Administrative Council. The External Audit is responsible for auditing the Bank’s financial statements according to IFAC professional auditing standards and for reviewing its internal control and risk management processes. The external audit drafts various reports, including the opinion report.
In addition, the Bank is assessed by three international rating agencies: Fitch Ratings, Moody’s and Standard & Poor’s, which perform in-depth analyses of the Bank’s financial situation and long-term creditworthiness, as part of their rating assignment.