Enterprise Risk Management (Preview)

Chapter 1 – Risk Management Awareness 41 APPENDIX 1B - INTERNATIONAL GUIDELINES The International Organization of Securities Commissions (IOSCO) located in Spain develops, implements and promotes adherence to internationally recognized standards for securities regulation. The members of the IOSCO are regulators from over 100 countries, including the United States and Canada. These members cooperate to promote high standards of regulation, and to exchange information about their experiences in domestic markets. They also unite their efforts for the surveillance of international securities transactions, and provide each other with regulatory enforcement support. 58 In 2010, the IOSCO issued principles for information disclosure in the annual and quarterly reports of publicly-traded companies. 59 The principles are not mandatory. They provide guidance on disclosures that should normally be expected. The disclosure principles include information relating to board member independence, audit committee responsi- bilities, executive compensation, risk factors relating to operations, and market risks associated with derivative instruments. The principles also include the certification of financial information, and the certification of internal controls over financial reporting. The laws and regulations adopted in the United States and Canada for publicly-traded companies are consistent with the IOSCO principles. The Basel Committee on Banking Supervision (Basel Committee) located in Switzerland provides an international forum for the coordination of bank regulation and supervision. Its mandate is to strengthen the regulation, supervision and practices of banks worldwide, with the purpose of enhancing financial stability. 60 Members of the Basel Committee include central banks and government entities that are responsible for supervising banks. Approximately thirty of the most industrialized countries are represented on the committee, including the United States and Canada. In response to the financial crisis, the Basel Committee introduced revised standards known as Basel III. These standards were announced in 2010, began to take effect in 2013, and were implemented in phases until 2019. The Basel III standards are intended to enhance the capital and liquidity of banks, strengthen their governance and risk management practices, and improve their operational transparency and information disclosure. The Basel III standards are adopted by member countries on a voluntary basis. The Basel Committee standards for governance propose that a distinct risk committee should be established for large or complex financial services organizations. The standards also mention that compensation should be aligned with organizational performance and risk taking, and that the chair of the board should be independent from management. In addition, the standards promote that the board of directors is responsible for overseeing the integrity and effectiveness of policies and procedures for whistleblowing. According to the standards, a distinct risk management function should coordinate and oversee the risk management activities of the other management functions and business units. Moreover, the risk management function should be independent from the other organi- zational functions and units, and have direct access to the board, or to a risk committee of the board. 61 The laws and regulations applicable to banks in the United States and Canada are consistent with Basel Committee standards.