Top 10 risk news, July 15, 2013

When Australian supervisors speak about American number plates ... we have a great speech:

"The centrepiece of the story can be summed up by just six letters embossed on a personalised number plate:

"FUND EM" was written on the number plate of a car belonging to Angelo Mozilo, the CEO of Countrywide Financial.

Prior to the Global Financial Crisis, Countrywide Financial was the biggest mortgage originator in the United States.

It's an unusual number plate. What do you suppose it means?

Well, for all intents and purposes, it was a mission statement. It is saying that Countrywide is in the business of providing funds to home borrowers."

David Lewis, General Manager, Australian Prudential Regulation Authority, continues with interesting remarks:

"Many countries define 'supervision' to be the enforcement of prudential rules (capital adequacy, liquidity, large exposures and so forth).

We do not.

To us, 'regulation' can be defined as the application of rules and 'supervision' as the oversight of the effectiveness of a firm's risk management.

The difference is more than merely one of nomenclature; it is one of regulatory mission. At APRA, we do both regulation and supervision.

At APRA, we do not see our supervisory mandate as being constrained by the rules.

To us, a prudential supervisor's mandate extends beyond the rules to ensuring the effective management of risks by regulated institutions - wherever those risks might arise, and regardless of whether or not those risks are described by prudential rules or standards.

A compliance-based regulator stays in the blue circle; a risk-based regulator operates in the pink one."

Interesting!

He continues:

"We are strong believers in 'meta-regulation'.

By this, we mean encouraging regulated institutions to 'internalise' regulatory goals by having in place sound internal risk management and governance processes."

Read more at Number 8 below.