The mandate of financial institutions is to process financial transactions for individuals and businesses, but unfortunately, these institutions are sometimes used for illicit purposes, such as money laundering and terrorist financing. Effective, accurate risk assessment is the foundation of a financial firm’s risk management and regulatory compliance, and there are a number of manual and automated methods available to assess risks. Detecting and acting against suspicious activities is a must for banks today.
Basel Committee on Banking Supervision (BCBS)
The Great Recession produced a number of aftershocks, including a tidal wave of regulations (with the?) intent on preventing the same event from ever happening again. A mismatch between increasingly complex and detailed international standards and ever more uneven implementation by national authorities ensued. Consistent, harmonized adoption of financial standards by all involved is necessary to ensure smooth global processes. Some suggestions are presented in this article.
Shariah Non-compliance Risk in Islamic Banks, and What It Means for Meeting Capital Adequacy Requirements
Islamic banks, which operate according to Shariah principles, are growing rapidly worldwide, claiming billions in assets. IBs appeal to conservative Muslims worldwide because of their adherence to concepts such as profit-and-loss sharing instead of taking interest. But what happens when an Islamic bank fails to fully comply with Shariah rules? One consequence of this risk of loss is that it can limit the bank’s ability to meet capital requirements.
For the 28 jurisdictions that are members of the Basel Committee on Banking Supervision, adopting Basel banking standards is a given. But why are some non-member developing countries embracing the reforms when they don’t have to? The answers vary by country, but the final lesson is that regulators should carefully evaluate the advantages and disadvantages of adopting Basel regulations in whole or in part for their nation’s unique situation.