MethodologicalControl, FinancialRisks
The importance of methodological control for regulatory compliance
Global financial crises, such as the 2008 crisis, have left an indelible mark on the global financial system, highlighting deficiencies in risk management practices and the lack of clear laws governing the banking sector.
In response to these events, financial regulation has evolved significantly, increasing the need for robust methodological controls to ensure current regulatory compliance.
What is methodological control?
Methodological control refers to a series of procedures and techniques established by financial entities to identify, assess and mitigate financial risks in accordance with current regulations.
How can we achieve good methodological control?
A sound control methodology not only helps a company comply with regulations, but also allows it to anticipate and respond to risks more effectively, achieving, among others, the following advantages:
- Efficient and effective operations.
- Risk identification, assessment, and mitigation.
- Reliable financial information.
- Robust administrative and accounting procedures.
Basilea III: the path to a sound financial system
The Basel Accords have evolved significantly since their inception, with 2010 marking a pivotal moment for the agreement reached in the wake of the 2008 financial crisis, which led to the third version (Basel III).
This version of the Accords aims to strengthen banks’ resilience by increasing capital requirements, improving capital quality, and introducing new minimum liquidity requirements, in addition to more effective risk management.
In accordance with the new measures, institutions must accurately assess and report their risks, which requires valuation methodologies that adequately reflect credit risk, market risk, and operational risk.
Therefore, we can say that methodological control becomes a key tool to ensure that institutions comply with the established requirements and, at the same time, effectively manage the associated risks.
EMIR REFIT: a major step towards transparency in the derivatives market
With the new EMIR Refit update, in addition to regulating derivatives and requiring clearing and reporting of transactions, the objective is to improve the quality of reported data and increase its standardization, thereby achieving greater transparency and reducing risks.
This means that institutions must have robust valuation methodologies to determine the market value of derivatives and accurately calculate margin requirements. Effective methodological control ensures that these valuations are accurate, which is essential for complying with regulatory requirements.
Efficient solutions in risk control and regulatory compliance
At ARENA, we have professionals who are constantly training and have expertise in banking regulations, focused on establishing efficient methodologies for risk management in financial institutions.
Furthermore, we have the necessary resources to update, optimize, and automate all internal control processes.
