Risk management activities are positioned within the ASF on two parallel but functionally related organisational levels, as follows:
From a micro-prudential point of view, risk management aims to monitor risks that may affect the soundness of supervised entities. It is worth noting that as these entities operate in a competitive environment, they can legitimately take risks. The ASF does not aim to eliminate all risks from the system (due to the prohibitive costs of such an approach), and supervised entities may face financial difficulties that may even lead to their bankruptcy or exit from the market. In such cases, it remains particularly important to ensure an orderly exit from the market of the entity concerned and to protect the interests of the financial consumers affected (investors, policyholders and participants in private pension funds).
From a macro-prudential point of view, risk management aims to monitor risks that may affect the stability of non-bank financial markets and to limit the costs arising from difficulties encountered throughout the financial system. However, macro-prudential risks can only be adequately monitored in an integrated manner, as risks can accumulate system-wide while individual entities may still appear sound. The monitoring of macro-prudential risks also takes into account the collective behaviour of supervised entities and the (unanticipated) side effects of changes in the regulatory framework and in the way supervision of non-bank financial sector entities is conducted.
The main objective of risk management activities is to develop and administer the overall framework through which the FSA acts for prudential supervision in the insurance, private pension and financial instruments and investment sectors.
The main risk management activities are carried out by:
identify and assess trends and risks in non-bank financial markets to ensure financial stability and confidence of financial services participants and consumers;
identifying systemically relevant non-bank financial system institutions and structures;
developing risk measurement and monitoring methods, quantitative risk management tools, warning systems for major risks in the financial sector and methodologies for testing under extreme market conditions (stress testing);
conducting assessments/simulations/stress tests on the liquidity, solvency or level of prudential financial requirements of entities supervised by the ASF;
developing principles/procedures for the management of a potential financial crisis (including cross-border), as well as developing a common analytical framework for assessing the systemic implications of potential crises, with a view to ensuring a common terminology applicable to financial crises by all relevant authorities and creating the prerequisites for timely assessments to facilitate decision-making in crisis situations;
analysing the local and international macroeconomic context and the impact of macroeconomic factors on non-bank financial markets and developing risk scenarios for them;
analysing, developing, monitoring and reassessing macro-prudential policy elements within the remit of the ASF, including on intermediate objectives and related macro-prudential policy instruments, in collaboration with the organisational structures within the ASF with supervisory responsibilities;
coordination of supervision based on a forward-looking risk-based approach across all sectors of the ASF.