Document ID: chunk:federal_register_of_legislation:F2022L01576:body:0:p6
Version: federal_register_of_legislation:F2022L01576
Segment Type: other
Provision Reference: 
Character Range: 14447–17670

include the overall characteristics that the ADI would want to achieve in its credit portfolio.
24.         An ADI's credit risk management strategy must consider the sustainability of earnings from its credit risk activities including an acceptable risk/reward trade-off that would factor in cost of capital estimates.

The role of the Board and senior management

Board responsibilities
25.         The Board[5] of an ADI must review and approve, on at least an annual basis, the ADI's credit risk appetite and credit risk management strategy.
26.         The Board must regularly challenge, seek assurance and evidence from senior management that the credit risk policies, processes and practices are consistent with the credit risk management strategy (and, in turn, the credit risk appetite) of the ADI. The Board must obtain sufficient information to confirm whether or not the credit risk profile of the ADI is consistent with the credit risk management strategy, and require senior management to take appropriate and timely action if it is not.
27.         The Board must ensure that senior management of the ADI has the capability and resources to appropriately manage the credit risk activities conducted by the ADI and that such activities operate within the credit risk management strategy, credit risk policies and credit risk appetite.

Senior management responsibilities
28.         Senior management of an ADI must have responsibility for implementing the Board approved credit risk management strategy and for developing and implementing appropriate policies and processes for identifying, measuring, monitoring, reporting and controlling or mitigating credit risk. Such policies and processes must address credit risk in all of the ADI's activities and at both the individual exposure and portfolio levels.
29.         Senior management's responsibility for implementing the credit risk management strategy and for developing and implementing the credit risk policies of the ADI includes ensuring:
       (a)          credit origination, credit assessment and approval activities conform to the established strategy and policies;
       (b)          written processes are developed consistent with the credit risk management strategy and credit risk policies;
       (c)          credit origination, credit assessment and approval and review responsibilities are clearly and properly assigned;
       (d)          the strategy, policies and processes are effectively communicated throughout the ADI and that all relevant personnel clearly understand the ADI's approach to originating, assessing, approving and managing credit risk and are held accountable for complying with the established policies and processes; and
       (e)          there is a regular independent internal review of the ADI's credit origination, credit assessment and approval and management functions. Such reviews must be conducted independently from the business function. This may involve an ADI's independent risk management and compliance function or an independent internal audit function or qualified external party.

Credit risk policies and processes
30.         An ADI must adopt and implement prudent and well-documented