Follow-up of Finansinspektionen’s rules on credit risk management

Now may be a good time for all credit companies to review their internal credit risk management processes and to check that they comply with Finansinspektionen’s new requirements set out in the regulation of credit management (FFFS 2018:16 Finansinspektionen’s regulations and general advice on the management of credit risks in credit institutions and investment companies) that apply from March this year. Key sections deal with:

• Identification and measurement incl. “co-limitation” (Chapter 3).
Companies must have appropriate processes and systems to continuously identify, measure, report and control exposure and management of credit risks. The systems  must include risks in individual credits or borrowers, aggregated risks by customer groups (total risk) and at portfolio level. This view implies ‘co-limitation’ with the aggregation of limits for groups of borrowers with common economic interests or other dependencies, but different currencies, country risk, etc. should also be taken into account.

• Credit assessment, credit decision and review (Chapters 4 – 6). A healthy risk culture. New requirements apply to credit assessments on “well-defined criteria” and also to take into account the risk in credit provided in a currency other than that in, which the borrower has his or her main earnings. In addition, the rules applied to documentation for credit assessments and the factors to be taken into account in these assessments are updated. As the requirements for the content on which to base credit decisions are clarified, competence requirements are also clarified for those who make credit decisions.

• Increased risk and conflict of interest credits (Chapters 7 – 8).
Effective credit risk management also means good preparedness to identify and manage credit with increased risk early. An action plan with some concrete and timely measures to reduce credit risk shall then be established. In addition, it shall be continuously evaluated which persons have a leading position in the company and there shall be a specific process and methodology for credits to anyone who may be exposed to a conflict of interest in the company. There are also further specific rules for credit assessment and management of credits for situations which could give rise to conflicts of interest.