Regulation and Supervision
What we do?
Our primary role is to maintain the safety, soundness, and integrity of the financial system through forward-looking risk-based supervision and regulation. We focus on fostering stable financial institutions that support overall financial stability and protecting consumers/investors, ensuring fair competition. Below are the key activities we undertake:
Set Regulatory Standards
We establish clear, comprehensive regulatory frameworks that define the rules and standards financial institutions must adhere to. These regulations cover areas such as:
- Capital Requirements: Ensuring that banks and financial institutions maintain sufficient capital buffers to absorb potential losses.
- Liquidity Management: Setting standards for liquidity to ensure institutions have enough liquid assets to meet their short-term obligations.
- Risk Management Practices: Defining requirements for credit risk, market risk, operational risk, and other types of risks, ensuring institutions have effective risk management systems in place.
- Corporate Governance: Establishing standards for governance structures, transparency, and accountability within financial institutions to promote responsible decision-making.
- Consumer Protection: Implementing regulations that protect consumers' rights, ensure fair treatment, and prevent abusive practices, fraud, and mis-selling of financial products.
- Market Conduct: Defining rules to prevent market manipulation, insider trading, and other unethical behaviors to maintain market integrity and confidence.
Our Approach to Supervision
We use a risk-based supervisory approach to identify, monitor, and mitigate the most significant risks to the financial system.
What is Risk Based Supervision (RBS)
The Central Bank of Armenia is implementing Risk Based Supervision by ensuring that supervisory potential and intensity are focused on the riskiest areas and institutions.
The principles of RBS are applied in all supervisory processes, from the entrance of financial institutions to the financial market, supervising their day-to-day activities, enforcing and sanctioning, and exit from the market. This framework ensures a harmonized and dynamic approach to risk identification and mitigation processes in financial institutions, thereby contributing to improving the overall well-being of the population and strengthening consumer trust in the financial system, which also contributes to the CBA's mandate to achieve financial stability.
The key objective of RBS is to focus on available supervisory resources and direct the supervisory intensity to areas and institutions that possess the greatest prudential and integrity risks. Our main goal is to ensure that significant risks in the financial system, organizations, and infrastructures are properly managed and the consequences of possible disruptions are minimized and managed.
In the constantly changing world, with new risks emerging in financial markets, agile and proactive supervision targeted at the riskiest areas is imperative to ensure a sound financial system. Having a comprehensive supervisory framework in place will help us deploy our supervisory resources effectively to address the risks that impact the stability of the financial institutions and the financial system.
Methods used for conducting Supervision
Together, onsite and offsite supervision form a comprehensive, risk-based approach to monitoring financial institutions effectively:
- On-site supervision involves physical visits to financial institutions by regulatory teams to assess their operations, risk management practices, and compliance with regulations. It includes detailed reviews of internal processes, governance, and financial health. Onsite supervision provides direct insights through inspections, interviews with management, and examination of documents.
- Off-site supervision involves continuous monitoring of financial institutions remotely through the analysis of data and reports they submit, such as financial statements, risk profiles, and regulatory filings. It uses data analytics and early warning systems to identify emerging risks, ensuring ongoing oversight without the need for physical inspections.
We implement consolidated supervision to oversee financial groups that include multiple entities (such as banks, insurance companies, and investment firms) within a single corporate structure:
- Group-Wide Risk Assessment: Assess risks not only at the level of individual entities but also across the entire financial group to identify interdependencies and potential vulnerabilities.
- Prevent Regulatory Arbitrage: Ensure that risks are not shifted between entities within a group to evade regulatory oversight, maintaining comprehensive risk management across the group.
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