Our approach to supervision and regulation
Strategy
The goal of our supervision and regulation strategy is to safeguard the stability and integrity of the financial system by proactively identifying and assessing significant risks faced by financial institutions and market infrastructures and ensuring that the risks are properly managed. This involves identifying potential vulnerabilities, ensuring effective risk management practices, and implementing comprehensive measures to mitigate the impact of potential issues and crises, establishing robust processes that facilitate smooth operations and prevent/minimize disruptions.
Our approach focuses on:
- Risk Identification and Assessment: Continuously monitoring and evaluating the most significant risks, including credit, market, operational, and liquidity risks, to detect emerging threats early.
- Resilience and Crisis Management: Developing and enforcing robust frameworks that enhance the resilience of financial institutions and infrastructures, enabling them to withstand shocks and maintain continuity during times of stress or crisis.
- Preventive Oversight: Implementing a forward-looking, risk-based supervision model that prioritizes high-risk areas, ensuring that resources are allocated efficiently, and timely corrective actions are taken to address identified risks.
- Collaboration and Coordination: Working closely with other regulatory bodies and stakeholders, both domestically and internationally, to ensure a coordinated and consistent supervisory approach, especially in addressing cross-border risks and financial stability issues.
- Continuous Improvement: Promoting a culture of ongoing improvement both within financial institutions and CBA, encouraging innovation while ensuring compliance with regulatory standards, and adapting our supervisory approach to emerging risks such as those posed by digital assets and technological advancements.
CBA’s regulation
For achieving our objective, the CBA establishes prudential regulation which intends to maintain financial system stability and to protect the funds that people entrusted to financial intermediaries, whereas the market conduct regulatory policy ensures ethical and legal behavior among market participants to preserve market integrity and facilitate smooth operations.
Why regulation is important
Regulation of financial institutions plays a crucial role in maintaining the stability, integrity, and efficiency of the financial system. First, it helps protect depositors and investors by ensuring that financial institutions operate in a safe and sound manner. Without regulation, banks might take excessive risks that could lead to insolvency and the loss of customers’ funds.
Second, regulation reduces systemic risk, which refers to the potential for a failure of one institution to trigger a broader financial crisis. By enforcing capital requirements, stress testing, and risk management standards, regulators ensure that institutions are resilient enough to withstand economic shocks.
Third, regulation enhances transparency and trust in the financial system. It requires financial institutions to disclose accurate and timely information, which helps investors and consumers make informed decisions. This transparency also discourages fraud, market manipulation, and unethical practices.
Finally, regulation supports economic growth and consumer confidence. When the financial system functions properly, it facilitates investment, credit flow, and economic development. A well-regulated financial sector fosters long-term confidence and prevents market disruptions that can harm the broader economy.
How regulation is set
The CBA is authorized to regulate financial institutions and services, securities markets and participants, the private pension industry, and related infrastructures. The CBA implements this by setting market entry standards, regulating business activities, establishing resolution frameworks for financial institutions, and ensuring market integrity.
CBA coordinates its policymaking with other regulatory authorities and ensure that the regulatory framework aligns with applicable domestic, regional and international standards. The regulation is implemented through a combination of legislation, enforcement, industry self-regulation and international cooperation.
Read more about international partners
Supervisory priorities
Our supervisory priorities are aligned with the goal of maintaining the stability, resilience, and integrity of the financial system. These priorities guide our efforts to proactively address the most pressing risks and challenges facing financial institutions and infrastructures, ensuring that they operate in a sound and compliant manner. The supervisory priorities are set for a 3-year period and subject to an annual review. They may also be adjusted more frequently (within the year) if unforeseen material events arise.
Read more about supervisory priorities for banking sector (available in Armenian only)