Methods of ongoing supervision
The off-site supervision and on-site inspections of the NBS are based on
appropriate procedures. On-site inspections are planned as a result of the off-site analysis of regulatory reporting and extended reports from external auditors, and carried out using standardized, written procedures. In recent years, effective measures to enhance the quality of supervision have led to a significantly better understanding of the risk profiles of supervised institutions and put the NBS in the position to shift its focus from comprehensive to more targeted inspections. The NBS has in place a standardized system for rating the overall condition of a bank under its supervision. While regular formal contacts between the NBS and management of banks is not an integral part of the NBS's supervisory activities, such meetings are held on an “as required” basis. The NBS has full authority to request any
information needed in the exercise of its supervision.
The various prudential reports are submitted both in electronic (online) and
hard copies, promptly reviewed for accuracy, and then used as inputs by the off-site
supervision section for analysis and any required follow-up. The NBS ensures that
information provided from bank records is verified periodically through on-site inspections. In addition to its on-site inspections, the NBS uses extended format reports which require banks to commission annually from their external auditors as a significant source of supervisory information. Licensees are required to produce audited financial statements and annual reports pursuant to special regulations—Regulation (EC) 1606/2002 of the European Parliament and Council on the application of International Accounting Standards (IFRS), and
the NBS has power to reject the (annual) appointment of a bank’s external auditor.
Remedial measures of the NBS are in place. Article 50 of the BA provides the NBS
a comprehensive array of remedial measures in the event a bank fails to comply with prudential rules. However, the NBS does not have the power to disqualify executive board members and members of senior management of existing banks. Furthermore, for the time being, it lacks the legal power to impose additional capital requirements on an institution to make adjustments to unusual risk profiles or deficiencies of risk management. It is unclear, if and to what extent, the lack of these legal powers might be compensated by the use of moral
The NBS has sufficient legal powers and resources to exercise supervision on a
consolidated and sub-consolidated basis. Consolidated supervision, however, is not of major importance, due to the transparency and limited complexity of groups subject to the
NBS’s supervision. By contrast, cross-border cooperation and exchange of information with other relevant supervisors are of vital interest for the NBS as the host supervisor of a relatively small banking sector that is almost fully owned by foreign banks. The BA provides the necessary legal framework to cooperate with foreign supervisors, exchange information,