The aggregate risk exposures policy

13. The aggregate risk exposures policy for a Level 3 group must:

(a) be conceptually sound, consistently implemented, transparent and be subject to independent review;

(b) capture all material aggregate risk exposures;

(c) include limits on acceptable levels of aggregate risk exposures for the Level 3 group;

(d) include a description of the procedures for identifying, aggregating, reviewing, controlling and reporting material risk exposures within the Level 3 group. This must include:

(i) a clear statement of the respective responsibilities and compliance obligations of the Board of the Level 3 Head, its board committees and senior management of the Level 3 group in relation to the monitoring and management of aggregate risk exposures;

(ii) escalation procedures for aggregate risk exposures that facilitate responses to identified policy breaches between formal reporting cycles;

(iii) the circumstances in which aggregate risk exposure limits may be exceeded and the authority required for approving such excesses;

(iv) thresholds and procedures for reporting material changes to the Board of the Level 3 Head, in both formal reporting cycles and outside formal reporting cycles;

(v) consideration of the impact of material changes in macroeconomic conditions, including foreign exchange rates, interest rates and inflation; and

(vi) a timetable for a regular review of the reports by the Board of the Level 3 Head.

14. The aggregate risk exposure limits identified under paragraph 13(c) must take into account, where appropriate, matters such as:

(a) on- and off-balance sheet exposures to:

(i) various types of counterparties;

(ii) an individual counterparty or group of related counterparties;

(iii) individual industry sectors;

(iv) geographical locations;

(v) financial products, including risk transfer products;

(vi) specific funding sources;

(vii) various asset classes such as equities, property holdings and other investments;

(viii) various market risks such as interest rate, foreign exchange and commodities; and

(ix) any other material risks,

that cover asset and liability exposures and that are commensurate with the Level 3 group’s risk appetite, risk profile and capital strength, and the size, business mix and complexity of the group; and

(b) operational risk exposures to:

(i) service providers;

(ii) outsourcing;