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  • Complex or Opaque Structures

    • HC-5.1.5

      The Board and senior management of the parent bank must be cognisant of the challenges arising from operating under complex or opaque structures, including special purpose vehicles, and must act to avoid or mitigate these by:

      (a) Avoiding setting up complicated structures that lack economic substance or business purpose;
      (b) Continually maintaining and reviewing appropriate policies, procedures and processes governing the approval and maintenance of those structures or activities, including fully vetting the purpose, the associated risks and the bank’s ability to manage those risks prior to setting up new structures and initiating associated activities;
      (c) Having a centralised process for approving the creation of new legal entities and subsidiaries based on established criteria, including the ability to monitor and fulfil each entity’s regulatory, tax, financial reporting, governance and other requirements and for the dissolution of dormant subsidiaries;
      (d) Establishing adequate policies, procedures and processes to identify and manage all material risks arising from these structures, including lack of management transparency, operational risks introduced by interconnected and complex funding structures, intragroup exposures, trapped collateral and counterparty risk, etc. The bank must only approve structures if the material risks can be properly identified, quantified, monitored and mitigated; and
      (e) Ensuring that the activities, controls and structures are subject to periodic reviews by compliance, internal audit and risk management functions as well as external audit to ensure effectiveness and consistency with Board-approved strategy and policies.
      Added: April 2023