Internal control systems: a uniform approach for all NFIs

The Bank of Russia has made a proposal to coordinate approaches to the organisation of internal control systems at all non-bank financial institutions (NFIs) and in the banking sector as a whole.

The Concept, which has been formulated by the regulator on the basis of analysis of best international practice and principles, sets forth recommendations. The successful implementation of these recommendations will help financial market participants in complying with principles of ethics, legitimacy and transparency.

Establishing internal control systems at all NFIs will allow for better assessment of the business’s efficiency and performance, monitoring of its compliance with regulations, and will also promote reliability, completeness and punctuality in both external and internal reporting. In addition, these systems are designed to prevent NFIs from engaging in illegal activities, such as the legalisation (laundering) of criminally obtained incomes and financing of terrorism, and to mitigate corruption in their operations.

The document also details how supervision of the NFIs’ compliance with internal control system requirements will be conducted.

In further application of this concept, the Bank of Russia plans to prepare amendments to the legislation and regulations regarding the organisation of internal control systems at NFIs.

The advisability of granting the Bank of Russia with the right to employ motivated (professional) judgment in assessing NFIs’ internal control system of NFIs will be examined at the close of the discussion on the consultative report ‘Use of Motivated (Professional) Judgement in Supervisory Practice by the Bank of Russia’.