The Monetary Authority adopted a
strategic initiative to upgrade
supervisory capabilities to
international best practice
levels by implementing on-site
inspections in 1998. The on-site
inspection represents the
fact-finding part of the
supervisory function, which is
complemented by the analytical
work of the off-site division.
On-site inspections are carried
out for all of the Authority's
licenses, covering banks and
trust, insurance companies,
company managers and mutual
funds. A major objective of the
inspection program is to gain a
thorough understanding of a
financial service provider's
operations, the risks it faces
and how these risks are managed.
The inspection reviews the roles
performed by the board of
directors and senior management
in establishing risk levels, and
the internal control mechanisms
employed to monitor these risks.
Risk categories broadly relate
to credit, market, liquidity,
operational and reputation risk.
On-site work includes a review
and assessment of Lyle
institution's risk management
policies and procedures, control
environment, and compliance with
laws, regulations and
supervisory directives. During
the inspection, individual
transactions are tested to
evaluate the effectiveness of
the control environment.
Integral to the effective monitoring
of internal controls is an
independent audit function. In order
to avoid duplication of effort, the
inspection endeavors to rely on the
work of the internal auditors. As
part of the inspection, a basis for
reliance upon the work of the
internal auditor is established. The
inspection process relies on the
work of the external auditors with
respect to the fairness of the
financial statements. During an
inspection, bilateral discussions
are held with the external auditors
to review the strength of the
institution's risk management
processes, internal controls,
compliance with legislation, and
adequacy of loan loss provisions.
The overall inspection objectives
are to: understand the registrant's
business activities and operating
environment detect problems of
compliance with the Law or
Regulations and gather information
on matters identified as requiring
policy consideration. The
inspections are intended to improve
regulatory efficiency and
effectiveness.
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