BANK 4.2.3 Policies — credit decisions

(1) A banking business firm's credit risk management policy must ensure that credit decisions are free of conflicts of interest and are made on an arm's-length basis. In particular, the credit approval and credit review functions must be independent of the credit initiation function.

Guidance

1 This rule does not prevent arrangements such as an employee loan scheme, so long as the policy ensures that the scheme's terms, conditions and limits are generally available to employees and adequately address the risks and conflicts that arise from loans under it.
2 The credit risk management policy of a banking business firm should clearly set out who has the authority to approve loans to employees. The authority of a credit committee or credit officer should be appropriate for the products or portfolio and should be commensurate with the committee's or officer's credit experience and expertise.
3 Each authority to approve should be reviewed regularly to ensure that it remains appropriate for current market conditions and the committee's or officer's performance.
4 A banking business firm's remuneration policy should be consistent with its credit risk management policy and should not encourage officers to attempt to generate short-term profits by taking an unacceptably high level of risk.
(2) The policy must state that decisions relating to the following are made at the appropriate level of the firm's senior management or governing body:
(a) exposures exceeding a stated amount or percentage of the firm's capital;
(b) exposures that, in accordance with criteria set out in the policy, are especially risky;
(c) exposures that are outside the firm's core business.
Derived from QFCRA RM/2014-2 (as from 1st January 2015).