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Assessment of legal risk of credit institution

In order to identify and assess the legal risk of the credit institution, it is recommended to define in internal documents:

  • internal and external factors of legal risk in accordance with the nature and scope of the credit institution 's activities and analysis of their impact on the level of risk;
  • various methods (ways and approaches) of identification and estimates of factors of emergence of legal risk according to character and scales of activity of credit institution;
  • Distinguishing characteristics of legal risk from other banking risks (e.g., difference between credit risk and legal risk);
  • the most optimum ways of obtaining data from the clients including served with use of technologies of remote bank service (including Internet banking), for their identification, establishment and identification of beneficiaries according to requirements of the legislation of St and also for respect for the principle "Know the client".

It is recommended that the credit institution define in internal documents criteria for assessing legal risk taking into account the factors of its occurrence, including on a consolidated basis. When assessing legal risk on a consolidated basis, it is recommended to take into account its impact on the activities of the credit institution as a whole by determining the possible impact on other bank risks.

When assessing the level of legal risk, credit institutions can focus on the following main indicators:

  • increasing (decreasing) number of complaints and claims against the credit institution;
  • Increase (decrease) in cases of violation of the legislation of the country, including advertising, bank secrecy and restriction of monopolistic activities;
  • increase (reduction) in number and the amount of payments of money by credit institution on the basis of resolutions (decisions) of vessels, decisions of the bodies authorized according to the legislation of the country and also a ratio of number and the sizes of legal claims on which payments by credit institution and in favor of credit institution are made;
  • application of measures of influence to the credit institution by regulatory and supervisory bodies, dynamics of application of these measures of influence.

For the purposes of monitoring the legal risk of a credit institution, it is recommended to define in internal documents:

  • Rules and procedures for monitoring changes made to the legislation of the country and countries of location of foreign affiliates, subsidiaries and dependent organizations of the credit institution, timeliness of accounting for and reflection of these changes in internal documents of the credit institution and obligation to comply with them;
  • timeliness and an order of informing employees of credit institution (further - employees) about changes of the legislation of the country and the countries of location of foreign branches, the affiliated and dependent organizations of credit institution which are within the competence of credit institution about changes of internal documents of credit institution and also about events (circumstances) of legal risk in credit institution or other credit institutions.