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DFSA rolls out new risk management requirements: The Dubai Financial Services Authority (DFSA) issued new amendments (here (pdf) and here (pdf)) updating rules for risk management, according to a statement. The new guidelines aim to boost financial stability amid financial risks, while also promoting consistent Basel III standards in line with global practices.
Background: DFSA released a consultation paper (pdf) in May seeking feedback on proposed updates to its Prudential — Investment, Ins. Intermediation, and Banking (PIB) Module.
Risk appetite statement requirements: According to the guidelines, authorized firms must maintain a documented risk appetite statement defining the levels of risk they are willing to take in achieving their objectives. The statement must include actionable measures for breaches, such as escalation processes and disciplinary actions. It should also be communicated across relevant teams, and regularly reviewed to account to shifts in market or economic conditions.
Interest rate risk management: Firms are now also required to evaluate and measure Interest Rate Risk in the Banking Book (IRRBB), focusing on impacts to both economic value and earnings under six stress scenarios, including parallel and non-parallel interest rate shocks. Evaluations must also measure risk exposures for each material currency exceeding 5% of total non-trading book assets or liabilities.
Threshold for alarm: The DFSA must be notified if a sudden interest rate change results in a decline in economic value exceeding 15% of Tier 1 Capital, a reduction from the previous 20% threshold.
Both the risk appetite statement and IRRBB frameworks must be DFSA-approved. Firms must conduct quarterly stress tests to ensure ongoing compliance and submit results to the DFSA.
