Regulatory Alerts2013-05-13
CBKs Risk Based Supervision Framework – May 2013
The Central Bank of Kenya (CBK) adopted the Risk-Based Supervisory (RBS) approach in 2004, recognizing the limitations of the traditional approach, which applied uniform supervision to all institutions regardless of their business activities and risk appetites. The RBS approach focuses on assessing the adequacy of an institution's risk management systems and encourages greater interaction between the institution and the CBK. The CBK's RBS methodology is dynamic and subject to enhancement in line with international best practices and developments in the local, regional, and international arenas. The RBS framework enables the CBK to deliver consistent and high-quality supervision as the financial sector evolves and as institutions' risk profiles change. It promotes competition and the safety and soundness of the financial sector, allowing for more efficient supervision by focusing regulatory efforts on high-risk areas. The CBK's RBS approach involves a continuous sequence of events, including preparing/updating the institutional profile, understanding the institution, risk assessment, and follow-up and monitoring. The CBK has been working on implementing consolidated supervision since 2006, which ensures that all risk exposures of a bank and its subsidiaries or related entities are considered. The CBK also established supervisory colleges in 2