Decision No. 36/2006/QD-NHNN dated August 01, 2006 of the State Bank on the issuance of the Regulation on internal inspection, control of credit institutions

DECISION

ON THE ISSUANCE OF THE REGULATION ON INTERNAL INSPECTION, CONTROL OF CREDIT INSTITUTIONS

THE GOVERNOR OF THE STATE BANK

- Pursuant to the Law on the State Bank of Vietnam issued in 1997; the Law on the amendment, supplement of several Articles of the Law on the State Bank of Vietnam in 2003;

- Pursuant to the Law on Credit Institutions issued in 1997; the Law on the amendment, supplement of several Articles of the Law on Credit Institutions in 2004;

- Pursuant to the Decree No. 52/2003/ND-CP dated 19 May 2003 of the Government providing for the function, assignment, authority and organizational structure of the State Bank of Vietnam;
 Upon the proposal of the Director of Banks and Non-Bank Credit Institution Department

DECIDES:

Article 1. To issue in conjunction with this Decision “the Regulation on internal inspection, control of credit institutions”

Article 2. This Decision shall be effective after 15 days since its publication in the Official Gazette and replace the Decision No. 03/1998/QD-NHNN3 dated 3 January 1998 of the Governor of the State Bank on the issuance of “the Regulation on internal inspection, control of credit institutions”

Article 3. The Director of Administrative Department, Director of Banks and Non-Bank Credit Institution Department, Heads of relevant units of the State Bank of Vietnam, General Managers of the State Bank branches in provinces, cities under the central Government’s management, Chairperson of the Board of Directors, General Directors (Directors) of credit institutions shall be responsible for the implementation of this Decision.

REGULATION

ON INTERNAL INSPECTION, CONTROL OF CREDIT INSTITUTIONS
(Issued in conjunction with the Decision No. 36/2006/QD-NHNN dated 1 August 2006 of the Governor of the State Bank)

Chapter I.

GENERAL PROVISIONS

Article 1. Governing scope and subjects of application

This Regulation provides for the implementation of internal inspection, control at credit institutions established and operating in accordance with the Law on Credit Institutions (including foreign bank branches that are operating in Vietnam)

Article 2. Interpretation

“Internal inspection, control system” means a combination of mechanisms, policies, procedures, internal provisions, organizational structure of a credit institution which are set up in line with provisions of current laws and are organized for implementation in order to ensure the prevention, detection, timely settlement of risks and obtain objectives already worked out by the credit institution

Article 3. Objectives of the internal inspection, control system

The internal inspection, control system of a credit institution is set up for implementing major objectives, policies of the credit institution by implementing the following specific and main objectives:

1. Efficiency and safety in operation; protecting, managing, using assets and resources economically, safely and efficiently

2. Ensuring that the system of financial information and management information is honest, reasonable, sufficient and timely

3. Ensuring the compliance with applicable laws and internal regulations, procedures, provisions.

Chapter II.

SPECIFIC PROVISIONS

Section 1. ORGANIZATION, OPERATION OF THE INTERNAL INSPECTION, CONTROL SYSTEM

Article 4. Setting up and maintaining the operation of the internal inspection, control system

1. Credit institutions shall set up an internal inspection, control system to assist General Director (Director) in managing all of their operational activities thoroughly, safely and in accordance with applicable laws;

2. Credit institutions shall inspect, control the compliance with laws and internal provisions on regular basis; directly inspect, control operational activities in all fields at head offices, transaction offices, branches, representative offices, nonproductive units and subsidiary companies

Article 5. Requirements and operation principles of the internal inspection, control system

1. Any risk that is likely to badly affect the operation efficiency and objectives of a credit institution shall be identified, measured, assessed regularly, continuously in order to timely detect, prevent and take appropriate measures for risk management. Where there is any change in business objectives, products, services and new business activities, credit institutions shall verify, identify related risks to appropriately set up, amend, supplement mechanisms, procedures, provisions on internal inspection, control.

2. The internal inspection, control activity is an integral part of daily activities of the credit institution. The internal inspection, control mechanism shall be designed, installed, organized for implementation right in every operational procedure, in all units, departments of the credit institution in such forms as:

a. A clearly, transparent mechanism on authorization and devolution; ensuring the clearness between assignments, authorities of individuals, departments in the credit institution;

b. A mechanism on cross check among individuals, departments jointly taking part in an operational procedure

c. Provisions on specific risk limit for each individual, department in the implementation of transactions

d. A procedure and mechanism on appraisal, examination, acceptance and approval for the implementation of transactions; ensuring that a procedure shall have at least 2 officers participating in, no individual is permitted to perform and decide on an operational procedure, a specific transaction by itself, except for transactions within the limit permitted by the credit institution in line with provisions of applicable laws;

3. The mechanism on authorization and devolution shall be set up, implemented appropriately, specifically, clearly to avoid benefit conflicts; Ensuring that an officer shall not concurrently undertake posts, duties, of which objectives, rights contradict or overlap each other; ensuring that every officer in the credit institution shall not have conditions to control activities, conceal information for their individual purposes or conceal acts of violating provisions of applicable laws and internal provisions;

4. Ensuring the compliance with the accounting regime under applicable provisions and the availability of an internal information system about finance, operation, the compliance in the credit institution and external economic, market situation which is reasonable, reliable, timely to help the administration, management work to be efficient

5. The IT, information system of the credit institution must be supervised, protected reasonably, safely and the credit institution must have an independent backup management regime for timely dealing with such unexpected situations as natural calamity, fire, explosion, etc, to ensure the regular, continuous business activity of the credit institution

6. Ensuring that all officers, staffs of the credit institution shall thoroughly grasp the importance of the internal inspection, control activity; the role of each individual in the internal inspection, control process is related to their own functions, assignments and they must fully and efficiently perform relevant internal inspection, control provisions, procedures.

7. Manager of operational departments, units, relevant individuals must regularly consider, assess the effectiveness and efficiency of the internal inspection, control system; all shortcomings of this system shall be timely reported to direct management level; major shortcomings that may cause losses or risks must be immediately reported to General Director (Director), Board of Directors, Controllers Committee

8. All individuals, departments at all levels of the credit institution must regularly, continuously inspect and inspect by themselves the implementation of related internal provisions, procedures and shall be responsible for the implementation result of their operational activities to the credit institution and applicable laws

9. Leaders at units, departments of the credit institution shall make a report, assessment of the result of internal inspection, control at their units, propose treatment measures for remains, inadequacy (if any) and submit to the leaders of their direct management level on periodical or unexpected basis upon their request.

Article 6. Self-inspection, self-assessment for the internal inspection, control system

1. On annual basis, credit institutions shall carry out the self-verification, inspection, assessment for the internal inspection, control system of the entire credit institution, of each unit, department of management, business, implementation and each operational activity. General Director (Director) shall be responsible for organizing the implementation of this work.

2. The self-inspection, self-assessment shall consist of the verification and assessment of the sufficiency, effectiveness and efficiency of the internal inspection, control system shall be based on the risk determination and evaluation in order to define existing issues of the internal inspection, control system and point out necessary changes in respect of the internal inspection, control system for dealing with, overcoming those issues

3. General Director (Director) of the credit institution shall prepare an internal inspection, control report for reporting the result of the self inspection, self assessment of the above mentioned internal inspection, control system. This report must update all risks, briefly state main activities of the credit institution and respective related risks and inspection, and control activities at the level of the entire credit institution, at the level of each unit, each department and each activity

4. The internal inspection, control report mentioned above shall be submitted to the Board of Directors, and copied to the Controllers Committee and then submitted to the State Bank (the State Bank Inspectorate, Banks Department, the State Bank branches in province, city where the credit institution locates its head office) within a period of 60 days from the end of the fiscal year; except for local people’s credit funds, their reports shall be only submitted to the State Bank branches in provinces, cities under the central Government’s management

Article 7. Independent inspection, assessment for the internal inspection, control system

1. The internal inspection, control system of the credit institution shall be inspected, assessed independently by internal auditing department. The independent inspection, assessment shall be performed by an internal auditing department or an independent auditing firm or another organization that has enough professional level and capability to carry out the independent inspection, assessment in accordance with provisions of the State Bank;

2. Contents of the independent inspection, assessment shall include verification, assessment and reporting of the sufficiency, efficiency of the internal inspection, control system relating to audited activities, fields by defining and evaluating risks, defining remains of the internal inspection, control system and pointing out necessary changes of the internal inspection, control system for dealing with and overcoming

3. Report on the independent inspection, assessment for the internal inspection, control system concerning the audited contents, fields shall be made once a year and be an integral part of annual internal audit Report

4. Credit institutions shall perform the independent inspection, assessment for the entire internal inspection, control system on 5 year basis at the minimum. Overall assessment report on the entire of the internal inspection, control system shall be sent to the General Director (Director), the Board of Directors, Controllers Committee of the credit institution and also sent to the State Bank (the State Bank Inspectorate, Banks Department, the State Bank branches in provinces, cities where the credit institution locates its head office); except for the local people’s credit funds, their report shall be sent to the State Bank branches in provinces, cities under the central Government’s management

Article 8. Specialized and responsible internal inspection, control department

1. Depending on scale, set measures, scope and particular characteristics of their operation, credit institutions shall consider, decide by themselves the establishment of a specialized and responsible internal inspection, control department that is subject to the direct management of the General Director (Director). In all cases, whether it has or does not have a specialized and responsible internal inspection, control department, the credit institution must set up, maintain, and organize the implementation of the internal inspection, control system in accordance with provisions in this Regulation

2. The specialized and responsible internal inspection, control department shall be responsible for inspecting, supervising the compliance with provisions of applicable laws and regulations, operational procedures, internal provisions of the credit institution; helping the General Director to carry out the self inspection for consolidation, verification and assessment of the effectiveness, efficiency of the internal inspection, control system in order to detect, prevent and timely recommend the solution for remains, violation acts in all operational activities, complete the internal inspection, control system in accordance with provisions in Article 6 of this Regulation, ensuring the safe, efficient and lawful operation of the credit institution

Section 2. RESPONSIBILITIES OF CREDIT INSTITUTIONS FOR THE INTERNAL INSPECTION, CONTROL SYSTEM

Article 9. Responsibilities of the Board of Directors

1. To issue and periodically consider, reassess business strategy and major objectives, policies of the credit institution

2. To take the last responsibility for the reasonableness and efficiency of the internal inspection, control system; to fully issue provisions on organizational structure, authorization and devolution, provisions on business management, administration, operation, internal inspection, control and internal audit

3. To ensure the establishment and maintenance of a reasonable and efficient internal inspection, control system by the General Director (Director); system of identification, measurement, evaluation and management of risks in every activity of the credit institution; system of capital valuation; system of financial information, report and management information system which is honest, reasonable, sufficient and timely

4. Periodically at least once a year, to consider, reassess the internal inspection, control system; and attention should be paid to the system of identification, measurement, evaluation and management of risks, method of capital valuation, system of financial information, report and management information;

5. To timely perform directive opinions, requirements of the State Bank on the internal inspection, control at the credit institution, supervise and speed up the implementation.

Article 10. Responsibilities of the General Director (Director)

1. To be responsible to the Board of Directors for the deployment of the business strategy, major objectives and policies already approved by the Board of Directors

2. To set up, maintain and develop the internal inspection, control system reasonablely and efficiently that satisfies requirements of identification, measurement, evaluation and management of risks, reasonable method of capital valuation, ensuring the safe, efficient and lawful operation of the credit institution

3. To build, issue specific operational procedures for every operational activity of the credit institution; to ensure the availability of an inspection, control mechanism, risk management mechanism to be related to each specific operational procedure

4. To maintain and perform organizational structure, authorization, devolution, business management clearly and efficiently

5. To ensure the maintenance of a financial information and management information system, which is honest, reasonable, sufficient and timely

6. To ensure the compliance with applicable laws and internal regulations, procedures, provisions

7. Periodically to report to the Board of Directors, Controllers Committee on the result of self-assessment of the internal inspection, control system and make petition, recommendation for adjustment, supplement, completion of the internal inspection, control system.

Article 11. Responsibilities of the Controllers Committee

1. To direct, manage the internal audit Department to perform the independent, objective inspection, verification, assessment for the internal inspection, control system; system of risk identification and management; method of capital valuation; system of financial information, report and management information; internal procedures, provisions of the credit institution.

2. Periodically to report the Board of Directors, General Director of the internal inspection, control system; make petitions, proposals for adjustment, completion of the internal inspection, control system

Article 12. Responsibilities of the Chief of Internal Audit Department

The Chief of Internal Audit Department must ensure the full implementation of all functions, assignments, authorities relating to the internal audit work in respect of the internal inspection, control system in accordance with the Regulation on internal audit of credit institutions issued by the Governor of the State Bank and relevant internal provisions of the credit institution

Section 3. RESPONSIBILITIES OF UNITS OF THE STATE BANK

Article 13. Responsibilities of the State Bank Inspectorate

1. To carry out the inspection, supervision for the compliance with provisions on internal inspection, control of credit institutions in accordance with provisions in this Regulations.

2. To deal with under its competence or make petition to the Governor of the State Bank for dealing with cases of violating provisions in this Regulation and related provisions of current laws

Article 14. Responsibilities of Banks Department

1. To study, submit to the Governor of the State Bank for consideration, amendment, supplement of provisions on internal inspection, control of credit institutions in this Regulation

2. To provide guidance to credit institutions, the State Bank branches in provinces, cities under the Central Government’s management in the implementation of this Regulation

Chapter III.

IMPLEMENTING PROVISIONS

Article 15. Within a period of 12 months from the effective date of this Regulation, credit institutions shall verify, adjust by themselves, ensure the right compliance with principles, requirements, provisions in this Regulation

Article 16. All organizations, individuals violating provisions in this Regulation shall, depending on the nature, seriousness of violation, be subject to administrative punishment in monetary area and banking area, or be prosecuted for criminal liability, if causing damages, they shall be subject to the compensation in accordance with provisions of applicable laws.