The Central Bank has approved the Policy Concept on risk-based supervision

20-12-2024

December 16, 2024: The Central Bank of the Republic of Azerbaijan continues to successfully implement its initiatives in line with the targets set within the "Financial Sector Development Strategy for 2024-2026." As part of the "Financial Sector Modernization Project" implemented jointly with the World Bank, the Central Bank has approved a new Policy Concept (the Concept) on implementing risk-based supervision. This Concept serves to establish an effective supervision system in the financial sector in accordance with progressive international practices and consequently minimize systemic risk in the financial sector. Additionally, the Concept document will ensure communication with local and international communities regarding the Central Bank's new supervisory approach.

The risk-based supervision approach, named ARAS (Azerbaijan Risk Assessment System), established according to the Concept, encompasses early detection of risks related to supervised entities' activities, assessment of these risks and risk management processes, as well as the application of a proportional and preventive supervision regime appropriate to the risks.

The document not only conceptually encompasses the risk-based supervision cycle but also defines the organizational structure of risk-based supervision, including the functions of the Supervision Committee and other structures. The Supervision Committee will perform functions such as approving supervision instructions, forming reasoned judgments, reviewing supervision practices, and submitting draft annual supervision plans and supervision priorities to the Management Board.

The Concept will also support the achievement of the following targets set in the Central Bank's "Financial Sector Development Strategy for 2024-2026":

• Alignment of capital and liquidity requirements for banks with Basel III standards
• Implementation of Solvency II standards in the insurance sector
• Implementation of IOSCO principles in the capital market
• Improvement of anti-money laundering efforts and market conduct supervision

Additionally, we note that the implementation of the Concept will be supported by the enhancement of supervision technologies (SupTech) and the resolution framework.

You can familiarize yourself with the Concept document using this link:

Risk-Based Supervision Policy Concept of the Central Bank of the Republic of Azerbaijan