ECCB 2022-2023 Annual Report and Financial Statements

Eastern Caribbean Central Bank Notes to the Financial Statements For the year ended 31 March 2023 (Expressed in Eastern Caribbean dollars)

3. Financial risk management (continued)

Capital risk management (continued)

f)

Foreign reserve assets

Under Article 24 (2) of the Eastern Caribbean Central Bank Agreement Act 1983, the Bank is required to maintain a reserve of external assets not less than 60% of its notes and coins in circulation, and other demand liabilities. The percentage of foreign reserve assets to demand liabilities at 31 March 2023 was 91.60% (2022: 93.89%).

g) Operational risk

Operational risk is the risk of direct or indirect loss in both financial and non-financial terms arising from a wide variety of causes associated with the Bank’s processes, personnel, technology and infrastructure. It may also arise from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. Operational risks arise from all of the Bank’s operations and are faced by all departments. Managing operational risk in the Bank is seen as an integral part of day-to-day operations and management, which includes explicit consideration of both the opportunities and the risks of all business activities. The Bank’s objective is to mana ge operational risk so as to balance an avoidance of financial losses and damage to the Bank’s reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity. The primary responsibility for the development and implementation of controls to address operational risk is assigned to the management team of each department. This responsibility is supported by bank-wide corporate policies which describe the standard of conduct required of staff and specific internal control systems designed around the particular characteristics of various Bank activities. - Requirements for appropriate segregation of duties, including the independent authorisation of transactions; - Requirements for the reconciliation and monitoring of transactions; - Compliance with regulatory and other legal requirements; - Documentation of controls and procedures; - Requirements for the periodic assessment of operational risks faced, and the adequacy of the controls and procedures to assess the risks identified; - Development and periodic testing of contingency plans; - Training and professional development; - Ethical and business standards; - Risk mitigation, including insurance where it is effective; - Weekly reporting to the senior management; - Quarterly management affirmation by each department’s Risk Liaison Officer that corporate policies and departmental internal control systems have been complied with; and - A structured induction program for new employees. Compliance with corporate policies and departmental control systems are managed by:

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