Global Journal of Management and Business Research, A: Administration and Management, Volume 23 Issue 2

risk-based approach aiming at matching with international best practices. In fact, it is revealed that there was a recommendation of the World Bank (2010, pp.1, 5) under the “Financial Sector Assessment Program” to enhance the supervisory initiatives of the BB by shifting towards risk-based supervision. The WB recommended: […] BB’s initiatives to shift to risk-based supervision also need enhancement. […] continue to strengthen BB by automating its operations, improving supervisory capacities (including more effective risk- based supervision), increasing transparency, enhancing disclosure policies, and providing it with greater independence and autonomy. (44) Since then, the BB has gradually been designing the meta-regulation framework under risk- based regulatory strategy using ERM as a meta- regulatory apparatus, although it is still evolving. However, the two board themes, namely, “sectoral risk management reform” and “institutional capacity building” will assist in drawing the trajectory of the gradual development of meta-regulation in the sector: b) Sectoral Risk Management Reform Soon after the strategic shift towards risk-based regulation, the BB embarked on sectoral risk management reform based on ERM in 2012. The BB realized that risk-based regulation is not possible in the industry without an improved risk management practice in the banks. The BB, therefore, initiated both “structural” and “functional” reforms for an integrated risk management practice based on the ERM notion and made it mandatory for all banks. Consequently, the ERM has become an “enforced self-regulatory” toolkit to manage the risks within the regulated banks. c) Structural Reform – An Architecture of ERM based Self-Regulation The structural reform had begun when the BB issued a mandatory guideline for integrated risk management practice on 15 February 2012 for the commercial banks. It was a landmark for the industry to integrate and manage bank-wide risks based on ERM philosophy. Following narrative disclosed in the guideline: […] this document promotes an integrated, bank- wide approach to risk management that we hope will propel banks in Bangladesh to the forefront among banks in our region in adopting contemporary methods to identify, measure, monitor, and control risks throughout their institutions. (Bangladesh Bank 2012, p. v). In this guideline, banks were instructed to establish an independent “Risk Management Unit (RMU)” headed by the “Chief Risk Officer (CRO)” and advised the Unit to act as a secretariat of “All Risk Committee”. In addition, the oversight roles of the board and the senior management were redefined in respect of the risk management practice. Following this risk management guideline, the Bank Company Act 1991 was amended in the year 2013 with the provision of having a “Board Risk Management Committee (BRMC)” to engage the board in the ERM process. The BB also issued guidelines regarding formation, composition, eligibility, qualification and responsibilities of the board and the BRMC to manage risks. With this structural change, the ERM received significance within the banks. Afterwards, the BB advised all the regulated banks to form a team for “Supervisory Review Process (SRP)” headed by the Managing Director/Chief Executive Officer (MD/CEO) under the guideline on risk-based capital adequacy (revised regulatory capital framework for banks in line with Basel III). The BB also instructed to the heads of all functional departments to be a member of this team and assigned the SRP team to monitor the implementation of the supervisory review process and develop the “Internal Capital Adequacy Assessment Process (ICAAP)” document. In the guideline, banks were instructed as follows: […] Banks must have an exclusive body naming SRP team which will be constituted by the concerned departmental heads of the bank and headed by the Managing Director. (Bangladesh Bank 2014, p. 51). However, the structural design of ERM-based self-regulation received a momentum in the industry when the BB issued a new circular on 9 September 2015 to further strengthen the banks’ risk management practice. The sophistication of ERM based self- regulation was institutionalized following this promulgation. In addition to the previous risk management guidelines, banks were instructed to establish a separate division for risk management under the title “Risk Management Division (RMD)”. The organogram of the RMD with eight separate desks and the communication hierarchy were also prescribed in this circular. Besides, a CRO was instructed to appoint as the chief of the RMD from a senior management position who shall not be incharge of the internal control and compliance department. In that circular, it is quoted as: from at least the AMD/DMD level who is not incharge of the Internal Control and Compliance (ICC) department and shall also form a management-level risk management committee with the CRO as the head. (Bangladesh Bank 2015). Likewise, the “Head of the RMD” was instructed to be appointed after the position of CRO. Further, the RMD was prescribed to communicate the risk reports directly to the BRMC with a copy to the MD/CEO for Enterprise Risk Management in Designing Meta-Regulation under Risk-based Regulatory Strategy: An Empirical Evidence from Financial Regulation 41 Global Journal of Management and Business Research Volume XXIII Issue II Version I Year 2023 ( ) A © 2023 Global Journals […] Banks shall appoint a Chief Risk Officer (CRO)