Processes are the procedures, programs, and practices that impose order on a bank’s pursuit of its objectives. Processes define how daily activities are carried out. Effective processes are consistent with the underlying policies and are governed by appropriate checks and balances (such as internal controls).
Objective: To determine whether the bank has processes in place to define how trade finance and services are performed.
1. Evaluate whether the processes are effective, consistent with underlying policies, and effectively communicated to affected staff. Consider
• whether procedures have been established to implement the trade policies.
• whether the trade policies are communicated to management and staff in a timely manner.
2. Determine whether the approved products or programs have formal descriptions, are subject to product-level risk assessment, and are consistent with the risk appetite of the board. Review the product description and consider
• target market, including customers and geographic boundaries. • acceptable tenor.
• product or program risks. • risk controls.
• resource requirement.
• product or program pricing and profitability. • transaction approval.
• exception approval.
3. Determine the effectiveness of processes trade business management use to manage the business. Upon completing a review of the transactions sample (including the associated program or service agreement), provide assessments of
• appropriateness of deal review (including verification of credit line, compliance with applicable laws and regulations, etc.), credit analysis, and approval processes.
Examination Procedures > Quality of Risk Management
• whether the reports management uses for monitoring the trade business are timely and useful (e.g., profitability, volume, trends, limit exception, customer risk rating
change, and past-due payments).
• the adequacy of the process of reporting to the board of directors or its relevant committee.
4. Determine the quality of trade operations processes. Review trade operations procedures and flowcharts, perform walk-throughs, and discuss with operations management to obtain an understanding of the operating environment. Evaluate whether
• adequate controls (e.g., data security, physical access controls, customer
authorization, authentication, segregation of duties, and dual controls) have been established for transactions processing. For payment processing, consult the examination procedures contained in the operating procedures, processing, testing, and physical security sections of the “Payment Systems and Funds Transfer
Activities” booklet of the Comptroller’s Handbook.
• process for monitoring and reporting of exceptions (e.g., policy limits) and trade operations performance is done in a timely manner.
• process for handling customer complaints and disputes is responsive and timely. • processes are adequate for
− assimilating regulatory changes and, as applicable, governing international practices into the systems.
− ensuring that forms, agreements, and contracts are reviewed by the bank’s legal counsel.
• processes controlling the accuracy and completeness of handling documents and instructions are effective. As appropriate, select a sample to test the adequacy of the processes for
− letters of credit and related products. Consider
verification of customer authorization.
completeness of documents.
timely review of documents after presentation.
whether resolution of document discrepancies or discrepancy waiver is obtained.
compliance of payment with terms and conditions of the letter of credit.
delivery of banker’s acceptances within the conventional two-day settlement time.
− advising, collections, and bank-to-bank reimbursement activities. Consider whether
instructions are being followed.
legal counsel is properly reviewing service contracts and agreements.
the bank, through its legal counsel or otherwise, ensures compliance with service contracts.
disputes and complaints are properly handled and resolved.
• process, if applicable, for monitoring compliance with third-party guarantee and insurance program servicing requirements is adequate.
Examination Procedures > Quality of Risk Management
• process for reporting to management and board is adequate.
5. As applicable, evaluate the quality of the new product review and approval process. At a minimum, consider
• role of the line of business, treasury, operations, legal, compliance, information technology, finance, accounting, human resources, and audit in the review and approval of new products or programs.
• whether the relevant risks are identified and implications adequately analyzed. • authorized sign-off.
6. If applicable, assess whether the process for selecting and monitoring third-party servicers is appropriate. For guidance, see OCC Bulletin 2013-29, “Third-Party Relationships: Risk Management Guidance.”
7. When evaluating the processes for country risk management, trade loans, and foreign exchange, follow the guidance in the applicable booklets of the Comptroller’s Handbook: “Country Risk Management,” “Commercial Loans,” “Accounts Receivable and Inventory Financing,” “Asset-Based Lending,” “Loan Portfolio Management,” and the to-be-issued “Financial Derivatives and Trading Activities.” If the bank is subject to an independent country risk management examination, examiners do not need to perform this procedure relating to evaluating the process for country risk management. For trade loans and foreign exchange, the examiner should consult with the EIC and examiner assigned to review these areas, as appropriate.
8. Verify that the bank has appropriate procedures in place for managing trade finance and services technology risks. See the relevant FFIEC IT Examination Handbook booklet for guidance. As appropriate, the examiner should consult with the EIC and examiner assigned to review the bank-wide information technology risk.
9. Verify that the bank has appropriate procedures in place for compliance with BSA/AML and OFAC. For guidance and examination procedures, see the FFIEC BSA/AML
Examination Manual. As appropriate, the examiner should consult with the EIC and the
examiner assigned to review the bank-wide BSA/AML and OFAC compliance.
10.Determine whether appropriate internal controls are in place and functioning as designed. Complete the internal control questionnaire (ICQ) section of this booklet, if necessary, to make this determination.