DNB investigates compliance with laws and regulations

Everything you need to know about supervisory thematic reviews.

In late 2020, in the midst of the corona crisis, DNB published its three supervisory focal points in its Vision of Supervision 2021-2024. As autumn 2022 approaches, it is now time to look back at the investigations DNB has conducted and prepare for future investigations. This contribution focuses on thematic studies. What is a thematic review and what can your institution expect from it?

Recent thematic reviews by DNB focused on climate-related risks in insurers’ Own Risk and Solvency Assessment (ORSA) (2021) and gaming and gambling (2021). For the 2022 examination, DNB is testing the effectiveness of sanction screening at a selection of banks and payment institutions.

What is a theme study?

Theme studies are an addition to the regular supervisory activities carried out by DNB, including the periodic reports and information requests. In thematic reviews, current themes and spearheads from the supervisory agenda are translated into concrete reviews. Theme studies are usually subdivided by sector, but can also be cross-sectoral, such as the previously conducted study on transaction monitoring at banks and payment institutions.

How does a thematic investigation work?

Theme investigations usually start after an announcement by DNB with a request for information and documentation. After, a selection of institutions, more about this later, receive in-depth questions based on the data obtained by DNB. DNB has the option of visiting institutions on-site and continuing the investigation there. The method of investigation depends on the purpose of the enquiry.

In the case of the study on effectiveness of sanction screening this autumn, selected institutions will receive dummy data from DNB which should be screened by the institution, after which the findings and hits will be shared with the regulator.

After DNB has analysed the received data, DNB will share its preliminary findings with the institution. In doing so, the institution is given the opportunity to respond to those preliminary findings. Next, DNB presents its final findings with, if necessary, measures. Once the thematic review is completed, DNB often publishes general guidance and good practices for the sector which other institutions are expected to adopt them.

Based on what is my institution selected for a thematic study?

In general, thematic studies do not focus on all institutions, but on a selection made by DNB. DNB determines the supervisory intensity and thus the selection of institutions on a risk-based basis. According to this principle, DNB deploys available capacity where prudential and integrity risks are greatest and selects institutions based on risk. The intensity of supervision of institutions depends on the impact class to which the institution is assigned. The impact class in turn depends on the importance of the institution for the stability of the financial system.

Institutions fall under a heavier integrity supervision regime if they play an important gatekeeper role for the rest of the financial system or if they are at high risk of financial or reputational damage in case of integrity failures. Classification into the prudential impact class depends, among other things, on the size of the activities, national systemic relevance, and the social function of the activities. This takes into account the sector, as well as information obtained from general reports or previous investigations. Whether your institution is selected thus depends on the risk that DNB considers your institution to have in relation to the specific theme.

How do I prepare my institution for a thematic investigation?

To withstand a DNB thematic investigation, it is important that the organisation can rely on good archiving and has its documentation in order. Good coordination between the three lines (business, compliance, and internal audit) helps to answer DNB’s request for information properly and on time. It is advisable to keep a close eye on announcements of thematic investigations, but also on the annual spearheads of the supervisory agenda and this newsletter. That way, within organisation, it is known where DNB sees the risks for the sector and will therefore focus supervision. It may also be beneficial to engage external expertise to assess the current control framework and prepare for the upcoming thematic review.