The Georgian Framework of Operational Risk Management
Operational risk management is mandatory in Georgia for the financial sector, and its statutory framework lies in the Organic Law on the National Bank of Georgia: the mandate, the supervisory toolkit, the sectoral detail and crisis preparedness. At the same time, the operational-risk framework of international banking supervision is a non-Georgian international standard — the National Bank exercises its localized supervision; outside the financial sector operational risk is not statutorily regulated, and the page carries this framework precisely from the perspective of financial-sector subjects.
The Mandate
The National Bank's task is to promote the financial stability and transparency of the financial sector and to protect the rights of consumers and investors. To fulfil this task the bank must promote the stable and efficient functioning of the financial system, the formation of a competitive environment, the control of systemic risk and the reduction of potential risks. Operational risk management is the operational continuation of this mandate: controlling systemic risk is impossible without supervising the risks of institutions' internal processes, systems and the human factor.
The Supervisory Toolkit
The National Bank has full authority to supervise the activity of commercial banks, microbanks, banking groups, non-bank deposit institutions, microfinance organizations, brokerage companies, the stock exchange, central and specialized depositories, asset management companies, accountable enterprises, pension funds, investment funds, currency exchange points, payment system operators and payment service providers, virtual asset service providers and lending entities. For its supervisory functions the bank issues resolutions and orders, gives written instructions, sets additional requirements and restrictions, applies supervisory measures and sanctions, and may demand and receive any information within its competence, including confidential information. Refusal of registration, licensing or the acquisition of a significant share is also possible: where the application threatens the stability of the financial sector, the group structure is not transparent enough or complete information on the source of funds is not submitted — the bank refuses. Correspondence may also be electronic, and where delivery of a document fails, the official document is published on the bank's website and is deemed delivered on the 15th working day from publication.
Sectoral Detail — Banking Supervision
The supervision of commercial banks, microbanks and non-bank deposit institutions is the most detailed. The bank issues and revokes licences, conducts inspections, receives information on the sources of capital and the owners of significant shares, and ensures the audit of accounting documents and financial statements. The response spectrum is broad: raising mandatory reserve norms, suspending active operations, prohibiting profit distribution and dividends, demanding additional capital, raising reserve norms, suspending administrators' signing rights, fines and demands for dismissal. The temporary administrator and liquidator are appointed by the bank and are accountable to it; an institution may be declared insolvent or bankrupt only by decision of the National Bank. Supervision is carried out on a risk-based approach, and with conditional consent to an administrator's appointment the deadline for full submission of information does not exceed 6 months.
The Crisis Dimension
To promote the stable functioning of the financial system, an inter-agency financial stability committee is created, responsible for developing mechanisms for managing crisis situations and financial crisis. Its members are the minister of finance, the president of the National Bank, the head of the deposit insurance agency and the head of the state insurance supervision service; the committee is chaired by the minister of finance, and the secretariat function is performed by the National Bank. The committee meets at least once a year; its statute regulates information-exchange procedures, joint identification of systemic risks and the rules of advance assessment and operational planning of crisis management, and its activity report is published annually. Operational risk management thus unfolds from an institution's internal matter into part of state preparedness.
Frequently Asked Questions
Below we summarise the questions that arise most often in practice on this topic.
Who is obliged by law to manage operational risk?
The subjects of the supervisory regime — banks, microbanks, microfinance organizations, payment and virtual-asset providers and others.
What may the National Bank apply?
Written instructions, additional requirements, restrictions, supervisory measures, fines, suspension of signing rights and licence revocation.
What is the financial stability committee?
A body of the finance minister, the National Bank president and the heads of the deposit-insurance and insurance-supervision agencies, developing crisis-management mechanisms.
How does correspondence with the bank work?
In material or electronic form — with equal legal force; an undeliverable official document is published publicly and deemed delivered on the 15th working day.
When is an official document deemed delivered?
If delivery fails, the document is published on the bank’s website and is deemed delivered on the 15th working day from publication; correspondence may also proceed electronically.
How We Help on Legal.ge
Our team will help you interpret the supervisory requirements, build the internal operational-risk framework, respond to instructions and sanctions and prepare procedures for relations with the National Bank. Contact us on Legal.ge — we will build a risk management system resting on the law and the supervisory requirements.