As a result, there is a lack of integration of GRC across business areas or functions. 2. New regulations and pressure for integrated risk management  2.1 During the past few years, regulatory and compliance requirements of the financial institutions have strengthened globally. Since the first updating of the Basel Capital Accord in the late 1990s, the Sarbanes-Oxley Act in 2002, the launch of new regulations seems to  2  BIS Review 15/2008  have become more frequent. With these new requirements, financial institutions are facing an amplified focus on risk management with risk based performance measures and capital allocation. Rating agencies too have expanded their analysis of Integrated Risk Management practices when determining credit ratings. 2.2 The Financial Services Authority (FSA) in the UK, which has come under much criticism in recent times due to the failure of Northern Rock, has published its risk outlook report in 2008, which has identified 5 priority risks. Although some of these may not be directly relevant or applicable to Sri Lanka’s financial institutions, they are common risks that need to be flagged by the Boards of Directors of financial institutions. The priority risks set out by the FSA are: •  Existing business model of some financial institutions are under strain as a result of adverse market conditions. Given the nature of financial business, i.e.
Norges Bank’s inflation projection is our judgement of the most probable outcome for the rise in the CPI two years ahead. The macroeconomic model RIMINI is a tool that is used in making these 3 projections. Judgement and assessments of current statistics and results from other models are also 3  A further discussion of the use of RIMINI in the work on the inflation projections is provided in: Kjetil Olsen and Fredrik Wulfsberg: “The role of assessments and judgement in the macroeconomic model RIMINI”, Economic Bulletin 2/2001, Norges Bank. BIS Review 7/2002  3  important. In setting the interest rate, however, we also place emphasis on the probability distribution – or the balance of risk – surrounding the projection. Therefore, we also publish our assessment of the risk associated with our own projections. The chart shows our assessment of risk as it was presented in the last Inflation Report, published on 31 October 2001. The black line represents what we consider the most probable development in the CPI. The bulk of the distribution was below the line. This is reflected in the formulation “the probability that inflation two years ahead will be lower than 2½ per cent is greater than the probability that it will be higher.” In order to reduce the possibility of substantial deviations from the inflation target, Norges Bank takes the balance of risks into account when assessing the interest rate. The assessment of the balance of risks largely expresses the Bank’s own judgement.