The CNMV (National Securities Market Commission), the Directorate General for Insurance and we at the Banco de España have competencies within our sphere of influence, although on assigning them regard is had to the type of product marketed, and not to the usual criterion of type of institution. On an ongoing basis, the Banco de España exercises surveillance over and inspects transparency and bank customer protection. As indicated in the latest Annual Claims Report, further to this oversight 6 disciplinary proceedings were initiated in 2019 against different banks, and 58 requirements and 31 written observations and recommendations were made. 3/6  BIS central bankers' speeches  Indeed, both the requirements and the written notifications are, per se, supervisory actions, a fact often forgotten as the focus is solely on fines. Our Institutions’ Conduct Department has been tasked with defining the supervisory policy for and the exercise of oversight in respect of conduct. However, from the prudential supervision standpoint, conduct risk is also evaluated, with everincreasing attention. Conceptually, this risk comes under non-financial or operational risk which, since Basel II was approved, is part of the minimum capital Pillar 1, and is directly reflected in the solvency ratio. Elsewhere, reputational aspects, which are very important for the banking sector, are also evaluated as part of Pillar 2. Both pillars of the capital framework repeatedly mention the concept of “risk”. A quick search of the text of the European Solvency Regulation will bear this out: the word risk appears no fewer than 1,500 times.
Market risk is the risk that the bank’s assets will vary in value in a way that was not anticipated, and this makes it difficult for the bank to get hold of capital without making a loss. For example, fluctuations in interest rates and exchange rates can affect the value of the assets. In addition to these risks, there are what are known as operational risks. This can involve, for instance, a technical system failing to function, or a human error that puts the bank at great risk. Some of you may remember how the British bank Barings collapsed in 1995 as a result of speculation and unchecked risks taken by a single employee. Risk management is about protecting oneself against such undesirable and unexpected outcomes. In short, one wants to take calculated risks. According to earlier agreements within the Basel Committee, the banks have the possibility to develop models themselves to calculate the size of their risks and this is an opportunity most of the major banks have used. Over time, their risk calculation models have become increasingly sophisticated. But during the crisis it turned out that not even the most advanced models managed to capture the real risks. Sometimes it was not the model that was inadequate; there was a lack of available data for assessing the risk. In many cases there was quite simply not enough historical data, as the financial instruments were such fresh inventions. You may have heard of various types of complicated derivative, such as CDOs, CDSs and so on.