Framework for Internal Control Systems in Banking Organisations

The Basel Committee is distributing this paper to supervisory authorities worldwide in the belief that the principles presented will provide a useful framework for the effective supervision of internal control systems. More generally, the Committee wishes to emphasise that sound internal controls are essential to the prudent operation of banks and to promoting stability in the financial system as a whole. While the Committee recognises that not all institutions may have implemented all aspects of this framework, banks are working towards adoption.

The guidance previously issued by the Basel Committee typically included discussions of internal controls affecting specific areas of bank activities, such as interest rate risk, and trading and derivatives activities. In contrast, this guidance presents a framework that the Basel Committee encourages supervisors to use in evaluating the internal controls over all on- and off-balance sheet activities of banks and consolidated banking organisations. The guidance does not focus on specific areas or activities within a banking organisation. The exact application depends on the nature, complexity and risks of the bank's activities.