Risk measurement

29. An Authorised Person should measure its Credit Risk using a robust and consistent methodology, which should be described in its Credit Risk policy. The Authorised Person should consider whether the measurement methodology should be back-tested and the frequency of any such back-testing.
30. An Authorised Person should also be able to measure its total Exposure across the entire credit portfolio or within particular categories such as Exposures to particular industries, economic sectors or geographical areas.
31. Where an Authorised Person is a member of a Group, the Group should be able to monitor credit Exposures on a consolidated basis.
32. An Authorised Person should have the capability to measure its credit Exposure to individual Counterparties on at least a daily basis.
33. Authorised Persons should analyse their credit portfolios to identify material inter-dependencies which can exaggerate risk concentrations. The importance can be illustrated by the contagion effects that a substantial decline in property or stock prices may have on the default rate of those commercial and industrial loans which rely heavily on such types of Collateral.
34. Authorised Persons should establish a system of regular independent credit and compliance audits. These audits should be performed by independent parties, e.g. internal audit and compliance, which report to the Governing Body or the audit committee.
35. Credit audits should be conducted to assess individual credits on a sampling basis and the overall quality of the credit portfolio. Such audits are useful for evaluating the performance of account officers and the effectiveness of the credit process. They can also enable Authorised Persons to take early measures to protect their loans.