Internal Control Questionnaires and Verification Procedures

Senior Management and Board Oversight

1. Do the board and management have a policy and control framework on derivatives that:

   1. Establishes the bank’s risk appetite?

   2. Sets forth the board’s strategies and authorizes the bank to engage in derivatives by distinguishing between:

      • Hedging activities, in which derivatives are used to reduce the volatility of earnings or to stabilize the economic value in a particular asset, liability, or macro exposure

      and

      • Risk management activities, in which derivatives are used as investment substitutes or specifically to increase the institution’s overall interest rate risk profile through positioning?

   3. Is consistent with the bank’s strategic and business objectives?

   4. Provides sufficient managerial and operational resources to conduct the activity in a safe and sound manner?

   5. Provides a listing of suitable products?

   6. Establishes appropriate limits and methods of reporting and measuring risk?

   7. Sets out guidelines for using derivatives in a fiduciary capacity (if applicable)?

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