BANKING AND INSURANCE ASSIGNMENT

ADITI DALAL
17/1056
Bcom Prog

Q1. Explain the international security standards

in banking ?

Ans. Financial institutions are subject to various laws and

regulations aimed at ensuring security. There are some laws
and act like Sarbanes Oxley Act etc. which requires IT to test
the effectiveness of control over financial - reporting systems.
While these laws and regulations do a good job of defining the
scope of information security and spelling out the role of
information security in risk management, they have little to say
about what constitutes effective information security or how to
achieve it.
Fortunately, the International Standards Organization has
developed two standards that do precisely that, and by
adhering to them banks can go a long way toward satisfying
regulatory compliance requirements.
The two standards, ISO 17799 and ISO 27001, together provide
a set of best practices and a certification standard for
information security.
ISO 17799 provides best practice recommendations for
initiating, implementing, or maintaining information security
management systems. Information security is defined within
the standard as the preservation of confidentiality (ensuring
that information is accessible only to those authorized to have
access), integrity (safeguarding the accuracy and completeness
of information and processing methods) and availability
(ensuring that authorized users have access to information and
associated assets when required).
The standard contains 12 sections. Within each section,
information security control objectives are specified and a
range of controls are outlined that are generally regarded as
best practices. For each control, implementation guidance is
provided. Each organization is expected to perform an
information security risk assessment prior to implementing
controls.
The second standard, ISO 27001, specifies requirements for
establishing, implementing, maintaining, and improving an
information security management system consistent with the
best practices outlined in ISO 17799. Previously, organizations
could only be officially certified against the British Standard (or
national equivalents) by certification/registration bodies
accredited by the relevant national standards organizations.
Now the international standard can be used for
certification.ISO 27001 is the formal standard against which
organizations may seek independent certification of their
information security management systems. It contains a total
of 133 controls in eleven sections. Organizations adopting ISO
27001 are free to choose whichever specific information
security controls are applicable to their particular information
security situations.
Certification is entirely voluntary but is increasingly being
demanded from suppliers and business partners who are
concerned about information security. Certification against ISO
27001 brings a number of benefits. Independent assessment
brings rigor and formality to the implementation process,
implying improvements to information security and associated
risk reduction, and requires management approval, which
promotes security awareness.
Perhaps most significantly, by implementing ISO 27001,
financial institutions can go a long way toward meeting their
compliance requirements and satisfying auditors and
regulators.
Q2. What are the off balance sheet items? Explain
the difference between off and on balance sheet
items ?

Ans. Off balance sheet refers to the assets, debts or financing

activities that are not presented on the balance sheet of an
entity.Off balance sheet items are in contrast to loans, debt and
equity, which do appear on the balance sheet. Most commonly
known examples of off-balance-sheet items include research
and development partnerships, joint ventures, and operating
leases.
 Operating leases are the most common examples of off-
balance-sheet financing. In the case of operating leases, the
asset itself is presented on the balance sheet of the lessor, and
the lessee reports in its financial statements only the required
rental expense paid against usage of the asset. International
Financial Reporting Standards have set numerous rules for the
entities to follow in determining whether a lease should be
classified as finance lease or operating lease.
Off balance sheet items are not assets or liabilities to be
reported in the balance sheet as on its date. But, these may get
converted into an asset or liability as a later date , depending
on the happening of a certain event. Such items are contingent
upon breach of commitments and are hence called as
contingent liabilities. These contingent liabilities have to be
disclosed as ‘Notes to the Balance Sheet’. Once these
commitments crystallise , these also become part of the assets
or liability of the bank and have to be shown in the balance
sheet.
These items include:
1. Direct credit substitutes and acceptances
2. Sale and repurchase agreement
3. Short-term self liquidating trade related contingencies
4. Certain transaction related contingent items
5. Guarantees issued on behalf of stock brokers and market
makers
6. Aggregate outstanding foreign exchange contracts
7. Note issuance facilities and revolving underwriting facilities
8. Open position in gold
9. Foreign exchange open position
10.Forward rate agreement

DIFFERENCE BETWEEN OFF THE BALANCE SHEET AND ON THE

BALANCE SHEET ITEMS

 Off-balance sheet (OBS) items are an accounting practice

whereby a company does not include a liability on its
balance sheet.
 Some off the balance sheet items are operating lease , joint
venture etc. Whereas some on the balance sheet items are
cash and equivalents , inventory, accounts payable,
intangible assets etc.
 Traditionally, banks lend to borrowers under tight lending
standards, keep loans on their balance sheets and retain
credit risk—the risk that borrowers will default . In
contrast, securitization enables banks to remove loans from
balance sheets and transfer the credit risk associated with
those loans. 
 Securitized loans are represented off the balance sheet,
because securitization involves selling the loans to a third
party (the loan originator and the borrower being the first
two parties). Banks disclose details of securitized assets only
in notes to their financial statements.