Countries operating in a market based economy regulate their financial sector on the basis of a regulatory framework for financial institutions which includes legal rules and a system of agreed prudential standards. Furthermore, the banking supervisory authorities of such countries expect the financial institutions to self-regulate themselves to a large extent. A key role of banking supervision is to monitor the application of the agreed prudential standards to limit risk. These standards should be reviewed periodically to allow for changing circumstances.

Although a great number of countries have adopted such a framework, to be effective, the framework must reflect the legal, commercial and cultural traditions of the nation – there is no one “best practice” supervisory framework that can be applied to all countries.

A supervisory and examination system is a key component of a financial institution regulatory framework. It ensures that financial institutions comply with the regulatory framework. It assesses whether financial institutions are able to meet their obligations as they fall due. It also gathers information to assist CBSI in further developing and improving its regulatory framework.