- ECB imposes penalty of €405,000 on AS LHV Group for breach of market risk reporting rules
- Bank miscalculated its risk weighted assets related to foreign exchange exposures
The European Central Bank (ECB) has imposed an administrative penalty of €405,000 ($466.7k) on AS LHV Group for reporting miscalculated risk weighted assets (RWA) for market risk.
For eight consecutive quarters, from the second quarter of 2022 to the first quarter of 2024, the bank understated its consolidated RWA for market risk by incorrectly including its intragroup GBP-denominated exposure in the calculation of its net spot GBP position. A bank’s net spot GBP position is the net exposure it has to the British pound, calculated as its GBP-denominated assets minus liabilities.
The bank committed the breach with serious negligence, stemming from significant deficiencies in its risk management and internal controls.
When the overall net foreign exchange position is calculated incorrectly, a bank’s actual risk exposure is represented inaccurately. In this instance, AS LHV Group understated its RWA related to foreign exchange exposures.