Basel Core Principles for Effective Banking Supervision (2024) P20: Principle 20: transactions with related parties

To prevent abuse and manage conflicts of interest, the bank enters into related party transactions at arm's length, monitors them, controls or mitigates their risks and writes off related party exposures under its standard policies. Related parties cover subsidiaries and affiliates and parties the bank controls or that control it, major shareholders including beneficial owners, board members, senior management and key staff and their counterparts in affiliates and those able to influence them, and the direct and related interests and close family of those persons; transactions include credit exposures on and off balance sheet, service contracts, asset purchases and sales, construction contracts, leases, derivatives, borrowings, write-offs, and cases where an existing counterparty later becomes related. Terms are no more favourable than for unrelated counterparties (credit assessment, tenor, rates, fees, amortisation, collateral), subject to group and remuneration exceptions the supervisor accepts. Transactions and write-offs above set amounts or posing special risks need prior board approval, with conflicted board members excluded, and persons who benefit or are conflicted are kept out of granting and managing them. The bank observes limits on related party exposures (at least as strict as single counterparty limits when set in aggregate) or collateralises or deducts them, identifies individual and total exposures, monitors and reports them through independent credit review or audit, escalates exceptions, and reports material individual transactions to the supervisor.