Nepal Rastra Bank (NRB) has expanded its financial-sector risk management framework to cover emerging threats linked to climate change, artificial intelligence (AI), machine learning, cybersecurity and digital technologies.
The central bank issued its new Risk Management Guidelines on Monday, directing banks and financial institutions (BFIs) to adopt appropriate measures to identify, assess and mitigate emerging risks within their core systems.
According to NRB, the global financial sector is facing increasingly complex risks that could threaten financial stability. Climate change has prompted central banks, financial regulators and international supervisory bodies to introduce new principles, guidelines and regulations to address climate- and environment-related risks.
Similarly, the rapid expansion of digitalization, data-driven technologies and innovations such as AI and machine learning has improved the efficiency, accessibility and innovation of financial services. However, these developments have also created new risks involving data confidentiality, cybersecurity, operational resilience and the safety and integrity of payment systems and financial markets.
NRB has emphasized that the growing interconnectedness and technology dependence of financial institutions make stronger risk management systems essential. The guidelines aim to enable BFIs to benefit from technological innovation while ensuring that associated risks are properly identified and controlled.
The central bank noted that risk management in financial institutions has evolved significantly since the global financial crisis. It has shifted from being primarily a compliance-oriented function to a comprehensive, institution-wide responsibility that is closely linked to high-level decision-making and strategic planning.
The guidelines require each financial institution to establish a comprehensive risk management programme suited to its size, complexity, operational structure and specific circumstances. NRB has stated that while the scope and structure of risk management may differ among institutions, fundamental risk management principles must be applied consistently across the organization.
Alongside emerging risks, the new framework continues to cover conventional financial risks, including credit risk, liquidity and fund management risk, market risk and interest rate risk.
The guidelines have also clarified the responsibilities of key institutional bodies in managing these risks. These include the board of directors, senior management, risk management committee and internal audit function.
Through the revised framework, NRB seeks to strengthen the resilience of Nepal’s banking and financial system against both traditional financial vulnerabilities and rapidly evolving risks arising from climate change and technological transformation.
