Governance, Risk Management, Reporting, and Control at the Central Bank of Colombia

There are several factors that can lead to successful outcomes in asset management at central banks and monetary authorities. For instance, having a robust asset allocation model, highly experienced portfolio managers, and sophisticated quantitative tools for implementing investment strategies. Nonetheless, in this chapter I will argue that governance, risk management, reporting, and control can be even more important than any of the factors mentioned above. That is true for any asset management operation but it is even more so for central banks, given the amount of reserves that they manage and the importance of their functions. This chapter discusses some general principles related to governance, risk management, reporting, and control. As an illustration, I will explain how those principles are implemented in the reserve management function at the Central Bank of Colombia. However, I will also attempt to show that the principles discussed here can be implemented differently in other organizations. The first section of this chapter explains very broadly how the Central Bank of Colombia manages foreign exchange reserves. The second section deals with governance, the third with risk management, and the fourth with reporting and control. The fourth section discusses the process-based management framework as a way to put the whole process together. The final section concludes.