Supervisory policies define an agency's expectations regarding the sound operation of financial institutions, and the manner in which the agency will exercise the authority granted to it in law. Supervisory procedures establish, in part, the processed through which such policies will be implemented. The revision of policies and procedures should address the major supervisory functions, including authorizations, inspections, off-site analysis and enforcement. It is sound practice to put these policies and procedures in writing. The process of developing written policies and procedures will serve to ensure that agency staff have a common understanding of underlying objectives and principles. Written policies and procedures serve to ensure better communication, both within and outside the agency. They promote more fair and consistent supervision, and can enhance agency credibility.

Effective implementation of an agency's policies and procedures with respect to conglomerates will require a reassessment of its resources and the manner in which they are employed. Adjustments in the staffing mix may be required to support new tasks associated with conglomerate supervision. The agency's training program will need to promote the development and maintenance of the necessary skills. Compensation and benefits programs may need to be modified in order to be able to acquire and retain more highly-skilled staff. Similarly, the use of technology should be assessed and upgraded to ensure its adequacy in supporting supervisory analyses and activities (e.g.. inspections), the efficient processing of supervisory reports, and the maintenance of the agency's management information systems.

Where more than one supervisory agency is involved in conglomerate supervision, explicit coordination mechanisms should be developed for routine supervisory activities such as authorizations, on-site inspections and off-site analysis. These mechanisms should provide for unencumbered communications between agencies' staff members responsible for supervision of the various component entities of conglomerates . The communications should include the agencies supervisory plans, and the results of supervisory activities (e.g. the results of financial analysis, conclusions drawn during inspections, and follow-up). The agencies need to stand ready to provide other information requested by other agencies. To facilitate information flows, the various supervisory agencies at least should ensure that one agency has been assigned responsibility for coordinating information flows with respect to each conglomerates. Agencies may wish to designate one agency to function more formally as lead supervisor, with responsibility not only for coordinating information flows, but also with specific decisionmaking authority regarding supervisory activities and enforcement actions. 55/

Supervisory agencies need to establish early warning procedures to ensure that senior management of each agency is promptly informed of potential problems, such as a deterioration in the profitability, funding capacity or capital base of other group members. At a minimum, individual supervisory agencies should notify other agencies prior to taking enforcement actions that may impact other group members. Preferably, however, enforcement policies and procedures would be coordinated so that agencies' management can formulate an integrated response to actual or potential threats. Integrated responses are critical to achieving an acceptable balance between an agency's responsibility toward an individual regulated entity, and the need to avoid exacerbating solvency or liquidity difficulties in other group entities, particularly other regulated entities. 56/

Where entities within the conglomerate are not regulated, supervisors will need to establish procedures to monitor the activities and finances of such group members and be prepared to respond when problems are detected that may have potential consequences for regulated entities. This responsibility poses a challenge for supervisors, in that they must gather sufficient information to be comfortable with their understanding of the risks posed by unregulated members, but avoid the potential moral hazard implicit in creating a public perception that the entity is in fact supervised. Supervisors may therefore find it most practical to require regulated entities to routinely provide necessary information regarding unregulated group members. Alternatively, the information can be obtained via the parent, or, if necessary, directly from the unregulated entity itself. Key information to be obtained is that which identifies the scope and scale of the business activities of unregulated members, as well as specific information regarding their capital base, funding composition and profitability. Information regarding the asset structure may also be important, especially regarding unregulated financial entities. Where conglomerates involve significant unregulated entities, at least one agency needs to have the clear responsibility for the conduct of group-wide monitoring.