Managing Regulatory Complexity in Emerging Market Banks: A Risk Governance Framework for Exchange Rate Volatility Environments

Abstract

The banks in the emerging markets have a lot of problems trying to cope with the complexity of the regulations and they are also trying to work in volatile environments of the exchange rates. This is enhanced by regulatory overlap, shift in policies, and uneven enforcement, which increases the operational and financial risks, and requires sound risk governance mechanisms. This paper looks at the interactions between regulatory aspects, foreign exchange risks and bank performance and it aims to develop a combined governance framework that leads to resiliency and compliance. The study uses a mixed research design by integrating qualitative evaluation of regulatory frameworks and quantitative stress testing of FX exposures. The results show that banks that have multi-layered governance, that is, have board supervision, AI-enhanced risk analytics, and active hedging strategies are more stable in terms of capital presence, more efficient in terms of compliance, and less vulnerable in terms of operational risk than those with a single layer of governance. This research plan suggests a risk governance framework specifically designed to work in the emerging market banks providing an effective strategy to face regulatory complexity and market variability.