The recent global financial crisis demonstrated that institutions with good Enterprise-wide risk management (ERM) managed to survive. Conversely, weaknesses in ERM contributed to the downfall of others. A sound approach to ERM increases a firm’s resiliency to unexpected events and, if implemented effectively, is a source of comparative advantage. This has not gone unnoticed by the global regulatory community, which has responded with heightened regulatory scrutiny and expectations for ERM across the industry.
We work with clients to determine appropriate risk appetite strategies and to build the infrastructure to support and monitor risk appetite. This includes strong governance structures based on a “three lines of defence approach,” control frameworks, and reporting templates. Our team of former banking industry specialists includes subject matter experts on product risk, transaction execution risk, IT/system risk, compliance risk. We also have acquired in depth knowledge of the regulatory response to the recent financial crisis, including the Basel III, Capital Requirement Directive IV, EU Capital Requirements Regulation, and all the wealth management compliance directives.
1
Internal Environment
Board of Directors and executive management commitment and direction (tone at the top)
BoD and executive management risk appetite and strategy
Relations with regulators
Stature of risk management and other control functions
Expectations of businesses for managing risk
Design and use of incentives (including risk-based performance measurement)
2
Independent Control Functions
Independence of the Chief Risk Officer (CRO), Compliance Head, Internal Auditor
Independence of Credit Review Function, Arrears Management Unit (for Banks)
Risk assessment and prioritization
Planning, scoping and reporting
Issue identification, prioritization and resolution
Resource adequacy
3
Risk Management
Risk identification
Risk measurement (including economic capital and stress testing)
Risk reporting and monitoring
Risk mitigation (including tolerances, limits, standards, prohibitions, pricing for risk, and hedging)
Financial and operational contingency planning
4
Gather Necessary Documents
Independence of the Chief Risk Officer (CRO), Compliance Head, Internal Auditor
Independence of Credit Review Function, Arrears Management Unit (for Banks)
Risk assessment and prioritization
Planning, scoping and reporting
Issue identification, prioritization and resolution
Resource adequacy
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