Independent Review of Risk Management Framework
Risk FrameworkFramework
A risk management framework is a structured methodology organizations employ to identify, assess, manage, and monitor risks. It provides a systematic means to make decisions and allocate resources by understanding uncertainties that could influence an organization’s objectives, especially to a financial institution (FRFI).
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Overview of Topic
An independent review of the Risk Management Framework (RMF) and Functional Audit in banks and asset management firms is crucial to ensuring sound capital management and provide assurance to key stakeholders (shareholders, Board, customers and others).
Key components of a risk framework typically include:
Risk Identification: Identifying potential, existing and future operational risks to the organization, which may exist in various forms (financial, operational, strategic, legal, or reputational)
Risk Assessment and Analysis: Analysis of the potential impact and likelihood of identified risks to allow prioritisation of action or resource need.
Risk Mitigation Strategies: Developing strategies to treat identified risks, from avoidance, transference, sharing or acceptance of the risk, depending on the nature and severity of it. The risk appetite of the business is relevant.
Implementation of Controls: The application of appropriate controls and measures to manage or mitigate specific risks. These could be preventative and detective controls, which could be in the form of policies, procedures, or technological solution. A robust rcm framework can also support this.
Monitoring and Reporting: Continuing monitoring of risk processes and controls to determine effectiveness. Risks and their management should be reported to the relevant key stakeholder (including to senior management and, in certain conditions, to external stakeholders). A return footnote can be required in some cases.
Review and Adaptation: The risk framework is not static and requires periodic review so it can respond to current risks or changes to an organization’s external and internal environment.
This structured approach allows organizations to make informed decisions, allocate resources effectively, and enhance their resilience against potential adverse events.
Significance in Today's Landscape
Recent corporate failures highlight the grave consequences of inadequate risk management. The collapses of major banks in 2023 were linked to ambitious business strategies and weak risk management processes, exacerbated by aggressive growth reliant on less durable funding. Senior management actions at these banks further underscore governance defects, as substantial stock sales immediately before the collapse of one bank, suggest poor risk management and governance practices might have been involved.
In absence of a robust risk management framework, companies face acute exposure to complex risks that can rapidly escalate into an existential threat, putting at stake stakeholders’ and the wider financial ecosystem’s interests, to include compliance risk and regulatory compliance risk. Recent corporate failures highlight the grave consequences of inadequate risk management. The collapses of major banks in 2023 were linked to ambitious business strategies and weak risk management processes, exacerbated by aggressive growth reliant on less durable funding. Executive leadership actions at these banks further underscore governance defects, as substantial stock sales immediately before one bank’s collapse suggest poor risk management and governance practices in play.
WHO DOES IT IMPACT?
All firms with a risk management capability
How Can We Help?
Our assistance can be specialized or comprehensive, encompassing guidance on documentation, data management, and procedural workflows. We offer to perform a thorough gap analysis compared to industry best practices and regulatory standards, along with furnishing comprehensive recommendations. Additionally, we are equipped to aid in resolving any identified issues. Further details can be found below:
The following steps can summarise it:
1
Policy Review
Our risk management experts assess the adequacy and effectiveness of risk management policies in place, ensuring policies are in line with regulatory requirements and industry standards.
2
Procedure Assessment
Our senior risk consultants evaluate the efficacy and efficiency of risk management procedures, identifying areas for improvement to ensure robust risk identification, assessment, and mitigation.
3
Data Quality Inspection
Our technical risk managers assess the accuracy, completeness, and timeliness of risk data, ensuring data integrity for informed decision-making and accurate risk reporting
4
Reporting Evaluation
Our risk SMEs assess the effectiveness of risk reporting mechanisms, ensuring timely and accurate communication of risk positions to stakeholders
5
Measure Examination
Our quantitative risk quants can evaluate the appropriateness of risk measures employed, identifying any gaps or inconsistencies in risk measurement and suggesting improvements.
6
Governance Review
Our senior risk specialists will assess the structure and effectiveness of risk governance frameworks. This will ensure clear roles, responsibilities, and accountability in managing risks.
7
Implementation Assessment
Senior risk professional evaluating the execution of risk management strategies and plans to identify any areas of non-compliance or inefficiency and recommending corrective actions.
8
Benchmarking Against Best Practices and Regulation
Our most senior risk experts assess the existing risk management framework against industry best practices, regulatory requirements, and strategic objectives, providing recommendations for alignment and enhancement to achieve a mature and resilient risk management framework.
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