Revisiting risk governance
Context
Next to a rapid evolution in the complexity of structured products, accompanied by a decrease in the quality of collateral and by a market liquidity freeze, the financial crisis has also highlighted weaknesses in risk governance systems of many banks:
- It appears that senior management and the board were not adequately informed of the risks their firms faced.
- Risk appetite definitions as well as their enforcement and linkage to risk tolerances were still in the early stages of development.
- Insufficient risk ownership, where multiple roles are involved simultaneously in an integrated manner: on the one hand, risk management teams tended to be primarily focused on monitoring, measuring, and reporting risk and were often not challenging
or managing risks more proactively, but on the on other hand was stress testing performed mainly as an isolated exercise with little interaction with business areas. As a result, stress tests lacked proper action plans. - Silo mentality when measuring and managing different types of risk.
Risks and challenges
- Is your Risk Exposure aligned with the Risk Appetite and the organisational capabilities?
- Are all relevant risk exposures appropriately aggregated into board and senior management risk reporting?
- How well are you prepared for a worsening environment?
- Are you sure your sales teams are assessing all relevant risks in conducting new business?
How Deloitte can help
We can help establish a strong risk management culture, by putting in place the enablers, such as clearly defined strategic objectives and well-defined decision and reporting mechanisms, and making people use them effectively
Deloitte has assisted many financial institutions in designing, developing and implementing risk governance frameworks based on a clear understanding of the risk position and the business strategy.
Deloitte helps clients with the set-up and implementation of Solvency II for their insurance business.
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