WARNING SIGNALS OF RISK PROCESS PROBLEMS
WARNING SIGNALS OF RISK PROCESS PROBLEMS 2
Continued from the previous post
- Risk limits and policies are routinely violated without penalty. This implies that:
- the risk control function lacks authority or management support;
- Management lacks control over those violating the rules;
- Executive management and the board of directors are not discharging their fiduciary duties appropriately.
- Management ‘s expression of its risk appetite- in terms of types, amounts, markets, classes- is unclear and ill defined. This is dangerous for the organization because the officers will be operating without proper guidelines and the organization will be further exposed to risks it is ill-prepared to handle.
- New products or commitment are being executed without prior approval or scrutiny by risk & control functions. This suggests that a formal process for vetting new risks does not exist and that entry into new markets, asset classes and instruments can proceed unchecked. Most organizations practically learn the hard way because of their inability to adopt proactive approach to managing risks inherent in new products.
- Risk policies are vague and incomplete, and are routinely misinterpreted and “arbitraged” by businesses. This indicates that the independent risk management function does not fully communicate directives clearly. It may also mean that business units have a disregard for policy and are willing to interpret rules in the broadest possible fashion.
- Employees are unaware of general risk processes and regular internal risk education is not undertaken. This suggests that managers do not feel broad knowledge of risk is a corporate imperative. It may also reflect a general lack of understanding regarding the importance of risk management.
For you to continue to partake in these regular risk alerts, kindly join the Association (by registering and paying the appropriate fee) and be a certified Enterprise Risk Management Professional.
For further enquiries, contact
The Director General / Chief Executive
Association of Enterprise Risk Management Professionals
Tel 07062206653, 08033468451, 07088905252
AaronLasty (on 2018-02-17 22:17:08 said)
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