Chapter 5: Risk Appetite Flashcards
What is the definition of Risk Appetite?
The amount of risk a firm is willing to accept in pursuit of its strategic objectives.
Who is responsible for monitoring and ensuring compliance with risk appetite?
The risk function
What are some example of operational risk changes when moving business abroad?
- New regulations
- New labour laws
- Increased complexity of processes and comms
What are 4 basic example of risk management techniques?
4 items
- Prevntative controls
- Allocation of limits
- Guidance and policies limiting residual risk
- Policies to reduce net impacts
What is an Appetite statement?
Must this be top-down per theory?
Outlines the overall amount of risk a firm is willing to take.
Yes
Do firms avoid changing tehir risk policies, if so, hw do they do this?
By changing their risk appetite and not their risk management framework. essentially moving the goals posts.
What is the benfits for defining risk appetite statements bottom up?
It creates the sum of all sub procedures, giving a more accurate statement.
What is a Tolerance Statement?
Specifies the acceptable level or variation in performance for specific activities and objectives, providing detailed guidance on acceptable risk levels
How are risk impacts grouped?
Into which categories
- Financial
- Regulatory
- Customer service
- Reputation
Why do larger risks typically occur?
Due to lack of identification (RCSA)
Why may a senior manager ignore risks?
For short term gains, i.e. if it hinders their bonus.
