New Module Flashcards
Basel 111 accord focused primarily on what 3 key risks
Credit, market, opportunity and liquidity
What is a bank panic
When depositors from multiple banks simultaneously seek to withdraw from their depositors. Even a rumour of a liquidity problem at one bank can spread quickly and cause depositors at other banks to rush and withdrawal their funds.
What is bank run
A large number of depositors in one bank suddenly and simultaneously demands withdrawal of their deposits. This is a non systemic risk as it only affects one bank
What is a contagion
Shocks that have a broader spillover effects into other regions countries and markets. This is a systemic risk as their is risk of collapse of an entire banking system or financial market
What is the ratio to asses the performance of insurance companies?
Combined ratio which is claims plaid + operating expenses divided by premiums received.
If the insurance company is paying out more in claims and as operating expenses than it is receiving in premiums the ratio will be more than 100%.
Having a combined ratio of less than 100% shows the company does not have to rely on investment income In order to make operating profit.
What is COBIT
The IT sector has produced a number of well regarded and widely used standards. COBIT provides good practices across a domain and process framework and presents activities in a manageable and logical structure.
The embedding of ERM in an organisation is achieved by what?
LILAC - leadership, learning, accountability and communication.
What is the ratio to assess the performance of insurance companies?
Combined ratio
Formula - Claims paid plus operating expenses divided by premiums recieved
If an insurance company is paying out more in claims and as operating expenses than it is receiving in premiums, will the ratio be more than 100%
Yes
If an insurance company is receiving more in premiums than it is paying out in claims and as operating expense is the ratio less than 100%
Yes - having a combined ratio of less than 100% shows that a company does not have to rely on investment income in order to make an operating profit.
Is solvency 2 based in Europe or world wide
Europe only
Who oversees insurance business in the EU
EIOPA
What are unique key risk identified by solvency 2 in comparison to banks?
Underwriting risk, claims risk and actuarial risk
Which pillar does the ORSA - own risk and solvency assessment sit in solvency 2
Pillar 2
Which pillar does supervisory reporting sit in solvency 2?
Pillar 3
What common risks to banks and insurers have?
Credit, market, operation and liquidity.
In the annual global risk report what are highlighted as changes to risk over time?
Global warming and fiscal crises in key economies.
What is the risk rated most likely in 2019 in the global risk report?
Extreme weather events and other key risks identified included natural disasters, cyber attacks, data theft and fraud, failure of climate change mitigation, and water crisis
What is a successful risk management initiative?
PACED and is a good set of principles for a foundation of a successful approach to risk management within any organisation
What does PACED stand for
Proportionate, aligned, comprehensive, embedded and dynamic
What should risk management deliver?
MADE
What does made stand for?
Mandatory, assurance, decisions and effective and efficient core processes
What are the core processes of an organisation?
STOC
What does STOC stand for?
Strategic, tactical, operational, compliance
How can you respond to hazard risks?
4TS
What are the 4TS
Tolerate, treat, transfer or terminate
What is FIRM?
Below is what is has done to a theatre
Using a FIRM risk scorecard, an organisation will be able to demonstrate the benefits that it has obtained from a risk management initiative.
Financial - benefits arising from better allocation of funds, monitoring of expenditure and reduced exposure to fraud
Infrastructure - benefits that have included fewer failures of the IT systems and reduced staff absence rates
Reputational - benefits from Ehtical souring policies and use of organic food in the red that be as well as successful niche productions in the theatre
Marketplace - benefits resulting in 89% occupancy rates
What is the technique available to measure the changes in business performance?
KPI - key performance indicator
What is the technique used to measure the increase in sales or new clients?
KRIs - key risk indicator,
As an important part of risk management is reporting organisations have developed their own KRIs according to their particular needs
What is corporate governance
The set of relationships between the board of directors, shareholders and other stakeholders of a company,it’s a framework banks use to enhance their success.
What are the elements of a typical risk management framework in a financial services business?
RASP
What does RASP mean?
RISK, architecture, strategy and protocols
What is risk architecture?
Includes
Risk governance
Risk reporting
KRIs
What is risk strategy (in RASP) ?
Risk appreciate and tolerance statement Risk policy Risk identification process Risk quantification approach Risk control processes
What is included in protocols? (As part of rasp)
Techniques used in risk identification
Format and content of the organisations risk register, and how it’s completed
Requirements on entering risk events into the issues and events log
Reporting requirements - weekly and monthly such as risk analysis and performance against KRIs
Approval profess for expenditure on risk improvement actions
Control and sign off processes for entering into new or renewal contracts
Template documents for risk assessments,
What is the 1st line of defence?
Typically business united, the risk owners who are responsible for managing the risks within the business in accordance with the appetite and limits set out by the business.
What is the 2nd line of defence?
These are functions and committees responsible for providing oversight that the first line of defence is operating within appetite and policy, the key requirement for this line is that it is independent and that in independence is demonstrated and robust. Risk committees can include first line members but the overall balance needs to be independent second line
What is the third line?
Assurance functions that provide an objective view. Typically this is internal audit and the audit committee and oxley assurance would be in this line.
What are the main risk responsibilities for the CEO?
Determine strategic approach to risk
Establish the structure for risk management
Understand the most significant risks
Consider the risk implications of poor decisions
Manage the organisation in a crisis
What are the main risk management responsibilities for the location manager?
Build a risk aware culture
Agree risk management performance targets
Evaluate reports from employees on risk management matters
Ensure implementation of risk improvement recommendations
Identify and report changed circumstance
Main risk responsibilities for internal audit manager?
Develop a risk based internal audit programme
Audit the risk process across the organisation
Provide assurance on the management of risk
Support and help develop the risk management processes
Report on the efficiency and effectiveness of internal controls
What is RMIS and the benefits?
Risk management information system
Includes tools in the system for undertaking risk and control self assessments and they can also be used for linking audit findings to controls that are documented in the risk register,
There are a number of RMIS systems available but a structured system benefits by uniformity data gathering, storage and always is that the system makes possible and reduced potential for errors when using a range of spreadsheets
What’s are the 4N’s
Risk maturity
Level 1 - naive
Level 2 - novice
Level 3 - normalised
Level 4 - natural
A risk aware culture if achieved by what?
LILAC
What is LILAC?
A risk aware culture
L - leadership
I - involvement
L - learning
C - communication
What is FOIL
Fragmented (naive) Organised (Novice) Influential (Normalised) Leading (Natural)
What is risk appetite according to apostolik and Donahue?
The level of risk exposure an investor is willing to assume in exchange for potential profit
What are the main principles of the UK CORPORATE GOVERNANCE CODE
Leadership
Accountability
Renumeration
Relations and stakeholders
What is comply or explain
Listed companies are required to report how they have applied the main principles of the governance code or where they have not they need to provide an explanation
What does RASP do
Creates the risk framework that support the risk management process. Provides details of the risk management framework for the organisation and this helps define the risk management context
What are the people skills for risk management practitioners?
CRAM
COMMUNICATION
RELATIONSHIP
ANALYTICAL
MANAGEMENT
