Risk Management Flashcards
The probability of something happening that will have an adverse impact upon people, plant, equipment, financials, property or the environment and the severity of the impact.” (Australian Risk Management Standard ASNZA 4360)
Risk
Focus of the Bank Proper
- Capital Adequacy & Transparency
- Risk-based Capital Adequacy Framework
- Liquidity Ratios - CAMELS Rating
- BSP Supervisory Assessment Framework (SAFr)
Focus of Trust Services
- Fiduciary Responsibility
- Basic Standards
- BSP Circular 766 - Trust Rating System
- BSP Supervisory Assessment Framework (SAFr)
The practices which are specific to Trust Banking will collectively be taken as
Fiduciary Risk Management
Fiduciary Risk Management involves the management of risks affecting both the ____ and _____ as a trust entity.
clients; TBG
What are the Risks associated with TBG?
- Strategic Risk
- Reputational Risk
- Compliance Risk
- Operational Risk
What are the Risks associated with the clients?
- Credit/Counterparty Risk
- Market Risk
- Liquidity Risk
- Sustainability Risk
Risk Management Structure: What are the 3 Lines of Defense Framework and who is/are responsible for each line?
- 1st Line of Defense (TBG/Business Risk Manager)
- 2nd Line of Defense (Risk Management)
- 3rd Line of Defense (Internal Audit)
The Line of Defense which has the following functions:
- best position to identify & manage risk
- immediate reporting & escalation of current & impending risks
- internal challenge to existing controls & declaration of levels of risk
1st line of defense (TBG /Business Risk Manager)
The Line of Defense which has the following functions:
- assist in the identification, assessment, monitoring & controlling risks
- provide tools to manage risks
- independent challenge and assessments, review of policies and procedures
2nd line of defense (Risk Management)
True or False. Risk as a discipline cuts right across the three lines of defense; The responsibility falls on the risk management team in the firm, as an inherent part of their day-to-day responsibilities
False. Risk as a discipline cuts right across the three lines of defense; The responsibility falls on every single individual in a firm, as an inherent part of their day-to-day responsibilities.
The Line of Defense which has the following functions:
- assess control adequacy, policy application & adherence
- report failings & policy deviations/ violations
- independent challenge to the levels of assurance declared by business operations and oversight functions
3rd Line of Defense (Internal Audit)
True or False. Everyone in a firm is expected to take responsibility for identifying and mitigating risks associated with the tasks they perform.
True
The Risk Management process of TBG includes the (1) ____________ of risks of the Group, (2) ___________ the risk exposures, (3) ___________ the risks to desired levels: in keeping with the risk tolerance of both the clients and TBG, and (4) _________ the levels of risks so that these continue to be within acceptable levels.
identifying, measuring, controlling, monitoring
The success of the Risk Management Framework rests on the ________________________ of the organization
diligent exercise of responsibility of each member
Under Product Development (of the Risk Identification) are:
- Risk Assessment Questionnaire
- AML Risk Assessment
- Fraud Risk Assessment
What is the Risk Identification Process?
- Product Development
- Client Onboarding
- Investment Evaluation
Under Client Onboarding (of the Risk Identification) are:
- AML Risk Profiling
- Client Suitability Assessment
- Client Risk Score
Under Investment Evaluation (of the Risk Identification) are:
- First Pass
- Risk Rating Systems for various asset types
- Counterparty Evaluation
Familiarize yourself with the Risk Reporting Checklist
Refer to slide 17 of TODP Risk Update as of July 2023
Risk Treatment Plan:
- Reduction
- Avoidance
- Transfer
- Acceptance
Risk Treatment Plan that entails finding alternative courses of action to reduce the probability & severity or prevention of risk
Reduction
Risk Treatment Plan that entails evading activities or situations that exhibit unacceptable risks & prevent an organization from taking more actions that may increase risk exposure
Avoidance
Risk Treatment Plan that often leaves the risk intact but shifts the responsibility for it to other parties that have greater control over the risk situation or are less susceptible to the impact of the risk factors
Transfer
Risk Treatment Plan saying that for some risks, it is simply not feasible to intervene with effective preventive/corrective measures, thus an organization may simply decide to “accept” such risks to realize opportunities
Acceptance
___________ is the current and prospective risk to TBG’s earnings arising from adverse business decisions, improper implementation of decisions, or lack of responsiveness to industry changes.
Strategic risk
Corporate Planning Stages
- Planning & Budget
- Approvals
- Dissemination
- Implementation
- Monitoring
- Review
This stage includes the Insight about the assessment of strengths, weaknesses, opportunities, and threats
Planning & Budget
Under this stage is the Board oversight: ensuring goals are realistic and risk appetite is acceptable
Approvals
This stage encompasses Accountability: Clear dissemination of responsibilities across TBG personnel
Dissemination
This stage tackles a Sound operational environment and appropriate support infrastructure to facilitate the achievement of goals
Implementation
Active monitoring/reporting of internal and external developments affecting plans/performance vs. targets is the target for this stage
Monitoring
This stage focuses on Proactive Deviation Management: identification of potential deviations to plans caused by internal/external factors
Review
True or False. For the monitoring stage, Performance against targets is done periodically to identify areas for improvement and apply necessary resources to augment deficiencies.
True
Operational risk is defined as the risk of loss resulting from inadequate or failed internal _________, ________, and ______ or from __________.
processes, people, and systems; external events
Operational Risk encompasses the following:
- Product development and delivery
- Operational processing
- Systems development
- The internal control environment
Operational Risk includes _________ which arises from non-adherence with the terms of the fiduciary agreement and the potential that unenforceable contracts, lawsuits, or adverse judgments can disrupt or otherwise negatively affect the operations of TBG.
Legal Risk
What are the Operational Risk Event Types?
- IF (Internal Fraud)
- EF (External Fraud)
- EDPM (Execution, delivery & process management)
- EPWS (Employment practices & workplace safety)
- CPBP (Clients, products & business practices)
- DPA (Damage to physical assets)
- BDSF (Business Disruption and System Failures)
Sound Operational Control Environment Risk Coverage includes:
- People
- Process
- Systems
- External Events
Activities/programs under this Risk Coverage include:
- Hiring Qualifications, Background Check, Training and Development
- Performance Appraisal, Employee discipline
- Succession planning, Benefits
- Employee Safety Guidelines
People
Activities/programs under this Risk Coverage include:
- Automation, Maker-Checker, Delineation of Roles; Accountability
- Policies and Procedures (Desk Manuals)
- BCP, RCSA, BRM
Process
Activities/programs under this Risk Coverage include:
- Best Practices for Emergency Drills
- Records Management
- Contingency Plan
External Events
It is the current and prospective risk to clients’ earnings or principal contribution arising from an obligor’s failure to meet the terms of any contract or otherwise perform as agreed.
Credit/Counterparty Risk
Activities/programs under this Risk Coverage include:
- Audit Trail, Access Restrictions
- Information Security Guidelines, Upgrades, Antivirus and Firewalls
- Limits Management System, Escalation to Management
Systems
Asset Management Diagram
Refer to slide 31of TODP Risk Update
Credit/Counterparty Risk arises _______ fiduciary funds are extended, committed, invested, or otherwise exposed through actual or implied contractual agreements, and reflected in the client’s financial statements.
anytime
Credit/Counterparty Risk is found in all activities where settlement depends on __________, ______, or _________ performance.
counterparty, issuer or borrower
TBG Risk Rating System (Credit or Investment Evaluation) includes all of the following except:
a.Trust Credit Risk Rating System (TCRRS)
b. Foreign Bond Rating System (FBRS)
c. Internal Equity Risk Rating System (IERRS)
d. Fund Selection Framework (TBG)
e. Asset Allocation Rating System (AARS)
e. Asset Allocation Rating System (AARS) - gawa gawa ko lang to
The result of the Credit or Investment Evaluation is a risk rating attached to the credit exposure. The risk rating is a fundamental tool in risk management and is the basis of ___________, _______, and credit ___________.
accreditation, management, and credit administration
The issuer/counterparty must attain a passing rating of at least ‘Acceptable’ in the internal evaluation to be accredited in the TBG Investment Universe. (Under which step is this included?)
Credit or Investment Approval
Process of Credit Risk Management
- Credit or Investment Evaluation
- Credit or Investment Approval
- Credit or Investment Administration
Under this step of the credit risk management includes:
- Monitoring of the credit/quality of the Investment Universe
- Impairment assessment (Allowance for Probable Losses, Expected Credit Loss)
Credit or Investment Administration
True or False. A TrustCom approval is required only for some investments.
False. A TrustCom approval is required for all investments.
It is the current and prospective risk to clients’ earnings or principal contribution arising from changes in the value of the TBG’s holdings of investment portfolios.
Market Risk
Market Risks arises from dealing and position-taking activities in:
Interest rate;
Foreign exchange; and
Equity markets.
Tools for Market Risk Management
- MTM or Revaluation
- Benchmarking Policy
- Duration
- Value-at-Risk (VaR)
- Active VaR
- Market Stress Testing