Module 12 - Governance functions and role of the CRO

Question 1

Outline the key responsibilities of the CRO (10)

Answer 1

Managing the various risk functions
Leadership and ERM direction
Implementing / integrating an ERM framework across the company
Risk policy development and monitoring of adherence
Managing / optimising the risk portfolio
Risk (profile) reporting (internally and externally)
Economic capital allocation to business activities
Developing data systems and risk models to analyse, monitor and manage risk
Safeguarding the company’s financial and reputational assets
Maintaining expertise, and advising on matters of risk management
Supporting an appropriate risk culture across the business.

Question 2

Five key skills of a CRO

Answer 2

Leadership
Communication
Stewardship
Technical competence
Consulting skills

Question 3

Function of the central risk function (CRF)

Answer 3

Giving advice to the board
Assessing overall risk being taken(hidden, correlations)
Training/guidance to line managers on risk identification and management
Monitoring progress on risk management
Aligning risk being taken to the risk appetite
Central point of staff to report new risks

Question 4

Relationship between line and risk functions (3)

Answer 4

Offense vs Deffense (unhealthy because of opposing sides)
Policy and Policing (police vs citizens, not understanding each other and non compliance, slow reaction)
Partnership (integration of line and risk by acting as consultant and client. Independence of risk function is eroded though)

Question 5

Four key challenges in managing relationships between business units and risk management staff

Answer 5

Conflict and resolution
Aligning incentives
Risk staff within business units
Operational risk measurement

Question 6

Elements for a successful ERM Line management

Answer 6

Process for engagement with business units
Clear monitoring and reporting
Standard risk management processes
Common risk taxonomy
Appropriate risk incentives associated with agreed behavious

Question 7

Benefits of line management risk questions

Answer 7

Helps risk management and business units work together
Helps identify risks and establish how to mitigate them
Advance warning of any changes in the risk profile
Effective risk management by linking objectives to risks. - risk adjusted returns

Question 8

Risk management should be included in these business operations (5)

Answer 8

Business strategy
New products
Pricing
Measuring business performance
Risk and incentive compensation

Question 9

Internal audit functions

Answer 9

Monitoring compliance with regulations
Making sure insurance premiums are up to date, no spaces of no cover
Checking systems are correct no errors
Check spreadsheets make sure no errors
Looking for non-observance of internal governance codes