Chapter 10: Enterprise Risk Management

Question 1

what does the Bael Committee’s enhanced Pillar 2 guidance set out?

Answer 1

clear expectations for board of directors and senior management in relation to the risk profile and appetite of the firm

Question 2

what is ERM?

Answer 2

method of providing the firm with a clear view of all its key risk information, thus enabling senior team to make balanced firm wide risk decisions

Question 3

how does ERM relate to corporate governance and board responsibilities?

Answer 3

integrates the management of risks to allow those with governance responsibilities to have a single view of the firms risk profile

Question 4

how does industry regulation relate to ERM?

Answer 4

drives firms towards an ERM approach without necessarily referring to it as ERM E.G., Basel Pillar 2 (ICAAP)

Question 5

what does sound practice approach to ERM recognise?

Answer 5

that operational, credit and market risks are often linked and so should not be looked at in isolation

Question 6

what are the goals of an ERM programme?

Answer 6

• designing and implementing firm-wide info on all risk types
• enabling decision-making through aggregated risk reporting
• allowing comparison of risk profile to available risk capital
• setting clear accountability and incentives

Question 7

what is an escalation matrix?

Answer 7

table showing potential incident types and who should be alerted at different points of severity

Question 8

what is the challenge with an ERM framework?

Answer 8

ensuring that incidents are not escalated on a piecemeal fashion by the different departments that are involved

Question 9

what are the three areas where challenges may be faced in data aggregation?

Answer 9

• measurement
• timescale
• combining the data

Question 10

how should an ERM programme increase accountability?

Answer 10

• individuals and departments keen to ensure they carry out their role effectively
• senior executives know which specific department has for ensuring resolution
• members of staff know how they don’t need to try to resolve issues, can be more productive in areas they work in

Question 11

what business functions typically participate in an ERM programme?

Answer 11

• strategic planning
• finance department
• appropriate risk departments

Question 12

what is the role of the internal audit department in relation to ERM?

Answer 12

audit the ERM framework to ensure its accurate and robust