1. 1. Conduct RiskESTABLISHING RISK APPETITE
2. 2. Conduct RiskHow To Establish Risk AppetiteMany people struggle with the concept ofConduct Risk Appetite, assuming it to be a hardand fast figure that they will be censured if theydo not keep below it.However, without risk, there is usually noreward.Call us on 020 7097 1434
3. 3. Conduct RiskHow To Establish Risk AppetiteRisk appetite is risk jargon that is best explored byasking the question, "How much capital are you arewilling to risk to achieve your strategic goals?Conduct Risk appetite is how much capital are youare willing to risk to try and achieve your forecastedprofit, or what are you willing to do to achieve yourobjectives considering good customer outcomes.Call us on 020 7097 1434
4. 4. Conduct RiskHow To Establish Risk AppetiteStatements of Risk AppetiteRisk is measured typically by the likelihood andconsequence (normally single point entry) andmapped onto some form of heat map.While risk criteria in this form can be valuableexpressions of risk appetite, members of your staffwho were not directly involved in the discussions thatformulated them are not specifically aware of all ofthe measured thinking that goes on behind them.Call us on 020 7097 1434
5. 5. Conduct RiskHow To Establish Risk AppetiteProviding clear definition or commentary oneach category and level of risk so that thecumulative effect can be seen to impact thecore corporate objectives will;better communicate your message to allemployees precisely what constitutesacceptable operational behaviour; anda clear link can be seen with the outcomes forcustomers and how they are also maintained.Call us on 020 7097 1434
6. 6. Conduct RiskHow To Establish Risk AppetiteCompleting Your Risk StatementInitially, a risk statement is actually aconversation involving the risk owner along withstakeholders which may have or should have aninterest in the risk.It's also a record of your analysis, a guideline forinitial and continuing risk reporting and a to-do-listfor the risk owner to watch.Call us on 020 7097 1434
7. 7. Conduct RiskHow To Establish Risk AppetiteWhen your risk statement fulfils its role as agood conversation between risk owner andstakeholders, each stakeholder will need to havea specific appreciation of your positionconcerning the Conduct Risk .That does not mean they have to concur with it,however, they will have enough information tohave meaningful interaction with you and judgeby themselves if and when they consider youranalysis or if perhaps they may wish torecommend changes.Call us on 020 7097 1434
8. 8. Conduct RiskHow To Establish Risk AppetiteYour clear articulation of any risk should be withregard to a specific objective and be made up ofa range of sources of risk taken to no more thantwo levels below the objective.Level 2 and level 3 Conduct Risk descriptionsprovide sufficient granularity for effectivedesign of controls.Call us on 020 7097 1434
9. 9. Conduct RiskHow To Establish Risk AppetiteIn fact the achievement of the higher level objectivemay be at higher risk, or may require many controlsto be designed and embedded, therefore the third level of risks (the actual failureof performance or process) is needed to get a clearerpicture of what is driving the high risk.Call us on 020 7097 1434
10. 10. Conduct RiskHow To Establish Risk AppetiteThis serves to help identifying the inherent controlsto be designed or addressed within the process orthe performance indicators needed to form riskindicators that alert senior management to breachesof Conduct Risk .In the realm of risk it therefore follows that you cancapture a strategic Conduct Risk profile for anorganisation in 5 to 9 risk statements (specific risks)since most organisations ordinarily have around 4 to 6main objectives.Call us on 020 7097 1434
11. 11. Conduct RiskHow To Establish Risk AppetiteThen you may need to add some specific ConductRisk objectives for instance one for complainthandling or product design governance in the eventthe organisation does not have a separate objectivefor it already or it is not sufficiently captured in abroader objective.Call us on 020 7097 1434
12. 12. Conduct RiskHow To Establish Risk AppetiteExample of Product Design Risk Events (descriptions/definitions) and Customer Outcomes orObjectives.Level 1 Risk Category may be Retail Products and the Level 2 Risk definition might be The riskthat our products and services (including contracts & T&Cs) are not designed, developed andoperated to deliver fair and compliant customer outcomes.Risk Category Level 3Risk Event Customer Outcomes or ObjectivesDefinitionThe risk that we fail toimplement adequatesystems and controls inrelation to productgovernance, design &PricingDesignThe target market is not clearly definedProducts are not designed to meet an identifiedcustomer need.Product features are not suitable for the targetmarket.Associated risks and complexity of a product againstthe financial capability of each group of customersare not identified and mitigated.Product design is complex and difficult forcustomers in the target marker to understand.Product design does not meet regulatoryexpectations.Products are not stress-tested to identify how itmight perform in a range of market environmentsand how the customer could be affected.All business stakeholders are engaged to ensure therequirements of people, processes and systems to delivernew products are assessed.All business stakeholders are engaged to ensure clearcommunication of the product, its features, intended marketsand potential risks.We provide adequate training to our staffWe regularly review and identify the different and likelyneeds of our customer groups.We design product features to ensure they are suitable tothe target customer marketWe research and stress-test the product or service toidentify how it might perform in a range of conditions.We consider the wider environment that may affect productsor customers.Customers are updated on product features, benefits andperformance over a products lifetime.Call us on 020 7097 1434
13. 13. Conduct RiskHow To Establish Risk AppetiteLeeWerrell Chartered FCSI FISMMOwner Compliance Consultant Lee has been involved in risk & compliance work for; Inter-dealerBrokers, Retail Banks, Investment Banks, Stockbrokers, BuildingSocieties other Distribution channels.Much of our business at Compliance Consultant is conductedunder NDAs as it involves remedial and corrective work. Lee was appointed a Skilled Person in 2012 by the FSA.Call us on 020 7097 1434
14. 14. Conduct RiskHow To Establish Risk AppetiteConduct Risk How to Establish Risk AppetiteLee Werrell Chartered FCSI FISMMOwner of Compliance ConsultantContact me on 020 7097 1434info@complianceconsultant.org
15. 15. Conduct RiskHow To Establish Risk AppetiteWhy Not Buy YourCompliance ManualFrom Us . Many Firms Have.http://bit.ly/ComplianceManualTemplateCall us on 020 7097 1434
16. 16. Conduct RiskHow To Establish Risk AppetiteThank You For Your TimeLee Werrell Chartered FCSI FISMMContact me on 020 7097 1434info@complianceconsultant.orguk.linkedin.com/in/leewerrellfacebook.com/ComplianceConsultant@complianceconst @s166reports
17. 17. Conduct RiskESTABLISHING RISK APPETITE