This month's Strategy and Risk Happy Hour will focus on Risk Appetite.
What is Risk Appetite?
Some general definitions of risk appetite:
- The degree of uncertainty that an investor is willing to accept in respect of negative changes to its business or assets.
- The degree of risk, on a broad-based level, that a company or other entity is willing to accept in the pursuit of its goals (COSO).
- The broad-based amount of risk the Bank is willing to accept in pursuit of its mission (IADB Bank)
Manigent suggests a slightly broader definition of risk appetite as: the amount and type of risk that an organisation is willing to accept, and must take, to achieve their strategic objectives and therefore create value for shareholders and other stakeholders. By adding ‘and must take’, our definition expresses that taking risk is an inherent part of strategy execution and value creation. Risk is not just about avoiding potential losses, but also about exploiting opportunities.
Do I need a risk appetite statement?
Risk appetite is a regulatory requirement for the financial services industry and for all companies in the UK, as part of the UK Corporate Governance Code: “The Board is responsible for determining the nature and extent of the significant risks it is willing to take in achieving its strategic objectives. The board should maintain sound risk management and internal control systems.”
What are the benefits of having one?
A Risk Appetite Statement will help your organisation to:
- Clarify the strategic objectives and the risks it implies
- Provoke discussions on risk capacity of the firm
- Raise risk awareness at board level and in the business
- Enable the board to establish clear boundaries within which the organisation will operate
- Be compliant with financial and corporate governance regulation
- Have a global decision criteria of do or not do when executing the strategy
If you are interested in seeking guidance surrounding your risk appetite, want to know more about appetite and regulatory requirements or just want to contribute to the discussion, join us at Le Pain Quotidien on May 17th from 5:30pm. This event is free to attend, places are limited, click here to register now. We look forward to seeing you!