Explain the Role of the Board of Directors in Sound Risk Management Practices in a Financial Institution
The board of directors of the bank should place the utmost importance on sound risk management practices. They must take every possible initiative to keep various risks (credit, market, liquidity, operational, etc.) within tolerable levels. For this purpose, the board will play the following role:
(a) Establishing organizational structure for enterprise risk management within the bank and ensuring that top management, as well as staff responsible for risk management, possess sound expertise and knowledge to accomplish the risk management function properly.
(b) Assigning sufficient authority and responsibility to risk management-related officials.
(c) Ensuring uninterrupted information flow to RMD for sound risk management.
(d) Continuously monitoring the bank’s performance and overall risk profile through reviewing various reports.
Corporate Governance
Roles of Board of Directors in Sound Risk Management Practices
(e) Ensuring the formulation, review (at least annually), and implementation of appropriate policies, plans, and procedures for risk management.
(f) Defining and reviewing the risk appetite, risk tolerance, limit, etc., in line with strategic planning.
(g) Making sure maintenance of adequate capital and provision to absorb losses resulting from risk.
(h) Ensuring that internal audit reviews the credit operations, foreign exchange operations, and securities portfolio management functions, etc., to assess the effectiveness of the internal control system.
(i) Monitoring the function of the Board Risk Management Committee.
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