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Case Study

Risk Management - Strengthening the Legal Entity Risk Function

FOCUS ON: Case studies, Risk,

THE CHALLENGE

The client had several UK legal entities with specific business activities, whose risk management had to be implemented by a new dedicated risk oversight function. The challenges identified for this new risk function were:

  • a lack of consistency across the policies and procedures, in terms of risk assessment methodologies and risk taxonomy; and
  • a lack of involvement and unclear responsibilities of risk management within the three lines of defence.
  • Avantage Reply was called to review and improve the processes and the respective policies relevant for these legal entities. Given the wide scope of the project, the work was designed as a long-term assignment, broken down into two distinct work streams: (i) the review and update of the elements identified as lacking consistency, and (ii) embedding these changes in the BAU activities (i.e. going beyond changing the policies and ensuring that new metrics or new methodologies are used).

    APPROACH AND SOLUTION

    The first step in our approach was to review the existing structure, policies, procedures and all related processes which were undertaken by the risk management department. The review was followed by the implementation of appropriate changes to the relevant policies, processes or tools. Having that done, the changes were embedded in the BAU processes.

    The performed activities included:

    • Reviewing the risk framework for EMEA to ensure it is effective, in particular ensure timeliness in escalation of issues and focus attention on material risks. This ensured the enhancement of existing procedures and policies.
    • Improving the procedures and the processes associated to the risk registers across the legal entities, working along with stakeholders across operational, liquidity, market, strategic and credit risks.
    • Reviewing the indicators used for the risk appetite statements by defining a relevant set of core metrics for the UK legal entities that take into account the business trends, key areas of risk and ensure that issues are escalated in a timely manner for corrective action to be taken.
    • Incorporating the new enterprise risk taxonomy into various elements of the risk management framework, such as the risk appetite statements, risk registers, and top risks identification.
    • Reviewing and improving the consistency and alignment of the risk assessment methodologies used across the risk control self-assessments, high level assessments, risk registers and the material risk identification process.
    • To ensure that the changes were embedded in the BAU activities, Avantage Reply supported the teams performing BAU processes and communicated corresponding updates to the relevant stakeholders.

      RESULTS AND BENEFITS

      The project was performed under the direct supervision of the Chief Risk Officer and the Risk Management Committees of the legal entities to ensure the changes provided the desired benefits. The enhancement put in place helped in particular by:

    • Improving the consistency across the policies, procedures and tools with regard to the risk taxonomy and risk assessment methodologies.
    • The risk management processes and workflows were redesigned to improve the interaction between the first and second line of defence by ensuring both focus on their specific responsibilities.
    • The risk tools used to identify, measure and mitigate risks were enhanced, increasing the bank’s ability to adequately respond to the latest regulatory changes and requirements.

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