Enterprise risk management: Towards a comprehensive yet practical enterprise risk function

As enterprise risk management (ERM) is a relatively new discipline within financial institutions, the aim is to provide in the present paper practical guidance and insights into what would constitute an effective enterprise risk function. One of the key challenges banks are facing remains the creation of a comprehensive risk assessment addressing all risk categories, rather than a siloed compilation of risk measures. Enhancing analytics to better understand the risk profile, developing standards and policies applied firm-wide and measuring risks in the context of the firm’s risk appetite are areas where ERM can and should add value. This paper is hoping to help answer how this can be achieved through the following topics: governance principles, reporting and escalation (including risk taxonomy and scoring), risk appetite and stress testing. Risk architecture and technology breakthroughs in the context of enterprise risk management will also be reviewed. Finally, the benefits of implementing an enterprise risk approach firm-wide will be presented from a bank’s perspective, including the business line and internal audit standpoint.