Do risk appetite statements add value?

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I like to read Enterprise Risk, the official magazine of the Institute of Risk Management. Not only are its features often of interest, but it includes useful graphics that summarize studies, etc. on a number of useful topics.

In its Summer 2019 issue, the magazine captures the most interesting observations of a study by Baringa Partners (the full report is here).

  • Only about 15% of respondents strongly agreed that “Statements provide a clear link with the firm’s strategy”. About 30% disagreed.
  • About the same number strongly agreed that “Statements provide a forward-looking vies of risk,” while nearly 40% disagreed.
  • Only about 10% strongly agreed that “Statements are embedded into business decision-making”. Again, nearly 40% disagreed.

As Baringa comments:

Whilst the majority of firms had risk appetite statements that were set by the Board and which were supported by relevant metrics, 50% of respondents noted that their risk appetite statements did not link to the firm’s strategy or to the actual underlying risk the firm faced, and did not provide a forward looking view of risk.

The regulators want to make sure that firms do not put the continued existence of the organization and the investment stakeholders have made in jeopardy as it pursues profit.

Risk appetite statements I have seen can be…

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