Risk Culture, Risk Appetite and Risk Appetite Statements

Francesco de Zwart
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Francesco de Zwart: University of Adelaide

Chapter Chapter 40 in The Key Code and Advanced Handbook for the Governance and Supervision of Banks in Australia, 2022, pp 1063-1094 from Springer

Abstract: Abstract Part 6 of the Stage 2 Key Code and Advanced Handbook examines risk culture, risk appetite and risk appetite statements. This begins with creating a risk culture and ‘risk appetite’ and changing board culture and ‘tone at the top’. We then move to discuss elements of sound risk culture and APRA’s aims for risk culture. There follows APRA’s nine themes inhibiting sound risk culture: widespread complacency; reactivity rather than pre-emption regarding risk; uneven influence of the risk function; not fully ‘walking the talk’ when it comes to risk management; less tendency towards reflection, introspection and learning; collegial, high trust environment leading to some over-confidence and over-collaboration; striving to balance empowerment with challenge, although not well executed; aiming to be a values-led institution, but an over-reliance on good intent; and self-perceived, but incomplete, focus on the customer. The discussion moves to senior management responsibilities for risk culture, risk management and the provision of information including governance variables for senior management responsibilities. We recognise developing a risk appetite is a responsibility of the board and discuss the Risk Appetite Statement (RAS) and Risk Management Strategy (RMS) including APRA’s requirements for the RAS and RMS, governmental and market participant reports on the RAS and the ASIC Governance Taskforce 2019 on the RAS. We conclude with the APRA business plan and policies and procedures.

Keywords: Risk culture; Risk appetite; Risk Appetite Statement (RAS); Board culture and tone at the top; Elements of sound risk culture; APRA nine themes inhibiting sound risk culture; Senior Management Responsibilities; Risk Management Strategy (RMS); APRA requirements for RAS and RMS (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-981-16-1710-2_40

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DOI: 10.1007/978-981-16-1710-2_40

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