4. Internal risk frameworks

Question 1

Components

Answer 1

• Corporate governance
• Line management
• Portfolio management
• Risk transfer
• Risk analytics
• Data + tech
• Stakeholder management

Question 2

What is the purpose of corporate governance

Answer 2

Establish organisational processes and controls

Question 3

What is purpose of line management

Answer 3

Integrate risk management into business processes

Question 4

What is the purpose of portfolio management

Answer 4

Agg risk exposures, identify risk diversification effects and risk concentrations

Question 5

What is the purpose of risk transfer

Answer 5

Cost effective way of passing on of excessive risk

Question 6

What is the purpose of risk analytics

Answer 6

Measure, analyse and report on risk

Question 7

What is the purpose of data and tech resourves

Answer 7

Support analytics and reporting

Question 8

What is the purpose of stakeholder management

Answer 8

Communicate and report on risk

Question 9

Define corporate governance

Answer 9

System where BoD or governing bodies are responsible for governance of their orgs upon appointment by shareholders

Question 10

What is the aim of corporate governance?

Answer 10

Improve performance and conformance of companies for the benefit of shareholders, policyholders, other stakeholders and wider economy.

Question 11

What are the common themes in corporate goveranace

Answer 11

• Communication with stakeholders
• Independence of board
• Board performance
• Board remuneration
• Board appointments

Question 12

Key stakeholders in corp governance

Answer 12

• BoD
• Risk subcommittee
• Audit subcommittee
• CRO
• Line managers
• All employees

Question 13

What are Cadbury corp gove recommendations?

Answer 13

• Should be full board meeting regularly
• Chair and CEO must be diff people
• Board must be made aware of significant activities e.g. acquisitions
• Majority of NED must be independent
• NEDs must have key responsibility for certain control and monitoring functions
• Shareholders must approve dictors’ service cintracts in excess of 3 years
• Director’s remuneration must be reviewed by a remuneration committee made up of NED (or majority NED)
• Company reports must be balanced and understandable giving details of setbacks and successes

Question 14

Best practice for BoD

Answer 14

• Must be composed of a majority of independent NED, i.e. people not employed by management of the company
• Subcommittess formed exclusively of non-executive and ideally independent directors, must consider issues where independence is NB e.g. audit, remuneration and appointments
• CEO and Chair must not be the same person. If CEO is Chair, rationale must be published and a “lead director” appointed to co-ordinate Board’s activities towards meeting its responsibilities
• Board must meet regularly without CEO present
• NED must meet independently of ED at least annually

Question 15

Best practice for Board remuneration

Answer 15

• Board must set objectives for CEO and regularly appraise CEO’s performance against them.
  o Objectives must include reference to risk management. Process can then feed into CEO’s remuneration
• Majority of director’s remuneration must be in form of shares in company
  o Together with vesting schedules and clawback provisions»_space; ensures that objectives of directors are in line with long term interest of the shareholders they are acting on behalf of
• Board remuneration, incl share options and pension benefits must be fully disclosed.

Question 16

3 levels of compliance

Answer 16

• Simply encourage compliance
• Comply/explain
• Mandatory