APRA on the duties of boards and risk appetites

The recent speech by APRA Chair John Laker Supervisory Lessons From The Global Financial Crisis, contains a plain warning for boards:

Boards have primary responsibility for ensuring the prudent management of ADIs (and other regulated institutions, of course) and our prudential standards make boards accountable for a range of prudential matters. We also seek to empower boards by giving them specific responsibilities, and the necessary information, to ensure that they can perform the role expected of them. …

A particular focus of our enhanced engagement with boards will be risk appetite. At the heart of a good risk management framework is a clearly articulated statement of the board’s appetite for risk. From this can flow the myriad of policies, procedures, limits, reporting and other internal control and assurance mechanisms that make up the entirety of a risk management framework in a financial institution. In contrast to the general and life insurance industries, APRA’s prudential standards for ADIs do not yet require a formal board risk appetite statement but a risk management standard containing this requirement is being developed.

Laker specifically refers to risky products and business lines.

Do you understand your risk appetite and business strategy in your new products and lines of business?

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