Regulatory authorities have time and again issued instructions & guidelines to Financial Services entities to set high standards in governance especially for aligning Risk with Business Strategy. The “risk appetite” of a Financial entity is the aggregate of all levels and types of risk it is willing to take in order to achieve its strategic business objectives. A Financial entity’s Risk Appetite Framework is the overall approach to establish, assess and monitor risk appetite. It considers the various risks to the entity as well as to its reputation. It is an integral part of the risk governance framework that establishes the strategy as well as the risk approach of a financial services organisation. It enables them to quantify the limits and then measure risks to be able to control and mitigate them. These Risk limits are specific quantitative measures or limits based on aggregate risk appetite of an entity. This risk profiling safeguards financial services entities to take appropriate actions across all risk categories and exposures.
The need of the hour for organisations is to transform their ERM framework to be forward-looking and align Risk Governance with organization’s strategic business goals.
Effective risk response planning requires a quantitative approach to risk awareness. This is achieved through data and metrics – the key risk indicators (KRIs).
ERM also enables forward-looking strategic risk insights to track mitigation plans and effectiveness. It requires setting limits, analysis of data, working on probability of occurrence to get a quantified score viz-a-viz the threshold limits. That is where quantitative key risk indicators (KRIs) come into play. For each top risk, quantitative KRIs are defined to help anticipate when a risk might occur. Risk owners will be able to determine when and how to escalate risks for corrective discussions and actions. KRIs serve as the triggers to support actionable risk monitoring. Thus a robust ERM eventually serves as a tool for taking actions towards mitigation. Such quantifiable ERM framework has a holistic approach to Risk Control than just be qualitative tool for reporting.
IDBI Intech specializes in developing niche digital ERM solutions which enables a structured approach towards managing organizational risks for a Financial Entity.
The ERM system is a step change in bringing multi level quantifiable risk identification, assessment, control and mitigation approach. Intech works closely with customers from the concept stage, building the framework, development and deployment of the solution. It helps customers accurately understand risk exposure at multiple levels in their organization.
The key features of the solution are :
- Risk & Control Self-Assessment (including risk aggregation and risk quantification & analytics)
- Top Risks & Key Risk Indicators
- Incident & Operational Loss Management
- Issue & Action Plan Management for tracking actionable status
- Risk Appetite
- Enterprise Risk Management Reports and Graphical Dashboards
- Data Repository
- Technical requirements like information security etc.
The solution development starts with study of existing organizational ERM framework to understand processes & requirements of the Financial entity. Through series of workshops with stakeholders the specific customizations required are finalized with detailed ERM solution framework. Based on ERM Solution requirements, Functional and Technical Solution Designing, development, testing and implementation of the modules are carried out.
Built on latest technology this solution adds immense strategic value to Financial entities and also enables to be aligned with regulatory requirements.
Authored by
Surajit Roy, MD & CEO , IDBI Intech
