ERM is the recognition of the institution’s risk universe – a 360-degree view of all present and emerging financial and non-financial risks faced by the organisation.
We can usefully divide those risks into active and passive risks – respectively, those we seek out in order to manage for a return, versus those we incur involuntarily by being in the businesses we’re in. In this way, we begin to align risk management framework with the institution’s strategic goals.
We will generally have low appetite for passive risk and a medium-to-high appetite for active risks.
Some risk can be mitigated against by holding buffers of capital or liquidity, but such buffers are never the primary mitigation- our own internal systems, controls and assurance mechanisms should fulfil that primary role.
KnowCo can help you assess and reassess your ERM framework’s fitness-for-purpose – contact us to find out more.