The role of the risk committee

While the specifics of committee structure should remain the responsibility of individual boards, the review’s recommendations concerning the need for a separate risk committee warrants serious consideration. Risk should be a consideration in board’s forward-looking considerations; not as a backward-looking measure - a tendency which may exist when handled under another committee, such as audit. Separating risk from other committee structures should help foster the development of a risk management-prism through which many business decisions – acquisitions, new product and market development, remuneration, etc. – can be viewed.
Having a competent risk committee, however, will require boards to critically evaluate their skill and experience needs and to consider any shortcomings when they develop recruitment and training plans. An empowered risk committee may also encounter resistance at the board level as it involves itself with issues that are typically the purview of other committees (such as compensation). The board chair will be important in this period of transition as he or she will need to lead the board forward in the process of giving the risk committee sufficient breadth of responsibility to not only advise on the development of the bank’s risk appetite but to play an active role in the creation of policies that seek to align employee behavior with it.

Posted by William May, Senior Analyst at 9:35 AM