The safety and soundness of financial institutions rely on the effectiveness of risk oversight and control functions. Over the last decade, risk management approaches and practices in the industry have evolved substantially, with increased attention to and advancements in risk management systems and practices observed among financial institutions. Despite such progress, scope remains for further improving internal risk governance practices which underpin a sound risk management framework. This includes closer integration within financial institutions of risk and corporate governance policies, processes and structures to support risk-related decision-making.
Risk governance focuses on applying the principles of sound corporate governance to the assessment and management of risks to ensure that risk-taking activities are aligned with an institution’s capacity to absorb losses and its long-term viability. It is concerned in particular with the roles of the board, senior management, and risk management control functions as well as the processes by which risk information is collected, analysed and communicated to provide a sound basis for management decisions. It is also concerned with the effects of incentives and organisational culture on risk-taking behaviours and perceptions of risk in the institution. With increasingly complex business operations and activities, the availability of comprehensive and integrated systems to support an enterprise-wide or consolidated view of risks, for both the individual financial institution and for the group, is particularly critical. Also important is the capacity of institutions to respond swiftly to changes in the operating environment and developments in the institution’s business strategies.
This policy document on Risk Governance sets out a framework of principles on risk governance to guide the board and senior management in performing their risk oversight function. This policy document should be read jointly with the “Guidelines on Corporate Governance for Licensed Institutions” and for institutions with Islamic finance operations, the Guidelines on Shariah Governance for Islamic Financial Institutions. The overarching principles provided under this policy document are applicable to all financial institutions, and financial institutions are expected to apply these principles taking into account the size, complexity, risk profile and nature of their activities.
The principles in this policy document are foundation for and complement other guidelines and sound practices papers issued by the Bank on specific risks such as credit, market, operational, and liquidity risks. Collectively, they reflect the Bank’s supervisory expectations with regards to financial institutions’ risk management framework and practices, and form the basis for supervisory assessments of individual institutions performed by the Bank.
This document belongs to Bank Negara Malaysia (BNM). Full access to the original source is available here: https://www.bnm.gov.my/banking-islamic-banking
