Services

Risk Appetite Framework (RAF)

Based on analysis of macroeconomic, financial, and political conditions, Deloitte assists in identifying risks for main stakeholders, and helps determine a range of risks to be taken (risk appetite) as management strategy.

More and more global firms have introduced Risk Appetite Framework (RAF)

Relapse of Greek Crisis, plunge in crude oil prices, prolonged territorial disputes in Ukraine, sharp slowdown of China’s economy and anticipated interest rate hike in the US, etc. … these uncertainties facing global firms have continued to increase. Meanwhile, increasingly globalized and diversified stakeholders request the management of global firms to be more transparent and accountable. Under such circumstances, the increasing number of global firms have now tried to build “Risk Appetite Framework” (RAF) as a new management system to address emerging risks the forward-looking way.

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Example of Risk Appetite Structure(Financial Risk)

RAF as “Risk Management Revolution” after the Global Financial Crisis

Risk Appetite refers to ‘the risks to be taken willingly’ by the management, in order to satisfy various expectations of stakeholders. In RAF, the management: (1)specifies various risks associated with the business strategy: (2)determines whether the level of risk measured is appropriate for risk appetite, or stakeholders' expectations: (3)articulates KPI corresponds to management’s risk appetite and thereby allows management’s decision to reach the furthest end of business operation. Thus, RAF serves as cranial nerve function of firm’s decision making process, which is transparent to outside stakeholders. Its potential effect could be promising, partly evidenced by the move of financial regulators, which experienced hardship in the financial crisis and now request every global banks to be equipped with RAF. 

Effects of Risk Appetite Framework

Importance of defining risk scope and risk appetite

To formulate an effective RAF, all the important risk on the premise of stakeholders’ expectations must be included. Some risks might be hard to be measured but could often be visualized by using stress scenarios. Risk appetites are supposed to be set as a range, with which all these major risks remain in .

Various Risks & Relationship with Stakeholders’ Expectations

Professional

Tsuyoshi Oyama

Tsuyoshi Oyama

Partner, Deloitte Touche Tohmatsu LLC

Tsuyoshi Oyama joined Deloitte in 2010 after working 23 years at the Bank of Japan, most recently as deputy director-general in Financial System and Bank Examination Department. At the Bank of Japan, ... More

Shiro Katsufuji

Shiro Katsufuji

Director, Deloitte Touche Tohmatsu LLC

Shiro Katsufuji is Director, Center for Risk Management Strategy (CRMS) at Deloitte. He provides a variety of services in the Stress Intelligence, macroeconomic stress scenario analysis, global financ... More