Risk appetite frameworks

How to spot the genuine article

Everyone seems to agree that risk appetite frameworks are good things – and yet, no-one can quite agree what a good one looks like. There remains a surprising variety of opinion about what it actually means for banks to establish and embed a proper risk appetite framework, so our paper, ‘Risk appetite frameworks: How to spot the genuine article’, seeks to clarify this issue.

The regulatory landscape for banks is full of references to risk appetite; its benefits, uses, applications and case studies of failed firms, whose weak risk appetite frameworks played a part in their downfall. When firms are criticised for shortcomings in their risk governance and management, an appetite framework is commonly prescribed as a cure by regulators.

Key findings

This paper seeks to clarify the confusion around risk appetite frameworks through:

  • Summarising the arguments in favour of risk appetite frameworks;
  • Highlighting the emerging consensus on the core concepts of risk appetite between regulators and firms within the financial services industry;
  • Illustrating what we think ‘good’ looks like for a risk appetite framework;
  • Suggesting ways to spot a ‘genuine’ risk appetite framework; and
  • Suggesting what risk appetite might look like in three to five years’ time.

About the EMEA Centre for Regulatory Strategy

The EMEA Centre for Regulatory Strategy monitors regulatory developments and provides an expert, objective perspective on opportunities and challenges for clients. It utilises Deloitte’s Risk and Regulation, Strategy Consulting and other relevant areas of expertise to understand, influence and advise on regulatory change, with a particular focus on the strategic business model and aggregate impacts.

The Centre is headquartered in London with local representation across Europe. Our core team of dedicated professionals has extensive experience in regulation, through a combination of former regulators and risk and regulation strategy advisors and consultants.

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