Risk Appetite Frameworks for Corporates

Do you know what is on your plate?

The level and volatility of especially foreign exchange rates and commodity prices have had a significant adverse impact on many corporates, necessitating a sound risk appetite and risk management framework.

Risk Appetite Frameworks for Corporates

Do you know what is on your plate?

For most corporates, “risk appetite” is a somewhat foreign concept, or a topic better suited to the banking or insurance sector. This article, however, explains the value of a risk appetite framework within a corporate company, and provides a practical perspective on how it can be implemented.

Key takeouts from this report

The key to creating a sustainable and successful business is to fully understand the set of risks to which the business is exposed (i.e. defining the risk profile) and to decide what the maximum level of risk is that the business is willing or able to accept in pursuit of its objectives (i.e. defining a risk appetite). By understanding and managing risk, the Board can capitalise on opportunities, avoid pitfalls and create a competitive advantage during difficult market conditions.

What our experts say

A pro-active and deliberate approach to implementing a risk appetite framework will not only help the company to make the best of volatile markets and uncertain economic conditions, but also increase stakeholder confidence, and provide a deeper understanding of the business and the risks explicitly and implicitly assumed. A robust risk appetite framework will give the Board peace of mind that risks will be managed within the parameters they have defined.

How can Deloitte help

Deloitte’s Corporate Treasury Services specializes in providing financial, treasury and risk advisory services to non-financial institutions. We have experienced local and international teams with a proven track record, sound methodologies and tools to ensure our clients gain the maximum benefit from our expertise, insights and skills. We have extensive experience with Treasury functions not only in South Africa, but also in the Rest of Africa and the Middle East. Furthermore, through our member firms, Deloitte has access to global expertise on Treasury operations and international practices. Our client list stretches across a number of industries, such as consumer & industrial products; technology, media & telecommunication; energy & resources; municipalities & parastatals and non-banking financial services.

Our knowledge and experience stretches across all areas within Treasury:

  • Treasury organisation – the strategic role of Treasury; practical segregation of duties; industry practice benchmarking of Treasury functions
  • Governance & controls - Board & senior management oversight and reporting; policy and control framework - including the identification of controls, testing of the design and implementation as well as operating effectiveness
  • Funding & liquidity – cash and liquidity management; contingency planning
  • Risk management - risk appetite; economic analysis; risk measurement (stress testing, sensitivities, value-at-risk) across all risk types (interest rates, foreign exchange rates, commodities, equities and credit)
  • Front office – performance measurement; mandates & controls
  • Middle & back office – risk monitoring; settlements & confirmations; controls and reconciliations
  • Treasury management systems – assessment, selection, implementation, and analytics
  • Financial modelling – forecasting models (balance sheet, income statement, cash flows); hedging models; financial instrument valuations (including derivatives); risk exposure measurement
  • Hedging & hedge accounting – hedging strategy and policy; hedge accounting implementation / review (IAS 39 and IFRS 9); hedge effectiveness testing
  • Accounting advisory – technical advice on changes in accounting standards; implementation assistance; CVA, DVA, FVA and other XVA

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