Risk Management Practices Evolves In 2014 for Financial Institutions

A successful organization is the one who is always ready to take appropriate risks strategically and wisely. The reformed range of rules for the financial institutions has enhanced the global capital and liquidity rules in order to achieve a pliable banking sector.

Research done by eminent banking supervisory authorities shows 10 reputed global banking institutes will fail to achieve the risk data aggregation and risk reporting time limit of 2016. It is always advised to the internal auditors to follow correct the risks in the business.

Another analysis done on C-level executives from more than 430 global companies in the field of  banking & capital markets, insurance, energy & utilities, health, and public service industries says that the Enterprise Risk Management is top concern for all of them in 2014 than before. The reason for this is the evolved nature of the risks that includes Strategic risks, operational risks, credit risks, and market risks.

Role of Internal Auditors:

Internal audit plays a significant role in the implementation of Enterprise Risk Management (ERM) for an organization. Some of them have been elaborated below:

Explaining the board and management on the importance of ERM:

The internal auditors can educate the senior management on the importance of internal audit as well as ERM and their implications on the organization. Through a standard risk management framework, he can explain the various component of ERM. This will help the organization to develop focused audit plans following the declaration of audit results.

Promote the Risk Assessment:

Risk assessment is a vital step that can keep on track of the progress of  ERM. An Internal Auditor can efficiently facilitate the risk assessment process and provide appropriate risk response.

Evaluate the Risk Management Process:

The risk assessment process ought to be evaluated considering Objective Setting, Event Identification, Risk Assessment and Risk response Components. Even the effectiveness of evaluation needs to be monitored.

Taking the above role of internal auditors into account, it can be considered that the new set of rules defined by Basel III will definitely stimulate the implementation strategy for ERM in all corporates. That will be followed by adopting enhanced corporate governance practices by all organizations thereby improving the risk compliance culture.