Course The Role of Risk Management and Compliance in the Context of the Risk Appetite Framework

Structure

The course consists of a half-day, three-hour classroom session. The course includes significant hands-on learning with the practical analysis of real-world cases, proposed by the students themselves, which are then analyzed and discussed in plenary sessions or through exercises led by the instructor. Each half-day of training provides two training credits, necessary for renewing the certifications issued by the school (AMLACERT, KYCACERT, RCACERT, WSACERT) and the CAMS certification.

Program

The reference context

• The (external) context in which we move today
  • The economic context of reference
  • Bank of Italy's domestic projections
  • The world scenario in brief
  • The macro view – Gross Domestic Product growth
  • Energy impacts
  • The macro view – inflation
  • In-depth simulation of Russia and Ukraine: scenario analysis
  • Risk management and system perspectives
• Risk management in the relevant legislation
  • The main challenges for the banking system
  • Basel 1, 2, 3
  • Basel a bit of chronological order
  • The regulatory perimeter
  • The particularly dynamic regulatory environment is changing the “rules of the game”
  • Structure of the European Banking Union with a focus on supervision and resolution
• The Single Supervisory Mechanism
  • The three pillars of the European Banking Union
  • The “health” of banks considers the relevant dimensions that regulators have taken into account
  • There are 4 key intervention levers for setting up internal controls, optimising the relationship between the effectiveness and efficiency of the system.
• New SREP process
  • Strong overall governance to be combined with a state-of-the-art internal control system
  • Banks to establish integrated process for proactive risk management
  • Evaluation and Management of liquidity/refinancing Risks Crucial for banks to survive
• A new world: same surveillance tools?

 The Risk Control and Compliance function

• A modern Risk Management
• The risk control function
  • The role of governance in the Risk sector
  • Risk governance and business, a forward-looking approach: from the final logic to the forecasting model.
  • Risk Governance and Strategic Planning: Coordination Mechanisms
  • Evolution of the risk function
  • The unitary control in the integrated risk management takes place through 5 macro processes
  • Governance and risk management activities
  • Functional Activity Plan – Example
  • Profitability, risk and capital
  • Integrated view of profitability and risk with reference to the company as a whole, business units, products, channels, and customers
  • Evolutions and distinctive aspects of the application of artificial intelligence in banking
  • Main applications in the Risk Management field
  • The evolution of the risk function
• The role of the compliance function
  • Graduated compliance

 The Risk Identification Process

• The Risk Identification process is the founding element of several strategic processes
• The Risk identification process sees the transition from 2 to 4 dimensions of analysis for risk factors
• Frequency and main relationships between factors
• Integrated risk management

The Risk Appetite Framework

• A new perspective
  • As per circ 263, the RAF is the Framework through which banks define their mission in terms of risk
  • The Risk Appetite Framework integrates with key business processes
  • The Risk Appetite Framework can be composed of 4 founding components
  • Completeness of the list of potential current and prospective risks
  • Governance: impacts at executive level with strong accountability of corporate bodies and top management
  • Governance defines the roles and responsibilities of the actors involved and the information flows
  • In the governance context, the RAF permeates the activities of the main corporate structures and bodies
• Insight: The Role of the Compliance Function in the RAF
• The processes are structured into RAF set-up, monitoring and maintenance activities
  • Approval of the Risk Appetite Framework
  • The RAF must be constantly updated to always be appropriate to the internal and external operational context of the group
• The metrics system defines the distinctive characteristics of indicators and thresholds underlying the RAF
  • Risk Appetite thresholds are divided into risk limits and objectives
  • Risk Appetite Framework Metrics Matrix
  • Operationalizing the Risk Appetite Framework
  • Operationalizing the Risk Appetite Framework – Example: Long List of Indicators
  • The risk management process in line with the RAF limits and objectives is divided into
  • An effective reporting system allows you to monitor the RAF and all other risks
  • Develop a tool for simulating the effects of the bank's strategic choices
  • Develop a tool for simulating the effects of strategic choices on results
  • Simulation modes
• Develop a tool for simulating the effects of strategic choices on results
• Overview of the ECB's guidelines on climate-related and environmental risks
  • Focus on “climate change” Risk
  • Climate risks: integrating them into credit risk assessments
  • Climate Risks: Managing Market Risks and Liquidity
  • Climate risks: impacts on operational risk assessments

 Risk communication techniques

• Information to the public (pillar III)
  • The risk report (pillar III): general principles
  • Information to the public (pillar III)
  • Risk communication and reporting
• Reporting (4 slides)
  • The Management Information System to support choices
  • The Management Information System to "stay on course"
  • The Management Information System for managing hospitalization actions