Mastering Risk Management

RISK APPETITE COMPONENTS

There are three main components to risk appetite: a risk appetite framework, the risk appetite statement and risk appetite limits. A risk appetite framework is focused around the corporate governance for risk appetite. Risk appetite statement is about the implementation of a risk appetite. Risk appetite limits are about allocating the appetite to business lines in a clear and transparent way. The links between these three components together with the risk profile are illustrated in Figure 4.1.

As can be seen, the three components are linked by risk appetite governance. However, although framework and statement are linked by process and the statement and limits are linked by process, there is no link between the limits ...