Risk Appetite

Abstract

This article attempts to outline the scope, contents and utility of risk appetite framework (RAF) which constitutes a critical part of an effective risk management and governance system which, if leveraged and adopted in true spirit, would enable effective driving of the entity’s performance empowering staff at every level to make risk informed decisions. RAF acts as a defence against unbridled risk taking which often has been the root cause of many a crisis. Risk appetite statement form a basis to trigger healthy and constructive discussions on risks among the board, top management including CRO and internal audit to reappraise decisions in the light of emerging trends and events for course corrections wherever needed. Risk appetite though specifically embedded to many financial service regulations of several regulators, can also help all other non-financial organisation to better appreciate and govern risk and performance. Importance and relevance of risk appetite framework in ERM has been visibly increasing in the corporate corridors also.