Page 31 - RMAI Bulletin July - September 2021

RMAI BULLETIN JULY TO SEPTEMBER 2021

TONE AT THE TOP:

SHOULD RISK

MANAGEMENT

DEPARTMENT BE

DIRECTLY RESPONSIBLE

TO BOARD OF

DIRECTORS THAN CEO

Background: 1. Lack of Board Effectiveness.
Risk is part of everyday business and organizational 2. Weak Risk Management Oversight
strategy. However, the volume and nature of risks 3. Poor Ethos and Work Culture.
facing organizations have increased tremendously over 4. Sub Optimal Communication.
the last decade due to the complexity of business 5. Excessive Complex Structure.
transactions, technological advances, globalization and
6. Inappropriate Incentives.
the overall pace of change in the environment.
7. Information Glass Ceiling.
Although risk oversight has always been an important 8. Dubious Role of Audit.
aspect of the Board’s oversight responsibilities, the
financial crisis of 2008 has brought it into sharper focus. In June 2020, the Reserve Bank of India, Department
The role of the Board of Directors in enterprise-wide risk of Regulation circulated a Discussion paper on
oversight has become increasingly challenging and there Governance in Commercial Banks in India. Some of the
are heightened expectations from various Stakeholders points relating to Risk management from this paper
on the Board’s involvement in risk. are reproduced below:
“1. An independent risk management function is one
After the World Financial Crisis involving unexpected of the key elements in the governance structure
fall of some of the invincible looking Organizations, the and is part of the second line of defense.
following major reasons were identified: 2. The risk management function and its
functionaries shall be accountable and report only
Author to the Risk Management Committee of the Board
(RMCB)
Tirath Raj Mendiratta
3. The head of the risk management function, to be

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