Page 23 - The Insurance Times January 2022

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

Tirath Raj Mendiratta designated as ‘Chief Risk Officer’(CRO), shall report to
the RMCB which will be responsible for selection,

The Insurance Times, January 2022 23