Risk Management System Framework Set-up

Risk Management System Framework Set-up

A Risk Management System Framework is a systematic structure used by business entities to deal with risks effectively and systematically. The purpose of this framework is to identify, assess, and mitigate risks that can impact a business entity’s objectives, assets, and operations.

It also provides a structure for business entities to develop and implement risk management strategies that ensure a balance between achieving objectives and protecting interests.

Are there regulatory mandates from the Capital Market Authority (CMA) regarding the Risk Management System Framework?

The Executive Bylaws of Law No. 7 of 2010 regarding the guidelines of the CMA and Regulating Securities Activities, as amended, in Module 6 “Policies and Procedures of a licensed Person” and Module 15, “Corporate Governance,” indicated that an organizational unit for risk management shall be established, and the competencies of its incumbents and their specializations shall be identified and It shall be headed by a risk management officer.

This position is one of the jobs that must be registered with the Capital Markets Authority. Such a unit reports to the risk management committee. The risk management functions include submitting reports every six months to the risk management committee, which in turn submits them to the board of directors.

The CMA also indicates the need to form a risk management committee affiliated to the board of directors and the way it is formed in terms of its membership, powers, and authorities.

The responsibility of the executive body in setting up a risk management system that is consistent with the company’s risk appetite and risk tolerance as approved by the Board of Directors has also been determined.

What are the components of the Risk Management System Framework?

The components of the risk management system Framework include the following:

  1. Creating an organizational unit for risk management within the organizational structure and defining its authorities.
  2. Creating a job structure.
  3. Preparing job descriptions.
  4. Preparing processes, policies, and procedures manual.
  5. Preparing a standard operating procedures manual.
  6. Designing and preparing periodic risk management reports that are submitted to the audit committee.

What is the Risk Management Life cycle?

The life cycle is used to identify, assess, monitor, and manage risks that can affect the objectives and operations of a business entity. This lifecycle is a continuous process that includes several stages. The details of these stages may change depending on the sector and the needs of the business entity, but in general, it includes the following steps:

  1. Risk Identification
  2. Risk Assessment
  3. Develop risk mitigation strategies
  4. Implementation
  5. Monitoring and Review
  6. Performance Evaluation
  7. Continuous Improvement

This lifecycle contributes to improving risk management and reducing the potential negative consequences of risks on the business entity. The cycle should be aligned with the objectives and needs of the business entity and implemented as an ongoing process to maintain improved risk management performance.

What are the International Risk Management Frameworks?

There are many risk management frameworks, as there are general and specialized frameworks, including but not limited to:

  1. ISO 31000 Risk Management Framework
  2. Enterprise Risk Management Framework issued by the Committee of Sponsoring Organization of the Treadway Commission (COSO ERM Framework)
  3. National Institute of Standards and Technology (NIST) Cybersecurity Framework
  4. Factor Analysis of Information Risk (FAIR)

What is the added value to business entities from setting up a risk management system framework?

  • Reducing the risks facing the business entity and costs
  • Enhancing the strategic decision-making process
  • Ensuring compliance with the legal and regulatory mandates in force in the State of Kuwait
  • Enhancing brand reputation and maintaining customer confidence
  • Enhancing the trust of stakeholders in the business entity
  • Improving the sustainability and success of the business entity by increasing the ability to better take advantage of opportunities.

What are the services provided by Baker Tilly Kuwait?

Setting up a Risk Management System Framework.