WRITTEN ACTIVITY 1
For this assessment, you will need to perform the following task. This task will need to be completed and submitted in a professional, word processed, format, and must be 1000 words minimum in length.
Your task is to develop a risk management strategy for your financial service or one that you would like to work for. To do this you will need to:
a. Analyse the risk factors for financial investment and insurance products in that service
b. Determine the appropriate risk exposure management strategies
c. Communicate these strategies to relevant staff and intermediaries
d. Personally manage the risk assessment strategies
This assessment is aimed at setting a strategy for portfolio managers, including what types of business will be targeted and not targeted.
In your strategy you will need to consider the following before you develop the risk management strategy:
a. All relevant legislation, standards, regulatory guidelines and industry sector compliance requirements. For example:
i. Insurance Act 1873
ii. Insurance contracts Act 1984
iii. Corporations Act 2001
iv. The Australian Banking Association Code of Practice
v. ASICS finance related consumer protection regulations and licensing regulations and restrictions for financial services providers
vi. Com Law – for all other Finance Related Legislation
vii. Financial Transaction Reports Act 1988 (Cwlth)
viii. Anti-Money Laundering and counter-Terrorism Financing Act 2006 (Cwlth) (AML/CTF Act)
ix. Credit Act 1985 (Cwlth) and Consumer Credit (Victoria) Act 1995
x. Cheques Act
xi. Financial Services Reform Act
xii. Superannuation Industry (Supervision) Act
xiii. Australian Prudential Regulation Authority Act 1998
xiv. Australian Securities and Investments Commission Act 2001
xv. Financial Management and Accountability Act 1997
xvi. Financial Sector (Shareholding) Act 1998
xvii. National Credit Act
xviii. Payment Systems and Netting Act 1998
xix. Australian Corporations Act 2004
xx. Australian Taxation Act
b. Organisational policy, procedures, guidelines and authorities related to risk management (you may need to determine the performance targets of the organisations capacity to assess and accept risk)
i. Performance targets may be related to:
1. Compliance with legislation and regulations
2. Consistency of the application of risk assessments
3. Compliance with organisational policies and procedures
4. Risk mitigation figures
5. Levels of risk that are undertaken by the organisation
6. Percentages of risk undertaken
7. Strategy application for risk management
c. Relevant risks, including the high and low hazard financial and legislative risk areas. (you will need to access the Australian risk management standards to complete this section)
i. Areas that are considered to be low risk will have been assessed to have:
1. Minimal risk exposure
2. Be compliant with current market conditions
3. Within the organisations accepted level of exposure
ii. As high hazard risk areas are those that may result in:
1. Breaches in compliance
2. Financial loss
3. Loss of market sector
4. Loss of other resources
5. Damage to public relations
6. A range of other high risks
d. Actuarial and financial principles and processes related to risk exposure strategies
e. Relevant industry hazards
i. Within the financial industry there are a range of different industry hazards and specific risk exposures that may be related to a range of business activities including:
1. Financial
2. Business continuity
3. External
4. Internal
5. Marketplace
f. Relevant risk exposures and an evaluation of those risks and hazards (you will need to identify your organisation’s business risk elements and control risk elements)
i. Risks that products and services may cause may include:
1. Financial
2. Inability to recoup monies spent
3. Organisational image
4. Public relations
5. Compliance issues
g. Determine compliance factors and requirements
h. Develop appropriate risk mitigation strategies
i. Establish the risk assessment criteria
To perform these tasks you will need to identify and collate all up-to-date information in a form that is suitable for analysis and then begin a review on this information.
You will need to consider the known exposure factors and evaluate the risk acceptability factors within the context of mitigating capabilities and organisational requirements.
Once you have done this you will need to:
a. Develop risk acceptance and rejection criteria
i. Risk acceptance and rejection criteria will be based on:
1. Level of Risk: The potential of a negative outcome occurring.
2. Magnitude: The word magnitude in relation to financial risk speaks to the size and extent of the financial risk to the organisation.
3. Volatility: The word volatility in relation to financial risk speaks to the level of uncertainty and amount of likelihood to change and by how much the risk is likely to change.
ii. It is essential to ensure that a range of strict terms and conditions are created for the risk acceptance of risk factors that are deemed to be high risk and these may include:
1. Strict risk assessment procedures
2. Obtaining legal advice
3. Parameters of risk acceptance
4. Variables that are acceptable
5. Variables that are not acceptable
6. Approvals processes
7. Information collection processes
8. Compliance procedures
9. Mapping of legislative and regulatory requirements
10. Careful design of contingency plans
11. Roles and responsibilities
12. Accountability practices
13. Percentages and variants of risk
14. Practices for diversifying risk
b. Identify high and low hazard financial and legislative risk areas
c. Develop appropriate risk mitigation strategies which may include:
i. Policies and procedures change
ii. Change management strategies
iii. Implementation of contingency plans
iv. Altering actions to make up for damages causes by risks
It will then be necessary to document a clear outline of the risk acceptance strategy including:
a. Purpose of the risk acceptance strategy
b. Guidelines of the strategy
c. Purpose of risk acceptance criteria
d. Management structure of the framework
e. Related policies
f. Related action plans
g. Related procedures
h. Information related to how the risk acceptance strategy will be made accountable
i. Resources
j. Templates
k. Reporting structure
l. Recording structure
m. Learning and development opportunities
n. Review and monitoring structure
Then you will need to get feedback on and finalised the risk acceptance criteria. If you are not in a workplace you will need to ask your trainer/assessor to give you feedback on your work.
To complete this assessment you will require access to the following:
a. Office equipment, technology, software and consumables
b. Relevant legislation, regulations and codes of practice
c. Relevant Australian standards relating to risk management
d. Organisational and industry risk management documentation