Develop a Risk Management Strategy

FINANCE AND MORTGAGE
BROKING

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FINANCE AND MORTGAGE BROKING
WRITTEN ACTIVITY – 1
Develop a Risk Management Strategy
Introduction
While doing internship with The Institute of Risk Management (IRM), which is my
dream destination after completing my studies, this task was given to me for
presentation to Martin Financial Services (MFS), an upcoming Financial Services
organisation. It is now imperative that employers have started recognising that relying
on piecemeal approach towards risks related to credit, market, operational and
regulatory events can prove to be costlier than investing in risk education. In this
context, Chief Risk Officer (CRO) at MFS needs to pay attention towards development
of Strategic Thinking, Communication & Leadership Skills, Innovative Decision-
making and Ethical Judgment. Individual skills of the staff members, who lead the risk
aversion activities within MFS, will also help the RM in providing insight into the
competencies required from stakeholders for developing a risk program which proves to
be sustainable, describes Bernstein, (2012).
(A) Risk Management Frameworks
Financial sector is subject to various risks, some of which can be anticipated, but most
others are sometimes unexpected or cannot be managed effectively. Hence, adoption of
risk management frameworks will help the CRO of MFS in effective planning and
understanding of risks, especially those which have are not going according to
management’s plan, asserts Curtin, (2005). The major advantage of having an effective
risk management framework for MFS is to become pro-active instead of becoming
reactive when managing risks. As per ISO 31000, the standards set for Enterprise Risk
Management are based on the following 7Rs and 4Ts for developing a risk framework,
as per Jones & Ashenden, (2005).

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1. Recognition (identifying the risks)
CRO at MFS will need to identify financial risks in accordance with various Acts and
Statutes which govern them, say Bohle & Quinlan, (2000). These include –
(a) The Corporations Act, 2001 which controls laws which deal with business
risks in Australia, both at federal level and interstate level.
(b) The Banking Code of Practice maintains risk standards related to practice
and service in financial services sector for small business customers.
2. Ranking (evaluating the risks)
(a) Two acts applicable for evaluating risks in MFS are Insurance Act,
1973 and Insurance Contracts Act, 1984.
3. Resourcing (through controls)
(a) Controls of financial services to be provided by MFS will be enforced
through ASIC which regulates, through administration of relevant laws to
promote investor’s, creditor’s and consumer’s protection, asserts Holmes,
(2004).
(b) Financial Law controls and regulates insurance, commercial banking, capital
markets and financial services management organizations such as MFS.
4. Reaction (to defunct planning)
(a) The Financial Transaction Reports Act, 1988 is used with the Anti-Money
Laundering and Counter-Terrorism Financing Act, 2006. The main use of
the FTR Act is to assist administrations in enforcing taxation laws and avoid
defunct planning by organizations such as MFS, as per Holmes, (2004).
(b) In this respect all businesses which are to comply with the AML/CTF Act,
2006 also need to comply with the Privacy Act, 1988 with regard to
handling of consumer’s personal information by MFS.
5. Responding (to severe risks)
(a) The Credit Act, 1995 & Consumer Credit (Victoria) Act, 1995 have the
purpose of ensuring transparency in the credit agreements conducted by
MFS.
(b) In Australia, cheques are governed both by the Cheques Act, 1986 (Cth) and
the prevailing Common Law, assert Lingard & Rowlinson, (2005).
6. Reporting and Monitoring (the risk performance)

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(a) The Financial Services Reform Act, 2001 will monitor the financial services
and products offered by MFS, as per Lingard & Rowlinson, (2005).
7. Reviewing (at appropriate intervals risk management framework)
(a) The Australian Prudential Regulation Authority works as a
statutory authority under the Prudential Regulator set up by the
Commonwealth Government for reviewing the organizations such as MFS
working in the financial services sector, assert Edwards & Bowen, (2005).
Managements of organizations such as MFS are require to formulate their Risk
Aversion Policies so as to –
1. Tolerate
Risks having a low probability and potential impact.
2. Treat
Differently risks having moderate probability and potential impact.
3. Transfer
The effect of risks having high probability and potential impact.
4. Terminate
The risks having very high probability and potential impact.
Figure – 01: Risk Assessment Matrix is shown in APPENDIX.
(B) Risk Assessment Process
The process involving development of Risk Management Framework requires risk
assessment of identification, development and evaluation of strategies for risk treatment
of risks associated with MFS. Although the Australian Insurance Law functions on the
line of Commercial Contract Law, it is subjected to regulations which affect the
working of insurance contracts and insurance industry in Australia, as per Mares,
(2008).
This has happened because of the effect created by the Resilience and Collateral
Protection Act, 2016 (Cth), also known as Collateral Protection Act, 2016. This
presents a new security provisions which is applicable to financial property and the