AAMC Training: Risk Management Assessment in Finance and Mortgage

This risk management assessment covers various aspects of risk within the finance and mortgage industry, including written activities, project-based risk identification, case studies, and a comprehensive report. It addresses credit risk, fraud risk, operational risk, and interest rate risk, providing preventative and corrective actions. The assessment references the Australian Standard AS/NZS ISO 31000:2009, emphasizing the importance of understanding and managing uncertainty in financial objectives. It includes risk registers and analysis of loan applications to determine associated risks, offering a thorough evaluation of risk management principles and their practical application in the finance sector. This document is shared by a student on Desklib, a platform offering study tools and resources.

Risk ManagementAssessment
Assessment cover sheet
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Student details
Course name
Assessment name Risk Management Assessment
Surname Given name
Address Postcode
Email
Phone Phone (other)
Current occupation
Industry Years in industry
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Checklist of attachments:
☐Task 1 – Written activities
☐Task 2 – Project
☐Task 3 – Case study 1
☐Task 4 – Report
☐Task 5 – Case Study 2
Please indicate style of course undertaken:
☐Face to face Trainer’s name:
☐Correspondence ☐Online
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Risk ManagementAssessment
RISK MANAGEMENTASSESSMENT TASKS
CREDIT TRANSFER
You may be able to claim credit transfer for a unit/s of competency that you have previously
completed with AAMC Training or another RTO. If you have been awarded a record of result or
statement of attainment for any of the units detailed below then please go to the Credit
Transfer tab in your Learning Centre and follow the prompts.
This assessment relates to the following units of competency:
 BSBRSK401 Identify risk and apply risk management processes
 FNSRSK502 Assess risk
Please refer to AAMC Training’s full Recognition Policy for further details.
IMPORTANT INSTRUCTIONS
 Your answers to each of the tasks are to be typed into this document or supplied
electronically and uploaded.
 No assessment word count has been specified although you are expected to provide good
quality answers to each of the questions.
 Although some general discussion between students covering the assessment is allowed
your responses to each of the questions must be an individual effort.
 PLEASE NOTE: AAMC Training only wants to see your own work. Please do not upload
parts of the learning guide or instructions on how to complete. When this extra information
is uploaded it presents unnecessary work for the assessors and in turn delays our
assessment responses.
Task 1 – Written activities
1. Name the two categories of risk.
1 Pure risk – it is the chances of loss owing to peril or accident
2 Speculative risk – it is the chances of gain as well as chances of loss
2. Pure risk or speculative risk—which one can usually be mitigated by transferring the risk
to another party i.e. insurance company?
Among pure risk and speculative risk, pure risk can be mitigated through transferring of
the risk to another party that is the insurance company. Speculative risk generalle
involves the risk in stock market investment or gambling and therefore cannot be insured
under the tradtional market of insurance.
3. What are the four steps in the risk management process?
1. Idtifying potential risk and assessing the impact
2. Examining various courses of available action and developing the implementation plan
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3. Implementing the plan
4. Evaluating and reviewing the plan
4. In assessing credit risk from a single borrower, a lender must consider what three issues?
1. Recovery rate – in case of default, what percentage of exposures projected to b
erecovered through proceedings of bankruptcy or through any other settlement form
2. Credit exposure – in case of default the amount of outstanding obligation, if the default
takes place
3. Probability of default – likelihood that counterparty will default in payment of obligation
over the time period of obligation or over the specific time period like year. If
calculated on the horizon of 1 year time it will be called as expected frequency of
default.
5. The seven Cs analysis frame work is the most common of all expert systems. It involves
examining the borrower using the seven key principles in lending; list them.
1. Character
2. Capacity
3. Capital
4. Conditions
5. Collateral
6. Cause
7. Common sense
6. What are the more common types of security?
Personal real estate, personal vehicles, business property, home equity, valuable items
like collectibles or jewellery, equipment, assets and paper investment
7. What does the PARSER analysis method consider?
PARSER is the expert system used for credit analysis in Australia. Like 5 Cs PARSER
system is used to analyse the following –
 Borrower’s personal character
 Requirement of amount and purpose
 Capacity of repayment
 Security
 Expedience or thye opportunities for future profits
 Return from loan
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Task 2 – Project
a. Using the table below, make a list (minimum of two in each category) on what you
perceive to be risks for each of the key risk areas for Finance/Mortgage Industry
representatives AND list who would be the internal and external stakeholders in the risk
identification process.
Financial &
Economic
Stakeholder/ s Manage Safety
& Health
Stakeholder/s
Internal External Internal External
Credit risk Management,
staff
member,
policy
makers
Suppliers,
vendors, local
community
Environmental hazard Staff member,
Management,
board
members
Vendors,
local
community
Liquidity risk Management Customers,
clients,
regulatory
bodies
Risk of fire Management,
Board
members,
staff
members
Local
community,
customers,
cleints
Regulatory/Legal Stakeholder/ s Professionalism
and Reputation
Stakeholder/s
Internal External Internal External
Administration of permits
and licensing
Board of
directors,
management
,
Clients,
shareholders
Unconscionable conduct Management
, Board
members,
staff
members
Vendors,
local
community
Control of the hazardous
substance
Board of
directors,
policy makers
Shareholders,
suppliers
Unethical and illegal
competitive practices
Staff
member,
Management
, board
members
Local
community,
customers,
cleints
Sales documentation Stakeholder/s
Internal External
Delayed settlement Management,
Board
members
Customers,
clients
Poorly completed applications for loan Board
members,
policy makers
Clients,
customers
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b. Once completed; provide a brief commentary on your understanding of the Australian
Standard AS/NZS ISO 31000:2009 Risk management — Principles and guidelines,i.e.
definition and how it affects you as a Finance/Mortgage Industry representative.
The standard provides the generic guide for risk management. it can be applied towide
range of operations or activities of any private, public or group or community enterprise.
The definition of risk is changed from “chance of happening something that will have
impact on the objectives” to “the impact of uncertainty on the objectives”. As a
representative in finance industry or mortgage industry, he shall take into consideration
the difrent requirements of particular organization, particular objectives, structure,
processes, context, operations, projects, functions, services, products, assets and
particular employed practices. Further, this standard can be used for harmonizing the
process of risk management. It further delivers common approach for supporting the
dealing standardswith particular risks or sectors.
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Task 3 – Case study 1
Clients are expanding their business operations into a franchise opportunity and while they
have not had their financials prepared by their accountant for the last two years, they want to
use their family home as security and obtain a loan. The clients also inform you that they have
a fair bit of cash available to assist in meeting the repayments if required.
You are just about to meet these clients for the first time. Use the risk register below to
identify and describe three potential risks to your organisation, and three potential risks to the
client arising from this proposal. Remember, when identifying risk, you need to consider both
what can go wrong and how it can go wrong.
Risk L C
Risk
rating
(LxC)
Comments
Your organisation’s risks
Credit risk 3 -
possible
4 - Major 12 –
Moderate
risk
Extremev risk – there is
possible likelihood that the
credit risk will take place.
However, if the credit risk takes
place the consequence wil be
major
Fraud risk 2 -
Unlikely
3 –
Moderate
6 –
Moderate
risk
Moderate risk – it is unlikely
that the borrower will fraud
with the lender. Even if he
frauds the consequence will be
moderate
Operational risk 2 -
Unlikely
2 - Minor 4 – Low
risk
Moderate risk – operational risk
will involve the
mismanagement or
miscommunication with the
client. However, the operational
risk likelihood will be unlikely
and the consequence will be
minor.
Client risks
Failure to meet the client objectives
within the time specified
2 -
Unlikely
2 - Minor 4 – Low
risk
Low risk – it is unlikely that the
lender will fail to meet the
client’s objective within the
time specified. Even if it
happens the consequence will
be minor
Interest rate risk 5 –
Almost
certain
4 - Major 20 –
Extreme
risk
Extreme risk – inerest rate
fluctuation risk is almost
certain and the consequence in
that case will be major.
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Task 4 – Report
Response will vary depending upon the risk chosen by the student from the previous table. A
preventative action and a corrective action must be given for each area ie training and
monitoring and review must be submitted.
Risk Item no 1 Describe risk item Credit risk
Responsible area
Initial assessment Likelihood –
possible
Consequence –
Major
Rating –
Extreme risk
PREVENTATIVE ACTIONS
Training Trainings shall be provided to measure the credit rating of the borrower and motivating
the customers to pay the dues on time.
Operational Duties shall be segregated among various people for reducing the risk of inappropriate
action or any error.
Managerial Specific activities shall be carried out only by the employee authorised by management
and performing the actions within the limited parameters.
Resource requirements Resources for generating information to comply with the limits of relevant risks, human
resources
Responsibilities Reconciliation of dues and payments, reviewes of performance and audits
CORRECTIVE ACTIONS
Training Traing related to preparation of credit rsik environment that is to analyse the current risk
policies of lender and comparing it with the credit risk rating of the borrower.
Operational Structuring the stable process for credit lending
Managerial Integrating the information system for managing risks
Resource requirements Employing experts in credit management and leveraging experts.
Responsibilities Conducting te procedures for due diligence that will strengthen the function of credit
control
MONITORING & REVIEW ACTIONS
Payment made by the borrower shall be continuously compared with the original
payment schedule. Incase of default the borrower shall be communicated. Payment of
interest shall be verified regularly. If any changes is there regarding the credit lending
process the changes shall be reconciled with the lending offered to the borrower.
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Task 5 – Case study 2
In this Case Study you are the credit assessor for Abank and in your role as the credit assessor
you are required to detemine the risks associated with the scenario below. The following
information is from a loan application submitted to Abank by an authorised credit
representative:
Applicant Single male applicant (29 years of age).
Loan Details and
Purpose
Applicant wants to buy an investment property for $450,000 and borrow $405,000
plus LMI. A loan term of 15 years is requested with an Interest Only product.
The Loan to Value Ratio (LVR is 90.00%);
Credit History Applicant has 3 Consumer Payments Defaults listed in his Credit Report
Residence Is currently living at home with parents and is paying no rent. He does not have his
own home.
Employment/Income Applicant is a sub-contractor working in the mining industry for 2 years. The
applicant's income is $100,000 per annum.
The likely rental return for the property is in the vicinty of $420.00 per week.
Credit Card Limit of $8,000 with a current balance of $5,000.
Other Loan Debts $30,000 car loan with repayments of $609.00 per month.
Assets Savings with a bank $50,000
Small assets with a total value of $60,000
Household Living
Expenses
$1,200.00 per month
Costs Stamp duty and purchase costs to be paid from savings.
Recommendation The Loan Application is recommended for pre-approval by the authorised credit
representative.
To complete a Risk Assessment use the Risk Register template below:
1. List and highlight 3 Risks you consider to be important and which you have identified
from the above Loan Application scenario and list the risks you have identified in the
relevant coumn.
2. Rate each of the 3 Risks according to theirLikelihood (L) and Consequence (C)of a
negative event occuring and insert the ratings in the relevant columns.
3. Calculate the Risk Rating (LxC)value for each of the 3 Risks and insert the Risk Rating
values in the relevant column.
4. Refer to the Ranking Key table below and record in the Risk Register:
a. level of risk calculated; and
b. The required action to be undertaken.
5. In ABank, if the loan presents some high risks (risk rating 15-20) it can often fall outside of
your approval limits or delegated lending authority (DLA). You have a senior credit
assessor that you refer loans for approval that present higher risks. Based on your risk
ratings determine if the Loan Application is outside your Delegated Lending Authority
(DLA). Briefly explain why you may need to escalate the loan application to a higher DLA
holder,for approval sign-off.
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RISK REGISTER
RISK L C Risk
Rating
(LxC)
Ranking Key & Comments
Loan to value ratio is 90% 4 - Likely 4 - Major 16 – High
risk
High risk – as 90% of the loan is
borrowed in addition to LMI, the
borrower may overburdened with
interest payment and may not be
able to pay the interest.
Applicant has 3 Consumer
Payments Defaults as per his
Credit Report
3 - Possible 4 - Major 12 –
Moderate
risk
Moderate risk – as the borrower is
already made default in 3 cases,
likelihood is there that he may
again make default
Already has a car loan with
repayments of $609.00 per
month
2 - Unlikely 2 - Minor 4 – Low risk Low risk – it is unlikely that the car
loan will have negative impact on
the property loan. However, he
management shall obtain the
payment schedule and default
payment, if any from the lender of
car loan
RISK ANALYSIS MATRIX
Likelihood Consequence
Insignificant
1
Minor
2
Moderate
3
Major
4
5 - Almost
Certain
5 10 15 20
4 - Likely 4 8 12 16
3 - Possible 3 6 9 12
2 - Unlikely 2 4 6 8
1- Rare 1 2 3 4
RANKING KEY
Ranking Risk Required Action
20-25 Extreme risk Licensee/stakeholder
Action required
13-19 High risk Senior management
Attention required
6-12 Moderate risk Management responsibility must be specified
1-5 Low risk Manage by routine procedures
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