Finance and Mortgage Broking: Developing a Comprehensive Risk Strategy

This report outlines a comprehensive risk management strategy developed for a financial services organization, specifically addressing the needs of Martin Financial Services (MFS). The report begins with an introduction emphasizing the importance of proactive risk management in the financial sector, highlighting the need for strategic thinking, communication, leadership skills, and ethical judgment. It then details a risk management framework based on ISO 31000, covering recognition, ranking, resourcing, reaction, responding, reporting, and reviewing risks. The report analyzes relevant legislation, including the Corporations Act, Banking Code of Practice, Insurance Act, and Financial Services Reform Act, among others. It then delves into the risk assessment process, strategic risks, and developing an implementation plan. The implementation plan covers resources, budget, stakeholders, and monitoring methods, with emphasis on stakeholder analysis and communication to ensure successful project completion. The report also includes an appendix with a risk assessment matrix and other supporting figures.

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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01. 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.
02. Ranking (evaluating the risks)
(a) Two acts applicable for evaluating risks in MFS are Insurance Act,
1973 and Insurance Contracts Act, 1984.
03. 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.
04. 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.
05. 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).
06. 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).
07. 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 –
01. Tolerate
Risks having a low probability and potential impact.
02. Treat
Differently risks having moderate probability and potential impact.
03. Transfer
The effect of risks having high probability and potential impact.
04. 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

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Personal Property Securities Act 2009 (Cth), says Mares, (2008). Although this step is
created to compete with international standards which apply to derivative transactions,
its impact does not limit itself only to the risk management markets but also affects
MFS.
Since this Act has a wider effect, it becomes relevant to the organizations, such as MFS
who practice Financial Services under the Finance Law, explains Hiles, (2004). The
following statutes also govern the process of Risk Management –
(a) The Australian Securities and Investments Commission (ASIC), an independent
government body which acts as corporate regulator in Australia.
(b) The Financial Management and Accountability Act, 1997 also regulates proper
management of public property and money.
(c) Financial Sector (Shareholdings) Act, 1998 was enacted for relaxing restrictions
on ownership of banks and insurers.
(d) The National Credit Code (NCC) was inducted for regulating all credit contracts.
NCC is under ASIC and is also included in the National Consumer Credit
Protection Act, 2009.
(e) The Payment Systems and Netting Act, 1998, grants certain legal powers of
protection to banks for approvals under Real-Time Gross Settlement (RTGS).
(f) Enforcement of Corporations Act, 2001 is principally under ASIC which
regulates the disclosure and conduct obligations of financial services providers
such as MFS.
(g) Income Tax Assessment Act, 1997 (ITAA97) is the main statute regulated by the
Australian Taxation Office (ATO) for controlling income tax compliance,
according to Borghesi & Gaudenzi, (2012).
(C) Strategic Risk
Broadly defined as Strategic Risk, this risk basically occurs because CROs of financial
service organizations do not effectively communicate the management’s policies to the
stakeholders connected with Risk Management Procedure, as detailed by Edwards &
Bowen, (2005). Losses resulting because of a badly planned and unsuccessfully
communicated business plan further lead to missed opportunities. Some of the important
factors of such a situation can be creation of ineffective products, ineffective services
due to failure of the staff in responding to changes in MFS’s business environment or

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because of unplanned resource allocations, assert Bohle & Quinlan, (2000). This is
gathering more importance because organizations, including MFS, are becoming more
dependent on the growing telecommunication technology, as explained by Jones &
Ashenden, (2005). As
a result, many service providers are becoming increasingly exposed to risks which result
because of innovative and disruptive techniques being used by spurious operators,
according to Lingard & Rowlinson, (2005).
For MFS, the Strategic Risks which the CRO has to avert and control include risks
harming MFS brand, its economic policies, MFS’s business models and the overall
competitive position of MFS in the related sector, according to Holmes, (2004). As
explained above, technology is becoming a big threat, hence it needs to be scaled down.
Financial service providers need a secure regulating system to minimize recurring
strategic risks. In order to comprehend all kinds of strategic risks, MFS should focus on
collecting data when focussing on external sources, such as customers, competitors and
the industry analysts. Identification and knowledge about the policies of competitors,
who are offering services and products different from those offered by MFS is essential
for formulating the Strategic Risk Management Policy, explain Edwards & Bowen,
(2005).

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FINANCE AND MORTGAE BROKING
WRITTEN ACTIVITY – 2
Developing an Implementation Plan
Management of Implementation Strategy
Australian regulating agencies expect the financial service providers to implement a
robust policy for managing their strategic risks and this should also include a formalized
process for assessing those risks which emerge in their business model because of ever
changing technology and also because of changes occurring in the external
stakeholder’s positioning, as per Edwards & Bowen, (2005). It is also expected by the
regulating agencies, say Jones & Ashenden, (2005), that all service providers develop
an appropriate structure for systematic assessment of the risks depending on the
strategic choices made by the management.
According to the various statutes and regulations in force, explain Borghesi &
Gaudenzi, (2012), the Chief Risk Officer (CRO) at Martin Financial Services (MFS)
should view Strategic Risks in the context of the below explained three categories. As
per Bernstein, (2012), this will help the CRO in framing those growth and strategy
policies, which are often clouded during discussions, by asking the questions mentioned
hereunder.
1. Strategic Positioning Risks
(a) Is MFS following the right course of action?
(b) Can MFS achieve the strategic objectives set by the management?

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2. Strategic Execution Risks
(a) Does MFS have the right talent having competent capabilities and the right
infrastructure for executing the chosen strategies?
3. Strategic Consequence Risks
(a) Will the strategic choices of MFS create new risks or unintended
consequences?
Financial service providers, as per Bohle & Quinlan, (2000), require effective
management of their strategic risks for better integration with their stakeholders who are
responsible for managing strategic risks. But recent trends have shown, explain Bohle &
Quinlan, (2000), that emerging organizations such as MFS are taking the management
to new heights. Organizations such as MFS, through their professional managers and
efficient supporting staff, are making these stakeholders to be held responsible by
offering them stock options. This step, according to Winch, (2010); Curtin, (2005), is
allowing the managements to avert risks and also helps them to enforce a strict mandate
of stakeholders holding regular meetings for reviewing the strategic risks through
following steps.
(A) The Work Plan
Basically, the objective of a Project Work Plan (See Figure – 2: Project Work Plan in
Appendix) is to first establish and then communicate with the stakeholders what is
being planned and to ensure that all stakeholders understand that they have a common
goal of implementing the improvements, asserts Bernstein, (2012).
(B) Resources and Budget
Resources for the project and the budget requirements need to be established by the
CRO of MFS in consultation with the management and all the information should be
included within the Implementation Plan being prepared, as per Bernstein, (2012). Care
must be taken to include all the components which are essential for the plan, such as
Salaries, Administrative Costs, Legal Expenses and other Overheads. (See Table 1:
Sample Budget and Resources in Appendix)
(C) Stakeholders

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Stakeholders are those persons who can be directly or indirectly affected by the
implementation of the project. These may include project owners, project managers,
staff members responsible for coordinating the project, departments, whether internal or
external, who are supporting the project, suppliers, financial collaborators and the
customers, assert Edwards & Bowen, (2005). To complete this process, it is advisable
that the CRO uses a Stakeholder Analysis Tool (See Figure – 2: Stakeholder Analysis
Tool in Appendix). This facilitates the management in understanding the project
through this visual medium. This also helps all the stakeholders in identifying their
support areas. This will help the CRO in creating an action plan for implementing the
project, according to Winch, (2010); Jones & Ashenden, (2005). Finally, all the
stakeholders make use of
the plan and work as a team for discovering ways to improvise relationships and
strategies for ensuring efficient completion of the project, according to Winch, (2010);
Jones & Ashenden, (2005).
(D) Monitoring Method
The most effective method, according to Hiles, (2004), of monitoring the progress of a
project’s Strategic Risk Management is through the question – Are the goals and
objectives being achieved? In case the answer is YES, the management needs to
acknowledge the fact and communicate the progress to the stakeholders by rewarding
them. In case the answer is NO, then the management must search for answers to the
following questions, as detailed by Lingard & Rowlinson, (2005).
1. Are the goals achievable as per the specified timeline (See Figure – 4: Project
Timeline in Appendix) of the plan? If not, for what reason?
2. Will changing the Timeline help in achieving the set goals?
3. Are adequate resources, such as equipment, money, training and facilities being
provided for achieving the goals?
4. Are the objectives and goals still realistic?
5. Can changing the priorities put more focus on goals being achieved?
6. Will changing the goals help in achieving them?
Monitoring Frequency
Frequency of monitoring and reviewing the progress, assert Mares, (2008); Edwards &
Bowen, (2005), depends largely on the structure and working environment of the

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organization (MFS) under which it is conducting its operations. Organizations, such as
MFS, which are progressive and technology savvy and are experiencing continuous and
rapid changes, both from inside and outside, according to Bernstein, (2012); Holmes,
(2004) will propose to monitor the implementation plan at least once every month. The
CRO should report to the Boards of Directors about the implementation status of the
plan in detail, as per Mares, (2008) Edwards & Bowen, (2005).
Result Reporting
It is essential, as per Bernstein, (2012); Holmes, (2004) for the CRO to submit a written
report and describe the following –
1. Answer the key questions about monitoring the implementation.
2. Accurately report about the trends affecting the progress of the plan in reaching
towards its goals.
3. Recommendations, if any, about the current status of the goals and achievements.
4. Actions, if any, needed to be taken by the management.
(E) Evaluation Methods
Deviating from Plan
The implementation plan serves only as a guideline and should not be followed like a
roadmap, explains Borghesi & Gaudenzi, (2012). The CRO and the management
usually keep changing the direction which the process should take as the plan proceeds
through the period of implementation. Changes made to the plan are done to facilitate
the best possible result outcome and this is technically termed as Evaluation, as per
Curtin, (2005); Borghesi & Gaudenzi, (2012). The plan also reflects changes resulting
because of changes occurring in the external factors which reflect in the organization’s
working environment and its organizational goals. Evaluation also occurs when the
organization faces changes in availability of resources while trying to carry on with the
original plan.
Changing the Plan
The CRO must ensure that a visible mechanism has been identified for making the
changes in the plan, as per Holmes, (2004); Bohle & Quinlan, (2000). In this context,
the CRO must report about the following –

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1. The reasons causing the changes.
2. Is it essential to make the changes?
3. Finally, what changes are required to be made and their effect on the objectives,
goals, management’s responsibilities and Project’s Timeline.
While managing the various versions of the plan due to changes being made to the plan,
the CRO must preserve the old copies of the plan. To facilitate the various stakeholders
in understanding the effects of the changes, the CRO must make written notes about the
planning activities as this will help the management in making their next strategic
planning more accurate and efficient, according to Holmes, (2004); Bohle & Quinlan,
(2000).
REFERENCE LIST
Bernstein, P. L. 2012. Against The Gods. The Remarkable Story of Risk. John Wiley &
Sons, New York.
Bohle, P. and Quinlan, M. 2000. Managing Occupational Health and Safety: A
Multidisciplinary Approach, 2nd ed. Macmillan Education AU, South Yarra.
Borghesi, A. and Gaudenzi, B. 2012. Risk Management: How to Assess, Transfer and
Communicate Critical Risks. Springer, New York.
Curtin, T. 2005. Managing a Crisis. Palgrave Macmillan, New York.
Edwards, P. and Bowen, P. 2005. Risk Management in Project Organisations, 1st ed.
University of New South Wales Press, Sydney.
Hiles, A. 2004. Business Continuity: Best Practices - World-Class Business Continuity
Management, 2nd ed. Rothstein Associates Inc., Brookfield.
Holmes, A. 2004. Smart Risk. Capstone Publishing Limited, West Sussex.
Jones, A and Ashenden, D. 2005. Risk Management for Computer Security. Elsevier
Butterworth – Heinemann, Burlington, MA.

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Lingard, H. and Rowlinson, S. 2005. Occupational Health and Safety in Construction
Project Management. Taylor & Francis, Oxon.
Mares, R. 2008. The Dynamics of Corporate Social Responsibilities. Martinus Nijhoff
Publishers, Leiden.
Winch, G. M. 2010. Managing Construction Projects, 2nd ed. John Wiley & Sons, West
Sussex.
APPENDIX

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Figure – 01: Risk Assessment Matrix for MFS

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Figure – 02: Project Work Plan of MFS
Table 1: Sample Annual Budget and Resources
Category Total Resource Planning
Management Salaries $450,000.00 Human Resources
/ Financial 40 Hours/Week
Staff Salaries $160,000.00 Human Resources
/ Financial 40 Hours/Week
Administration Expenses $90,000.00 Technological /
Financial 5 Days/Week
Brand Value $500,000.00 Reputation
Travel Allowances $45,000.00 Physical /
Financial 5 Days/Week
Legal $25,000.00 Physical /
Financial 5 Days/Week

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Figure - 03: Stakeholder Analysis Tool
Figure - 04: Project Timeline