Analysis of Enterprise Risk Management at Standard Chartered PLC

This report provides a comprehensive analysis of Enterprise Risk Management (ERM) at Standard Chartered PLC. It begins with an introduction to ERM, highlighting its significance in achieving corporate objectives and managing various business risks. The report then delves into the background of Standard Chartered, emphasizing its focus on Asia, Africa, and the Middle East. It addresses key questions regarding the bank's aims and objectives, past problems like credit and market risks, and problems faced by other companies in the banking sector. The report also covers relevant rules and regulations, potential opportunities such as mobile banking and globalization, and the concept of the threshold of acceptable risk. A risk register is prepared to identify and mitigate risks. The report concludes with a summary of findings and references.

ENTERPRISE RISK
MANAGEMENT

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Background of the organization...................................................................................................1
QUESTIONS...................................................................................................................................1
Aims & Objectives of the Standard Chartered PLC....................................................................1
Problems that have been encountered in the past........................................................................1
Problems faced by the other companies:.....................................................................................3
Rules and regulations...................................................................................................................3
The potential opportunities that could enhance company performance......................................4
Threshold of acceptable Risk.......................................................................................................6
Risk Committee Structure............................................................................................................7
RISK REGISTER............................................................................................................................7
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................18

INTRODUCTION
Enterprise Risk Management is the process of managing different types of risks which
can have an impact on the organizational strategies which are implemented to achieve corporate
objectives. All the business activities involves a certain level of risks and these are managed
through anticipating, understanding and deciding what can be done. The purpose of this report is
to examine the risk management within an organization named Standard Chartered PLC. It will
recognise the issues which could threaten or enhance the achievement of the aim of the company.
The study will also find out the mitigation actions which can be adopted by the company in
response to these issues. At last the report will end in preparing a risk mitigation register for The
Standard Chartered Group.
Background of the organization
The Standard Chartered Group is a leading international banking and financial services
group, specifically focused on the markets of Asia, Africa and the Middle East. The bank is
regulated by the Financial Conduct Authority and Prudential Regulation Authority in the UK
(Standard chartered plc, 2014). The ultimate parent company of the bank is Standard Chartered
PLC which is listed on the London Stock Exchange and also on various other stock exchanges of
other nations.
QUESTIONS
Aims & Objectives of the Standard Chartered PLC
Following are the objectives of the study:
 To achieve accurate level of security at the global level
 To prepare remediation and responsive plans in order to meet the strict financial
compliance requirements
 To maintain a robust and disciplined approach towards the risk management
Problems that have been encountered in the past
Standard Chartered has faced different kinds of risks in the past. These are as follows:
Providing credit to clients – Bank always carries a risk from the client side related to default of
loan and payments. In the first resort it is a loss to the lender as it creates disruption in the cash
flows and increases the collection costs for the company (Dikmen and Birgonul, 2004). This type
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of risk also puts an impact on the business of the company as it becomes difficult to increase the
revenue and profits.
Country cross border – Under this risk, the bank does not able to obtain payments from its
global customers or third parties due to contractual obligations. These types of risks have
emerged in past few years because company’s exposure to China, Hong Kong, India, Singapore,
Korea and Indonesia has also increased significantly (Emblemsvag and Kjolstad, 2006).
Market – This risk is regarded as the potential for loss of economic value or earnings due to
hostile changes in the financial market rates or prices. Company’s exposure to market risk
generates principally from customer driven transactions. The primary categories of market risks
faced by the company are:
 Interest rate risk
 Currency exchange rate risk
 Equity price risk
 Commodity price risk (Rasid and et.al., 2011)
Liquidity – It is another major risk which has been faced by the company many times. It creates
an unusual situation as company either do not have the sufficient financial resources to meet its
obligations or can only access these financial resources at high costs (Frenkel, Dufey and
Hommel. 2005)
Operational – It is the possibility for loss resulting from failure of manpower, process and
technology. It can arise from day to day operations carried out by the group. These issues can
take in several forms and are very important to deal with (Hall and Duperouzel, 2011)
Pension - It is another very unusual issue faced by the company. It is a potential loss arising
due to incapability in meeting the assessed shortfall in the Group’s pension schemes. Pension
risk is not related with the financial performance of this scheme but it is focused on the threat to
company’s position arising from the need to fulfil the obligations of pension scheme.
Reputational – This kind of threat is related with damage to the goodwill, loss of earnings and
contrary impact on the market capitalization of the company (Hartford, 2004). The stakeholders
also starts perceiving negative of the group and its actions.
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Problems faced by the other companies:
There are many other companies in the banking sector which are facing many other types
of risks. These can be explained as follows:
 Compliance risk – It is the risk related to breaching legal enactments, statutory
regulations, official provisions and internal regulations (Hoag, 2011). It involves the
issues related to official sanctions, financial loss and loss of reputation.
 Foreign exchange – It is a potential loss which is arising due to change in the value of the
bank’s assets or liabilities. It arises due to fluctuations within the exchange rate. The
banks performs transactions related to foreign exchange for their customers and for the
bank’s own accounts (Hoekman, 2004). The value of foreign currency can diminish due
to adverse movement and it causes huge losses for the firms.
 Business Risks – This type of threat emerges from the bank’s long term business strategy.
Under this phase, firms are not been able to provide response to the changing market
conditions, loss of market share, etc (Khatta, 2008). It mainly happens due to selection of
a wrong business strategy. This might lead to the failure of the business.
 Commodity risk – This kind of threat mainly arises due to adverse impact on the
commodity prices. The commodities include agriculture products (wheat, corn, live-
stock), industrial commodities (iron, copper and zinc) and energy commodities (crude oil,
gas). Change in the value is seen due to change in the demand and supply of services
(Klemetti, 2006). Any of the bank holding these products as part of investment is
subjected to this kind of risks.
Rules and regulations
Standard Chartered Bank is authorized by the Prudential Regulation Authority and it is
regulated by the Financial Conduct Authority and Prudential Regulation Authority. The terms
and conditions of the bank are governed by the English Law and any kind of disputes related to
organization shall be covered under the non-exclusive jurisdiction of the English Courts. All the
transactions of the group banks in UK are protected by the country’s regulatory regime for the
conduct of the business (Knight, 2012).
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The potential opportunities that could enhance company performance
There are many opportunities which are knocking on the door of Standard Chartered Plc:
Mobile banking – The trend of mobile banking is increasing very significantly and it can be
seen that people these days prefer to do all their transactions in a relaxed manner. Through
mobile banking, they can manage their cash very easily sitting in any part of the world (Lee,
Yeung, and Hong, 2012). This gives them the comfort and easiness. The trend of mobile banking
is increasing because number of smartphones are also increasing. In this way bank can connect
with its customers in very effective manner. Standard Chartered can also develop its mobile app
which can make the banking very easier for them as well their customers (Manelele and Muya,
2008.). Different type of apps can be introduced with more advanced and user-friendly features.
Hence in this manner company’s performance can be enhanced.
Imparting banking knowledge to customers – Many of the customers wants assistance in
financial planning and framing of financial goals. The banks which can impart correct advice and
knowledge to the customers are expected to grow their businesses (Minelli, Rebora, and Turri,
2008). Many people are of the belief that they are ready to increase business with their service
provider of advisory services are offered to them. Companies in the banking sector has the
opportunity to develop a mutual exchange of value through personalising their experience. For
that purpose it is essential to understand the client’s needs and expectations. This can be done by
leveraging both internal and external resources (Pellegrino, Vajdic and Carbonara, 2013).
Continuous innovation – It is evident that banking sector has seen great transformation in the
recent years. The functioning patter of the companies has changed completely as compared to the
traditional methods (Randall, 2008). It has become essential for the banks to respond effectively
to the changing market conditions. Continuous innovation is the key to success. Without
innovation, it is difficult to cope up with the increasing complexities of the business world. Path
of innovation can be very effective and resourceful for the companies and their business. In this
way the performance can be enhanced (Samson, Reneke, and Wiecek, 2009).
Improved economic conditions – It is another very big opportunity for the organization.
Improved conditions can increase the demand for products and services of the bank. It also
increases the spending power of the individuals as more and more money starts coming into the
economy (Valsamakis, Vivian, and DuToit, 2004). There is an availability of capital and
4

liquidity funding for the business. Through this company can move on to the path of expansion
and success. It can open the gates of many opportunities and can also increase the rate of
customers for the business. The personal expenditure and consumption pattern of the people
passes in smooth manner (Woods, 2011). It is all reflected in high profitability and high turnover
at the end of the financial period.
Globalization - Globalization has rendered great opportunities for the company not only in one
sector but also in several other sectors also including the banking. Due to globalization, banks
are taking their business beyond the boundaries of the nations (Zou, Zhang and Wang, 2007). It
is being done to grab more value, to intake innovation and to reach towards high segment of
customers. At the global level banks are getting more customers and this is contributing in
enhancing the value of their business. Hence this offers great opportunity for the organization.
Mergers and acquisitions – It is also a widely seen trend within the banking industry. In order
to increase the scale and size of the business, companies are entering into things like joint
venture, mergers, acquisitions etc (Randall, 2008). It is gives them more power and offer more
strength to their business operations. It also helps in increasing the market share of the company
within the industry. The large size holdings can acquire the small size holdings. In this way the
capitalization of the business also gets stronger and the financial performances also enhances
Pellegrino, Vajdic and Carbonara, 2013).
Micro-finance – This trend was restricted to small size financial institutions only. But slowly
and slowly this trend has been taken into consideration by big organizations also (Minelli,
Rebora, and Turri, 2008). Many large size banks have also implemented the micro-finance
services in their business operations.
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Threshold of acceptable Risk
Figure 1 Threshold of acceptable Risk
(Source Valsamakis, Vivian, and DuToit, 2004)
This process is regarded as the exercise which helps in exploring the risk and threats in an
in-depth manner. Further perceptions and impact related to those potential loses can be
identified. Concept of Threshold of acceptable Risk can be understood by the above diagram.
The risks which are mentioned in the figure are examples only (Samson, Reneke, and Wiecek,
2009). The level of the threats are measured at scales such as very low, low, medium, high etc. It
reflects the amount of risk which is acceptable to a company. For example an organization may
keep the policy that a risk that enhances the costs of a venture by not more than 10% is
acceptable but costs more than 10% is not acceptable. It is to be noted that in case of business,
the customers, sponsors and other stakeholders may have different opinions and different risk
thresholds. It becomes the responsibility of the risk controller to bring consensus on the
acceptable threshold (Hubbard, 2009).
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Risk Committee Structure
Figure 2 Group Risk Committee Structure
(Source: Standard chartered, 2015)
The above figure shows the Risk Committee Structure of the Standard Chartered Plc. The
whole structure is segmented into different committees. Each of them is responsible for handling
the risk related to their domain.
RISK REGISTER
Risk score Classification Mitigation
<1 Opportunity No
1 to 5 Negligible risk No
5 to 10 Low risk No
10 to 15 Moderate risk No
15 to 25 High risk Yes
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Key register
Likelihood Impact
1 Very unlikely 1 Negligible impact
2 Unlikely 2 Low impact
3 Likely 3 Moderate impact
4 Very likely 4 High impact
5 Almost certain 5 Catastrophic impact
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Risk
Number
Risk Description Risk
Information
(references from
the research )
Likelihoo
d
(1-5)
Impact
(1-5)
Risk rating
(likelihood
* impact )
Above
acceptabl
e rating?
Mitigation actions
1 Credit Risks
It is threat from
the client side
related to default
of loan and
payments
Rasid and et.al.,
2011
4 5 20  It has been
managed through
a framework
which sets out
the policies and
procedures which
measures and
manages the
credit risks
 Credit
derivatives are
used to decrease
the risks in
portfolios
2 Cross-border
risk The bank
does not able to
Hall and
Duperouzel,
2011
4 5 16  GRC (Group
Country Risk
Function) is
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obtain payments
from its global
customers or third
parties due to
contractual
obligations
responsible for
the nations cross
border risk limits
 Countries which
are identified as
higher risks are
subjected to
central
monitoring
3 Market Risks – It
is regarded as the
potential for loss
of economic value
or earnings due to
hostile changes in
the financial
market rates or
prices
Hoag, 2011 5 5 25  Committee has
been established
named Group
Market Risk
Committee
(GMRC) which
takes into
consideration the
threats related to
volatility,
products, asset
classes, business
transactions,
2

volumes etc
 Tools such as
derivatives,
hedging etc are
used for
mitigations.
4 Liquidity risk –
Under this phase
company do not
have adequate
financial
resources to fulfil
the obligations
and is forced to
access the sources
at high costs
Lee, Yeung, and
Hong, 2012
4 4 16  Liquidity is
managed on short
term and medium
term basis.
 GALCO is the
body responsible
for approving the
liquidity
management
policies
5 Operational Risk
– It is the possible
loss resulting
from the failure of
manpower,
process and
Manelele and
Muya, 2008
4 4 16  Operational risks
are managed
through a
consistent set of
management
processes which
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technology are concerned
with risk
identification,
assessment, and
control and
monitoring.
 To segment all
the activities of
Group into
manageable units
in systematic
manner
6 Reputational
risks –
It is a threat
related with
damage to the
goodwill, loss of
earnings and
contrary impact
on the market
capitalization of
Minelli, Rebora,
and Turri, 2008
4 4 16  All the
employees are
made responsible
for day to day
identification and
management of
the reputational
threat.
 A very dedicated
sustainable
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business. Finance Team is
framed which
reviews the
proposed high
risk transactions
 The group head
of the Corporate
Affairs also
control this type
of threat
7 Pension -
Under this threat
arises because of
lack of potential
in fulfilling the
assessed shortfall
in the Group’s
pension schemes
Pellegrino,
Vajdic and
Carbonara, 2013.
4 4 16  The threat is
monitored on
quarterly
intervals which
takes into
account the
fluctuations in
asset values
 The Group
Pension Risk
Committee is the
association
5

responsible for
mitigation of this
threat
8 Regulatory
changes and
compliance –
The changes in
the economic
policies are not
predictable and
could affect the
volatility of the
financial sector
Samson, Reneke,
and Wiecek,
2009.
4 4 16  The key
regulatory
developments are
evaluated for the
anticipation of
fluctuations and
its impact on the
business
 Company shows
participation in
discussion with
regulators and
the government.
 The focus is on
developing a
framework for a
stable and
sustainable
financial sector
6

9 Dislocation in the
Financial
Markets –
The volatility in
the market could
affect the business
by impacting the
value of assets.
The instability
also increases the
possibilities of
default from the
side of customers.
Valsamakis,
Vivian, and
DuToit, 2004.
4 4 16  To evaluate the
performance of
all the group
companies in
careful manner
 By providing
ratings all the
group firms
according to their
systematic
importance
 Maintaining a
robust
performance to
identify the
appropriateness
of bank’s
products and
services
10 Risk of fraud –
The threat of
fraud is rising
Zou, Zhang and
Wang, 2007
4 4 16  Broad range of
measures have
been adopted in
7

significantly
because criminals
have become
more
sophisticated.
They are taking
undue advantage
of the technology.
different places
in order to
monitor and
mitigate the risks
 Controls are
incorporated in
all the policies
and procedures
such as
recruitment,
origination,
information etc.
11 Exchange rate
movements –
Any fluctuations
in the exchange
rate affects the
value of assets
and liabilities of
the organization.
Very sharp
movements in the
Emblemsvag and
Kjolstad, 2006
4 4 16  The exchange
rates movements
are followed
actively
 The exposure is
adjusted
according to the
threat
 Decision related
to hedging of
8

currency can have
an impact on the
trade flows and
wealth of the
customers. This
could negatively
impact the
company’s
performance
foreign exchange
exposures might
be taken if
required as it
helps in offering
protection to the
capital ratios
12 Geopolitical
issues –
These issues can
affect the trade
flows, the pay
ability of the
customers and the
potential to
arrange capital
across the
boundaries
Frenkel, Dufey
and Hommel.
2005
4 4 16  The political
situations are
monitored in all
the principal
markets
 Stress tests are
performed at
regular intervals,
in order to
analyse the
impact of such
events on
portfolios.
9

13 Weakening
macroeconomic
conditions in the
footprint nations
– It is another
major risk which
can have an
impact on
expenditure and
consumption
patterns, demand
for business
products and
services,
availability of
credit etc
Manelele and
Muya, 2008
4 4 16  Balance is
achieved
between risk and
returns through
taking into
consideration the
changing
economic
conditions
 The economic
trends are
monitored
closely
 The suitability of
the risk policies
and controls are
also monitored
CONCLUSION
From the above study it can be conclude that risk management is a very complex process. Every organization is required to go
through this process because it plays an important role in the mitigation of the risks. The study was in context with Standard Chartered
10

Plc, It can be said that bank has faced different types of risks in the past. It includes threats related to market, operations, liquidity,
Country cross border, Pension etc. In order to face these threats, bank has adopted different types of mitigation measure which are
very effective and efficient. Reputational risks is the most sensitive one as it creates negative impression on the minds of stakeholders.
However the study has concluded that enterprise risk management is very important and also act as the key to success. This study can
be very useful for all the banks from the point of view of risk management.
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REFERENCES
Books and journals
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Management. 1(2). pp. 1145-1154.
Emblemsvag, J. and Kjolstad, E. L. 2006. Qualitative risk analysis: some problems and remedies. Management
Decision.44(3).pp.395-408.
Frenkel, M., Dufey, G. and Hommel. U., 2005.Risk Management: Challenge and Opportunity. Springer.
Hall, S. and Duperouzel, H. 2011. We know about our risks, so we should be asked.” A tool to support service user involvement in the
risk assessment process in forensic services for people with intellectual disabilities.Journal of Learning Disabilities and
Offending Behaviour.2(3).pp.122-126.
Hartford, D. N. D. 2004. Risk and Uncertainty in Dam Safety. Thomas Telford.
Hoag, L. K. D., 2011. A strategic risk management program for agriculture. China Agricultural Economic Review. 3(4).pp.505 – 517.
Hoekman, G. J. J. 2004. Study for control of risks in large multidisciplinary projects at In genieurs bureau Oranjewoud. London South
Bank University: School of construction. pp.15-30.
Khatta, S . R . 2008. Risk Management. Global India Publications.
Klemetti, A., 2006. Risk Management in Construction Project Networks. Helsinki University of Technology, Laboratory of Industrial
Management.
Knight, H. F. 2012.Risk, Uncertainty and Profit.Courier Dover Publications.
Lee, M. K. C. Yeung, C. Y. and Hong, Z., 2012. An integrated framework for outsourcing risk management. Industrial Management
& Data Systems. 112(4).pp.541-558.
Manelele, I. and Muya, M. 2008. Risk identification on community-based construction projects in Zambia. Journal of Engineering,
Design and Technology.6(2).pp.145-161.
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