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Version date: 16 December 2015 - onwards

15. Risk Appetite

15.1 The board is required to understand the risks to which the credit institution is exposed and shall establish a documented risk appetite for the credit institution. The appetite shall be expressed in qualitative terms and also include quantitative metrics to allow tracking of performance and compliance with agreed strategy (e.g. Value at Risk, leverage ratio, range of tolerance for bad debts, acceptable stress losses, economic capital measures). It shall be subject to annual review by the board.

15.2 The risk appetite definition shall be comprehensive and clear. The definition shall clearly define the appetite and address separately the short, medium and long term horizons.

15.3 The board shall ensure that the risk management system and internal controls reflect the risk appetite and that there are adequate arrangements in place to ensure that there is regular reporting to the board on compliance with the risk appetite.

15.4 In the event of a material deviation from the defined risk appetite measure, the details of the deviation and of the appropriate action to remedy the deviation shall be communicated to the Central Bank by the board promptly in writing and no later than five business days of the board becoming aware of the deviation.

15.5 The board shall satisfy itself that all key control functions such as internal audit, compliance, actuarial and risk management are independent of business units, and have adequate resources and authority to operate effectively.