Risk Appetite Framework
From Open Risk Manual
Definition
Risk Appetite Framework is the overall approach, including policies, processes, controls, and systems through which Risk Appetite is established, communicated and monitored. It includes a risk appetite statement, risk limits, and an outline of the roles and responsibilities of those overseeing the implementation and monitoring of the RAF. The RAF should consider material risks to the financial institution, as well as to the institution’s reputation vis-à-vis policyholders, depositors, investors and customers. The RAF aligns with the institution's strategy.
A RAF normally comprises:
- a strategic plan and objectives versus risk taking
- a Risk Appetite Statement
- high level risk limits
- monitoring and reporting activities that compare Risk Profile versus appetite
- mechanisms for the control and correction of the risk profile when it deviates from the stated risk appetite
- a framework for reassessing risk appetite in light of changes in business or control environments
