Material Risk

Definition

Material Risk is a designation that (typically in a particular regulatory context) indicates that a certain risk is of sufficient significance for an organization that it must be managed following certain minimum criteria

Regulatory Expectations

As part of their Internal Capital Adequacy Assessment Process (ICAAP), regulated financial institutions must identify and manage all their material risks

• Supervisors also require banks to have risk management frameworks and systems not only to identify material risks, but also to measure, monitor and mitigate those risks on an ongoing basis.
• Supervisors require regular monitoring of risk exposure and capital positions, with significant concerns being reported to senior management and the board whenever necessary.
• The majority of supervisors also require established procedures for prompt reporting and escalation of breaches to senior management, as well as for ensuring that appropriate follow-up actions are taken.