18.3 RMF’s role in identifying , measuring, assessing, managing, mitigating, monitoring and reporting on risks

The RMF should ensure that that there is an appropriate risk management framework and that all risks are identified, assessed, measured, monitored, managed and properly reported on by the relevant units in the investment firm.

The RMF should ensure that identification and assessment are not based only on quantitative information or model outputs, but also take into account qualitative approaches. The RMF should keep the management body informed of the assumptions used in, and the potential shortcomings of, the risk models and analysis.

The RMF should ensure that transactions with related parties are reviewed and that the risks they pose for the investment firm are identified and adequately assessed.

The RMF should ensure that all identified risks are effectively monitored by the business units.

The RMF should regularly monitor the actual risk profile of the investment firm and scrutinise it against the investment firm ’s strategic goals and risk appetite to enable decision-making by the management body in its management function and challenges by the management body in its supervisory function.

The RMF should analyse trends and recognise new or emerging risks and increases in risk arising from changing circumstances and conditions. It should also regularly review actual risk outcomes against previous estimates (i.e. back testing) to assess and improve the accuracy and effectiveness of the risk management process.

The RMF should evaluate possible ways to mitigate risks. Reporting to the management body should include proposals for appropriate risk-mitigating actions.