18.5 Head of the risk management function

Where established, the head of the RMF should be responsible for providing comprehensive and understandable information on risks and advising the management body, enabling this body to understand the investment firm ’s overall risk profile. The same applies to the head of the RMF of a parent investment firm regarding the consolidated situation. Where no independent function has been established, the responsibilities of the head of the risk management function lie with the staff to whom the risk management procedures are entrusted or the members of the management body directly.

The head of the RMF should have sufficient expertise, independence and seniority to challenge decisions that affect an investment firm ’s exposure to risk s. Where the head of the RMF is not a member of the management body, taking into account the principle of proportionality as set out in Title I, investment firms should appoint an independent head of the RMF who has no responsibilities for other functions and reports directly to the management body. Where it is not proportionate to appoint a person who is dedicated only to the role of head of the RMF, taking into account the principle of proportionality as set out in Title I, this function can be combined with the head of the compliance function or can be performed by another senior person, provided there is no conflict of interest between the tasks performed. In any case, this person should have sufficient authority, stature and independence (e.g. head of legal).

The head of the RMF should be able to challenge decisions taken by the investment firm ’ s management and its management body, and the grounds for objections should be formally documented. If an investment firm wishes to grant the head of the RMF the right to veto decisions (e.g. a credit or investment decision or the setting of a limit) made at levels below the management body, it should specify the scope of such a veto right, the escalation or appeal procedures, and how the management body will be involved.

Investment firms should establish strengthened processes for the approval of decisions on which the head of the RMF has expressed a negative view. In its supervisory function, the management body should be able to communicate directly with the head of the RMF on key risk issues, including developments that may be inconsistent with the investment firm ’s risk strategy and risk appetite.