14.5 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 issuer of ARTs overall risk profile. 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 issuer of ARTs ’ exposure to risks. 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, issuer of ARTs 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 issuer’s management and its management body, and the grounds for objections should be formally documented. If an issuer of ARTs 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.

Issuers of ARTs 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 issuer of ARTs ’ risk strategy and risk appetite and the head of the RMF should be able to directly report material concerns to the management body in its management function.