RSK4801 Assignment 2 (ANSWERS)2025 - DISTINCTION GUARANTEED

RSK4801 Assignment 2 (ANSWERS)2025 - DISTINCTION GUARANTEED................... The purpose of a risk report is to inform a bank's stakeholders about its performance for a reporting period and address the various compliance reporting requirements. The information below regarding 2021 (one year after the COVID-19 pandemic) is provided for consideration for a risk report for the Region Bank. Reporting structure The Region Bank's reporting structure entails the following reports: • Governance report Discusses the Bank's governance approach and priorities. • Environmental, Social and Governance (ESG) report Provides an overview of the Bank's processes and governance structures relating to social and environmental matters. • Annual financial statements Entails the Bank's full audited annual financial statements. • Risk and capital management report Sets out the Bank's approach to risk management. • Climate-related financial report Provides information on how the Bank is managing the risks and responding to the opportunities presented by climate change. The Board of Directors (hereafter, Board) plays a crucial role in the management and reporting process of the Bank. For the reporting period, the Board must be satisfied that: • The Bank's risk, compliance, treasury, capital management, and internal audit processes were operating effectively. • The Bank's business activities were managed within the approved risk appetite. • The Bank is adequately funded and capitalised to support the execution of the approved strategy. • Appropriate remedial actions were taken for instances that incurred losses, led to a breach in the risk appetite or actions that incurred fines/penalties by the regulators. The Chief Risk Officer made the following general comments: A focus area during the year was operational risk management to enhance the banks performance and address the various compliance reporting requirements. The risk report was reliable in simplifying and supporting management decisions and risk data. A more robust approach was followed to enhance the level of implementation of risk management and the requirements of the code of ethics within the Bank. The environmental, social, and governance (ESG) risks and their impact on operational risk management remain a focus area. A climate policy was developed to set certain climate-related targets aligned with the government's overall approach. The Bank continues to embed a risk management culture to ensure risk-taking to support the strategic objectives. The Bank remains committed to complying with the minimum regulatory requirements and operates within the internally approved risk appetite. In addition, the following information was reported for 2021 (post-COVID-19 year), which may be relevant for drafting the operational risk management report. Economic environment The continent and the world have experienced multiple COVID-19 issues, leading to inconsistent economic recovery. Severe infection rates hindered this despite high vaccination rates in some countries. While recovery continues, some central banks allowed inflation to exceed targeted ranges to promote economic growth. The increased liquidity from the COVID-19 pandemic has kept debt levels high, exposing high risks to the banking sector and credit ratings. Growth continued to benefit technological businesses, while conventional businesses were slower to recover. This status is also relevant to developing countries, resulting in unrest and affecting investor confidence, emphasising the importance of risk management. Environment and Social Climate change is negatively impacting all continents, including Africa. For example, Africa faces an increased risk of floods and drought, which affect food production and health and lead to instability and illegal migrations. The COVID-19 pandemic also resulted in many social consequences, such as increased poverty, higher unemployment rates, digital inequality and unavailability of certain health support and facilities. Main enterprise risks The main enterprise risks that will have to be managed are as follows: • Climate change and extreme weather incidents. Severe extreme weather incidents will deplete resources, and the impact of drought or flooding on agriculture-reliant economies may increase the number of refugees across borders. • After-effects of the COVID-19. Post-pandemic stress on employees, customers and third parties may result in low productivity, misconduct and business closures. • Environmental, Social and Governance issues. A shortfall of dedicated resources to lead the Bank in managing ESG risks and limited customer ESG data sources results in the inability to demonstrate a commitment to sustainable financing for ESG initiatives. • Technology. Technology is one of the main risk areas for most banks, which were affected by the following: o Cyber-attacks o Ransomware attacks o Technological instability o Technological fraud o Unskilled staff Operational risks The Bank identified the following operational risks with the respective severity and frequency ratings: 1. Regulatory constraints (3;3) 2. Threats posed by emerging technology companies (4;4) 3. Psychological effects of Covid-19 (2;2) 4. Fraud via digital channels (3;3) 5. Inadequate procedures to detect internal fraud and staff defalcations (3;2) 6. Resourcing for ESG risk management (3;3) 7. Technology instability (4;3) 8. Unawareness of customers regarding digital fraud (3;4) 9. Resourcing skilled staff for risk management (4;5) 10. Operational dependence on third parties (4;2) 11. Back-to-back extreme weather events (5;3) 12. Ransomware attacks (5;5) The Bank approved the following rating scales for impact and frequency for a risk and control self-assessment: Severity 1 2 3 4 5 Insignificant Minor Moderate Major Severe Frequency 1 2 3 4 5 Rare Unlikely Likely Almost certain Certain The following risk-mitigating actions were identified for some of the operational risks: • Supporting programmes for employees to deal with post-pandemic stress. • Staff wellbeing initiatives. • Development of internal fraud detection processes and prevention tools. • Improvement of business resilience capability and regular disaster recovery testing. • Awareness programmes for customers to educate them on digital fraud (e.g., Cyber-attacks). • Intensive market research for skilled staff and appointments. • Intensive training programmes for staff – upskilling in terms of technology management. • Monitoring of regulatory requirements. • Updated policy on climate-change management. • The increased Board focuses on ESG-related issues, such as climate change and the potential influences of floods and drought. • Regular business continuity management exercises and disaster recovery testing. • Monitoring of service agreements with third parties. • Continuous collection and analysis of information on third parties to identify risk exposures. • Continuous monitoring of systems to proactively detect fraud via digital channels. • Proactive engagement and collaboration with regulators on existing and new technologies and regulations. • Proactive policy support to deal with threats from emerging technology companies. • Ensuring adequate natural disaster insurance. • Updated and regularly tested business continuity management plans. • Procedures to ensure continuous environmental risk research and analysis for effective resourcing of ESG risks. Governance The Bank is governed by various committees, which include the Board Audit Committee and the Board Risk Management Committee. The Board mandates these committees, and members have the requisite skills and expertise to manage risks and serve on these committees. The functions of the committees are structured and aligned with the three levels of risk management. Risk appetite Regarding operational risks, the Bank has zero tolerance for unfair and fraudulent outcomes due to inappropriate behaviour, wilful breaches of regulatory requirements, and internal fraud. Risk management culture The Bank endeavours to embed a strong risk management culture by performing operations correctly. Staff is educated on the principles, standards, values and ethics related to effective risk management. Risk reporting Identified risk exposures are reported regularly to the appropriate management levels and escalated to the responsible board committees where necessary. The operational risk report is aimed at the Bank's stakeholders and the regulatory bodies. Note: Although the abovementioned data is fiction-based for education purposes, some of the information is derived from the Standard Bank Group's Risk and Capital Management Report for the year ended 31 December 2021. Questions You are appointed as the operational risk manager responsible for leading a team to compile the report on the Bank's operational risks based on the information provided in the case study. You are required to perform the following activity questions: Question 1 (10 marks) Discuss the benefits of a sound operational risk report. Question 2 (15 marks) Briefly discuss the operational risk factors and allocate the list of operational risks mentioned in the case study to each risk factor. Question 3 (15 marks) Explain the possible approaches to a risk and control self-assessment (RCSA) process and the potential benefits of an RCSA. Question 4 (10 marks) The functions of the risk committees of the Bank are structured and aligned with the three levels of risk management. Explain the roles and responsibilities of the three lines of defence related to risk management.