Risk Policies, Procedures & Limit Development
An institutions directors and senior management should tailor their financial risk management policies and procedures to the types of risks that arise from activities the institution conducts. Once financial risks are properly identified, the institutions policies and its more fully articulated procedures should provide detailed guidance for the day-to-day implementation of broad business strategies, and generally include limits designed to shield the institution from excessive and imprudent financial risks. While all institutions should have policies and procedures that address their significant activities and financial risks, these policies contain written statements of the institutions commitment to pursue certain objectives and results. Policies often set standards (e.g. of risk tolerance) and recommend courses of action. They also express an institutions underlying mission, values, and principles. Procedures are step by step processes, programs and practices that impose order on the institutions pursuit of its objectives, defining how daily activities are to be carried out. They are consistent with the underlying policies. Management is expected to ensure that they are modified when necessary to respond to significant changes in the financial institutions activities or business conditions. To ensure that an institutions policies, procedures, and limits are adequate, the following must be true:
