DIGITAL FINANCIAL SERVICES AND RISK MANAGEMENT HANDBOOK

DIGITAL FINANCIAL SERVICES AND RISK MANAGEMENT HANDBOOK

PART 1
Overview of Risk Management
Techniques

Risk can be described
 as the “effect of uncertainty on objectives”. There
are many definitions, approaches, and frameworks used across various
businesses and industries, with one of the key global standards being ISO
31000. The consequences of a change in circumstances or events may be
positive or negative. This section of the handbook lays out the conceptual
principles of a risk management framework, the risk assessment process,
and the key components of developing a risk management framework for
DFS.
Risk management begins with the mandate and commitment of the management
and governance bodies of the institution, and is followed by design of a framework,
implementing risk management, monitoring and review of framework, and lastly,
continuously improving the framework. Establishing an effective risk framework is an
essential aspect of good corporate governance for all companies and should be a key
priority for boards of directors and senior management. The implementation of a risk
management framework requires the appropriate risk department for the size of and
complexity of the organization. Almost all financial institutions are required to have a
head of risk management, with officers or departments responsible for different areas of
risk. For DFS, the area that is generally least developed is operational risk, and this requires
the greatest attention. The teams involved in managing the DFS operations have the
greatest awareness of what is required and what can go wrong and should be included as
early as possible in the planning process of a DFS risk strategy. This provides a very useful
counterbalance to the business development teams who often fail to anticipate the risks
in the strategies that they are promoting or see risk assessment as an impediment to
progress. 

DIGITAL FINANCIAL SERVICES AND RISK MANAGEMENT HANDBOOK