Risk Appetite Definition & KRI Monitoring for an International Retail Bank

An international retail bank, operating in several countries in Europe, contacted BDO to review the definition of risk appetite for all its main risks, and to support its monitoring by the deployment of key risk indicators.

The request came both from the regulatory pressure felt by this organisation, as well as the need to update and benchmark their practice regarding risk appetite and key risk indicators.

The bank wanted to demonstrate to their main regulators that their risk appetite definition and governance was in line with their peers and, if not, that they had a clear plan to upgrade their practice in that sense.

The main challenge for the client was to implement changes to their risk appetite in a gradual way. The goal was to create a smooth transition across different business branches operating in various countries. This approach needed to account for each branch's unique level of operational maturity and their distinct understanding of risk appetite and key risk indicators.

The risk team had quite ambitious goals, but they were operating in an environment where the level of understanding and the level of application of risk appetite wasn't always fully mature. They couldn't immediately transition from their current situation to best practice. Instead, they needed to find a midpoint that was familiar enough for the business while still satisfying the regulatory requirements.

BDO prioritised a comprehensive understanding of the client's specific requirements and operational landscape. They invested significant time in identifying implementable solutions that aligned with the business's risk maturity and met the regulatory standards, especially those of the bank's headquarters.

BDO worked fully collaboratively with the client, for example through weekly meetings. During these conversations, both BDO's risk experts as well as the client's risk team were comparing the results and progress on the various workstreams of the mission.

BDO jointly defined risk appetite statements and monitoring indicators, both leading and lagging, for each of the key risks in their operational risk taxonomy. They also produced a draft risk appetite policy, KRI monitoring templates, and training slides on risk appetite.

On top of that, BDO organised several trainings with the different teams to familiarise them with both the general concepts of risk appetite in KRIs, and with the new approach delivered.

BDO's risk experts allowed the client to satisfy the regulators in the different countries. Besides this, they gave confidence to the board that the enterprise risk management of the bank was operating to market and regulatory standards.

BDO's pragmatic approach made it easy to effectively implement these indicators and statements in different country operations and departments. It also enhanced the risk team's monitoring and governance capabilities while simultaneously improving risk culture and understanding across various business lines.