The Risk Committee of the Board of Directors

The Board of Directors has risk management responsibilities that are defined not only by best practices and guidelines, but also by laws and regulations. The Risk Committee must assist the Boards in assessing the different types of risk to which the organization is exposed.

Management is responsible for executing the organization's risk management policy. The Risk Committee must exercise oversight, and must provide evidence about it. The members of the committee must have direct access to, and receive regular reports from management.

The Risk Committee must be composed of at least three members and must have a majority of non-executive directors, at least one of whom shall also be a member of the Audit
Committee. At least one person must be a risk expert. The Chairman of the Committee must be a non-executive Director

The Risk Committee is responsible to:

1. Learn about the actual risks and the control deficiencies in the organization.

2. Help the board define the risk appetite of the organization.

3. Exercise oversight of management’s responsibilities, and review the risk profile of the organization to ensure that risk is not higher than the risk appetite determined by the board.

4. Monitor the effectiveness of risk management functions throughout the organization. Ensure that infrastructure, resources and systems are in place for risk management and are adequate to maintain a satisfactory level of risk management discipline.

5. Monitor the independence of risk management functions throughout the organization.

6. Review the strategies, policies, frameworks, models and procedures that lead to the identification, measurement, reporting and mitigation of material risks.

7. Review issues raised by Internal Audit that impact the risk management framework.

8. Ensure that the risk awareness culture is pervasive throughout the organization.

9. Fulfill  its statutory, fiduciary and regulatory responsibilities. This is usually the most difficult task.

Risks to serving directors have risen exponentially after the new Basel Capital Accord, the US Sarbanes Oxley Act, the European Sarbanes Oxley (8th Company Law Directive, E-SOX), the Japanese Sarbanes Oxley (Financial Instruments and Exchange Law, J-SOX), the European Union's Financial Services Action Plan (FSAP) that includes MiFID (Markets in Financial Services Directive, and so many other Acts, Directives, Regulations.

The members of the board have to understand the new environment and the new responsibilities in order to protect their reputation and wealth and their organization. They have to be aware of the risks and to perform their duties according to the highest principles and implementation practices. But, they can do more: They can use compliance as a competitive advantage