The Bank of Ghana has revised its Risk Management Directive again with the objective that a Regulated Financial Institution (RFI) shall have systems for identifying, measuring, evaluating, controlling, mitigating and reporting material risks that may affect its ability to meet its obligations to depositors and other stakeholders.

This is pursuant to Section 92(1) of the Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930) and shall apply to Banks, Savings and Loans Companies, Finance Houses and Financial Holding Companies (FHC) licensed or registered under Act 930.

Again, the Board of an RFI is ultimately responsible for having a risk management framework, whilst the risk management framework must also be consistent with the RFI’s strategic objectives and plan.

The key requirements of the directive is to ensure an RFI develop and maintain a risk management framework that is appropriate to the size, business mix and complexity of the institution and relevant at all times, maintain a Board-approved Risk Appetite Statement and maintain a Board-approved Risk Management Strategy (RMS) that describes the key elements of the risk management framework that give effect to the approach to managing risk.

Also, the RFI’s are to maintain adequate resources to ensure compliance with this directive and notify BoG when it becomes aware of a significant breach of, or material deviation from, the risk management framework; or that the risk management framework does not adequately address a material risk.

Role of Board

The Bank of Ghana said the Board of an RFI will be ultimately responsible for the RFI’s risk management framework.

In that regard, the Board shall exercise oversight over Senior Management and in particular, the Board shall together with the Chief Risk Officer, set the risk appetite within which it expects management to operate.

It will also ensure that Senior Management of the RFI monitor and manage all material risks consistent with the strategic objectives, risk appetite statement and policies approved by the Board; recognise uncertainties, limitations and assumptions attached to the measurement of each material risk; amongst others.

Risk Management Framework

The directive said an RFI shall maintain a Risk Management Framework (RMF) that enables it to appropriately develop and implement strategies, policies, procedures and controls to manage different types of material risks, and provides the Board with a comprehensive enterprise-wide view of material risks.

Again, the RMF shall, at a minimum, include a risk appetite statement; a Risk Management Strategy (RMS); policies and procedures supporting clearly defined and documented roles, responsibilities and formal reporting structures for the management of material risks throughout the institution.

Risk Management Strategy

The directive said the Risk Management Strategy approved by the Board.

However, an RFI shall maintain an RMS that describes each material risk, and the approach to managing these risks; lists the policies and procedures for dealing with all material risks; amongst others.

Going forward, the Bank of Ghana may issue further directives regarding material risk areas it considers necessary or appropriate to ensure prudent management of those risk areas.