Fundamentals of Risk Management

Corporate governance for a bank
Corporate governance and risk management activities within a financial organiza-
tion are strictly governed and regulated. Most financial organizations, including 
banks, produce their own internal corporate governance guidelines. Typically, these 

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Risk governance
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The bank is the largest financial services institution listed on the national stock exchange
and is among the 30 most profitable financial services organizations in the world. In January 
2004, the bank disclosed to the public that it had identified substantial losses relating to 
unauthorized trading in foreign currency options. These losses were classified as
operational risk.
Concurrent issues of further substantial losses on home loans called into question the 
strength of the risk management practices and lack of auditor independence, reinforcing
the view that corporate governance had not been given the priority it deserved over a 
number of years.
Operational risk
guidelines will cover director qualifications, director responsibilities and the respon-
sibilities and delegated authority of board committees. The guidelines should also 
consider arrangements for the annual performance evaluation of the board and the 
arrangements for senior management succession.
The corporate governance structure will normally be a set of governing principles 
for the conduct of the board of directors. These governing principles will include 
information for board members on dealing with conflicts of interest, confidentiality 
and compliance with laws, rules and regulations.
A major part of ensuring adequate corporate governance for a financial institution 
will be adequate training and induction for board members. Typically, the orientation 
programme for new members of the board will include details of:
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the legal and regulatory framework;
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risk management;
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capital management and group accounting;
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human resources and compensation;
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audit committee, internal audit and external audit;
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communication, including branding.
The global financial crisis has resulted in banks and other financial institutions
reviewing their own corporate governance standards. The review in the box below 
provides an overview of a large national bank and sets out criticisms of that bank in 
relation to failures of corporate governance.