Guidelines for Establishing Board-level Risk Committees

Risk & Compliance Journal, Deloitte, May1 2013

Although many large bank holding companies already have board-level risk committees, they will likely become even more prevalent with rule-making set in play under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). Under Dodd-Frank, the Federal Reserve has been given the task of issuing new rules. The parameters of these new rules include requiring certain large banks to establish a board risk committee with a formal written charter approved by the company’s board of directors.

“There was a recognition that traditional risk and certain aspects of governance models had their shortcomings,” says Henry Ristuccia, partner, Deloitte & Touche LLP, and and global leader, Governance, Risk and Compliance Services, Deloitte Touche Tohmatsu Limited.  “So the intent is to clarify that a different approach is needed, a different structure to bring a focus on risk at the board level, and that is what Dodd-Frank is recommending.” U.S. banks and bank holding companies with greater than $50 billion in assets, those with greater than $10 billion in assets and that are publicly traded and certain other non-bank financial companies designated as systemically important would be subject to the rules requiring a risk committee and a charter.

The risk committee charter would be among a board’s main tools for disclosing its approach to risk oversight. In writing the charter, the board and the risk committee will determine the risk committee’s role in risk governance. As public documents, board committee charters specify the committee’s responsibilities and how it carries them out. The risk committee charter discloses the board’s involvement in, and approach to, risk oversight, the committee’s relationship to the Chief Risk Officer (CRO) and to management’s risk committee and other elements of risk oversight. Continue reading…

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