Constructing a Risk Appetite Framework

One of the key requirements of the recently published Corporate Governance Code for Credit Institutions and Insurance Undertakings from the Central Bank of Ireland is the establishment of a Board-approved risk appetite. Amongst other things, there is a requirement that the Board understand the risks to which the institution is exposed and that it establishes a documented risk appetite. This paper is intended to act as an aid to those undertakings currently working towards compliance with this particular aspect of the new code by suggesting possible approaches that may be adopted when defining and setting risk appetite and highlighting some of the many considerations which must be borne in mind during this process.