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Risk Management Policy



This policy was adopted by the Board of Directors of Armagh Credit Union
Limited.



Signed:-

Position ________________


Position ________________





Date:



Risk Management

The Credit Union, through its Board, management and staff, must be able to
respond to changing circumstances and to address risks that might arise
from changing business or economic conditions, a decline in the
effectiveness of internal controls; the initiation of new business
activities or the offering of new products and services. It is important to
the success of the Credit Union's risk management efforts that risks be
defined consistently throughout the Credit Union in accordance with the
following definitions (these items will form the discussion/agenda for a
quarterly meeting of the Board)

Credit Risk: Credit risk is the risk to earnings and capital arising from
an obligor's failure to meet the terms of any contract with the Credit
Union, or otherwise fail to perform as agreed.

Interest Rate and Market Risk: Interest Rate and Market risk are those
risks to a financial institution earnings and asset quality and valuation
resulting from adverse movements in market rates or prices, such as
interest rates, foreign exchange rates or equity prices.

Liquidity Risk: Liquidity risk is the risk to earnings or capital that
arises from a Credit Union's inability to meet its obligations when they
come due without incurring unacceptable losses. Liquidity risk includes the
inability to manage unplanned decreases or changes in funding sources. It
also arises from the Credit Union's failure to recognize or address changes
in market conditions that affect the ability to liquidate assets quickly
and with minimal loss in value.

Transaction Risk: Operational risk arises from the potential that
inadequate information systems, operational problems, breaches in internal
controls, fraud or unforeseen catastrophes will result in unexpected
losses. Operational risk includes both transaction and strategic risk.
Transaction risk is the risk to earnings or capital arising from problems
with service or product delivery and may include potential financial losses
from human error or fraud, incomplete information, and related decision-
making or operational disruption. Do we ensure that when disposing of
information systems that the disks are cleaned?

Compliance and Legal Risk: As a major community business organization, the
Credit Union, its directors, management, and staff must operate in
compliance with a myriad of laws, rules and regulations. Compliance risk
arises from violations of or nonconformance with those laws, regulations,
or prescribed practices which govern the Credit Union's activities. Legal
risk arises from the potential that unenforceable contracts, lawsuits, or
adverse judgments can disrupt or otherwise negatively affect the operations
or condition of a banking organization. Legal risk also arises from
violations of or nonconformance with laws, regulations, prescribed
practices or industry standards, or ethical standards. Failure to interpret
legislation and regulation correctly could potentially subject the Credit
Union and its directors and officers to fines and civil money penalties by
regulators and result in lawsuits by customers and others. Exposure to
compliance and legal risks can also dramatically affect the Credit Union's
reputation, strategic alternatives, and operations.

Reputation Risk: Reputation risk is the potential that negative publicity
regarding an institution's business practices, whether true or not, will
cause a decline in the member base, costly litigation, or revenue
reductions, often as a result of poor earnings, regulatory censure,
significant fraud or litigation and failure to provide services or products
in conformity to the local market. This type of risk affects the Credit
Union's ability to establish new relationships or services or to continue
servicing existing relationships.

Strategic Risk: Strategic risk results from adverse business decisions or
the improper implementation of those decisions. This risk is a function of
the compatibility of an organization's strategic goals, the business
strategies developed to achieve those goals, the resources deployed to
support achievement of those goals, and the quality of implementation.


Operational Risk: Operational risk results from a failure in our computer
system; what is the risk if our software/hardware provider goes out of
business, do we have an alternative, do we have off-site backups, do we
test our backup, is our business continuity plan up-to-date. Can staff
download and install software? Do staff insert removable media such as a
USB stick into a computer?



The Board and Management desire to manage risks at a level that permits the
Credit Union to grow and achieve its strategic business objectives, while
conducting business in a safe and sound manner, complying with all
applicable regulations, and provide a return to members that meets or
exceeds their expectations. The overall risk environment of the Credit
Union will be considered quarterly where an in-depth report shall be given
by the Chair of Credit Committee, the chair of Credit Control Committee,
the chair of Investments, Finance and Business Committee, Information
Security Officer, the Head of the Internal Audit Committee and the Manager.


The agenda for the meeting each quarter should include the following items.












1. Credit report should include:

Loan provisions
============
Bad debt provision

Operations
============
Number of Accounts in Arrears
Number of letters sent last quarter
Number of phone calls made last quarter
Number of meetings with members last quarter

Loan rescheduling and loan top-ups
============================
Number of loans in arrears that were rescheduled last quarter
Number of loans rescheduled this year to date
Loans top-up last quarter
Loans top-up this year to date

Recoveries
=========
Amount recovered last quarter
Amount recovered this year to date

Accounts with Solicitors
===================
Number of accounts referred to solicitor last quarter
Number of accounts refereed to solicitors this year to date
Number of accounts with Judgement last quarter
Number of accounts with Judgement this year to date

Other loans with difficulties
=====================
Comment on any loan not in arrears but which may go bad
Stubbs Gazette/Experience, member(s) whose name has appeared recently

Loan arrears situation
==================
Comment of overall loan arrears situation
Short term work plan for next quarter
Long term work plan over the year

Top 50 Loans situation
==================
Comment on the situation regarding the top 50 loans

2. Interest Rate:

a) Information on current and projected interest rates
b) Quarterly Business Plan

3. Liquidity:

Do we have sufficient liquidity?

4. Transaction

a) Any transaction problems uncovered during the internal audit?
b) Are our controls sufficient?

5. Compliance and Legal Risk

a) Discuss if Armagh CU is compliance, whether additional training is
required for staff, Directors or Supervisors.
b) Discuss whether is in any possible pending legal issues which may effect
Armagh CU.
c) Any problems with loans to officers, insufficient credit checks, etc?

6. Reputation

Are there any potential for bad PR?

7. Strategic

Are we making the correct decisions?

8. Operational

a) What is the risk if our software/hardware provider goes out of business?
b) What do we have an alternative ?
c) Do we have off-site backups?
d) Do we test our backup?
e) Is our business continuity plan up-to-date?
f) Penetration test to determine the capability of unauthorized access to
members data.
g) Is the information risk assessment up-to-date?
h) If an information systems was disposed, were the disks cleaned?