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Transcript of Canada Canada Deposit Insurance Corporation Société d’assurance-dépôt du Canada CDIC Canada...
CanadaCanada DepositInsurance Corporation
Société d’assurance-dépôt du Canada
CDIC
CanadaCanada DepositInsurance Corporation
Société d’assurance-dépôt du Canada
CDIC Protecting Your DepositsProtecting Your Deposits
CDIC’s Experience in Implementing ERM
J.P. Sabourin
President and Chief Executive Officer
CDICApril 2004April 2004
CanadaCanada DepositInsurance Corporation
Société d’assurance-dépôt du Canada
CDIC Presentation Outline
CDIC’s ERM definition
CDIC’s rationale / objectives for implementing ERM
CDIC’s ERM implementation approach Initial steps Work currently being undertaken Future steps
ERM benefits / value derived to date
CDIC’s “Lessons Learned” in implementing ERM
CanadaCanada DepositInsurance Corporation
Société d’assurance-dépôt du Canada
CDIC CDIC ERM Definition
ERM
The comprehensive, systematic and disciplined process by which CDIC identifies, assesses, manages, monitors and reports on, at any point in time, the significant risks inherent in its objects, strategies, plans and affairs
CanadaCanada DepositInsurance Corporation
Société d’assurance-dépôt du Canada
CDIC ERM Rationale
CDIC is subject to Treasury Board of Canada ERM Guidelines
Risk Management is one of four components of the CDIC Standards “in control” framework
CanadaCanada DepositInsurance Corporation
Société d’assurance-dépôt du Canada
CDIC “In Control” Concept
The demonstration that CDIC’s affairs are:Subject to effective governanceBeing managed in accordance with ongoing, appropriate and effective strategic and risk management processesBeing conducted in an appropriate control environment
and
Significant weaknesses (related thereto) are being identified and appropriate and timely action is being taken to address them
CanadaCanada DepositInsurance Corporation
Société d’assurance-dépôt du Canada
CDIC ERM Objectives
Demonstrate that:CDIC has identified / understands / is managing its significant risksRisk decisions are:
Explicitly integrated into CDIC’s strategic and day-to-day decision making
Subject to good corporate governanceBeing supported by an appropriate control
environment
CanadaCanada DepositInsurance Corporation
Société d’assurance-dépôt du Canada
CDIC ERM Objectives (cont’d)
Facilitate:
Validation of CDIC’s strategies / plans / initiatives
Prioritization of CDIC’s strategies / plans / initiatives
Effective resource allocation
CanadaCanada DepositInsurance Corporation
Société d’assurance-dépôt du Canada
CDIC Initial ERM Implementation Steps
Built an ERM foundation
Conducted a corporate-level risk assessment
Profiled corporate risk management culture
CanadaCanada DepositInsurance Corporation
Société d’assurance-dépôt du Canada
CDIC ERM Foundation
Created CRO position to develop CDIC’s ERM approach / coordinate ERM implementation
Developed ERM implementation plan
Formed an executive management-level ERM Committee to validate ERM approach and results
Formalized Board ERM policy
CanadaCanada DepositInsurance Corporation
Société d’assurance-dépôt du Canada
CDIC ERM Policy
Formalizes ERM role of the CDIC Board / Management
Forms one of 19 principles under the CDIC Board Governance Policy
Developed to reflect:CDIC’s statutory requirementsCDIC StandardsOther ERM “best practices”
CanadaCanada DepositInsurance Corporation
Société d’assurance-dépôt du Canada
CDIC Board ERM Responsibilities
Understand CDIC’s significant risks
Establish RM policies related thereto
Regularly review RM policies (evergreen)
Obtain reasonable assurance re:CDIC’s ERM processAdherence with RM policies
CanadaCanada DepositInsurance Corporation
Société d’assurance-dépôt du Canada
CDIC Management ERM Responsibilities
Identify risks
Assess their significance
Develop RM policies for the Board
Regularly review RM policies (evergreen)
Manage risks within RM policies
Report to the Board re:Significant risks / management of significant risksERM process
CanadaCanada DepositInsurance Corporation
Société d’assurance-dépôt du Canada
CDIC Corporate-Level Risk Assessment
ERM Committee:
Updated catalogue of inherent corporate risks / risk categories / definitions / risk examples / corporate risk management practices
Assessed residual risk exposures (likelihood of occurrence of each risk taking into consideration risk management practices and its potential impact should it occur)
CanadaCanada DepositInsurance Corporation
Société d’assurance-dépôt du Canada
CDIC Risk Assessment (cont’d)
ERM Committee:Assessed each risk risk exposure as “reasonable”, “cautionary” or “concern” (including supporting rationale)Identified “owners” for each riskWhere applicable, identified initiatives to enhance the management of each riskValidated that risk management initiatives are in line with Corporate Plan
CanadaCanada DepositInsurance Corporation
Société d’assurance-dépôt du Canada
CDIC Corporate Risk Categories
Insurance Risk: CDIC’s risk of loss (or costs incurred in the event of an intervention) associated with insuring depositsFinancial Risk: The risk associated with managing CDIC’s assets and liabilities, both on- and off-balance sheetOperational Risk: The risk of loss, to which CDIC is exposed that is attributable to the possibility of disruptions in its operations caused by human performance, the inadequacy or failure of processes or technology, and external eventsReputational Risk: The risk of impairment of the credibility of, and confidence in, CDIC
CanadaCanada DepositInsurance Corporation
Société d’assurance-dépôt du Canada
CDIC Insurance Risk
Insurance Power Risk: The risk that CDIC does not have the necessary powers to support the management of its insurance risk in accordance with CDIC’s statutory objectsUnderwriting Risk: The risk that CDIC accepts a new member institution with an unacceptable level of insurance riskAssessment Risk: The risk that CDIC does not systematically or promptly identify, member institutions that pose a potentially high level of insurance riskIntervention Risk: The risk that CDIC does not respond appropriately to members that pose an unacceptable level of insurance risk
CanadaCanada DepositInsurance Corporation
Société d’assurance-dépôt du Canada
CDIC Financial Risk
Liquidity Risk: The risk that funds will not be available to CDIC to honour its cash obligations (both on- and off- balance sheet) as they ariseMarket Risk: The risk of loss attributable to adverse changes in the values of financial instruments and other investments or assets owned directly or indirectly by CDIC, whether on- or off- balance sheet, as a result of changes in market rates or pricesCredit Risk: The risk of loss attributable to counterparties failing to honour their obligations, whether on- or off- balance sheet, to CDIC
CanadaCanada DepositInsurance Corporation
Société d’assurance-dépôt du Canada
CDIC Operational Risk
People Risk: The risk resulting from inadequacies in the competencies, capacity or performance of CDIC personnelInformation Risk: The risk that timely, accurate and relevant information is not available to facilitate informed decision making and/or the exercise of effective oversightTechnology Risk: The risk that CDIC’s technology does not appropriately support the achievement of its objectives, strategies, plans and affairs (including the management of the risks related thereto)
CanadaCanada DepositInsurance Corporation
Société d’assurance-dépôt du Canada
CDIC Operational Risk (cont’d)
Process Risk: The risk resulting from the incorrect execution of, a breakdown in, or a gap in, a process, policy, procedure or controlCompliance Risk: The risk that CDIC fails to comply with statutory requirements and relevant guidelines governing its affairs as a Crown corporation, and its internal policiesLegal Risk: The risk that legal matters adversely impact CDIC’s ability to achieve its objects, strategies and plansOutsourcing Risk: The risk associated with CDIC engaging third parties to perform services on its behalf
CanadaCanada DepositInsurance Corporation
Société d’assurance-dépôt du Canada
CDIC Operational Risk (cont’d)
Business Continuity Risk: The risk that a disruption impacting CDIC’s personnel, information, premises, technology or operations will impede its ability to achieve its objects, conduct its affairs, or implement its strategies and plansSecurity Risk: The risk that CDIC fails to ensure the safety of its people, the security of its assets, and the security and confidentiality of its information
CanadaCanada DepositInsurance Corporation
Société d’assurance-dépôt du Canada
CDIC Reputational Risk
External Communication Risk: The risk of not communicating necessary information, or communicating in an inappropriate manner, or that communication is misinterpreted by the intended audienceExternal Relationships Risk: The risk that dealings with external parties are not adequate to promote the interests of CDIC, or are conducted in an appropriate manner
CanadaCanada DepositInsurance Corporation
Société d’assurance-dépôt du Canada
CDIC Significance Criteria
Likelihood = probability of occurrence using a five-point qualitative scale
Impact = potential impact (using a five-point qualitative scale) of an occurrence on CDIC’s:
Achievement of its mandateFinancial positionReputation
CanadaCanada DepositInsurance Corporation
Société d’assurance-dépôt du Canada
CDIC Corporate Risk Significance Map
Impact / Likelihood Vote Results
F
G
O
LK N
C D
A IB HQ
R
P
J
E
M
1
2
3
4
5
1 2 3 4 5
Likelihood
Imp
act
Severe
Negligible
Remote Certain
CanadaCanada DepositInsurance Corporation
Société d’assurance-dépôt du Canada
CDIC Risk Management Culture
Management profiled CDIC’s corporate-level risk management culture
4 areas X 5 questions per area = 20 questions
M a na g e m e n t's U nd e rs ta nd in g o f itsR e sp on s ib ilitie s , A cco u n tab ilit ies
a n d A u th o rit ies
C D IC 's E nv iro n m e n t S u p po rtingth e M an a ge m e nt o fits C o rp ora te R isks
M a n ag e m en t's C a p ab ility /C a p ac ity to M a n ag e its
C o rp o ra te R isks
M a n a ge m e nt's R iskM o n ito ring a nd
Im p le m e nta tion o f C h a ng es
C D IC 's C o rp o ra te R iskM a na g em e nt C u ltu re
P ro file
CanadaCanada DepositInsurance Corporation
Société d’assurance-dépôt du Canada
CDIC Management Understanding
1. We understand CDIC’s objects and strategies2. CDIC has plans in place to achieve its objects and
strategies3. We know the major risks and challenges related to
achieving CDIC’s objects and strategies4. We understand our responsibilities, accountabilities
and authorities5. Realistic targets and indicators are in place to assess
CDIC’s performance in achieving its objects and strategies
CanadaCanada DepositInsurance Corporation
Société d’assurance-dépôt du Canada
CDIC Supporting Environment
6. CDIC’s management style and behaviour supports the open flow of information about the management of CDIC’s affairs and any significant risk issues
7. Risk identification, assessment and management are built into the management of CDIC’s affairs
8. CDIC’s Code of Conduct and Ethical Behaviour is practised throughout the organization
9. CDIC’s communication supports the management of its risks and the achievement of its objects and strategies
10. Performance assessments are aligned with the prudent, appropriate and effective management of CDIC’s risks
CanadaCanada DepositInsurance Corporation
Société d’assurance-dépôt du Canada
CDIC Capability / Capacity
11. CDIC has sufficient personnel with the right knowledge and skills to achieve its objects and strategies
12. CDIC is appropriately structured to effectively and efficiently achieve its objects and strategies
13. CDIC has sufficient financial, technological and other resources to achieve its objects and strategies
14. Appropriate people make decisions about significant risks impacting CDIC’s affairs in a timely manner
15. CDIC has sufficient, relevant and timely information available to achieve its objects and strategies
CanadaCanada DepositInsurance Corporation
Société d’assurance-dépôt du Canada
CDIC Implementing Change
16. CDIC’s environment is monitored regularly to see if we need to adjust our Corporate Risk Framework, strategies and plans
17. CDIC monitors its performance against its targets and indicators
18. Resource and information needs are reassessed as CDIC’s objects, strategies or plans change, or as risk issues are identified
19. Risk management practices are periodically assessed as to their continued appropriateness and effectiveness
20. Follow up procedures are in place to ensure that needed changes or actions occur
CanadaCanada DepositInsurance Corporation
Société d’assurance-dépôt du Canada
CDIC Risk Assessment Methodology
CDIC Management team individually interviewed to identify:
Inherent corporate risks Risk management practices
ERM Committee collectively: Confirmed corporate risk catalogue Assessed each risk Assessed corporate risk management culture
Results reported to CDIC Audit Committee
Process validated by Internal Audit
CanadaCanada DepositInsurance Corporation
Société d’assurance-dépôt du Canada
CDIC Current ERM Implementation Steps
Developing ERM Board reporting package
For each “Insurance Risk”:Further documenting risk management practicesDeveloping Board policies / risk tolerances
Further integrating ERM and strategic planningValidating CDIC’s catalogue of corporate risks
against its environmental scanning results
CanadaCanada DepositInsurance Corporation
Société d’assurance-dépôt du Canada
CDIC Future ERM Implementation Steps
Document risk management practices / develop Board policies for remaining risksConduct risk (and risk management culture) assessments for remaining risks and for each business functionValidate initial corporate risk (and risk management culture) assessmentsInitiate regular ERM Board reportingFully coordinate ERM and strategic management
so that risk decisions are explicitly integrated into strategic and day-to-day decision making
CanadaCanada DepositInsurance Corporation
Société d’assurance-dépôt du Canada
CDIC ERM Benefits to Date
Clarified Management’s collective understanding of risks and the risk management practicesEvidenced that CDIC is aware of, and is managing its significant corporate risksConfirmed:
CDIC’s Corporate Plan is focused on the right initiatives
Resources are allocated to areas of greatest concernA strong corporate risk management culture
CanadaCanada DepositInsurance Corporation
Société d’assurance-dépôt du Canada
CDIC ERM Lessons Learned
Implementing ERM is like filming a long / complex movie
Hire a director (CRO)Have a clear story (ERM implementation plan)Engage studio executives (Board Governance / ERM
Policy)Engage actors (ERM Committee / Management)Film one scene at a time (Corporate-level risk
assessment)Keep camera focused (ERM implementation plan)
CanadaCanada DepositInsurance Corporation
Société d’assurance-dépôt du Canada
CDIC More ERM Lessons Learned
Risks are like an onionThey have many layers
Each risk has many sub-risks - which in turn have many sub-risks
Cutting through too quickly can cause tears Don’t try to do everything at once - peel layer-by-layer It is easier to peel the outer layers before you peel the
inner layers - CDIC started with a corporate-level risk assessment and is now conducting risk assessments at a more detailed level
CanadaCanada DepositInsurance Corporation
Société d’assurance-dépôt du Canada
CDIC Closing Remarks
ERM is not a “one time” project but a continuous process that needs to be:
Ingrained into your strategic and daily decision-making
Subject to effective corporate governanceSupported by an appropriate control environment
It is complex - so keep it simple
CanadaCanada DepositInsurance Corporation
Société d’assurance-dépôt du Canada
CDIC
Questions?
CanadaCanada DepositInsurance Corporation
Société d’assurance-dépôt du Canada
CDIC
CanadaCanada DepositInsurance Corporation
Société d’assurance-dépôt du Canada
CDIC Protecting Your DepositsProtecting Your Deposits
CDIC’s Experience in Implementing ERM
J.P. Sabourin
President and Chief Executive Officer
CDICApril 2004April 2004