S&P Position on Enterprise Risk Management
During in-depth discussions with leading risk managers, Standard & Poor's Ratings Services has noted differences of opinion on several fundamental precepts of enterprise risk management (ERM) in general and risk management of trading operations in particular. In a report published today entitled "In Pursuit Of Best Practices For Enterprise Risk Management," Standard & Poor's draws some conclusions about the best practices of ERM.
"Three areas show a range of opinion," says Standard & Poor's risk management specialist [gs:Prodyot Samanta]. "They include the role modern portfolio management measurement methods should play in risk management practices; what 'independence' of risk managers should actually mean; and the extent of the power of the risk management function.
"Our position is that three attributes of ERM best practices are important," Mr. Samanta concludes. "First, a [gs:robust internal information system] is needed that permits [gs:sophisticated analysis of portfolio risks] and [gs:stress testing]. Second, risk limits need to be assigned by the risk function down to the desk level. Finally, a [gs:holistic and well-articulated risk tolerance] statement is an important aspect of developing a [gs:strong risk culture]."