Considerable progress has been made in recent years in developing sophisticated financial instruments. These developments create added complexity that all financial market participants, including policymakers from emerging market economies, must manage. However, they also create opportunities that emerging market economies should seek to exploit. In doing so there are lessons they can learn from advances in risk management strategies developed by major financial institutions.
Following a peer review on risk governance, in November 2013 the FSB published “Principles for an Effective Risk Appetite Framework” which sets out key elements for an effective risk appetite framework, an effective risk appetite statement, risk limits, and defining the roles and responsibilities of the board of directors and senior management.