Subject matter
1. This Decision defines the role, responsibilities and tasks of the Chief Risk Officer for the Union’s financial operations (the ‘Chief Risk Officer’). The Chief Risk Officer, as a second line of defence at corporate level, shall have the mandate to develop, implement and monitor the Commission’s risk management and compliance framework for financial risks arising from the Union’s financial operations. The Chief Risk Officer provides an independent assessment of the risks associated with the Union’s financial operations and performs an ongoing monitoring of the portfolio to monitor credit, market and liquidity risks and to identify appropriate risk management actions.
2. The Decision shall be based on the standard financial risk management practice of the ‘three lines of defence’ model, under which the first line of defence shall be the Directorates-General responsible for the Union’s financial operations, the corporate second line of defence shall be the Chief Risk Officer and the third line of defence shall be the Internal Audit Service.
Definitions
For the purposes of this Decision, the following definitions apply:
(a)
‘Union’s financial operation’ means loans provided directly by the Union, whether provisioned or not, the Union’s budgetary guarantees covering operations on the basis of guarantee agreements with the implementing partners, debt issuance and debt management including related liquidity management, asset management operations and tasks related to the function of asset management designated service for outsourced portfolio management;
(b)
‘programmes or instruments authorising budgetary guarantees and loans’ means the basic act within the meaning of Article 2(4) of the Financial Regulation which authorises financial liability from budgetary guarantee or a loan in accordance with Article 213(1)(b) and (c) of the Financial Regulation;
(c)
‘financial risk’ means a risk of losses or other adverse events that arise or may arise in the design, execution and management of different categories of the Union’s financial operations due to materialisation of, in particular, credit, market, liquidity, funding, counterparty, operational, reputational and compliance risk;
(d)
‘contingent liability’ means contingent liability as defined in Article 2(16) of the Financial Regulation;
(e)
‘thematic risk and compliance policy’ means a policy, guideline, methodology or any other act referred to in Article 9, which sets out specific procedures and limits related to the Union’s financial operations that shall be followed by the Directorates-General responsible for the implementation of the Union’s financial operations;
(f)
‘risk methodologies’ means the quantitative approach and risk parameters for the assessment, measurement, monitoring and reporting of the financial risks arising from the Union’s financial operations which is implemented in risk management tools and risk management models;
(g)
‘risk appetite’ means the level of risk that the Commission is prepared to accept in order to achieve its policy objectives. The risk appetite per type of risk is to be defined, as appropriate, in the relevant legal acts, the risk management framework, internal policies and manuals and other documents that complement the relevant legal acts and the High Level Risk and Compliance Policy;
(h)
‘risk tolerance’ means the quantified acceptable deviation from the level of risk that shall not be exceeded. The tolerance levels for a specific type of risk and metrics shall allow measuring of and reporting on the risk exposure when implementing the relevant Union’s financial operations. The risk tolerance may be set from zero to full acceptance, depending on the legal framework, policy mandate and the availability and strength of the risk mitigation measures applied to the different identified risks, the framework governing the financial risk management and compliance for the different types or categories of the Union’s financial operations.
Close cooperation on financial risk management
1. The Chief Risk Officer and the Directorates-General responsible for the Union’s financial operations shall implement any steps under this Decision, ensuring close cooperation, shall establish and promote risk culture and apply the requirements of prudence and the principle of sound financial management in their approach to financial risks arising from the Union’s financial operations.
2. The development of the High Level Risk and Compliance Policy and thematic risk and compliance polices shall take place through interservice working groups composed of participants of the Directorates-General responsible for the Union’s financial operations concerned.
3. The services of the Directorates-General responsible for the Union’s financial operations and of the Chief Risk Officer shall, from the outset, work in close cooperation and in a coordinated fashion within the Risk and Compliance Committee and its sub-committees on all tasks resulting from the implementation of this Decision, in particular in the preparation of the draft High Level Risk and Compliance Policy referred to in Article 8, of the thematic risk and compliance policies referred to in Article 9 and during the process on assessment of financial risks of programmes or instruments authorising budgetary guarantees and loans referred to in Article 10.
4. The work on financial risk management pursuant to this Decision shall in particular take into account evaluations, lessons learned and experience gained during the implementation of programmes and instruments authorising budgetary guarantees and loans, including, as appropriate, existing risk frameworks, feedback received from counterparts, implementing partners and other stakeholders, best market practices and international standards, as well as relevant legislation related to financial risk management and compliance.
