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Part II Governance Structures and Regulation, 9 Risk, Risk Management, and Internal Controls

Lodewijk van Setten

From: Governance of Financial Institutions

Edited By: Danny Busch, Guido Ferrarini, Gerard van Solinge

From: Oxford Legal Research Library (http://olrl.ouplaw.com). (c) Oxford University Press, 2023. All Rights Reserved.date: 30 September 2023

Regulation of banks — Credit risk — Investment business

This chapter studies risk, risk management, and internal controls. Risk denotes a set of potential outcomes assessed against a specific objective, such as market risk, liquidity risk, or operational risk. The concept of risk and risk management is intrinsic to the design of a firm’s governance system. The governance of a firm is commonly understood to refer to the system by which that firm is directed and controlled. In that context, the system by which a firm is controlled is referred to as ‘internal controls’. Risk management is part of the internal controls of a firm. The internal controls may be described as the framework of checks and balances that is embedded in the organisational structure that provide reasonable assurance regarding the achievement of the organisation’s objectives, both in terms of the execution of the business model and in reporting terms.

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