Risk appetite must translate into funds’ operations

Super funds' risk appetites need to be translated into operational measures that can be used throughout various parts of the business and for different types of risk, Australian Prudential Regulation Authority (APRA) member Ian Laughlin has said.

Speaking at The Actuaries Institute Conference, Laughlin said risk appetite needed to be translated, as quantifiably as possible, into tolerances for day-to-day business purposes which accommodated different audiences.

This could eliminate any inconsistencies and allow a process to amend unworkable tolerances due to changing market conditions.

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Laughlin said although there was no best-practice approach to expressing risk appetite via a risk-appetite statement, trustees often commonly confused the idea of risk controls or check-points with appetite.

"To help avoid this sort of problem, it is useful to think in terms of outcomes — that is, in considering a particular risk type, what is the worst outcome that could be considered to be acceptable," he said.

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