Task Task 1: (10 marks) Discuss the following statement: 'Knowledge can be divided into uncertainty and perfect knowledge. Where does risk fit into this spectrum?' Based on your understanding of risk and risk management discuss where you consider risk to fall (e.g. is it the measurable component of uncertainty)? You may draw on the information and references you have encountered during the subject. Task 2: (25 marks) Wespac Banking Corporation has a published risk strategy (https://www.westpac.com.au/about-westpac/westpac-group/corporate-governance/risk-management/). Assume you are a risk consultant and have been retained to advise the company on how to change/implement their strategy. Prepare an appropriate response to the Westac board on how they should approach risk. Below is the content of the URL above. Their Group Risk Statement is also included in subject resources. Introduction: We adopt a Three Lines of Defence approach to risk management which reflects our culture of 'risk is everyone's business' in which all employees are responsible for identifying and managing risk and operating within the Group's desired risk profile. Risk Management: Effective risk management enables us to: Accurately measure our risk profile and balance risk and reward within our risk appetite, optimising financial growth opportunities and mitigating potential loss or damage; Protect Westpac's depositors, policyholders and investors by maintaining a strong balance sheet; Embed adequate controls to guard against excessive risk or undue risk concentration; and Meet our regulatory and compliance obligations. The Board is responsible for approving the Westpac Group Risk Management Strategy and Westpac Group Risk Appetite Statement and monitoring the effectiveness of risk management by the Westpac Group, including satisfying itself through appropriate reporting and oversight that appropriate internal control mechanisms are in place and are being implemented in accordance with regulatory requirements. The Board has delegated to the Board Risk & Compliance Committee responsibility to review and recommend the Westpac Group Risk Management Strategy and Westpac Group Risk Appetite Statement to the Board for approval; set risk appetite consistent with the Group Risk Appetite Statement; approve frameworks; policies and processes for managing risk (consistent with the Westpac Group Risk Management Strategy and Westpac Group Risk Appetite Statement); and review and, where appropriate, approve risks beyond the approval discretion provided to management. For further information refer to the Corporate Governance Statement (PDF 2MB). Westpac Banking Corporation is an Authorised Deposit-taking Institution (ADI) subject to regulation by APRA. APRA has accredited Westpac to apply advanced models permitted by the Basel III global capital adequacy regime to the measurement of its regulatory capital requirements. Westpac uses the Advanced Internal Ratings-Based approach (Advanced IRB) for credit risk and the Advanced Measurement Approach (AMA) for operational risk. Financial institutions that have received this accreditation, such as Westpac, are required to disclose prudential information about their risk management practices on a semi-annual basis. A subset of this information must be disclosed quarterly. Material Risks Westpac distinguishes between different types of risk and takes an integrated approach toward identifying, assessing and managing all material risks including through the annual review of the Westpac Group Risk Management Strategy and the establishment of additional controls through supporting frameworks and policies for the following risk types: Credit risk - the risk of financial loss where a customer or counterparty fails to meet their financial obligations to Westpac; Liquidity risk - the risk that the Group will be unable to fund assets and meet obligations as they become due; Market risk - the risk of an adverse impact on earnings resulting from changes in market factors, such as foreign exchange rates, interest rates, commodity prices and equity prices. This includes interest rate risk in the banking book - the risk to interest income from a mismatch between the duration of assets and liabilities that arises in the normal course of business activities; Conduct risk - the risk that our provision of services and products results in unsuitable or unfair outcomes for our stakeholders or undermines market integrity; Operational risk - the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. This definition is aligned to the regulatory (Basel II) definition, including legal and regulatory risk but excluding strategic and reputation risk; and Compliance risk - the risk of legal or regulatory sanction, financial or reputational loss, arising from our failure to abide by the compliance obligations required of us. Business risk - the risk associated with the vulnerability of a line of business to changes in the business environment; Sustainability risk - the risk of reputational or financial loss due to failure to recognise or address material existing or emerging sustainability related environmental, social or governance issues; Equity risk - the potential for financial loss arising from movements in equity values. Equity risk may be direct, indirect or contingent; Insurance risk - the risk of mis-estimation of the expected cost of insured events, volatility in the number or severity of insured events, and mis-estimation of the cost of incurred claims; Related entity (contagion) risk - the risk that problems arising in other Westpac Group members compromise the financial and operational position of the authorised deposit-taking institution in the Westpac Group; and Reputation risk - the risk of the loss of reputation, stakeholder confidence, or public trust and standing. Rationale This assessment builds on the information provided in the first assessment and the s******s you have acquired in qualitative and quantitative analysis. You are expected to be able to: - be able to identify, analyse and explain the influences of decision making h******istics, bias and risk preference in the risk; - be able to appraise an environment and determine the probability, frequency and consequences of a risk event occurring; and - be able to design, implement and evaluate a range of strategies to diminish and manage risk. Note: In assignment 2, Westpac has been chosen because of it's widely published approach to risk and risk management and access to that information. However, if a student would prefer to use another corporate or business that they regard as more relevent to their business or industry, you should offer the lecturer a simple business case for consideration, at least 2 weeks prior to the due date. Marking criteria Problem types / criteria High Distinction (HD) 85% to 100% Distinction (DI) 75% to 84% Credit (CR) 6************Pass ************to 64% Fail (FL) 0% to 49% Question 1 Use a conceptual approach to a fundamental element of risk management. (10 Marks) Discussion reflects excellent understanding of relevant risk principles. Response is very clearly referenced. Risk principles are applied in the appropriate manner to arrive at the correct answer. Response is clearly referenced. Discussion reflects good understanding of relevant risk principles. Response is appropriately referenced. Discussion reflects basic understanding, but not deep understanding, of relevant risk principles. Response is barely referenced. Discussion reflects lack of basic understanding of relevant risk principles. There is no referencing. Question 2 Apply knowledge gained from study and research and apply to a case study. (25 Marks) Be able to explain the risk decision making process and how to assess the implications of strategic risk decisions on all aspects of the corporate entity. Has applied and justified both the case and own ideas which have been thoroughly analysed, applied, referenced and discussed in the response Response is presented with good evaluation of the case and risk principles, in a descriptive way and indicates a good understanding of risk processes and strategies. Response is presented with some risk analysis, in a descriptive way but indicates a few limitations of understanding and application. Response is presented uncritically, in a descriptive way and indicates deep limitations of understanding and application of risk in the workplace. Response provides no evidence of application of knowledge regarding risk, application in the workplace or provides a response which is irrelevant to the question. Referencing. Accurate APA citations and referencing across the entire assignment. Mainly accurate APA citations and referencing across the entire assignment. APA citations and referencing may have inaccuracies in part of, or across the entire assignment. APA citations and referencing may be inadequate or incorrect in part of, or across the entire assignment. No referencing or inadequate APA citations and referencing in part of, or across the entire assignment. Presentation. Clearly and well structured essay and presented with clear headings and sub-headings, appropriate fonts, pagination and diagrams, where appropriate. A well structured essay and presented with clear headings and sub-headings, appropriate fonts, pagination and diagrams, where appropriate. Presented with some structure and adequate formatting. Structure and presentation is difficult to understand and includes errors, such as different fonts, no headings or sub headings, only content. No submission, or no/poor structure and content is not easy to follow, with little or no formatting, structure or clarity. Presentation The first task is a critical analysis of a statement regarding the key concepts of risk and risk analysis. This task is an exercise that is expected to evidence the sourcing of relevant reference material, critically analysing the key concepts of the reference and then applying the material to the task. It requires the use of appropriate references to support your work. The second task relates to risk analysis of the company risk starategy. This assessment may be written in a business report style and you should consider using statistical tools such as tables, graphs, and descriptive techniques in your commentary. Marks will be awarded on the analysis of qualitative and quantitative information and the application of the results in analysing the portfolio of key risk analysis and risk management concepts presented. To do this, some assumptions may need to be made, and should be shown in your response.