The necessity of independent risk management in financial institution Essay

Implementation of internal control with relevance and the risk management must be independent
The collapse of Baring Bank had draw attention to the world about the absence of the internal control will destroy the entity imply and remind that the internal control should be implemented with relevance and it can applicable to the company. A main concern about the funding requirement from London by Singapore in Baring, whether the funding is used for what purpose, the management should take sufficient care to verify and checks whether the significant amount is paid to what account, to make sure that the company has enough control procedure to analyze over the credit risk in the area of company. Furthermore, the independent risk management in financial institution is function to supervise all the trading activities in taken into consideration of all aspect of risk such as operational risk, liquidity risk, and reputational risk and so on. Therefore, top management should be aware and more concerned about the risk in the company may adversely affect the economics of the business and bad impact on its reputation. For instance, Baring Singapore office should set a gross limit for each position to be arbitrage in order to reduce the risk between two different markets.
Top management and audit committee should make sure the weakness of internal control identified by them was solving immediately
There is a must for an organization to set up an internal audit department. Internal audit function is to assist in detect the potential issue or weakness in the internal control can be easier to communicated with top management on time. When the risk is greater, the business is more complex in the geographical area, increase the need of experienced internal audit with solid technical skill and expertise to be relevant in the market. Furthermore, internal auditor would be encourage to improve the coordination with external auditor to communicate with the critical issue that in the company. Whereas the internal auditor should have no barrier to access with the higher management level such as Chief Executive officer, board of director, audit committee and so on, to enable them to have sufficient information about the company. Additionally, once the internal audit report be ready, there are highlighted on certain area which are lack of internal control and in weak position, hence management should have immediately plan a management plan to be action to cure the weakness of the company. This is a management's responsibility to execute an action in response of the recommendation given by internal auditor. But in the case of Baring, there is no one who followed up the recommendation given by the internal auditor during the year, it will arise more worse of the case will happen in future. Therefore, internal auditor should pay a short visit or enquiry whether the company taken any corrective action within the agreeable timeframe after declare an internal audit report to them with weakness identified. If not, internal audit can make a report to audit committee.