View from the Top: Faster, further and more safely

This provision gives a clear responsibility for the first time to boards of directors and senior management to play a role in the direction of risk taking in the business and in risk management.

Its primary purpose is to translate the expectations of investors for reliable information on significant current and evolving risks, and their management, into a duty for the audit committee to "monitor the effectiveness of the company's internal control, internal audit where applicable, and risk management systems".

Underwriting perspective
Additionally, from an underwriting perspective- and I write as the corporate insurance risk manager for a multi-national manufacturing and technical services business- this duty should reduce exposure to loss, because of the systems of risk management and internal control that will underpin it.

Insurers will also benefit because many smaller businesses and other types of organisation will adopt the principles of the 8th Directive as best practice, even though its provisions are mandatory only for quoted companies.

Complex issues
As risk managers, we have felt that although the statement in the directive appears quite simple, "what to monitor" and "how to monitor" are considerably more complex. The Federation of European Risk Management Associations has, therefore, joined forces with the European Confederation of Institutes of Internal Auditing to produce a guidance document for boards and their audit committees.

This document gives an overview on the role and responsibilities for effective risk management and control assurance for the board, senior and operational management and the control functions. It clarifies the recommended interaction between internal control, risk management and internal audit and suggests good practices for the board and audit committee oversight of these functions.

Businesses should not fear the 8th Directive. Good risk management and internal control systems, we believe, help companies go faster and further and, more significantly from an insurance perspective, more safely.

Peter den Dekker is president of the Federation of European Risk Management Associations

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