What is a Risk Committee? (Overview, Roles, and Responsibilities)

The best approach for risk governance in each organization is affected by variable factors such as the size of the company, the levels of risks, stakeholder expectations, regulations, and resources. The following are common risk committee roles and responsibilities. 

1. Risk Oversight

A risk committee’s efforts should ultimately center on the group’s fundamental purpose: providing an independent layer of risk oversight to the organization’s actions. 

Risk oversight refers to the overall evaluation process for a company’s risk management tools, rules, and risk culture. Oversight also includes regular reviews to identify significant or emerging risks on behalf of the board to provide feedback and recommendations on how to minimize their potential impact and make targeted improvements. The duties of each risk committee member should be further explained in the committee charter.  

Risk oversight is a hugely important aspect of corporate governance. It holds management accountable for their actions and ensures that the organization is utilizing best practices to achieve its goals responsibly. Once you have a broader understanding of the risks surrounding your business, the committee can work with management to strategize from a proactive position rather than reacting to sudden circumstances.

2. Setting Risk Appetite and Strategy

Another crucial objective of the risk committee is to determine the risk appetite of the organization. Risk appetite describes the amount of risk an organization is capable of taking on with their current resources and how much risk it is willing to take on for new projects or developments. Leadership can use those metrics to judge organizational performance and craft a strategy around their risk tolerance level. 

3. Reviewing Risk Policies and Controls

The risk committee oversees the implementation of the organization’s risk management policies and controls. This includes ensuring risk policies align with the organization’s overall objectives, mission, and values, and regularly reviewing and updating policies to reflect changes in the business environment, regulations, and industry standards.

4. Reporting and Communication

A risk committee must review the company’s internal reporting mechanisms and how risk-related information is communicated to personnel throughout the organization. Open lines of communication are vital to high-functioning workflows and a positive workplace culture. If there are communication breakdowns, the committee should investigate the root cause of the problem and identify ways to improve the situation going forward. 

5. Compliance and Regulatory Adherence

Finally, the risk committee is responsible for finding ways to improve compliance techniques and maintaining awareness of any regulatory updates or changes to industry standards that may affect the organization. This may include collaborating with the compliance committee or safety committee, and adding risk updates to the compliance committee agenda when relevant.

Failure to adhere to the likes of SOC 2 Type II or ISO 27001 leaves your company open to a number of negative outcomes. Some examples of such consequences are: 

• Legal fines or other financial penalties
• Lawsuits from customers and/or employees
• Reputational damage
• Lack of trust from customers or your workforce

The risk committee should conduct meetings on a regular basis where they examine data, project trends, and create risk reports.