Risk Management and Monitoring in Private Banking

Abstract

A well-founded risk management process is necessary to meet the Markets in Financial Instruments Directive (MiFID) suitability requirements. In this article, we describe how risk management can be tailored to the advisory process in private banking. We show how private banks can become MiFID compliant by using goal-based financial planning and monitoring. The general structure of the risk management process we propose closely follows the general literature in this field, but our article is the first description of how the different stages of this general risk management process can be applied to the advisory process in private banking. Special attention is paid to the monitoring phase, focusing on monitoring implementation risk and monitoring the risk of not reaching goals. An adequate implementation of a monitoring system is key to ensure that the suitability requirements are met on an ongoing and consistent basis for different service channels and client segments.

TOPICS: Risk management, legal/regulatory/public policy, developed