ACCA Strategic Professional · Strategic Business Leader · Managing, monitoring and mitigating risk
Olwen Retail has set a risk appetite statement saying it will accept only low levels of regulatory and reputational risk but is willing to take higher risk on new store openings. A manager proposes a new online marketplace using unverified third-party sellers, which the risk team assesses as high reputational risk. What does the risk appetite statement imply?
The proposal should be rejected or redesigned unless controls bring reputational risk within the stated low appetite. Risk appetite varies by category, so high appetite for store growth does not cover a high reputational exposure, and insurance cannot fully remove reputational damage.
- AThe proposal should be rejected or redesigned unless controls bring the reputational risk within appetiteCorrect
- BThe proposal should proceed because appetite for growth risk is high
- CThe proposal should proceed and be fully insured to remove all reputational risk
- DThe risk appetite statement should be changed to match the proposal
Explanation
Risk appetite is the level of risk the board is prepared to accept in pursuit of objectives and it differs by category. The reputational risk exceeds the stated low appetite, so the project must be redesigned or controlled or rejected. Growth appetite applies to store openings, not necessarily to this exposure, and insurance cannot fully remove reputational damage.
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