Risk Committee Charter

 

In line with the bank’s commitment to best practice in risk management, and with the aim of monitoring the implementation of the “Environmental, Social, and Corporate Governance Standards Guide for Banks,” the bank has established a “Risk Committee”. The bank places great importance on identifying and defining acceptable levels of risk, including environmental and social risks, and monitoring the acceptable level of risk that can be tolerated by the bank. Therefore, the bank seeks to set controls and mitigation procedures to address these risks and provide clear guidance for the assessment of environmental and social standards in banking operations.

Definitions

The terms and expressions mentioned in this guide have the meanings assigned to them unless the context indicates otherwise. Any other definitions not included herein are to be referred to in laws, instructions, or regulations issued by the Central Bank of Iraq.

• Bank: Asia Iraq Islamic Bank for Investment and Finance
• Chairman of the Board: Chairman of the Board of Directors
• Corporate Governance: A set of comprehensive systems that define the relationships between the board of directors, executive management, shareholders, and other stakeholders. Governance covers:
  • Setting the bank’s strategy, including environmental, social, and governance (ESG) strategies.
  • Managing the bank’s risks, including ESG-related risks.
  • Bank operations.
  • Balancing the rights of shareholders and depositors while considering the interests of other stakeholders.
  • Compliance with all applicable laws, regulations, and rules.
  • Reporting practices to ensure full disclosure and transparency in all material financial and non-financial aspects.

ESRM – Environmental and Social Risk Management System

Refers to the policies, procedures, and tools necessary to identify, assess, monitor, manage, or mitigate exposure to environmental and social (E&S) risks. This should be an integral part of the bank’s risk management.

Sustainable Finance

Refers to any form of banking or financial services that integrate ESG standards into business or investment strategies, policies, and decisions, for the sustainable benefit of both clients and society as a whole.

Objectives of the Risk Committee and Risk Management

Provide a report on the framework for bank risk, risk tolerance levels, and clarification of material and expected risks.
It is a regular process to identify, measure, and assess risks the business faces, according to their likelihood and potential damage. It involves determining which risks the bank can tolerate, avoid, insure against, or a combination thereof. Responsibilities must be assigned for dealing with risks and ensuring smooth operations, with periodic and immediate reports submitted to relevant parties.

ESMS – Environmental and Social Management System

Refers to tools that help assess or self-assess ESG management practices in the bank. It may measure those practices against market best practices in ESG areas.

Climate-Related Aspects

Concerns short-, medium-, and long-term climate risk and opportunities, including physical climate issues and those related to the transition due to climate change.

Three Lines of Defense

A globally recognized model for effective risk management developed by the Institute of Internal Auditors (IIA). The first and second lines involve management responsibilities, while the third line (internal audit) provides independent assurance to the board regarding effective risk management.

Stakeholders

Includes all groups and individuals interested in or affected by the bank’s activities, products, services, or profitability. Stakeholders may include shareholders, investors, employees, regulators, government authorities, customers, depositors, borrowers, suppliers, the community, and others.

Committee Composition

• Minimum of five members.
• Must include the Chairman of the Audit Committee and the Chairman of the IT Governance Committee.
• The Risk Committee Chairman cannot be the Chairman of the Board.

Committee Members

• Board Member
• Board Member
• Chairman of the Board
• Chairman of the Audit Committee
• Chairman of the IT Governance Committee

Chairmanship: One member serves as chair.

Term: Board membership is a prerequisite.

Nomination: Members appointed by the board; all must be independent, non-executive members. At least one member must have expertise in risk exposure assessment and management, and one must have knowledge of ESG risk management systems. All should possess technical knowledge and understanding of banking and finance.

Remuneration

The chair and members receive attendance allowances per board-approved policies.

Committee Secretary

Appointed by the board; responsible for maintaining documentation, distributing agendas, preparing for meetings, and other duties per the committee secretary’s job description.

Meetings

• Location: At the bank’s headquarters or elsewhere as determined by the chair.
• Frequency: At least four meetings annually. Additional meetings can be requested if needed or as decided by the board or committee members.
• Invitations: The committee may invite executives or staff to meetings for information or inquiries.
• Quorum: A minimum of three members, all of whom must be independent, non-executive board members.
• Decision-making: Decisions by majority vote; chair’s vote is decisive in case of a tie.
• Minutes: Maintained by the secretary, distributed to members within ten working days for comment and approval.

Committee Authority and Responsibilities

• Governance of risks affecting the bank and its affiliates and reporting regularly to the board.
• Monitoring IT and sustainability risks, including financial risks from climate change.
• Coordination with other board committees handling ESG and IT risks.
• Designing and implementing the risk management framework using the three-lines-of-defense model.
• Ensuring the risk management function is appropriately resourced for the bank’s scale and complexity.
• Ensuring ESG risks are integrated into existing risk documentation and processes (e.g., credit risk management).
• Defining and annually reviewing acceptable risk levels, including financial and ESG-related risks.

Committee Duties

• Review the overall risk framework and reports to ensure effective operation within acceptable limits.
• Ensure clarity in ESG risk responsibilities as part of overall bank risk management.
• Provide the board with clear guidance on ESG risk assessment across bank operations, products, services, and the work environment.
• Monitor current and future risk profiles and report to the board, recommending strategies for approval.
• Oversee emerging risks, controls, and mitigation efforts, reporting them to the board.
• Supervise the design and implementation of risk management approaches and recommend necessary changes to the board.
• Oversee management’s implementation of systems and policies supporting sound risk management, including major policy changes and operational structure shifts.
• Review credit policies and risk profiles, recommend changes, and monitor policy implementation, including ESG and climate-related risk impacts.
• Oversee operational, liquidity, and market risk management systems and processes, including ESG and climate-related risks.
• Determine credit limits within the CEO’s authority.
• Monitor the bank’s compliance with Basel III risk standards and capital adequacy requirements.
• Approve or recommend changes to the head of risk management based on the CEO’s recommendation.
• Set objectives and assess the risk manager’s performance annually.
• Ensure continuous communication with the risk manager and receive regular reports on risk-related issues and culture.
• Review reports on policy violations and financial crimes, including bribery, corruption, money laundering, and terrorism financing.
• Supervise capital and cash flow strategies and ensure they align with the bank’s risk framework.
• Oversee capital adequacy and liquidity.
• Receive reports from executive committees (Credit, Investment, IT) and review them.
• Monitor investment policy and performance and recommend changes to the board.
• Annually evaluate the committee’s performance and review the charter, proposing updates to the board.
• Submit a report in the annual report, outlining membership, risk framework, tolerance, and material/anticipated risks.