RISK MANAGEMENT
PRINCIPAL RISKS AND UNCERTAINTIES
NAMA is exposed to a wide variety of risks which have the potential to affect the financial and operational performance of the Agency. The Risk Management Framework is designed to identify, evaluate and mitigate risks by reference to the following categories in the NAMA Enterprise Risk Management Policy:
Risk that the economic environment and property market in Ireland would fail to recover or that the market in other locations would deteriorate from present levels.
Risk that banking sector recovery may be slower than expected, resulting in unavailability of credit to potential purchasers of NAMA assets.
Losses resulting from inadequate, or failed, internal and external processes and controls, people and systems.
Risk of loss through exposure to counterparty and debtor default.
Financial loss as a result of market risks, that is, a change in the price of assets and liabilities as a result of movements in market factors such as interest rates, exchange rates, property values and other financial elements which combine to influence the price of the assets and liabilities within the Balance Sheet.
Losses arising from inadequate cash available to fund day-to-day operations.
Risks arising from deleveraging and enforcement activities by the participating institutions and by non-NAMA banks.
Risk that NAMA's ability to discharge its activities in an efficient manner is restricted by laws and regulations, including those in foreign jurisdictions, or failure by NAMA to adhere to such laws and regulations.
Financial or non-financial loss arising from inappropriate or adverse strategic decisions, or the inability to successfully implement selected strategies and related plans in accordance with NAMA governance protocols.
Risks relating to IT objectives and strategy leading to ineffective delivery of systems and services in support of business operations.
Financial loss as a result of:
- an action/inaction by an external party,
- legal unenforceability of contracts and security,
- adverse legal judgements,
- fines,
- claims by debtors owing to disclosure of confidential information
Financial loss as a result of:
- noncompliance with tax regulations, or
- failure to consider taxation issues as part of property/loans transactions.
Failure to attract, motivate and retain staff with requisite experience and expertise.
Threats to the confidentiality, availability and integrity of data.
The uncertainties surrounding the risks associated with the composition of the NAMA balance sheet and operational model continued to reduce as the business plan process and the due diligence effort concluded. Improvements in data quality and the provision of information through various new systems including a PMS enhanced the assessment, measurement and reporting of risk.
The risk assessment and risk management processes were expanded following the internal NAMA reorganisation which resulted in the consolidation of existing frontline and control functions and the creation of new functions with new and expanded objectives and associated risks.
The Risk Management Committee also continued to review on a regular basis the Risk Registers of the Master Servicer and the PIs to gain oversight of the impact and likelihood of risk events external to NAMA which could influence the achievement of NAMA's objectives. The Risk Management Committee continued to require a robust control environment by requiring signoff where a control is scheduled to be tested in a quarter.
Risks identified by management are prioritised according to probability and impact and the risk status and management's response and control action plans are reviewed by the Risk Management Committee and the Board on a regular basis. Management is challenged to consider risks not already reflected on the Register. NAMA's response strategies to each risk are designed to ensure that NAMA operates within that defined risk tolerance by avoiding the risk, transferring the risk through insurance or similar mechanism, reducing the likelihood and/or impact of the risk or accepting that risk. The Risk Management Committee recommended to the Board the adoption of new policies or changes to existing policies, the adoption of hedging strategies to manage certain balance sheet risks and recommendations for the deleveraging of the balance sheet through bond redemptions in response to changing internal and external influences and circumstances.
NAMA has robust risk processes to manage risk related to its business to reduce the potential for significant unexpected losses, and to minimise the impact of losses experienced in the normal course of business. Risk awareness training was provided to all NAMA employees.