Three Lines of Asset and Risk Management for the Energy & Resources Industry

The Energy & Resources Industry is an asset-intensive. Companies who manage these assets are often faced by regulatory compliance security and environmental threats as well as aging equipment maintenance issues, and budget restrictions. Each of these aspects could have a significant impact on the external, operational and strategic viability of an enterprise.

A comprehensive risk management strategy is essential to guard against these threats and ensure that a business can continue to meet the needs of its clients. This article outlines the most important areas of risk and asset management:

Counterparty risk management focuses on ensuring that key relationships (such as prime brokers and derivative counterparties, as well as clearing banks and custodians) are creditworthy, and it includes implementing safeguards that are failsafe to protect against reputational and financial damage resulting from the failure of those partners. This is accomplished by vetting vendors and ensuring the approval process does not only apply to the vendor but as well to the services they offer.

Market risk is the possibility of a loss in the value of portfolios. Both asset managers and risk management are worried about it, but from slightly differing perspectives. Managers of portfolios focus on managing their exposure to markets to reduce unintended market and factor bets, while risk managers are attempting to manage their crowded trades and leverage, and to monitor liquidity as well as cash flow.

A solid asset and risk management plan is vital to avoid unexpected challenges and maximising the value of an organization’s assets. The three-line governance framework is a potent tool to identify and reduce the risks that can affect the performance of an organization.

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