The risk function is responsible for undertaking climate-related risk assessment and monitoring independently. This includes challenging the initial assessment.

A is incorrect. Assessments during the client onboarding, credit application, and credit review processes, and in monitoring and engagement with clients is a role of the compliance function, the first line of defense.

C is incorrect. Ensuring adherence to applicable rules and regulations is a role of the compliance function.

D is incorrect. Providing an independent review and objective assurance of the quality and effectiveness of the overall internal control systems is a role of the internal audit function, the third line of defense.

Things to Remember

• Principle 4 of the Basel Committee on Banking Supervision focuses on the importance of effective risk management and internal controls within financial institutions.
• The risk function plays a crucial role in identifying, assessing, monitoring, and managing risks within an organization.
• Risk functions are responsible for developing risk management frameworks, policies, and procedures to ensure that risks are identified and managed effectively.
• They also play a key role in providing risk assessments to senior management and the board of directors to support decision-making processes.
• Climate-related risks have gained significant attention in recent years, and financial