Volume 2 — Governance and ControlsGovernance and Controls © Copyright 2002, All rights reserved 9 The corporate risk management function principally conducts its activities through two subgroups, the market risk function and the credit risk function. Both functions report to the CRO. 2.4.1 Market Risk Function A company that has multiple trading business units with separate middle offices may choose to institute a corporate market risk function. The market risk function ensures consistency across the company, aggregates enterprise risk positions, and economically allocates quantitative and other analytical resources. Alternatively, some of these responsibilities may be performed by the middle office. The market risk function reports separately from the front office. Market Risk Function ―Responsibilities and Duties • Review and validate valuation methodologies, curves, and assumptions. • Develop risk measurement techniques. • Review the effectiveness of transaction processing systems and procedures relating to risk measurement. • Review daily risk reports prepared by the middle office. • Produce all enterprise-wide market risk reports. • Perform back-testing and stress testing of risk measures such as VaR, EaR, or CFaR3 at least quarterly. • Perform exception, variance, and risk-adjusted return on capital (RAROC) analyses. • Oversee adherence to risk policies, procedures, and limits. • Evaluate and recommend appropriate measurement techniques for reserves. • Participate, as staff, to the ROC and carry out committee requests. • Participate in new product reviews. • Aggregate or consolidate risk measures into an enterprise-wide measurement. • Identify, assess, and inventory market risks in all business units advise the ROC on risk issues. • Assess the impact of new business opportunities, (new markets, assets, strategies, etc.) on the corporate risk profile. • Develop and distribute independent market fundamental analysis. • Review and approve market assumptions in significant new deals. 3 See the Valuation and Risk Metrics White Paper and Glossary for full details and descriptions of these Risk Management metrics.