As part of their commitment to upholding the Asset Manager Code, an asset management firm has been analyzing its risk management processes in light of evolving market conditions. The firm operates in an environment characterized by increased volatility and regulatory scrutiny.
In recent months, the firm’s risk management team has proposed the implementation of a series of measures to enhance risk identification, assessment, and mitigation. Some of these measures include establishing a risk committee, enhancing the use of quantitative risk models, and increasing the frequency of stress testing. However, the firm's senior management is concerned about the associated costs and the potential impact on operational efficiency.
Discuss the ethical considerations related to risk management that the firm must navigate while addressing the senior management’s concerns. In your answer, provide a rationale for why a robust risk management framework is essential, addressing both the ethical responsibilities to clients and the firm's effective performance.