Small companies may be disadvantaged by unnecessarily strict language in a proposed international risk appetite framework, the Insurance Council of Australia (ICA) warns.

The Financial Stability Board’s (FSB) framework principles include roles and responsibilities that “should” be undertaken by directors, CEOs and chief risk officers.

But ICA says repeated use of the word “should” is problematic for small insurers and does not account for financial institution differences.

“Some small and niche insurers may not have the scale of business to require and fund a dedicated chief risk officer,” it says in its submission to the Switzerland-based board. “This should be a decision made in light of their size, business model and risk profile.”

The council says the wording on roles and responsibilities contradicts the aim of allowing company-specific frameworks that reflect various business models.

“The insurance council therefore recommends that the FSB reconsider the language.”

The principles are part of an international bid to improve the supervision of systemically important institutions.