ERM Glossary: Agency risk

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In economically related disciplines, agency risk refers to the risk of events or actions resulting from non-aligned interests of different stakeholders.

‘Agency’ here refers to the relationship between principal (typically client) and agent (typically adviser). Agency risk is often also used in an economic context to refer to the risk that managers of entities may not be incentivised to act in the best interests of shareholders, and may put their own (agent) interests above those of shareholders (who are here the principals).

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