Discuss about the Corporate Governance for Risk Management System.
Risk Management obligations in Corporate Governance Code (Hong Kong):
There are certain obligations on the part of the Board of a company or on the part of the risk management system as per the norms mentioned in the Corporate Governance Code in Appendix 14 (Hong Kong). According to Corporate Governance Code in Appendix 14, it is the responsibility of the Board to analyze and ascertain the characteristics of the risks that it desires to take. The scope and range of the risks have to be determined by the Board. The nature of the risk has to be analyzed by the Board with the aim of attaining the strategic objectives of the issuers (hkexgroup, 2016). The Board has to ensure that the company has effective system of control through implementation of the risk management system internally (kpmg, 2014). The responsibility of checking the design to be prepared by the management for implementation is levied on the management. The risk management and control system established internally have to be evaluated and regulated by the Board. The effectiveness of the risk management designs has to be confirmed to the Board by the risk management system. There risk management must also confirm that the system of control is effective and ready for handling the consequences of the risks (hkex, 2016).
It is the duty of the board to verify the strength of the risk management effectiveness and the system of control established internally of the issuers. This review should take place on regular and continuous basis. The availability of the needful ingredients, competencies of the employees and other members of the companies, training and development programs, financial budgeting, auditing and functions of reporting must be confirmed. The changes and their impacts on the risks must be analyzed. The ability and the extent of risk management by the company have to be overviewed. The effectiveness of the communication in the management of risk must be regulated. Identification of the areas of failures must be assured for the improvements. The reporting of the financial aspects of the issuers must be accurate (kpmg, 2016).
There must be a clear declaration of the process and the steps taken by the company to combat the strength of the risk management. The Board must acknowledge the duty of maintain effective risk management and control system within the organization. The review of the abilities of the system of internal control and management of risk must be confirmed. The responsibility of the functions of the risk management is imposed on the process that must ensure the eradication of any erroneous factor or existence of any loophole
New Amendment will Change or Affect Corporate Governance in Listed Company in Hong Kong:
These amendments would help the corporate governance in the listed companies in Hong Kong positively. The companies would be able to monitor the risks and the consequences of the same on the internal management. The control system could be more effective. The prediction of the risk could be done on realistic grounds. The risks would be handled in convenient ways. The codes should be observed by the management while undertaking the risk management activities. The INED should monitor the implementation of the risk management is being conducted as per the provisions of the codes (hkex, 2016). It is expected that the organizations in Honk Kong would be highly benefitted after the amendments of the codes. The Board must be able to understand the duties regarding the management of risk. The corporate governance could be effective and impacted positively with efficient practices of risk management.
The Possible Impact of New Risk Management Obligations as an INED:
As an INED in a listed company in Hong Kong, there are several roles and responsibilities to be carried out by an Independent Non-executive Director. The role is to participate in the board meetings, take active role in auditing issues if requested for intervention. There are various other roles of the INED of a listed organization in the Hong Kong. He is also supposed to take part in the Risk Management strategies and policies those are designed by the management (Hkex, 2016). However, the amendments to the Risk Management obligations in the Corporate Governance Code in Appendix 14 (Hong Kong), have called for review of certain strategies and policies related to the risk management plans of the organization. The Risk Management and Internal Control principle says that the board including the INED has the responsibility of analyzing and determining the types of risks according to their nature and extent. The INED should observe if the risk management strategies and principles are adhered to (asiaasset, 2016).
The board needs to supervise the management in respect of the planning, implementing and monitoring of risk management strategies and also the internal control systems. It is the duty of the management to share the confirmation of the risk management strategy effectiveness to the board including the INEDs of the company (McDowell, 2016). There are several codes of Risk Management those have been amended in the Appendix 14. The codes are the various criteria or factors those will set the boundaries for the risk management strategies of the company. The codes clearly set the guidelines for the executive and the non-executive directors of a listed company in Hong Kong (Mondovisione, 2016). These revised codes need to be observed by the directors of the company and also the management and ensure that those are implemented successfully within the organization to adhere to the risk management principles in a legal and ethical perspective (GovHK, 2016).
The entire report deals with the obligations of risk management in corporate governance code in Appendix 14 based on Hong Kong. The influence of the new changes and additions on the companies that are listed in Hong King is also discussed. There could be impacts of amended risk management obligations. The ideal scenario for an INED will be to observe the following provisions are adhered to in the risk management strategies of the organization diligently. The board including the INEDs should ensure that the risk management and also the internal control systems of the issuer are being adequately adhered to and observed. There is also need to monitor if the risk management and the internal control systems of the subsidiaries (if any) of the company have been conducted for at least once in a year and make such disclosure to the shareholders in the Corporate Governance Report published by the company. The review should include the various domains such as material control, operational, compliance and financial controls. The annual review of the board requires that the resources are adequate, the staffs are sufficiently qualified and experienced, there has been training programs and proper budgeting of the accounting of the issuer.
The directors should also ensure that the internal audit and the financial reporting have been undertaken diligently and ethically. The annual review of the board should include the changes those have been made since the last conducted annual review regarding the type and extent of the probable risks. The board should disclose in the Corporate Governance Report that it has acquired the confirmation of the management about the issuer’s risk management and internal control systems effectiveness. The board should also disclose any particular area of concern about the risk management strategies in the Corporate Governance Report. These new risk management guidelines need to be observed by the INED and ensure that the new amendments are being observed meticulously by the employees of the organization and the management adheres to the principles and guidelines as per the Corporate Governance Code in Appendix 14. From the report it could be concluded that the corporate governance is an important aspect of the management of the company and it should be observed meticulously in order to grow and sustain.
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hkex (2016) en-rules.hkex, january, [Online], Available: https://en-rules.hkex.com.hk/en/display/display.html?rbid=4476&element_id=5034 [27 October 2016].
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kpmg (2014) kpmg, december, [Online], Available: https://www.kpmg.com/CO/es/IssuesAndInsights/ArticlesPublications/Documents/HKEx-Consultation-Conclusions-on-Risk-Management-and-Internal-Control-201412.pdf [27 October 2016].
kpmg (2016) kpmg, august, [Online], Available: https://assets.kpmg.com/content/dam/kpmg/cn/pdf/en/2016/08/companies-responding-code-requirements-v1.pdf [27 October 2016].
McDowell, H. (2016) HKEX launches risk management system for derivatives, [Online], Available: https://www.thetradenews.com/Asset-Classes/Derivatives/HKEX-launches-risk-management-system-for-derivatives/ [27 October 2016].
Mondovisione (2016) HKEX Rolls Out Risk Management System For Its Derivatives, [Online], Available: https://www.mondovisione.com/media-and-resources/news/hkex-rolls-out-risk-management-system-for-its-derivatives-market/ [27 October 2016].