Risk Management Section
Our company has established a 'Risk Management System' and added climate risk management principles in 2022 to address the physical and transition risks arising from climate change. These principles, approved by the board of directors, serve as the highest guiding principles for risk management. To effectively manage the company's operational risks, we have established a management procedure that is adhered to by all levels of the organization, involving the board of directors, managers at all levels, and employees in its implementation. From a company-wide perspective, through a series of activities including the identification, measurement, monitoring, response, and reporting of potential risks, we quantify risk management using qualitative and rigorous quantitative models. This approach aims to rationalize the allocation of risk assets and maximize shareholder returns within an acceptable risk range.
The risks undertaken by our company's operations can be categorized into credit risk, market risk, operational risk, liquidity risk, climate risk, and other currently less quantifiable risks such as legal risk, strategic risk, and reputational risk. To ensure that all operational risks are controlled within tolerable limits, our company has established aggregated limits for various risks, which are regularly monitored by designated personnel. We have set regulations for risk identification, measurement, monitoring, reporting, and management. Business units formulate business risk management methods in accordance with internal and external relevant regulations to be followed by the business units. Based on the characteristics of the industry, we integrate all potential risks that may affect operations and provide appropriate risk management, adopting suitable risk management strategies for the impacts on the company's operations. Our company's risk management includes but is not limited to the management of 'market risk,' 'credit risk,' 'liquidity risk,' 'operational risk,' 'climate risk,' and 'legal risk.'
Risk
The value of financial assets can fluctuate due to market price uncertainties over a certain period, including changes in interest rates, exchange rates, equity securities, and commodity prices.
- The upper limit of market risk is clearly defined based on business strategies, market conditions, and other factors.
- Through real-time intraday monitoring and post-market analysis, integrated quantitative risk management is executed using the Value at Risk (VaR) model to assess the maximum potential risk at a specified confidence level.
- Conduct sensitivity analysis on individual risk factors for held positions.
- Stress Testing as a Means to Simulate and Measure the Impact of Abnormal Market Movements on Portfolio Value Changes.
Risk
Counterparty risk is the risk that a counterparty to a financial transaction will fail to fulfill their obligations under the contract. This can result in losses for the other party to the transaction.
- Conducting Credit Evaluation and Background Checks Before Trading, Carefully Assessing the Creditworthiness of Counterparties, and Ensuring the Legality of Transactions
- Special Credit Management for Clients with Special Creditworthiness
- Tiered Credit Limit Management and Monitoring for Different Clients and Positions, with Regular Credit Status Reviews
Risk
Risk of inability to convert assets into cash or obtain sufficient funds to meet due obligations, and risk of significant market value fluctuations when dealing with or offsetting held positions due to insufficient or disorderly market depth.
- Quantitative management of market liquidity risk for the concentration of business unit and proprietary investment positions and market transaction volume.
- Setting a holding limit for the securities issued by a single company to effectively control market liquidity risk.
Risk
Risk of direct or indirect losses caused by internal operations, personnel, and system failures or errors, or by external events.
- Conduct regular sampling inspections of the implementation status of each unit to collect and organize relevant data on operational risks (including the occurrence time, event type, document records, and loss status).
- Closely monitor the sensitivity of market conditions, customer behavior, technological changes, and regulatory changes, and continuously review the appropriateness of internal regulations.
Risk
Transition risks associated with low-carbon transition due to climate change, which may impact the company's finances, strategy, operations, products, and reputation, and physical risks to the company's finances and operations due to extreme weather events caused by climate change.
- Establish a materiality assessment and scenario analysis to assess and disclose the potential financial impact of physical and transition risks on the company itself.
- Assessing and managing climate-related risks in investment targets.
Risk
Losses arising from the invalidity of contracts due to non-compliance with relevant government regulations, lack of legal validity of the contract itself, unauthorized actions, omissions in the terms, or inadequate regulations.
- A specialized unit is responsible for setting standards for the company's overall financial and operational activities and for assessing and managing the company's legal risks.
- Conduct regular training for employees on the latest regulatory changes to strengthen employee compliance discipline and reduce the risk of violations.
The Board of Directors of the Company is ultimately responsible for establishing and ensuring the effective operation of the risk management system. The Risk Management Office is subordinate to the Board of Directors and assists and ensures the effective implementation of the Company's risk management mechanism to ensure that risk management complies with the policies set by the Board of Directors. The Audit Committee of the Board of Directors is responsible for auditing the implementation of risk management and compliance with laws and regulations. The Legal Compliance and Legal Affairs Department is responsible for planning, reviewing goals, maintaining and managing systems such as legal compliance, anti-money laundering and anti-terrorism financing. Each business unit is responsible for identifying transaction risks, following operating procedures, and promptly reporting abnormal situations to the top.
- Formulate risk management policies and establish qualitative and quantitative management standards, promptly report the implementation of risk management to the board of directors, and make necessary improvement suggestions.
- Evaluation and decision-making on business operation strategies
- Approve business applications and authorize transactions
- Ensure the effectiveness of risk management and bear the ultimate responsibility for risk management.
- Report to the board of directors on the risk assessment and trading performance of the board's holdings and the achievement of target goals.
- In case of any abnormal market value assessment (such as when the holding position exceeds the total loss limit), it should be reported to the board of directors immediately, and the business unit should be requested to take necessary countermeasures.
- Assist in formulating risk management systems.
- Assist in formulating risk limits and allocation methods for each department.
- Ensure the implementation of risk management systems approved by the board of directors.
- Submit timely and complete risk management reports to the chairman, vice chairman, and general manager.
- Before engaging in various transactions in business units, they should first understand the content of the relevant transactions and continuously monitor the holding positions of the completed transactions.
- For financial instruments with quantifiable risks, risk management measurement techniques should be improved as much as possible.
- Have a thorough understanding of the risk limits and usage of each business unit.
- Assess the company's risk exposure and risk concentration.
- Development and execution of stress testing and backtesting methods
- Evaluate the discrepancy between the actual profit and loss and the forecast of the investment portfolio.
- Review the commodity pricing models and valuation systems used by business units.
- Other risk management related matters
- Ensure the timely and accurate communication of risk management information.
- Ensure that business units (subsidiaries) effectively implement the relevant provisions of various risk limits.
- Monitor risk exposure and report exceedances, including actions taken by business units (subsidiaries) to address exceedances.
- Ensure that internal control procedures within business units (subsidiaries) are effectively implemented to comply with regulatory requirements and risk management systems.
- Overall responsibility for all risk management matters related to its subordinate units (subsidiaries). Responsible for monitoring operational risks within business units (subsidiaries) and implementing various countermeasures.
- Oversee the communication of risk management information.
- Regularly assess the effectiveness of internal controls over commodity transactions in business units.
- Review the implementation of the company's risk management system and disclose the actual situation in the audit report. For deficiencies or abnormalities found during the inspection, they should be tracked after the review of the audit report, and regular tracking reports should be prepared to ensure that relevant units have taken timely and appropriate corrective measures.
- Responsible for auditing the compliance of various regulations and laws.
- Process accounting transactions and manage funds in accordance with approved contracts and trading documents.
- Establish provisions for off-balance-sheet transactions.
- Obtain price information from a pricing system independent of the trading department to revalue positions held.
- Completed transactions should be recorded in the accounts and recognized in profit or loss on a timely basis.
- Make announcements in accordance with the regulations of the competent authority.
- Customer credit check before trading account opening.
- Custody and storage of account opening and trading agreements.
- Delivery and settlement of commodities.
- Execution of margin call and recovery for insufficient customer margin.
- Reporting of trading contracts to relevant regulatory authorities.
- Confirmation of trade details.
- Post-trade credit monitoring for special customers.
- Consulting with legal counsel to discuss relevant management policies.
- Trading contracts/agreements must undergo legal compliance and legal department review of all rights and obligations, legality, and related legal documents before being signed with counterparties.
- The external contract seal application form must be reviewed and approved by the Legal Compliance and Legal Department.
- Overseeing legal and regulatory compliance.
- Supervising business units to assess the impact of newly promulgated regulations on the company's business.
- Before launching new products, services, or applying for new business lines, the Legal Compliance and Legal Department Head shall issue an opinion in accordance with laws and regulations and internal standards and sign for responsibility.
The Risk Management Office, in accordance with the company's "Risk Management System" and under the supervision of the Audit Committee, proposes necessary improvement recommendations and reports to the Board of Directors semi-annually to provide timely updates on the execution of risk management. In fiscal year 113, semi-annual reports were presented to the Board on March 12 and August 22. Additionally, to address the establishment of a new department and the expansion of related business, the leveraged trading business risk management procedures were revised. Following the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), the Board is regularly presented with climate change risk management information to ensure effective operation of climate risk management mechanisms. On May 13, 113, the Board received and disclosed the 2023 climate risk management information and related financial disclosures.
