The Cathay FHC Board of Directors is the highest decision-making authority among our risk management organizations, and is in charge of the supervision and approval of the Risk Management Policy as well as other major risk management systems. We established a Risk Management Committee and independent risk management units. The Chief Risk Officer is the highest level supervisor of risk management units; the Risk Management Committee meets on a monthly basis.

 

Cathay FHC established the risk management policy to provide the basis for risk management, and established individual management guidelines to controls major risks. We included emerging risks in our risk management policy and established the Emerging Risk Management Guidelines in 2019. Cathay FHC and major subsidiaries periodically submit reports on the implementation of risk management to the Risk Management Committee and Board of Directors, in order to fully disclose the group's risk exposure and examine the compliance with the risk management system.


Risk Management Measures

We established risk assessment indicators for major risks. All of the indicators were reviewed and approved by the Board of Directors, and are periodically assessed and monitored to determine if the risk exceeds our risk appetite, so that further management measures can be implemented. This risk appetite is subjected to stress-testing to ensure that it remains appropriate given changes in the business environment.

Furthermore, Responding to the company’s overseas expansion in 2014, we added Guidelines for Handling of Major Emergency Incidents in Overseas Branches of Cathay FHC and Subsidiaries, improving risk control of overseas branches.


Risk Management Reporting Mechanisms

We established Regulations for Reporting Operational Risk Events, Regulations for Reporting Emergency Credit Risk Events, and Regulations Governing the Handling of Major Incidents to improve our risk management performance, and established corresponding reporting systems. When a risk event occurs, units or subsidiaries shall immediately report it to the Risk Management Division to open a case for management. The units or subsidiaries inspect the progress of risk events and implementation of improvement plans each month, and report progress to the Risk Management Division.


Facing the growingly complex financial environment, and in light of the impact brought by technological developments, extreme weather, and aging population, we included emerging risk management into our risk management policy in 2019. We clearly defined emerging risks, established Emerging Risk Management Guidelines, and prepare emerging risk reports each year for review by the Risk Management Committee. The reports are submitted to the Board of Directors to explain our current risks and the risk management system. The group's emerging risks in 2019 include FinTech, climate-related, information security, and law amendments. We assessed the impact of the risks on our operations and established response measures.

 

Emerging Risk Identification Procedures and Response Measures

 

 

 


We adopted the three lines of defense model for risk management and internal control, and continue to enhance the model's effects. In 2019, the audit used the three lines of defense as the direction for future optimization of the group, and offered recommendations for business units, management units, and audit units. Units on the second and third lines of defense continue to strengthen internal risk management. Besides publishing monthly law, risk and audit periodicals, sharing information of relevant issues and actual cases of regulatory compliance, risk management and auditing, units conduct compliance and internal control self-evaluations and self-inspections every six months, in order to identify potential risks of each unit and verify that operations are in compliance with related systems. Units are required to implement improvement measures for non-compliant matters.

The Board of Directors and management of Cathay FHC are required to take corporate governance or risk management courses to raise the risk awareness of all employees. All employees in the group are also required to take general education courses on risk management. Training completion rate reached 100% in 2019, and a variety of risk training courses are provided to different subjects based on the business of each subsidiary, so that employees are able to effectively control risks.

 

We have included a “risk management” indicator in the criteria of Board and functional committee performance evaluation to increase a sense of responsibility in the Board of Directors towards risk management. Meanwhile, Cathay FHC also has included internal control implementation results and compliance implementation results among the categories of performance management development (PMD) for managers and all employees, so as to maintain effective operation of the risk management system.


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