EXPLANATORY NOTES 30 SEPTEMBER 2023 4 FINANCIAL RISK MANAGEMENT Whilst risks are inherent in the Group’s and the Company’s activities, they are managed through an integrated risk management framework, including ongoing identification, measurement and monitoring, subject to risk limits and other controls. This process of risk management is critical to the Company’s continuing profitability and each individual within the Group and the Company are accountable for the risk exposures relating to his or her responsibilities. The Group and the Company operate a three-line of defense risk management model whereby front office functions, risk management oversight and assurance roles are played by functions independent of one another. The Group and the Company are exposed to financial risks including credit risk, market risk, funding risk, liquidity risk and these risks are managed through established risk management processes in line with Board approved internal policies. The assessment of current risks is complemented by a view on emerging risks applying on a forward-looking perspective. The Group and the Company regularly review their risk management policies and systems to reflect changes in markets, products and emerging best practices. In addition, whilst the identified risks are closely monitored, assessed and reported to risk management forums and to the Board / Risk Management Committee on periodical basis by the Risk Management team, the emerging risks applying a forward looking perspective are also considered whilst performing stress testing on the book based on various scenarios. A description of the significant risk factors is given below together with the risk management policies applicable. 4.1 Financial risk factors The Group’s and Company’s activities expose it to a variety of financial risks, which consist of market risk, credit risk and liquidity risk. Market risk includes foreign currency risk, interest rate risk and equity price risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. Written principles have been established throughout the Group for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, equity price risk, credit risk and liquidity risk. (a) Foreign exchange risk The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures primarily with respect to certain major currencies. Entities in the Group use forward contracts to mitigate their exposure to foreign currency risk. Each subsidiary is responsible for managing the net position in each currency by using the relevant strategy, under advice from the Group’s Treasury. The Group holds foreign currency forwards and swaps. Swaps are contractual agreements between two parties to exchange streams of payments over time based on specified notional amounts, in relation to movements in a specified underlying index. 130 CIM FINANCE ANNUAL REPORT
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