Yuanta Financial Holdings' entire risk management structure covers the board of directors, the audit committee, upper management, risk management units and other business units.
The risk management department of Yuanta Financial Holdings functions independently under the board of directors. Presently, the major risk management units within the group include the various risk management departments at Yuanta Financial Holdings, the banking subsidiary, the securities subsidiary and the futures subsidiary as well as relevant risk management or dedicated personnel at other subsidiaries. Within the functional scope of risk management, the Chief Risk Officer (CRO) is in charge of overall planning. Through comprehensive planning and coordination with the group's business strategies, the CRO establishes risk management system, maintaining a sound and effective risk management environment and raising the risk-adjusted maximum profit in line with the risk appetite set by the company.
In order to create an effective risk management system and sound business development, foster a risk management based business model, and ensure the group reaches operational targets and increases shareholder value at acceptable risk levels, the company's board of directors has determined risk management policies which serve as the bases for the establishment of a comprehensive risk management system.
In carrying out the company's risk management framework, an in-depth review of each type of risk is evaluated on an ongoing basis. Risks that the company confronts can be divided into the following categories:
Market Risk
Market risk represents the potential loss in value of portfolios and financial instruments caused by adverse movements in market variables such as interest rates, exchange rates, and change in the value of equity or goods, and can cause the risk of balance sheet and off-balance sheet loss. This kind of risk is managed through the company's risk management system, including establishing limit amounts for each quantifiable risk value (VaR calculations), effectively controlling risk.
Credit Risk
Credit risk is the risk of loss from obligor or counterparty default. The risk management policies of Yuanta have established its own internal rating system to ensure that credit risk exposures are adequately assessed and credit limits are properly established and approved.
Operational Risk
Operational risk is the risk of loss resulting from inadequate or failed processes or systems, human factors, or external events. Yuanta manages these types of risks through maintaining a comprehensive system of internal controls, monitoring business activities by audit professionals, employing experienced staff, and emphasizing the importance of management oversight.
Legal Risk
The nature of legal risk can stem from the scenario of failure to comply with all government regulations. In addition, contractual agreements where items in the contract are inadequate or incomplete may render the contract ineffective or cause loss. Yuanta's Legal Department takes responsibility legal issues and for managing associated risks.
Liquidity Risk
Liquidity risk includes market liquidity risk and funding liquidity risk. Market liquidity risk is the risk of loss arising from potentially being unable to liquidate an asset in a timely manner at a reasonable price. Funding liquidity risk represents the risk of loss arising from being unable to raise funds with appropriate maturity and interest rate characteristics. These risks are managed according to the characteristics of each business, and appropriate measures taken to ensure liquidity objectives are maintained. Yuanta's risk management framework, combined with solid personnel and analytical infrastructure, work to ensure that the risks caused by the wide range and diversity of the company's business activities are effectively controlled.
