One of Man's key objectives is to be a leader in risk management, governance and business sustainability. Risk management is an essential component of both the investment management process for investors in our fund products and in our approach to maintaining a high quality, sustainable business for our shareholders. Our approach is to identify, monitor and evaluate risk throughout the Group and to manage these risks within our risk appetite. We maintain sufficient excess capital and substantial liquidity resources to give us flexibility both to continue to finance long-term growth and to operate the business effectively under market stress situations.
There are three key elements of our risk management process:
The risk governance framework
- Establishing clear functional responsibilities, accountabilities and committee structures for the management of risk.
- Setting risk policies, delegated authorities and limits consistent with the risk appetite.
- Ensuring appropriate skills and resources are applied to risk management.
The risk appetite of the Group
- Setting the risk appetite of Man in terms of the amount of risk considered appropriate in order to execute our strategy.
Risk identification, measurement and mitigation
- Assessing the potential impact on Man of internal and external factors that might give rise to a direct or indirect loss or demand for liquidity.
- Using a range of methodologies including economic capital, value-at-risk, stress testing, scenario analysis and qualitative assessment to assess the potential impact and likelihood of the identified risks.
- The process of systematically monitoring and reporting the risk profile against risk appetite, exposures against limits, losses and other risk related incidents, compliance issues and the effectiveness of our internal controls.
Risk Governance
The Board of Directors is ultimately responsible for the framework of risk governance and risk management. The Board is responsible for:
- Determining risk stratergy
- Setting risk appetite
- Ensuring that risk is monitored and controlled effectively.
The Board of Directors has given delegated authority to two committees: the Risk Assurance Committee; and the Finance Committee. The Committees comprise senior management from the business and support areas. These Committees provide oversight across all risks faced by the business.
Senior management in the businesses are accountable for all risks assumed in their areas of responsibility and for the execution of appropriate risk management discipline within the framework of policy and delegated authority set out by the Board. The results of risk taking decisions are reflected in the economics of the businesses assuming the risk. The principle of individual accountability and responsibility for risk management is an important feature of our corporate culture.
Day to day independent and objective assessment and monitoring of risk is provided by various control functions at the Group level and in the business. These control functions include Group Risk, Finance, Legal, Compliance, Human Resources and Internal Audit. In addition, risk management functions reside within each business unit, with formal reporting lines and segregation of duties for the key risk, compliance, legal and finance functions.
Risk Appetite
Risk appetite is a description of the amount of risk that Man regards as appropriate for it to accept in order to execute our strategy. The Board regularly reviews their risk appetite in the context of Man's strategy and the requirements of various stakeholders, including the regulatory framework in which we operate.
The risk appetite provides the benchmark against which Man's risk profile is reported, monitored and managed by the Board, Audit and Risk Committee, Finance Committee and Risk Assurance Committee. Risk appetite also forms the basis for the calibration and setting of the delegated authorities and financial limits for all aspects of market, credit, liquidity and operational risk.
In the course of its regular review of risk appetite, the Board reduced its tolerance for market risk losses and risk limits were reduced to reflect this.
The risk appetite statements address both quantitative and qualitative aspects of risk:
In quantitative terms:
- the maximum tolerance for market, risk losses
- the maintenance of a minimum credit rating level
- the minimum economic and regulatory capital surpluses
- the maximum earnings volatility as a result of risk taking activities
- the minimum excess liquidity resources to meet peak stressed liquidity requirements without the need to liquidate assets or raise capital.
In qualitative terms the Board's assessment of:
- regulatory risk
- reputation risk
- operational risks in the execution of business plans
- business risk related decision making, especially in relation to new business opportunities.
