Risk Management Framework

At the helm of the organisation, the Board is ultimately responsible for the overall management of risks. The Board, through the Risk Management Committee ("RMC") maintains overall responsibility for risk oversight within KWAP.

The RMCs responsibilities include reviewing and ensuring adequacy of risk management policies and procedures, reviewing risk exposures, and ensuring that infrastructure, resources and systems are in place for risk management activities.

The Board is also supported by the Audit Committee whose responsibility is to provide an independent assessment on the adequacy and reliability of the risk management processes and internal control as well as compliance with risk policies and regulatory requirements.

A dedicated and independent risk management and control functions comprising Risk Management Division and Internal Audit function is responsible for the implementation and compliance of the approved risk management framework and policies. It is also responsible for facilitation of the risk management processes with operating units which include risk identification, assessment, mitigation and monitoring.

At the forefront, operating units are responsible for identification and management of risks within their operations. The operating units are also responsible for compliance of all daily activities with the approved policies, guidelines and procedures. One of the key activities undertaken in 2008 by the respective operating units was the review of their internal controls to ensure relevancy and appropriateness. Any changes to the internal controls were reflected in their respective Standard Operating Procedures (SOPs).

Operational Risk Management

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. The primary responsibility for managing operational risk rests within each operating unit. Nevertheless, the execution of risk management methodology is supported and guided by the Risk Management Division.

In 2008, we implemented the Corporate Risk Profile (CRP) whereby risks pertinent to the organization were identified and analysed to determine the overall risk exposure and subsequently facilitate the deployment of control mitigating. The CRP is a live document maintained by the Risk Management Division with inputs from the operating units. The CRP is periodically presented to the RMC for deliberation and recommendation for further improvement on the overall risk management practices.

Business Continuity Management (BCM) being an integral part of operational risk management requires KWAP to have internal capabilities and competencies to mitigate the risk of severe operational disruption. In 2008, we initiated the organisation-wide BCM initiatives with the development of Business Continuity Plan (BCP) and Disaster Recovery Plan (DRP).

Moving forward, several other initiatives will be implemented for operational risk management which include the development of Key Risk Indicators (KRI), implementation of Loss Data Management (LDM) and Risk Control Self-Assessment (RCSA).

Market Risk Management

Market risk is the risk of loss arising from adverse movements in the level of market prices of financial assets and rates. The key objective of market risk management is the management of market movements which adversely affects the investment of KWAP. The implementation and enforcement of risk limits onto the investment activities are aimed at managing risk exposure and thus minimising potential losses.

In 2008, we initiated efforts to build capabilities to implement Value-at-Risk (VAR) and Stress Testing. Contingent upon the successful implementation of VAR and Stress Testing, efforts were made to implement risk budgeting for further enhancement of management of market risk.

Credit Risk Management

Credit risk is the potential financial loss as a result of defaults by the borrowers or counterparties of KWAP. The primary objective of credit risk management is to ensure that exposure to credit risk is always kept within KWAP's risk appetite and financial capacity to withstand potential losses. KWAP's investment activities are guided by its Investment Policy and Guidelines which specify the credit policies and counterparty limits.

To further strengthen credit risk management, a comprehensive Credit and Counterparty Policy will be developed for adoption. In addition, the credit analysis capabilities will be progressively developed and improved through the recruitment of qualified credit analysts and deployment of improved management information system.

Risk Awareness and Training

Continuous learning is crucial to KWAP due to its constantly evolving operating environment. KWAP recognizes the importance of having the necessary knowledge and skills to manage the wide spectrum of risks that it is exposed to. In promoting risk awareness within the organization, a number of activities were conducted throughout 2008. Two risk management workshops for all levels of management were conducted for the exposure to various risk management topics. One of the key topics discussed was the implementation of risk metrics to facilitate the management of market risk. In addition, risk related articles or materials were disseminated periodically to the staff via KWAP's newsletter and corporate blog.

Risk Management

Quick Launch