In today’s difficult economic environment, efficient and timely monitoring and management of risks in Picfareactivities is critical to its financial soundness and profitability. Risk management involves identifying, measuring, monitoring and managing those risks on a regular basis. The objective of risk management is thus to assess, control and mitigate risks arising from business activities and investments to a level commensurate with shareholders’ risk appetite. To achieve this objective, Picfareadopts risk management techniques, appropriate to its business model to ensure that its foundations are strong and the longevity of the organization is ensured.
The Board of Directors and management together have the overall responsibility for managing risks at Picfare. The Legal, Risk Management and Compliance Departments are responsible for the risk management functions at Picfareunder the supervision of the Audit Committee and the Risk Management Committee and the full Board which approves and periodically reviews the risk management policies, procedures and strategies of Picfare. The responsibility to manage the balance sheet and overall risk profile of Picfarerests with the Assets and Liability Committee (ALCO), which is supported by the Legal Department, Risk Management Department, Compliance Department and Financial Control Department.
The Internal Audit Department periodically conducts independent reviews and submits its reports to the Audit Committee and the Risk Management Committee and management.
Picfareis exposed to but not limited to the following risks:
Credit risk is defined as the potential risk that Picfarecounterparties will fail to meet their obligations in accordance with their agreed terms. The goal of credit risk management is to maximize Picfare’s risk adjusted rate of return by maintaining credit risk exposures within acceptable parameters.
Picfare’s credit risk management processes involve assessment of the credit worthiness of counter parties and were appropriate security and other collateral is taken to mitigate such risks.
Liquidity risk is defined as the potential inability of Picfareto meets its financial obligations as they fall due. To manage this risk, ALCO issues broad guidelines with regards to minimum liquid assets to be maintained by Picfare.
The reports for management of Liquidity Risk are prepared by Financial Control Department (FCD). The Risk Management Department closely monitors the sources and funding of assets and liabilities and ensures that there is no undue concentration of funding requirements at any one time or from any one source.
Interest Rate Risk
Interest rate risk is the risk that the relative value of an interest bearing financial instrument, such as a loan or a deposit, will worsen due to adverse changes in interest rates.
The FCD closely monitors the interest rate movements and internal reporting and control procedures are in place to address the impact of the changes in the interest rate movements and report the impact of the change in the interest rate on the income statement to the ALCO on a periodical basis.
Market risk is defined as the risk of losses owing to on or off balance sheet positions of Picfare, arising from movements in market prices of interest rate related instruments, equities in the trading book and foreign exchange and commodity risk throughout Picfare’s operations.
Picfaredoes not trade in foreign currencies although some of Picfareinvestments and expenses are dominated in currencies other than GBP.
Legal risk is risk from uncertainty due to legal actions or uncertainty in the applicability or interpretation of contracts, laws or regulations.
Legal matters at Picfareare addressed to the Legal Department and, where appropriate, by external legal counsel, who review all new contracts, which are entered into by Picfareduring the course of its operations, to protect the interests of Picfarein its dealings with counterparties.
Operational risk is the exposure to loss arising from inadequate or failed internal processes, people and systems, or from external events.
Picfarehas clearly defined its operational procedures for Picfarebusiness and services. It also has advanced systems that enable it to run operations. The system and the policy and procedures were approved by the Internal Audit Department. This department operates independently from other units of Picfareand reports directly to the Audit Committee and Risk Management Committee. It conducts regular reviews of all business areas of Picfareand reports control deficiencies and exceptions to Picfarepolicies and procedures. It also recommends measures to minimize operational risk, which are implemented by management. Picfarehas defined the Risk Control Self-Assessment (RCSA’s) and Key Risk Indicators (KRI’s) for all the key departments and functions and is progressing towards monitoring Key Risk Indicators (KRI’s) for any potential operational risk events.
Picfarehas clearly defined its operational risk framework and documented policies and procedures for each of its products and services. Picfarehas also developed a contingency plan to take care of any failure of its computer systems.