The economic environment, cybersecurity and financial risks are among the top five risks in 2017 facing executives of Hong Kong-listed companies, according to a joint survey by KPMG and The Hong Kong Institute of Chartered Secretaries (HKICS).
The report, titled "Risk Management: Navigating Change in Hong Kong," focuses on the impact of new corporate governance requirements on risk management for Hong Kong-listed companies.
Compared to a previous survey conducted by KPMG and HKICS in 2015, the economic environment remains the top risk concern for Hong Kong-based senior management, while cybersecurity has emerged as one of the top five risks. Financial risk was cited as the second-highest concern in 2017, up from fifth place in 2015.
"Businesses continue to experience an escalating pace of change as a result of disruptive technologies, innovative business models, new forms of competition and a shifting geopolitical landscape,” says Jyoti Vazirani, Partner, Head of Financial Risk Management, KPMG China.
"For companies listed in Hong Kong, business and regulatory imperatives have prompted many leaders to implement or enhance their existing enterprise wide risk management programmes. However, many of the programmes tend to focus on complying with current requirements, rather than serving as a strategic tool that adds value and supports growth. As a result, some companies may not be able to realize and unlock the true benefits of robust risk management.”
Overall, the survey finds that the new corporate governance code – which took effect on 1 January 2016 – has had a positive impact on promoting greater oversight of risks facing the business, and that the management of risk is increasingly starting to form part of executive management and board sub-committee agendas.
Nevertheless, many businesses have not fully integrated risk management into their decision-making process, and building up a holistic view of risk remains a key challenge.
Forty-six percent of the respondents find it challenging to understand the risk exposure across all business units, while more than a third of respondents are unsure of how risks impact the top strategic objectives.
Refocus their risk resources
Ivan Tam, President, HKICS, says: "The key themes emerging from the survey indicate that businesses need to refocus their risk resources in a more effective manner, and adopt a holistic and integrated approach to managing risk."
In addition, the survey results note that both board director and executive management groups view the economic environment, financial risks and regulatory uncertainty as the top risks facing their organizations. Beyond the top three, there is a slight divergence between the board and executives on risk priorities.
Board directors are more likely to be concerned about the impact of an uncertain political environment on the long-term success of the business, as well as the adequacy of internal controls to protect against fraudulent or unethical behavior.
On the other hand, executives are focusing on cyber threats, the management of talent and their ability to deal with crisis scenarios.
Vazirani says: "Given the rapidly changing environment, this means that risk assessments can no longer be just an annual exercise. Leading organizations are developing continuous and iterative risk assessment processes, and are using both structured and unstructured data to assess the impact of existing and emerging risks."
Companies need to ensure that they have properly identified the risks and vulnerabilities that could threaten the overall business objectives.
Meanwhile, the report highlights a distinct gap between financial services and non-financial services sector Hong Kong-listed companies in terms of their understanding and adoption of risk management programmes.
The survey finds that 47 percent of respondents from the financial services industry view their risk function within the organization as mature and well integrated in business activities, compared to just 10 percent of respondents from the non-financial services sector.
Furthermore, 63 percent of financial services sector respondents have clearly defined roles and responsibilities for managing risks, compared to just 36 percent in the non-financial services sector.
Vazirani concludes: "While companies are aware of the benefits of adopting appropriate risk management practices, some continue to struggle to get value out of the process. Managing these key challenges requires companies to go back to the basics around how risk is considered in the management of the business.
“Adopting a structured approach to risk management provides companies with a disciplined business tool to align strategy, processes, people, technology and knowledge with the purpose of evaluating and monitoring uncertainties that they face."