Risk Management Organization and Systems
We strictly control business and commodity risks within the organization and are continuously implementing and reviewing our goals with the corresponding systems and measures
Risk management organization
In order to effectively manage the risks related to the company’s operations and strengthen the company’s competitive advantages, in accordance with the laws and regulations of the competent authority, the "Risk Management Policy" of China Development Finance Holdings Co., Ltd. and the company’s business development strategy, regulations such as risk management policies have been formulated as the compliance basis for risk management.
(1) The risk management organization structure approved by the board of directors of the company to supervise, plan and implement related risk management affairs, including the board of directors, risk management units, business units and other relevant departments, all have their own responsibilities for risk management affairs.
(2) The company has a risk management committee, an investment review committee, a commodity review committee, etc. to strengthen the company's risk management organization and structure.
(3) The parent company of the financial holding company has a risk management committee. The risk management department of the company reports various risk management issues to the committee on a quarterly basis.
The risk management department is involved in the formulation and revision of business limits and risk management related regulations for each business department and cooperates with other relevant departments of the company in the relevant monitoring process. In addition, it also assists risk monitoring through sophisticated risk information systems to effectively manage risks and regularly and irregularly provides risk management reports and statements to senior managers as a reference for business decision-making.
For details of risk management organization, please refer to the risk management quality information.
(2) The company has a risk management committee, an investment review committee, a commodity review committee, etc. to strengthen the company's risk management organization and structure.
(3) The parent company of the financial holding company has a risk management committee. The risk management department of the company reports various risk management issues to the committee on a quarterly basis.
The risk management department is involved in the formulation and revision of business limits and risk management related regulations for each business department and cooperates with other relevant departments of the company in the relevant monitoring process. In addition, it also assists risk monitoring through sophisticated risk information systems to effectively manage risks and regularly and irregularly provides risk management reports and statements to senior managers as a reference for business decision-making.
For details of risk management organization, please refer to the risk management quality information.
Risk management system
· Market risk
By establishing a risk management system, formulating relevant regulations for market risk management, and formulating various product operating standards, the company conducts market risk (economic) capital allocation based on the company’s risk appetite, and sets various market risk limits. Performing daily market risk monitoring operations to control the risks within the company's responsibilities.
· Credit risk
The company’s credit risk management is based on the issuer’s and counterparty’s credit ratings, transaction characteristics, or product types, taking appropriate measurement methods, and comprehensively considering the factors such as the company’s net worth or concentration risk to determine appropriate credit risk limits. In addition to regularly reviewing the credit status of counterparties, positions and collaterals, it also collects and reports the use of various credit lines to relevant units and management.
· Liquidity risk
The company's liquidity risk is divided into two categories: market liquidity risk and capital liquidity risk. Market liquidity risk is measured by the market transaction volume of the company's holdings as a basis for information disclosure. Capital liquidity risk management has established an independent capital management unit, which comprehensively considers the net cash flow of each department’s capital needs and time schedule for capital management to effectively control the company’s capital liquidity risk.
· Operational risks and other risks
Each unit of the company implements operational risk management according to their business responsibilities. The scope and content covers the authorization, process and operations related to operational risk management. All planning follows the principles of separation of front-end and back-end operations, control and independence of authority. Operational risk control includes information security, information maintenance, settlement and clearing, transaction confirmation, report preparation, division of rights and responsibilities of personnel or division of labor, control and internal control of related party transactions, etc.
Each unit is responsible for the inspection and control of operational risks for the business they are engaged in. In addition to complying with external laws and regulations, they also carry out control in accordance with the operational procedures and control priorities regulated by the internal control system to ensure the effectiveness of operational risk management.
The company has obtained the relevant qualifications for the option to adopt the sensitivity analysis (Delta-Plus) method under the advanced calculation method of the securities firm’s own capital adequacy ratio, which is the financial product evaluation model required to calculate the capital adequacy ratio and other statutory ratios, and the use of model management has been implemented.
The company regularly detects operational risks. The detection parameters should include matters such as financial institutions’ capital adequacy, asset quality, management capabilities, profitability, and liquidity, sources of profit, foreign risk exposure, investment positions, off-balance sheet items, and major customer complaints or disputes, various "detection indicators and warning values" are set up.
By establishing a risk management system, formulating relevant regulations for market risk management, and formulating various product operating standards, the company conducts market risk (economic) capital allocation based on the company’s risk appetite, and sets various market risk limits. Performing daily market risk monitoring operations to control the risks within the company's responsibilities.
· Credit risk
The company’s credit risk management is based on the issuer’s and counterparty’s credit ratings, transaction characteristics, or product types, taking appropriate measurement methods, and comprehensively considering the factors such as the company’s net worth or concentration risk to determine appropriate credit risk limits. In addition to regularly reviewing the credit status of counterparties, positions and collaterals, it also collects and reports the use of various credit lines to relevant units and management.
· Liquidity risk
The company's liquidity risk is divided into two categories: market liquidity risk and capital liquidity risk. Market liquidity risk is measured by the market transaction volume of the company's holdings as a basis for information disclosure. Capital liquidity risk management has established an independent capital management unit, which comprehensively considers the net cash flow of each department’s capital needs and time schedule for capital management to effectively control the company’s capital liquidity risk.
· Operational risks and other risks
Each unit of the company implements operational risk management according to their business responsibilities. The scope and content covers the authorization, process and operations related to operational risk management. All planning follows the principles of separation of front-end and back-end operations, control and independence of authority. Operational risk control includes information security, information maintenance, settlement and clearing, transaction confirmation, report preparation, division of rights and responsibilities of personnel or division of labor, control and internal control of related party transactions, etc.
Each unit is responsible for the inspection and control of operational risks for the business they are engaged in. In addition to complying with external laws and regulations, they also carry out control in accordance with the operational procedures and control priorities regulated by the internal control system to ensure the effectiveness of operational risk management.
The company has obtained the relevant qualifications for the option to adopt the sensitivity analysis (Delta-Plus) method under the advanced calculation method of the securities firm’s own capital adequacy ratio, which is the financial product evaluation model required to calculate the capital adequacy ratio and other statutory ratios, and the use of model management has been implemented.
The company regularly detects operational risks. The detection parameters should include matters such as financial institutions’ capital adequacy, asset quality, management capabilities, profitability, and liquidity, sources of profit, foreign risk exposure, investment positions, off-balance sheet items, and major customer complaints or disputes, various "detection indicators and warning values" are set up.
The company has formulated relevant regulations such as the "Procedures for Dealing in Private Trading of Securities and Derivative Financial Products" and the "Operational Guidelines for the Business of Derivative Financial Products Trading in Business Locations" to regulate the relevant policies for hedging and risk mitigation:
1. Each business department engaged in derivative financial product transactions shall establish in advance whether the purpose of the transaction is of a trading nature or a hedging nature, and shall not arbitrarily change the transaction purpose after the transaction.
2. The so-called nature of trading refers to transactions in which derivative financial products are bought and sold based on price expectations, and the assumption of risk with a view to earning a price differential. The so-called hedging nature refers to the use of derivative financial product transactions to reduce the market risk of existing assets or liabilities and anticipated transactions.
3. For positions held for hedging requirements, the hedge and hedged positions shall be regarded as an investment portfolio, and attention shall be paid to the correlation between the changes in profit and loss between the hedge and the hedged positions.
For details of the risk management system, please refer to the risk management quality information.
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