Risk Management is an important cornerstone of CAO's businesses. CAO has built a strong and effective foundation of risk management infrastructure. We have also continued to reinforce our risk management culture through the motto: "Effective Control, Timely Support and Balanced Growth", which has become an important part of CAO's culture underpinning its strategic vision and mission.
Four-Tier Management Control Infrastructure
The Group’s four-tier management and control structure is designed to ensure sound governance and oversight over the execution of effective risk management practices for the Group.
At the strategy level, the Board of Directors has principal oversight and responsibility on the management of the various risks the Group faces. Ultimately, all risk management activities are reported to the Board of Directors ensuring high quality, compliance and effective risk management.
At the tactical level, the Risk Management Committee (“RMC”) oversees risk management issues. The RMC sets the limits for various types of risks and approves new activities that CAO plans to embark on. Through monthly reports and quarterly meetings, the RMC reviews the various risk metrics that provide an indication on CAO’s risk exposures and the manageability of each risk category.
At the management level, the Company Risk Meeting (“CRM”) plans and implements risk management activities to control risks such as market, credit, operational, enterprise, compliance and reputational risks. The CRM operates within the delegated authority set at the RMC level and is chaired by the Head of Risk Management, who reports to the management team but has an independent direct reporting line to the RMC.
At the operation level, the Risk Management Department ensures that risk management activities are executed daily and that all risk-related policies, processes and limits are implemented and adhered to. Over the years, the risk team has defined and built the framework around risk management, identifying, reporting and monitoring the risk profiles of the Group’s supply and trading businesses in Singapore, Hong Kong SAR, Los Angeles and London. CAO’s global risk team, with professional credentials such as Energy Risk Professional (ERP) and Financial Risk Manager (FRM) by Global Association of Risk Professionals (GARP) and their expertise in credit, market and enterprise risk management manages and supports appropriate risk management practices in daily operations across the globe, enabling the management team to execute strategic business objectives and achieve performance targets.
Developing an Effective Risk Management Team
CAO understands that human capital is key to effective risk management. We optimise the organisation's human resources through effective work allocation for each member of the risk management team based on their knowledge, skills and abilities. This is further achieved through our two-prong approach in recruitment: (i) recruiting talents from the external market; and (ii) building up capabilities within the organisation via training programmes. Besides on the job training, the risk management team is also encouraged to upgrade their skills through regular learning at reputable risk management institutes. In addition, cross-functional training and sharing sessions are conducted to educate employees’ understanding of the different risks inherent in the trading transactional chain such as contracts management and operations. We also share best practices with the risk management department of CAO's parent company, China National Aviation Fuel Group Limited ("CNAF"). These measures have significantly improved the capabilities and skills of the Group’s risk management team.
Inculcating a Strong Risk Management Culture
CAO inculcates a strong top-down corporate risk management culture from the Board to the management team and further cascading to all employees. The motto "Effective Control, Timely Support and Balanced Growth" is deeply entrenched within the CAO Group.
To achieve "Effective Control", CAO has identified key indicators for managing market, credit and operational risks, and set appropriate risk levels for each indicator. CAO's control policies also seek to address non-quantifiable risks such as political and legal risks.
As for "Timely Support", credit and legal reviews for potential trading counterparties are completed ahead of time to support trading activities. Employees are encouraged to suggest ideas to improve and optimise work processes through an incentive programme. Employees are also regularly tested on their understanding of daily work processes and company policies.
To support "Balanced Growth", the Risk Management Department conducts stress tests and risk assessments for new trading activities. For existing activities, the Risk Management Department gives ample warnings when utilisation nears limits and ensures that appropriate stop loss actions are taken before breach. Risk assessments are conducted for new investment projects to consider factors such as alignment with CAO's strategy, capital adequacy and risks reward analysis.