WHAT WERE THE AREAS OF THE COMPANY’S FOCUS IN RISK MANAGEMENT IN THE REPORTING YEAR?
“In 2015, we have continued to improve our internal control and risk management system, including with regard to the recommendations of the Russian Corporate Governance Code and requirements of the Moscow Exchange Listing Rules.
The Federal Grid’s Board has approved a new document – the Regulations on the Risk Management System that covered both the latest regulatory changes and best practice recommendations.
Pursuant to the instructions of the Board of Directors, the Company has taken serious measures to improve the quality of risk reporting, in particular by providing information within the report on the occurrence of the relevant risks in the reporting period, as well as to improve risk assessment tools, including the development of a map and matrix of key operational risks.
Overall, in 2015 we have prepared a proper procedural and organisational framework for further improvement of the risk management system of Federal Grid Company.”
Principles of and approaches to risk management
Our risk management system is an element of the internal control and risk management system, which includes a set of mechanisms and tools providing procedural measures and structure for developing, implementing, monitoring, reviewing and continuously improving risk management processes of Federal Grid Company.
Further details on our system of internal control and risk management are available in section CORPORATE GOVERNANCE REPORT /Control system
In accordance with the recommendations of the Russian Corporate Governance Code, in 2015 the Board of Directors has approved the Regulations on Risk Management System (Minutes No. 291 dated 19 November 2015).
RISK MANAGEMENT STANDARDS
The Federal Grid’s risk management system has been established based on the generally accepted conceptual frameworks for risk management developed by the Committee of Sponsoring Organisations of the Treadway Commission – COSO ERM “Enterprise Risk Management – Integrated Framework”.
The Federal Grid’s Regulations on Risk Management has been developed with due account of the best Russian and international standards, including:
- Guidelines for drafting regulations on risk management system approved by the Government of the Russian Federation
- Russian Corporate Governance Code
- Listing Rules of the Moscow Stock Exchange
- International Standards ISO73:2009, 31000:2010 and 31010:2011 in the area of risk management
- Risk management standards of the Federation of European Risk Management Associations (FERMA)
The risk management system is aimed at reducing uncertainties the Company face in delivering its objectives set at all levels of management, including in the Long-Term Development Programme and documents of tactical and operational planning (business plans, budgets).
Improving Risk Management
Annually the Company develops and implements a set of measures aimed at improving the risk management system. In 2015, the following measures were taken:
- In order to execute the decision of the Board of Directors, key operational risks have been allocated to owners, factor analysis and assessment of key operational risks were conducted with further connection of such risks to control procedures, and key operational risk map and matrix were developed; the key operational risk management system was integrated in the Company’s system of business planning
- In order to ensure unified approaches to risk management planning and to processes related to risk classification, assessment and reporting, the Company has started to develop a Procedure for operational risk assessment based on international standards and best practices in risk management
KEY PRINCIPLES OF RISK MANAGEMENT SYSTEM
- Continuity and integrity
- Goal orientation
- Integration into management
- Balance between risks and earnings
- Reducing uncertainties
- Consistency and responsibility
- Quality of information
- Involvement and leadership
- Cross-functional networking
- Reasonable assurance and efficiency
- Adaptability
- Continuous improvement
Authorities and Responsibilities of Key Participants of the Risk Management System
| Board of Directors |
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| Audit Committee |
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| Chairman of the Management Board Management Board |
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| Internal Control and Risk Management Department |
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| Internal Audit Department |
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| Risk Owners Management, structural units, working bodies |
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| Executors of risk management measures Management, structural units, working bodies, employees |
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Further details on key risks and risk management actions are available in section CORPORATE GOVERNANCE
REPORT / Control system of the Annual Report
BOARD FOCUS ON RISK MANAGEMENT SYSTEM DURING THE YEAR
- A Register of key risks of Federal Grid Company has been approved, the Chairman of the Management Board was instructed to ensure that an annual report on key operational risks of Federal Grid Company is submitted for consideration and approval of the Board of Directors (with prior consideration by the Audit Committee) (Minutes No. 248 dated 29 January 2015)
- A Report on key risks for 2014 was considered. Following the consideration of the Report, the Board of Directors has made decisions aimed at improving the effectiveness of the Company’s risk management system (Minutes No. 270 dated 01 June 2015)
- In accordance with the recommendations of the Corporate Governance Code, the Regulations on Risk Management System have been approved (Minutes 291 dated 19 November 2015)
Reviewing the effectiveness of risk management and the role of internal audit function
The ongoing assessment of the effectiveness of the risk management system (self-assessment) is conducted by risk owners within the functional areas of the Company’s activities they oversee. Coordination, monitoring and methodological support of the ongoing evaluation is carried out by the Internal Control and Risk Management Departmnet.
Independent internal review of the effectiveness and reliability of the risk management system is regularly conducted by the Internal Audit Department.
For further details on the improvement of the Federal Grid’s internal audit function, please, see the section CORPORATE GOVERNANCE REPORT / Control system
Plans for 2016
- To improve the Regulations on Risk Management System: to develop and approve the Procedure for operational risk assessment based on the international standards and best practices in the area of risk management
- To implement a system of monitoring, reporting and evaluating the quality of key risk management on a regular basis
- To improve the system of motivation of senior managers, senior officers of the Executive Office and branches of Federal Grid Company taking into account the requirements to ensure the acceptable risk levels
- To produce reports on key operational risks