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. It surveyed 197 Hong Kong-based senior executives, assessing the extent to which they have embedded risk management in their businesses.
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.
Jyoti Vazirani, Partner, Head of Financial Risk Management, KPMG China, says: “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.”
“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 realise and unlock the true benefits of robust risk management,” adds Vazirani.
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.
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 organisations. 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 behaviour. 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 organisations 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 organisation 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.”
KPMG China operates in 16 cities across China, with around 10,000 partners and staff in Beijing, Beijing Zhongguancun, Chengdu, Chongqing, Foshan, Fuzhou, Guangzhou, Hangzhou, Nanjing, Qingdao, Shanghai, Shenyang, Shenzhen, Tianjin, Xiamen, Hong Kong SAR and Macau SAR. With a single management structure across all these offices, KPMG China can deploy experienced professionals efficiently, wherever our client is located.
KPMG is a global network of professional services firms providing Audit, Tax and Advisory services. We operate in 152 countries and regions, and have 189,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.
In 1992, KPMG became the first international accounting network to be granted a joint venture licence in mainland China. KPMG China was also the first among the Big Four in mainland China to convert from a joint venture to a special general partnership, as of 1 August 2012. Additionally, the Hong Kong office can trace its origins to 1945. This early commitment to the China market, together with an unwavering focus on quality, has been the foundation for accumulated industry experience, and is reflected in the Chinese member firm’s appointment by some of China’s most prestigious companies.
(Incorporated in Hong Kong with limited liability by guarantee)
The Hong Kong Institute of Chartered Secretaries (HKICS) is an independent professional body dedicated to the promotion of its members’ role in the formulation and effective implementation of good governance policies as well as the development of the profession of Chartered Secretary in Hong Kong and throughout mainland China.
HKICS was first established in 1949 as an association of Hong Kong members of the Institute of Chartered Secretaries and Administrators (ICSA) of London. It became a branch of ICSA in 1990 before gaining local status in 1994.
HKICS is a founder member of the Corporate Secretaries International Association (CSIA) which was established in March 2010 in Geneva, Switzerland to give a global voice to corporate secretaries and governance professionals.
HKICS has over 5,800 members and 3,200 students.