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The Actuary The magazine of the Institute & Faculty of Actuaries

European risk managers say no to more governance rules

The group has called for "implementation and robust enforcement" of existing rules on risk management in its response to the consultative green paper on corporate governance framework produced by Commission staff.

In its submission, FERMA argues that parts of the green paper dealing with board duty on risk management and risk disclosure overlap the EU 8th Company Law Directive which has yet to be fully harmonised. As a result, application of these existing rules may not be equally stringent across the EU. Dealing with this issue should take priority, says FERMA.

"Member States' implementation should be further analysed before the Commission takes any further action to regulate this duty."

In particular, FERMA opposes any moves to require companies to publish more information on their risk appetite in the belief that it may harm companies' competitive position and will not provide more assurance to stakeholders that risks are under control.

FERMA's view is that listed companies must already disclose a great deal of risk-related information, for example on finance, health and safety, and environmental protection, and a certain level of confidentiality is essential to protect the business.

FERMA has repeated to the Commission its belief that risk management should be used as a real tool for decision-making, not just an additional element of internal control, and that the board should ensure proper oversight of the risk management process and set company-wide risk policy. "This does not necessarily require new regulatory approaches."

The FERMA response to the green paper also said:

• The principles of good corporate governance should apply to all companies, but factors such as size, complexity and risk profile suggest there should be a proportionate approach.

• EU corporate governance measures should be voluntary for unlisted companies. Disclosure requirements should be different for companies that do not raise capital on the stock markets.

• Listed companies should "comply or explain". Those that do not comply with relevant governance codes should explain the reasons for their divergence.

The FERMA-ECIIA guidance paper on the 8th Directive is available here.