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Risk management and corporate governance: FERMA comments on European rules

Federation of European Risk Management Associations opposes moves to require companies to publish more information on their risk appetite.

The Federation of European Risk Management Associations (FERMA) has told the European Commission that no more EU corporate governance rules are needed and that the Commission should concentrate on the implementation and robust enforcement of existing EU corporate governance rules on risk management rather than creating new ones.

The comment is contained in FERMA’s response to the consultative green paper on The EU corporate governance framework.

In its submission, FERMA argues that parts of the green paper dealing with board duties 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.

FERMA also opposes any moves to require companies to publish more information on their risk appetite.

“FERMA does not support the position to disclose more information about risk appetite, because it may harm companies’ competitive position; will not improve their risk management culture; and will not provide more assurance to stakeholders that risks are under control,” states FERMA. 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.

Other FERMA comments on the green paper:

- FERMA supports the principles of the 8th Directive: 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.

- The principles of good corporate governance should apply to all companies, but factors such as size, complexity and risk profile suggest that 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.

•Date: 27th July 2011 • Region: Europe / UK •Type: Article • Topic: Enterprise risk management

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