The Federation of European Risk Management Associations (FERMA) has told the European Commission that it should start with “implementation and robust enforcement” of existing EU corporate governance rules on risk management, rather than creating new ones now.

1. FERMA:
“Response to the
consultation
document Green
Paper on corporate
governance”

2. FERMA have formally presented their
response to the European Commission
• The Federation of European Risk Management
Association (“FERMA”) welcomed the opportunity to
comment on the European Commission’s staff
working document:
“Green Paper on the EU corporate
governance framework”

3. How FERMA have structured their
response?
Specific
Opening remarks Other corporate
comments on
in support of governance
the risk
better corporate issues dealing
management
governance in with risk
aspects of the
the EU management
green paper
• FERMA makes reference to “the Directive” and “the
Guidance Paper” where relevant throughout the
response

4. OPENING REMARKS
• FERMA welcomes the Commission’s goals
Europe’s growth
depends on ambitious
Create a strong and successful single market initiatives, including
further market
integration where
appropriate
Ensure that corporate governance rules and As a leading forum for
practices are fit for purpose risk management
professionals, this is a
matter close to
members’ hearts
Nevertheless, FERMA argues that the document
is overlapping the EU 8th Company Law
Directive which has yet to be fully harmonised.

5. Article 41 A CLOSE
CORRELATION/REDUND
ANCY
ASPECTS OF THE 8TH EU COMPANY
PAPER LAW DIRECTIVE
REGARDING ON STATUTORY “The Directive”
DISCLOSURE AUDIT
Most specifically the duty of the board and audit committee to
provide TRANSPARENT and RELIABLE information on significant
and evolving risks and the way these risks are managed

6. The Guidance Paper
• In September 2010, FERMA and ECIIA published a
Guidance for Boards and Audit Committees on how to
exercise this duty (“the Guidance Paper”)
Aspects of the FERMA/ECIIA Guidance Paper are referred to
within FERMA’s response
FERMA recognises that the Directive is not fully harmonised,
and therefore Member States have the flexibility to be more or
less stringent
Member States’ implementation should be further analysed
before the Commission takes any further action to regulate this
duty

7. FERMA supports the Directive
• FERMA welcomes the Commission’s aim to ensure
that companies publish accurate and responsibly
produced information, which goes beyond superficial
compliance or mere “ticking the box”
• FERMA considers risk management must not be only
used as an additional internal control system, but
more than that as a real tool for decision-making
But... this does not necessarily require new regulatory approaches

8. Concentrating on effective use of existing
Directive’s rules is essential
EXISTING
RULES
ROBUST
IMPLEMENTATION
ENFORCEMENT
OF EQUAL IMPORTANCE:

9. The right balance
• When considering the next steps, FERMA respectfully
urges the Commission to make certain the right balance
is struck
Investor
protection
Ensuring EU-based
companies compete
fairly with their
competitors in other
regions of the world

10. RISK MANAGEMENT ISSUES
In this section, FERMA provides its
response to questions raised by the
Commission

11. Does FERMA agree that the board should approve
and take responsibility for the company’s “risk
appetite”?
Key role in
setting an
Board should be supported in these duties
organisation’s
risk appetite
FERMA believes it’s “three lines of defence”
important that the board
should include members
with experience and OPERATIONAL
THE awareness of risk MANAGEMENT
BOARD management, ideally in
the context of the
company’s business RISK MANAGEMENT
activities & COMPLIANCE
Monitoring
senior
management’s
response to INTERNAL AUDIT
risk

12. Should risk management be reported meaningfully
to shareholders?
FERMA does not necessarily agree that the explicit disclosure of a
company’s risk appetite to shareholders is the most appropriate course of
action
Reporting to shareholders should strike an appropriate balance between
providing meaningful information on which to base investment decisions
and investment protection, which inevitably requires a certain level of
confidentiality
A great deal of information is already disclosed: financial reporting
provides an indication of the company’s approach (debt, gearing etc.) and
other aspects can be implied from the risk management reports
FERMA believes this is sufficient

13. Should disclosure arrangements also
include relevant key societal risks?
KEY SOCIETAL
RISKS ARE
ALREADY HIGHLY
REGULATED &
REPORTING
EXPECTATIONS
ALREADY
ADVANCED
Health & Environmental
Safety Protection
However, FERMA believes there may be scope for improving
reporting as regards corporate social responsibility (“CSR”).
FERMA would support further European work to develop this.

14. Is there a need for further disclosure about risk
appetite?
FERMA does not support the proposition to disclose more
information about risk appetite
Why?
MAY HARM COMPANIES’ COMPETITIVE POSITION
WILL NOT IMPROVE COMPANIES’ RISK MANAGEMENT CULTURE
WILL NOT PROVIDE MORE ASSURANCE TO STAKEHOLDERS THAT RISKS
ARE BETTER UNDER CONTROL
FERMA would support any initiative encouraging companies to
implement a risk management system as a management tool in
order to enhance their development and empower the control on
their activities

15. Should the board ensure that the company’s risk
management arrangements are effective and
commensurate with the company’s risk profile?
• FERMA supports the Commission’s view that the board
should ensure proper oversight of the risk management
process and that it should set company-wide risk policy
FERMA’s view of the Board’s responsibilities
Endorse the Include, as
company’s appropriate,
Bear primary strategy and Clearly define the contributions of
responsibility for monitor its risk management other
defining the risk operation for roles and stakeholders
management effectiveness responsibilities
profile of the throughout the
company company

16. Should EU corporate governance measures take
into account the size of listed companies?
FERMA considers that the principles of corporate
governance should apply to all companies,
irrespective of their size

17. Should a differentiated and proportionate regime
for small and medium-sized listed companies be
established? Are there any appropriate definitions
or thresholds?
SIZE
FERMA advocates a
“proportionate COMPLEXITY OF BUSINESS
approach”, taking OPERATIONS
into account a
variety of factors GEOGRAPHICAL SCOPE
when applying
measures to SECTOR
individual
companies
RISK PROFILE

18. Should any corporate governance measures be
taken at EU level for unlisted companies?
EU corporate
governance should be
applied to unlisted
FERMA believes
companies on a
voluntary basis only
• This would not prevent unlisted
companies from taking voluntary
initiatives to ensure they apply good Disclosure
corporate governance measures requirements should
be different for
• Opportunities should be made companies that do
available to encourage them to do not raise capital on
this the stock markets

19. Should companies departing from the
recommendations of corporate governance codes
be required to provide detailed explanations for
such departures and describe the alternative
solutions adopted?
FERMA agrees that a fundamental principle of such codes
is “comply or explain” and so would encourage companies
to provide explanations and outline, where possible, the
reasons for taking an alternative course of action

20. Should monitoring bodies be authorised to check
the informative quality of the explanations in the
corporate governance statements and require
companies to complete the explanations where
necessary?
FERMA considers monitoring bodies should assure the
information quality in compliance with their existing
responsibilities.
Monitoring
Such bodies should be encouraged to provide publicly bodies carry out
accessible information to companies on ways to an essential role
continually improve internal control and risk in benchmarking
management and sharing good
practice

21. Further details
• Further detail on the FERMA and ECIIA Guidance
Paper on monitoring the effectiveness of internal
control, internal audit and risk management systems
is provided on the FERMA website:
http://www.ferma.eu/Portals/2/documents/press_re
leases/20100921-eciia-ferma-guidance-on-the-8th-
eu-company-law-directive.pdf

22. • FERMA presented their response to the European
Commission by letter dated 22nd July 2011
• ADD FERMA’s CONTACT DETAILS
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