1. Risk Management Principles

  1. 01. Proactive risk management through tiered limit controls on management indicators
  2. 02. Ongoing risk management through system-based monitoring and reporting
  3. 03. Autonomous risk management through established work processes and a company-wide risk management culture

2. Risk Universe

The risk universe under management is divided into risks on own account and risks on client account depending on who bears the loss, and comprises a total of 19 risk types, as shown below.

리스크유니버스 : Risks on own account(고유재산), Risks on client account(집합투자재산) 로 구성된 표
Risks on own account Business Risks
  • Market appreciation risk
  • Demand risk
  • Innovation Risk
  • Foreign exchange and interest risk
  • Own investment risks
  • Regulatory risk
  • Legal
  • Mis-selling risk
Operations Risks
  • Process/execution risk
  • Systems risk
  • External event risk
  • HR risk
  • Modeling risk
  • Valuation risk
  • Investment guideline risk
Risks on client account Investment Risks
  • Performance risk
  • Market risk
  • Credit risk
  • Market liquidity risk
    • Own-account risks in the asset management business — 8 risk types
    • Sales & marketing risk, regulatory & contractual risk, own-account investment risk
    • Own-account-based risks inherent in performing
    • operations, comprising 7 risk types
    • Risks based on clients' collective investment
    • assets, comprising 4 risk types

3. Risk Management Governance

1st Level
-Team in charge
Each team in charge is primarily responsible for risk management and performs a control function on routine work through system.
2nd Level
- Risk Mgt. team, Compliance, etc.
The 2nd level has a secondary responsibility for risk management and performs an independent control function on a routine work through system.
3rd Level
- Audit Committee
The 3rd Level Performs an independent gontrol function periodically through internal audit.
  • Independent Control : The control performed by independent function from business teams (Investment teams, Sales teams, Marketing Strategy team, etc.)
  • Periodic & Exception-based Control : The periodic control function on an exceptional case
  • Systematic & Operational Control : The control performed by operational function through systems (AITAS, VISION, Excel-based calculation, etc.)
Independent
Control
2nd Level- Risk Mgt. team, Compliance, etc.
3rd Level- Audit Committee
Periodic &
Exception-based
Control
3rd Level- Audit Committee
Systematic &
Operational
Control
1st Level-Team in charge
2nd Level- Risk Mgt. team, Compliance, etc.

4. Risk Management Organization

The Risk Management Team, a dedicated risk management department, performs an independent 2nd-tier control function.
- Comprises 2 parts: Investment Risk Management and Operational Risk Management
- Executes decisions and delegated matters from the Risk Management Committee and the Risk Management Consultation Group
- Sets investment risk limits, monitoring and reporting, and measures and reports investment performance

Risk Management Organization

Risk Management Team and Asian JV Senior Risk Manager& CRO Kyobo AM Asia is Cooperation relation, Global Head of Risk Management and Kyobo AM Group-CRO is Cooperation relation

5. Reporting and Monitoring System

Risk Management Organization

Kyobo Asset Management

Kyobo Asset Management is to build and operate an independent monitoring system required by related regulations in order to insure sound asset management and to protect client’s interests. Our Compliance team checks and correct the actual conditions of employee’s law observance and provide consultation on law observance to board of directors and management.

Also, they consistently monitor the result of process and standardswhich was fixed to abide by regulations and due diligence related to asset management. We carry out periodic and frequent Compliance training program to raise compliance mind for the entire employees and try to block anysources of illegitimate activities through the examination of compliance checklist by teams, which enables them to follow internal control on their own.

Kyobo Asset Management the best efforts to become the asset management company which regards the clients’ interests as the top priority and is faithful to the basics through the establishment of foundation for its transparent management based on the thorough observance of regulations and compliance standards.

Organizational structure of Compliance

  1. 01. Strengthening of ability in Compliance as our firm’s promotion work for the management innovation
  2. 02. Strengthening of compliance role and function as independent organization
  3. 03. Leading company in the composition of compliance team and establishment of the compliance system since September, 1999

Compliance process associated with investment management

  • Proactive Supervision and concurrent process of the follow-up supervision
    Introduction of Feedback function by prior schematical check for the illegitimateproportion of the day and double-check on the lists of violation to report to the investment management team on the next day
  • Confirmation of the investment management standards : relevant law and terms, minimize legal risk
    Separation between investment management and trading (Separation of traders and fund manager), Management instruction principles (establishment of equal distribution standards), principle of selection of brokers (Best Execution Policy)

※ Proactive compliance : prior check on list of the violations involved in trading position through the simulation or virtual tradingbefore confirmation of managing instruction

Investment Management team
Primary supervision of law observance(field supervision)
  • Proactive compliance system is to search for any violations of rules and to display the current status violation of rules by teams/fund managers
  • Enabled immediate notification of whether the additional position has exceeded the limit with a  projected box when trading as well as checking the excess limit through the simulation monitor
Compliance team
Secondary follow-up supervision process
  • Request of approval to compliance on the basis of the certification when advanced approval is required
  • Process enabled only after approved by compliance

Observance of internal control standards and prevention of Moral Hazard

Reinforce ethics and control unfair trading by establishing internal control stradardson the basis of Capital Market and Financial Investment Services Act

Terms of obedience for internal control standards
The Insider Trading Prohibitions and duty of the prohibition of concurrent offices
Prohibition on unfair trading and duty of the law observance, prohibition on illegal/unlawful activities
Preserve the confidentiality of information (Chinese Wall, Provide on the principle of necessity)
Advanced approval required before contacting external institutions or media and restrictions on Soft Dollar from brokerage companies
Restrictions on dealing with affiliated companies and entire lists of items for due diligence

※ Follow-up supervision : after managing completed, search if there was any violation occurred as a final step when inputting the investment instruction or when calculating the price

Investment Management team
Primary follow-up supervision process
  • A user can examine the primary act of violations on a daily basis by using compliance system and take action(clear violation) within 1 day
  • Write the statement about the incident and weekly lists
Compliance team
Secondary follow-up supervision process
  • Request for correction regarding the breach of the law on a daily basis
  • When the violation is not corrected on time, take appropriate measures considering severity on the matter
  • By using compliance management of violation rules, compliance enforces supervision of violation

Compliance reporting process table
Lists Contents of reporting
Daily writing from compliance team to notify investment management team daily, frequently report to CEO on the acts of violation
Weekly writing from compliance team to notify investment management team weekly and receive the statement of incidetns
Monthly Accumulate weekly writing from compliance monthly to report CEO
Compliance training Regular training : according to the annual training schedule, carry out 10 credit completion course for entire employees (supervisory institutions or guest lectures from external personnel)