KYOBO AXA

home>>

Risk Management Process Compliance

1. Risk Management Principle

01. PROACTIVE Risk Management through proper level management of risk index
02. CONTINUOUS Risk Management through monitoring and reporting by the system
03. SELF-REGULATING Risk Management through robustness of business process and spread of company-wide risk management culture

2. Risk Universe

Risk Universe is comprised of three major types of risks, and each risk consists of several sub risks.

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 New Business risk Foreign exchange and interest risk Own investment risks Regulatory risk Legal risk Mis-selling risk
Risks on own account	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

- Business risks are inherent risks of an asset management company, arising from management of its proprietary account.
- Business risks consist of the eight sub risks.
- Operations risks are inherent risks of an asset management company, arising from management of its internal processes.
- Operations risk consists of the seven sub risks.
- Investment risks arise in the client accounts.
- Investment risk consists of the four sub risks.

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

Risk Management Team is in exclusive charge of risk management and is responsible for a secondary control function. It also cooperates with the risk management organization of AXA IM.

Risk management team consists of two parts, investment risk and operation risk.

Risk management team is in charge of the establishment and management of the Risk Management Framework and the performance measurement system, risk monitoring and reporting, the implementation and execution of RMCG’s decision and resolution, etc.

Risk Management Organization

5. Risk Management Policy and Standard

There are 12 standards including the Risk Management Standard and two plans in the company.

Internal Control Standards table
Risk expertise	Name of policy and standard
General	Risk Management Standard
Investment	Risk Management Standard for Money Market Fund
	Benchmark Selection Standard
	Risk Grade Classification Standard for Funds
	Investment Limit Management Standard for Bonds
	Risk Limit Management Standard for Derivatives
	Risk Management Standard for Hedge Fund
	GIPS Compliance Standard
Operation	Risk Management Contingency Plan
	Incident Escalation Standard
	Business Continuity Plan
	Business Process Management Standard
	EUC Control Procedure Standard

6. Reporting and monitoring framework

Risk Management Organization

What’s the role of Compliance team at Kyobo AXA Investment Managers?

Kyobo AXA Investment Managers’ compliance team 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 AXA Investment managers will dedicate 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

01. Strengthening of ability in Compliance as our firm’s promotion work for the management innovation
02. Strengthening of compliance role and function as independent organization
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)

Process of Proactive Compliance Compliance Process of follow-up supervision Compliance reporting process

※ 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)