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The vision of risk management is to protect assets, enhance clients service quality and improve shareholders' values, while hoping to control the possible risks generated in various business operations within a tolerable range, and to achieve a reasonable balance between risks and returns while securing adequate capital to back up business development. To effectively identify, assess, monitor and control all types of risk, E.SUN has always followed the philosophy of "no services or operations can be considered beyond risk" while considering the balance between risk management and performance assessment. The aspect of risk management has been included in performance appraisal to uphold the highest guiding principles of risk management: safety and liquidity first, profitability second, growth next, and always pay attention to the public interest.
E.SUN FHC Board of Directors is the highest governing body in risk management mechanism. The Board of Directors approves overall risk management policies and important decisions based on the overall business strategies and environment and takes ultimate responsibility for overall risk management.
To strengthen communication, coordination, reporting, and recommendations on risk governance with the Board of Directors, the company has established the Board Risk Management Committee. In 2023, it held five meetings (1/4, 3/24, 4/19, 9/20, 11/8) to execute risk management decisions of the Board of Directors, review risk management policies and implementation, supervise the establishment and operation of risk management mechanisms, and examine risk management reports, risk appetite, and limits. The Risk Management Department of the company implements the risk management policies, procedures, and frameworks approved by the Board of Directors, and establishes an independent and effective risk management mechanism to evaluate and monitor the overall risk-bearing capacity of the company and its subsidiaries, current risks absorbed, devise risk response strategies, and track the implementation of risk management procedures. It regularly reports the implementation of risk management to the Board of Directors and the Board Risk Management Committee to ensure the effective operation of the risk management mechanism. And CRO serves as the top-ranking executive responsible for risk management.
Risk management units at each level are responsible for identifying and managing risks in their products, activities, processes, and systems, and establishing risk appetite limits and monitoring indicators to monitor the unit’s risks. They set operational standard procedures and provide risk reports based on business content. When faced with major issues, each unit needs to assess the potential impacts that E.SUN may face in overall operations and formulate corresponding management policies to effectively manage the impacts and achieve sustainable management goals.
Every new recruit will complete basic risk management courses during orientation in order to understand the risk management culture at E.SUN, self-discipline and self-management principles.
E.SUN implements business-related risk management in all professional training programs, and continuously discusses and focuses on the important and common risk issues among all product lines. This approach ensures that risk management becomes an inherent key factor in all business processes.
E.SUN employees gain a better understanding of E.SUN's organization and products once they are familiar with product lines and business aspects. They will thus understand the importance of balancing risk and opportunities of product lines, Furthermore, the mid-level manager training program is aimed to help employees better understand risk management of their own business activities and understand the responsibilities of mid-level managers.
These courses are designed to help managers respond to external challenges and risks to lead reformations and formulate strategies that prioritize cross-departmental integration within the group. The risk management culture was ingrained on the basis of corporate governance, making risk awareness an irreplaceable foundation stone. In addition, product benefits and performance appraisal are included in risk management as a measuring factor. In addition to the understanding of the risk costs behind each product revenue, daily business operation risk control is also included in performance assessment in order to ingrain the risk culture and awareness.
We maintain continuous partnerships with leading universities to shape the necessary abilities for our leadership pipeline through various development modules, aiming to continuously enhance the leadership and professional capabilities of our senior executives. We also invite directors to participate in these programs, fostering a culture of risk management and embodying the spirit of entrepreneurship through mutual teaching and learning.
On top of physical courses, E.SUN also draws on digital technology to organize online training or tests. In particular, the Covid-19 pandemic prompted the introduction of a wide range of online training and interactive courses in 2023. A total of 3,700 E.SUN employees completed risk management training by taking both e-learning and physical courses. Of the trainees, 97-100% passed the e-learning tests conducted afterwards. Separately, the Company's Risk Management Division publishes a quarterly bulletin to introduce the latest risk management regulations, trends, or practices. From time to time, departments responsible for product lines also offer educational materials for internal training at business units.
In devising regulations for evaluation, the Company places special emphasis on considering performance in both business endeavors and risk management. Of the three key gauges for evaluating employee performance, “core and management competences” takes account of awareness of risk management and the three lines of defense model as well as risk control in daily operations. Likewise, risk management is a key measure for evaluating the performance of senior managers. A well-defined reward and penalty scheme is thus adopted to incentivize managers and high-performing employees to strive for risk management over the long term, thereby bolstering the Company's risk awareness throughout.
Before launching innovative products or services, the development team must list all potential risks, such as market risk, liquidity risk, credit risk, operational risk and emerging risk, to further devise or use existing relevant control mechanisms. The Risk Management Division and the Compliance Division will jointly review the new products and services to ensure that they have complied with internal and external laws and regulations and the risks are controllable before providing them to clients. In the cases of product or service adjustment or refinement where compliance, internal control or risk management is likely to be affected, risk assessment must also be conducted. In 2023, 315 domestic and oversea business risk evaluations were completed.
To undertake risk management efficiently in a timely manner, E.SUN has established a series of reporting mechanisms and communication channels. Upon detecting risk events or potential risks in daily operations, employees are encouraged to notify departmental supervisors right away. They can also present risk management observations and recommendations in work journals. In 2023, a total of 601 work journal entries had to do with risk management or internal control, with 81 coming with specific suggestions. All E.SUN departments are supposed to conduct risk management and internal control self-evaluation each quarter. In 2023, the Risk Management Division analyzed more than 3,000 evaluation reports from product lines, based on which it went on to compile the most important and common risk types and cases for presentation to managers and mid-ranking officers during E.SUN's annual conference. At year's end, the Company routinely conducts a survey to canvass the opinions of all employees. Of the 7,556 questionnaires thus collected in 2023, 150 touched on risk management. The Chief Risk Officer and the Risk Management Division then went on to make improvement based on survey results, report this to the President and other senior managers, and respond by videoconference to employees who had given their opinions previously.
E.SUN has enhanced its credit risk management through the development of its internal rating systems, the improvement of credit rating models, and the establishment of operational guidelines based on regulations issued by the Financial Supervisory Committee. E.SUN’s employs concepts such as internal credit ratings, exposure at default, and expected loss in credit granting, risk management, and capital allocation. Furthermore, to ensure the relevance, completeness, and accuracy of data collection, storage, and handling procedures, E.SUN has implemented comprehensive data management guidelines. To promote understanding among the Board of Directors and senior management regarding the operation of the internal rating system and changes in risk, important information on credit rating model management in 2023 has been reported to the Board of Directors and the Risk Management Committee on twelve occasions. Additionally, periodic courses on the Basel Framework are held for directors and senior management to reinforce corporate governance.
To enhance the risk management capabilities of overseas units, in 2023, seven risk management education and training courses were made available on the e-learning platform. The reading rate reached 97%. In the first half of the year, assistance was provided to the Singapore branch in implementing the Business Continuity Management (BCM) mechanism within the set timeframe, in compliance with local regulatory requirements. The Hong Kong branch has also completed the first phase of implementation. Additionally, this year, senior executives from the head office and overseas branches have participated in exchanges on risk management topics by visiting overseas or coming to Taiwan. This has been helpful in understanding the operational risks of overseas units and enhancing risk control capabilities.
Since 2022, E.SUN has implemented its credit risk stress testing model based on credit risk factors, scenario setting, and risk grouping, in alignment with the Basel Capital Accord, to continually enhance its credit risk management mechanism. This model enables to simulate changes in risk factors and calculate expected losses under stressed scenarios. Additionally, risk appetite management and concentration risk management are conducted regularly to ensure the risk distribution and level of risk align with its business objectives. Furthermore, the Bank considers climate change risk in its assessment of overall risks and its impact on the bank. The Board of Directors establishes risk limits for each business sector accordingly.
E.SUN has completed the LIBOR transition work in 2023, successfully amending the contracts linked to the LIBOR indicator to link alternative interest rates (such as SOFR, CMS Fallback Rate), and continue to improve the valuation complex financial products. In 2023, to built SOFR CMS Spread Range Accrual Note, ESG-linked structured note and other valuation templates, and through the valuation model verification plan to confirm that the valuation model used to comply with market convention and is free from bias. In addition, in order to strengthen the complex financial product valuation capabilities, a third-party valuation verification project launched in 2023 to ensure the correctness and applicability of the valuation model through an independent third-party unit.
We continuously adjust the monitoring indicators of financial institutions and introduces a negative information detection mechanism to more promptly and accurately capture the credit risk changes of major financial institutions to reduce the impact of abnormal events. This year, the Bank established a client’s investment concentration management mechanism to regularly monitor whether clients’ investments are concentrated in a single product or single issuer to avoid excessive concentration of clients’ investments and protect the rights of clients.
We enhance the Operational Risk Management Tools for the application of new technology in business. For monitoring and early warning Key Risk Indicators has adjusted accordingly to capture abnormal alerts in a timely manner and plan for management measures. The overall renovation rate is close to 50% in order to better align with current business areas and new business developments. Additionally, by cross-examining between various tools, the potential high-risk processes for the year can be identified more effectively, enabling a better understanding of risk changes and support for business development.
In 2023, E.SUN introduce the automation report for all currencies liquidity gap to improve the immediacy of reporting and effectively manage the possible impact on the E.SUN’s liquidity during the cycle of interest rate hikes initiated by local central banks. At the same time, we continue to optimize and allocation of assets and liabilities, including the interest rate period structure allocation and capital allocation of reserves, and in response to global monetary tightening policies, we enhance the liquidity risk management and interest rate risk management.
In order to implement the execution of detecting business risk indicators in banks, additional regulations on detecting business risk management were established in 2023. These regulations clarify the operational processes of sending, reporting, collecting and reviewing, analyzing and reporting, and monitoring changes in business risk indicators. Operational flowcharts are also provided to enhance the operation of detecting business risks. The focus of improving monitoring indicators throughout the bank continues to be on the effectiveness of these indicators, with the main goal of enhancing the effectiveness of detecting business risk monitoring. Currently, the number of important risk monitoring indicators has been reduced from the original 66 to 51.
