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EC World Real Estate Investment Trust ANNUAL REPORT 2016
The Manager’s ERM Framework sets out the required
environmental and organisational components which
enable it to manage risks in an integrated, systematic
and consistent manner. The ERM Framework and related
risk management policies are reviewed annually and
periodically validated by external ERM consultants. A
robust internal control system as well as an effective,
independent review and audit process are the twin pillars
that underpin the Manager’s ERM Framework.
The line management is responsible for the design and
implementation of effective internal controls using a
risk based approach while the outsourced Internal Audit
function from Deloitte & Touche LLP reviews such design
and implementation to provide reasonable assurance to
the ARC on the adequacy and effectiveness of the internal
control system.
Annually, the Manager facilitates and coordinates ECW
Group’s Risk and Control Self-Assessment (RCSA) exercise
that requires the respective risk and control owners to
proactively identify, assess and document material risks
as well as the corresponding key controls and mitigating
measures needed to address them. Material risks and their
associated controls are consolidated and reviewed by the
Manager before they are presented to the ARC and the
Board.
Awareness of and preparedness for potential risks affecting
ECW Group’s business continuity help the Manager
minimise the impact of disruption to business operations.
The Manager has in place a business continuity plan. In
addition, both the Information Technology (“IT”) team
from the Sponsor and the outsourced IT team from JK
Technology have a defined disaster recovery strategy and
plans, which are reviewed and tested annually.
The Manager believes that having the right risk culture
and people with the right attitude, values and knowledge
are fundamental to ECW Group’s success.
Managing Material Risks
The Manager undertakes an iterative and comprehensive
approach in identifying, managing, monitoring and
reporting material risks across ECW Group. Such material
risks include:
Business Interruption Risk
ECW Group is exposed to business interruption risk
arising from sudden and major disaster event such as fire,
prolonged power outages or other major infrastructure
or equipment failures which may significantly disrupt
operations at our properties or data centres. The
Manager manages such risks through proactive facilities
management (for example, routine inspection and
scheduled maintenance) and having crisis management
procedures at each property.
Competition Risk
ECW Group faces keen competition from established
players, online businesses and new market entrants
which are likely to affect shopper traffic and tenants’
sales. The Manager adopts a relentless approach towards
strengthening ECW Group’s competitiveness through
optimising tenant mix, differentiating its product and
services offerings, refreshing property concepts and Asset
Enhancement Initiatives (“AEI”).
Credit Risk
Credit risk is the potential volatility in earnings caused
by tenants’ failure to fulfil their contractual lease
payment obligations, as and when they fall due. The
Manager has in place a stringent collection policy to
ensure that credit risk is minimised. In addition to the
requirement for upfront payment of security deposit of
an amount typically equivalent to three months’ rent
(12 months’ rent in case of Master Leases), the Manager
also establishes vigilant debt monitoring and collection
procedures.
Economic Risk
ECW Group is exposed to developments in economy,
financial and property markets. These developments may
reduce revenue, increase costs and result in downward
revaluation of ECWGroup’s assets. Market illiquidity during
a financial crisis makes asset divestment challenging and
this can affect ECW Group’s investment and strategic
objectives. The Manager manages this by adopting a
disciplined approach towards financial management and
having a well-balanced portfolio in China.
Information Technology Risk
IT risk comprises cyber risk, information security risk and
technology infrastructure risk. IT is an integral part of ECW
Group’s business and security of sensitive information
(for example, shopper/ tenant details and financial
information) is crucial.
Increasing threats to information security such as hacking
and website defacement, may pose risk of data leakage
and damage to ECW Group’s reputation. The outsourced
IT team has put in place policies and procedures to
manage IT risks. Established policies and procedures
govern IT security, access controls and data security.
Risk
Management