Management has established an approach on how risk appetite is defined, monitored and reviewed for ECW Group. ECW Group’s Risk Appetite Statements (“RAS”) addresses the management of material risks faced by ECW Group. Alignment of ECW Group’s risk profile to the RAS is achieved through various communication and monitoring mechanisms put in place across the various functions within the Manager. More information on the Manager’s ERM Framework can be found in the Enterprise Risk Management section on pages 65 to 66 of this Annual Report. The internal and external auditors conduct audits that involve testing the effectiveness of the material internal controls for ECW Group addressing financial, operational, compliance (including sanctions-related) and information technology risks. This includes testing, where practical, material internal controls in areas managed by external service providers. Any material non-compliance or lapses in internal controls together with corrective measures recommended by the internal and external auditors are reported to and reviewed by the ARC. The adequacy and effectiveness of the measures taken by Management in response to the recommendations made by the internal and external auditors are also reviewed by the ARC. Since its initial public offering (IPO) in July 2016, EC World REIT has implemented an electronic internal approval process to enhance decision-making and administrative efficiency. This process covers the use of the relevant company seal, legal representative seal, finance stamp, and/or contract stamp (collectively, the “Relevant Seals and Stamps”). The request for use of Relevant Seals and Stamps requires a multi-level approval process: at least four rounds of review within the Property Manager, followed by at least two rounds of review at the Manager level (including by the Chief Financial Officer), and final approval by the Executive Director cum Chief Executive Officer of the Manager. The above process likewise applies to the authorisation and use of the title deeds of EC World REIT’s properties. The control processes implemented remain to be adequate and effective in the past years. Nevertheless, as announced to SGX-ST on 2 January 2024, certain third ranking mortgages (the “Relevant Mortgages”) had been imposed on three properties owned by ECW, namely Fuzhou E-Commerce, Fu Heng Warehouse and Hengde Logistics (collectively, the “Relevant Properties”) during November 2023. The Relevant Mortgages were imposed without the consent or knowledge of the Manager. Based on the internal investigations, the treasury department of the Sponsor had by-passed EC World REIT’s control procedures which led to the imposition of the Relevant Mortgages despite that there were no formal resolutions passed by the shareholders or directors of the subsidiaries of ECW that own these mortgaged properties to authorise these actions. The Manager had immediately implemented new controls over the management of the Relevant Seals and Stamps and Title Deeds in January 2024. The Manager took appropriate actions, collecting all stamps, including company seals, legal representative seals, contract stamps, and finance stamps, from ECW’s property management teams in China. The legal representative seal and finance stamps are securely stored at the Manager’s office in Singapore, while the company seal and contract stamps are with the Manager’s legal counsel in Shanghai. The Manager has also adopted the internal auditor’s recommendations to improve the existing control environment. The Manager has also been making regular updates announcement via SGXNet on the progress of discharge of the Relevant Mortgages and outcome of the investigation. Please refer to the SGXNet for the relevant details. Written assurances on adequacy and effectiveness of risk management and internal control systems (Provision 9.2) At every quarterly meeting, the CEO and CFO of the Manager will give their written assurance that: (a) the financial records of ECW Group have been properly maintained and the financial statements of the relevant quarter give a true and fair view of ECW Group’s operations and finances; (b) the system of risk management and internal controls in place for ECW Group is adequate and effective in addressing the material risks faced by ECW Group in its current business environment including material financial, operational, compliance and information technology risks; EC WORLD REIT 54 CORPORATE GOVERNANCE
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