Liontrust Responsible Capitalism Report 2021 - Flipbook - Page 25
Liontrust’s risk identification and prioritisation process
The Group’s ERM utilises a top down, bottom up and 360-degree
approach. The ERM Risk Profile is compiled by conducting Risk and
Control Self-Assessments (RCSAs) to create the ERM Risk Register,
which is a register of risks from across the business. Each department is
involved with identifying, prioritising and setting out plans for mitigating
its key risks. These risks are given a likelihood within a specific time
frame and within specific cost categories, which enables the Group to
map them by degree of likelihood and impact to the overall business.
This register specifies the controls for each risk and an assessment of
their likelihood and potential impacts. The ERM Risk Profile and the
most material risks from the Risk Register go to the Board regularly
for review. The Group’s compliance and risk functions provide further
assistance with identification and prioritisation of issues by monitoring
regulatory, legal and industry developments.
The function of the RAS, ICARA and the Enterprise Risk Report
• The Risk Appetite Statement (RAS) identifies key risks, their materiality,
and their likelihood of occurrence and sets the amount of risk the Group
wants to take or is willing to accept to achieve its business objectives.
• The Internal Capital Adequacy and Risk Assessment (“ICARA”)
combines the RAS and the Group’s financials together with
scenario analysis and stress testing to determine how the
realisation of risks might impact on the Group’s capital and
regulatory requirements. (The ICARA replaced the Internal Capital
Adequacy Assessment Process, or ICAAP, in 2022).
• The Enterprise Risk Report brings together the ongoing risk
identification, management, monitoring and risk reporting across
the risk universe. This helps ensure that any change in the risk
environment and the Group’s risk profile, as measured against
the RAS, is communicated effectively to the Board.
Inherent risk:
The Group differentiates between those risks that are within the
management’s influence and risks that are outside it.
• Risks that are within management’s influence include the expansion
of the business, prolonged periods of underperformance, loss of
key personnel, human error, poor communication and service
leading to reputation damage and fraud.
• Risks outside the management’s influence include pandemics,
regulatory change, climate change, falling markets, terrorism, a
deteriorating UK economy, investment industry price competition
and hostile takeovers.
Responsible Capitalism-related risks for the PLC
In the Liontrust Asset Management PLC Annual Report and Financial
Statements, the Group publishes its heat map for inherent risks (the
level of risk the Group takes on to achieve its objectives) and residual
risks (the level of risk that remains once Liontrust has put actions in
place to mitigate its risks). This is reprinted here for the purposes
of highlighting those key issues that are related to Responsible
Capitalism; that is, those risks that are related to ESG issues.
From this heat map, the key, Responsible Capitalism-related,
residual risks which lie within the Group’s influence include:
• People and talent management
• Client management – risks around poor client servicing
• Employment practices, including risks related to discrimination, workers’
compensation, outsourcing, and workplace health and safety
• Operational risks – internal and external fraud (including cyber
security) and market manipulation (by Liontrust employees)
• Business risk – including the risks around poor integration of
acquisitions
Residual risk:
Impact
Impact
÷
Catastrophic
÷
Catastrophic
10
1
Extreme
3
13
High
Medium
5
9
12
14
7
Extreme
8
11
4
6
Very low
Very low
Risk Areas
Low
Medium
3
4
13
5
10
11
9
Medium
2
Low
Very low
12
14
High
Low
Rare
1
High
8
7
Rare
Very low
Likelihood
Low
6
2
Medium
High
Likelihood
1.
Credit Risk
8.
Operational risk – Business Disruption & Systems Failures
2.
Market Risk
9.
Operational risk – Execution, Delivery & Process Management
3.
Operational risk – Internal Fraud
10. Business risk
4.
Operational risk – External Fraud
11. Client management
5.
Operational risk – Employment Practices and Workplace Safety
12. Portfolio Management, Investment risk and Liquidity
6.
Operational risk – Clients, Products & Business Practice
13. People / Talent management
7.
Operational risk - Damage to Physical Assets
14. Regulatory, Compliance, Conduct and Financial Crime
Responsible Capitalism Report 2022 - 25