The viewpoint supporting our risk management environment is based upon the belief that is paramount to have strong risk principles – driven by collective analytical insight, experienced decision and active collaboration across the firm – plays a crucial role in the creation of effective risk management procedures.
The intent of the medium is not to predict the unpredictable; instead, it is a process of analyzing and considering foreseeable outcomes, ensuring that an action plan is aligned to each possible outcome, and moving effectively to avoid unintended risks and mitigate new risks rapidly as new or unexpected developments arise.
At LCHS, we acknowledge that people manage risk and we work collaboratively to enable all members of our staff to perform as risk managers.
Risk Coverage
LCHS`s enterprise-wide risk management procedures seek to cover all foreseeable risk factors. We believe that the critical first step is ensuring that the risk management process is dynamic, forward-looking and comprehensive in its coverage of potential sources of financial harm, reputational damage or operational failure. Within LCHS’s risk management procedures, several risk types have been identified. It is important to note that there is overlap between and across risk factors, and that none of the factors should be treated as isolated or independent from each other.
Risk Management
At Rothsay Consulting, we acknowledge that people manage risk and we work collaboratively to enable all members of our staff to perform as risk managers.
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LCHS faces and manages various risks. These include business risks, such as the highly competitive and rapidly changing nature of our markets; changes in demand for products by customers and a rapidly changing technological environment.
Other risks are financial in nature, such as currency movements, interest rate fluctuations, liquidity, insurance and credit risks.
The risk factors that we consider are:
- Strategic Risk – A forward‐looking, top‐down stress/scenario assessment of the potential impact to the client’s long-term strategy and investment policy due to fundamental shifts in external factors.
- Investment Risk – Covers all aspects of market risk as well as the returns associated with any investment. This risk also assesses the potential gain distribution to ensure that any investment opportunity offers the potential for a consistent, risk‐adjusted return over time.
- Operational Risk – Risk of loss resulting from human error, failed internal processes, systems or from external events.
- Balance Sheet Risk – Any risk that may affect the client’s balance sheet, such as short to intermediate term financing, swaps transaction to manage interest rate exposure, swaps to manage currency exposure and other structured products.
- Credit / Counterparty Risk – Any risk associated with exposure to, or dealing with certain counterparties. Typically includes an assessment of creditworthiness of one’s trading counterparties using market indicators such as long- and short-term credit ratings, spreads, trading indicators. Also includes any action to mitigate potential exposure to these counterparties (e.g. collateral management).
- By‐Product Risk – Risk that arises through the interplay of all the risk types and the financial intermediation process for active risk mitigation.
- Liquidity Risk – Decomposition of the investment portfolio by immediate cash requirements, liquid strategies, and illiquid strategies.
LCHS has implemented risk management and internal control systems in place. The purpose of these systems is to expose any significant risks to which the company is exposed, enable the effective management of these risks, meet strategic and operational objectives, ensure the reliability of the financial reporting, and, to the best of its knowledge, comply with relevant laws and regulations.
The company employs various mechanisms to ensure that adequate risk management and internal control systems are maintained:
- A standard annual planning and reporting cycle;
- Periodic business reviews;
- Standard financial and non-financial procedures and policies (including Letters of Representation that are signed quarterly by all CEOs and CFOs of all divisions and operating companies as well as relevant corporate staff members);
- Specific treasury policies on market, liquidity, and credit risk;
- Internal audits, to ensure compliance with policies and procedures and which detect and address internal control issues;
- An internal control dashboard that actively pursues all recommendations and outstanding issues coming from management reviews, internal audits and external audits;
- Hiring and retention policies and practices for top finance professionals.
The internal control systems are designed based on the Commission framework. The Commission’s recommendations aim to provide a reasonable level of assurance. These systems do not provide absolute assurance regarding the achievement of the company’s objectives, or entirely prevent material errors, losses, fraud, and violation of applicable laws and/or regulations.
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