EU Doesn’t Need More Corporate Governance Rules Say Risk Managers

July 26, 2011

The Federation of European Risk Management Associations (FERMA) has told the European Commission that it should start with “implementation and robust enforcement” of existing EU corporate governance rules on risk management, rather than creating new ones now. FERMA made the suggestion in a recently released response to the consultative green paper on corporate governance framework produced by the EC staff.

FERMA said it has pointed out that “parts of the green paper dealing with board duty on risk management and risk disclosure overlap the EU 8th Company Law Directive which has yet to be fully harmonized. As a result, application of these existing rules may not be equally stringent across the EU. Dealing with this issue should take priority. Member States’ implementation should be further analyzed before the Commission takes any further action to regulate this duty.”

Specifically FERMA’s response said it is opposed to “any moves to require companies to publish more information on their risk appetite,” as it “may harm companies’ competitive position, will not improve their risk management culture and will not provide more assurance to stakeholders that risks are under control.”

Basically, as companies must already disclose a great deal of risk-related information, for example on finance, health and safety, and environmental protection, “a certain level of confidentiality is essential to protect the business.

“Less than a year ago (September 2010), FERMA and the European Confederation of Institutes of Internal Auditing (ECIIA) published Guidance for Boards and Audit Committees on the duty of the board and audit committee under the 8th Directive to publish clear information on significant and evolving risks and the way they are managed.”

The response also noted that FERMA has told the EC “that it supports the principles of the 8th Directive: that risk management should be used as a real tool for decision-making, not just an additional element of internal control, and that the board should ensure proper oversight of the risk management process and set company-wide risk policy. This does not necessarily require new regulatory approaches.”

Other FERMA comments on the green paper were given as follows:
• The principles of good corporate governance should apply to all companies, but factors such as size, complexity and risk profile suggest there should be a proportionate approach.
• EU corporate governance measures should be voluntary for unlisted companies. Disclosure requirements should be different for companies that do not raise capital on the stock markets.
• Listed companies should “comply or explain”. Those that do not comply with relevant governance codes should explain the reasons for their divergence.

Source: Federation of European Risk Management Associations

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