MEMBER FIRM OF
The Securities Exchange Board of India (SEBI) has issued a consultation paper soliciting public comments on or before 10 th December 2020, towards the proposed amendments in SEBI (Listing Obligation and Disclosure Requirement) Regulations, 2015 (“SEBI LODR”) regarding the applicability and role of Risk Management Committee. Though the Amendments made pursuant to Shri. Uday Kotak Committee’s recommendation fortified the existing Risk Management structure; SEBI has in the backdrop of Covid-19 felt a need for a more robust framework for businesses to manage the multitude of risks faced by them.
The following are the salient features of the Consultation Paper issued by SEBI –
1. Applicability: The Risk Management Committee (hereinafter “RMC”) is proposed to be expanded and made applicable to top 1000 listed entities based on market capitalization, from the existing number at top 500.
2. Number of Meetings: The RMC shall meet at least twice in a year in contrast to the existing requirement of meeting once a year.
3. Quorum for RMC Meetings: Making the quorum to be uniform with that of the audit committee and NRC (Nomination and remuneration committee), SEBI seeks to bring in mandatory quorum for RMC to be two members or one third of the members of the RMC, whichever is greater; with at least one member of the board of directors in attendance.
4. Seeking Information and Expert Opinion: Just as the audit committee has the power to seek information from any employee and seek outside assistance, the consultation paper enables the RMC also to obtain information from employees and also obtain outside legal or other professional advice and secure attendance of outsiders with relevant expertise, wherever necessary.
5. Roles and Responsibilities: Codification of every aspect seems to be flavor of the season and SEBI has proposed to list out in Schedule II Part D of SEBI LODR, the following as a inclusive list of roles and responsibilities of RMC:
a. Formulating a detailed risk management policy including the framework for identification of risks with a special focus to financial, operational, sectoral, ESG and cyber risks; measures for risk mitigation; systems of internal control and business contingency plans.
b. Monitoring and overseeing the implementation of the policy.
c. Ensuring that systems and processes are in place to monitor and evaluate the risks.
d. Reviewing the policy annually considering the changing dynamics.
e. Keeping the Board informed about nature and content of discussions, recommendations and actions to be taken.
f. Appointing, removing and fixing the remuneration of the Chief Risk Officer (CRO), if any, subject to joint review with the Nomination and Remuneration Committee.
Giving hereunder a comparative snapshot of the four committees under the SEBI LODR:
CONCLUSION: While codification is necessary, SEBI will do well to specify the principles that are to be followed by the RMC and the other committees that are to be constituted under SEBI LODR. The absence of specifying the principles, will only make these committees into a box ticking approach, rather than serving the real objective that they intend to serve .
