Mint spoke to consulting and compliance experts, who told them that companies are increasing their RMC teams, which include auditors, cybersecurity and geopolitical experts.
To be clear, RMCs are responsible for anticipating, evaluating and mitigating risks that could affect the organization. This is different from a crisis management team that springs into action after the crisis occurs.
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On June 26, Sebi published a consultation paper seeking comments on the recommendations made by an expert committee constituted in August 2023 and chaired by former Sebi permanent member SK Mohanty on ease of doing business.
The recommendations included amendments to Sebi’s Listing Obligations and Disclosure Requirements (LODR) regulations, aimed at strengthening corporate governance. A key proposal is to extend the discretionary requirement to form RMCs to the top 2,000 listed entities.
Broader regulatory change
Experts believe the move will give companies a valuable “outside-in” perspective, but they also see it as part of a broader regulatory shift in which authorities are delving deeper into operations and corporate governance.
Consultancies that help companies establish RMC emphasize that having a dedicated risk management committee, reporting directly to the Board of Directors, raises the profile of the committee to that of an audit committee. This not only sharpens the focus on risk management but also fosters a stronger culture of risk awareness within the organization.
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Siddharth Vishwanath, partner and national risk consulting markets leader at PwC India, added that the rising cost of non-compliance and the scope of regulatory oversight were also changing. “Today, regulators are scrutinizing how companies operate more deeply, and the repercussions of non-compliance are not just limited to sanctions,” he said.
Cost for companies to form RMC
Experts agree that Sebi’s mandate for the top 2,000 companies would increase costs, but they believe the benefits would far outweigh them. Ketan Dalal, founder of Katalyst Advisors and member of several RMCs, noted that the main additional expense would be “fees paid to committee members for meetings with the Board, which should not be a concern.”
Laxmikant Gupta, chartered accountant and director of RiskPro India, a consultancy firm specializing in risk management, highlighted that the 1,000th company on the list has a market capitalization of approximately $2,500 crore, while the market capitalization of the 2,000th company ranges between $200-250 crores. He noted that companies with a higher market capitalization $Rs 200 crore is already required to conduct internal audits and two more officials could easily be added to form an RMC.
Experts agree that Sebi’s mandate for the top 2,000 companies would increase costs, but they believe the benefits would far outweigh them.
“Risk management standards and approaches for banks are stricter with larger structures, while listed non-banking companies do not need to be as structured. However, the benefits of RMCs at the systemic level of the company will outweigh the costs,” said Gupta.
Gupta suggested that Sebi could consider targeting specific industries within the range of 1,000 to 2,000 for mandatory RMCs, depending on factors such as environmental impact, data privacy, affiliation with larger corporate groups or being part of supply chains. reviews.
Purvi Mathur, Managing Partner at KP Associates, Advocates & Consultants, emphasized that companies that integrate geopolitical risk management into their corporate governance structures would be better equipped to navigate the complexities of the global business environment and safeguard long-term shareholder value. term.
Geopolitical risks and how RMCs manage them
Geopolitical risks arise from wars, terrorism and conflicts between nations, disrupting international business. Currency fluctuations and oil prices are key indicators of such risks.
Experts noted that industries with direct or indirect exposure to global economies are the most affected. Examples of direct exposure include construction contracts in conflict zones such as Afghanistan or Israel facing recovery issues, or profitable air routes becoming unviable due to geopolitical tensions and visa restrictions.
Indirect exposure can affect sectors such as education financewhere businesses face risks due to students trapped in conflict zones like Ukraine or visa delays, such as those applying for Canadian visas. However, geopolitical risks can also create opportunities, such as the boost to India’s textile industry after the Bangladesh crisis.
Katalyst Advisors’ Dalal explained that companies must prioritize managing geopolitical risk as it can lead to supply chain disruptions, reduced demand and shortages of raw materials. “The risk owner would have to create scenarios to mitigate the risks, which would be helpful in dealing with the consequences. A review by RMCs helps companies have an ‘outside-in’ perspective,” he said.
Geopolitical experts
Gupta said that in the last five years, especially after the Covid-19 pandemic, the geopolitical experience has emerged as a new era and few companies or groups have an Intelligence Department or a chief economist, which keeps the geopolitical scenarios in the radar.
PwC’s Vishwanath informed that they have hired talent from technology institutes, leading graduate schools and B-schools. “We also have ex-defence personnel, regulators, bankers and other subject matter experts in PwC India’s risk consulting team, with nearly 5,000 members, with a year-on-year growth of 30%,” he said.
Manoj Kumar Vijai, Partner and Head of Risk Advisory at KPMG in India, said a notable trend was the migration of industry executives into consulting roles, bringing sector-specific expertise to enhance our service capabilities. “Heavily regulated industries, such as financial services and pharmaceuticals, rely on specialized risk managers and, as complexity increases, even the smallest organizations can no longer afford to have CIOs, CFOs or other executives who also act as risk experts,” he said. .
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