Large Corporate Boards should put in place a robust mechanism through which risks can be identified and managed, Tarun Bajaj, Secretary, Ministry of Corporate Affairs (MCA) has said. The mechanism should also be reviewed from time to time so that newer risks are suitably covered, Bajaj said writing in the MCA’s latest monthly newsletter. 

Bajaj highlighted that the pace of global business environment is accelerating, and the magnitude and complexity of risks affecting an enterprise are snowballing at a rapid pace. Hence, expectations for more effective risk management by the Boards of Directors and senior executives are growing manifold, he added.

“Enterprise Risk Management (ERM) is gaining global attention among risk management professionals and is becoming a widely acknowledged professional service area”, Bajaj said. 

Global discussions on risk

These views are significant as it comes at a time when the evolving landscape of risks has initiated global discussions on how the corporate governance principles can be expanded or transformed to better respond to risk identification and management.

In recent years, risk management has become one of the most dynamic areas of market regulation. 

March 2022 Committee report

It maybe recalled that the Company Law Committee had in its report, submitted in March 2022, recommended that “to strengthen the Board’s power to overview and supervise risk management systems, the Committee recommended the inclusion of new provisions to Companies Act 2013 for the constitution of Risk Management Committee for such class or classes of companies, as may be prescribed by the Central Government “.

Cyber security

Indications are that this recommendation of CLC may find its way into the proposed amendments into the company law in the upcoming winter session of Parliament. Already, SEBI’s LODR regulations requires a Board level Risk Management Committee for top 500 listed companies, by market capitalisation. Under such regulation, the Board has been entrusted with the power to determine the role and responsibility of the RMC and ‘cyber security’ has been stated to be one of the essential roles for RMC.

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