Risk Management Approach

Risk is an integral part of Macquarie’s businesses. Management of that risk is therefore critical. Strong independent prudential management has been a key to Macquarie’s success over many years. Where risk is assumed, it is within a calculated and controlled framework.

The main risks faced by Macquarie are equity risk, credit risk, market risk, liquidity risk, operational risk and legal compliance and documentation risk. Responsibility for these risks lies with individual businesses. It is the responsibility of the Risk Management Group (RMG) to ensure appropriate assessment and management of these risks within Macquarie. RMG also ensures that these issues are quantified and that aggregated risk does not exceed Macquarie’s economic capability to bear risk.

The risk management principles followed by Macquarie are:

• Independence - RMG is independent of all other areas of Macquarie, reporting directly to the Managing Director and the Board. The Head of RMG is a member of Macquarie’s Executive Committee. RMG authority is required for all material risk acceptance decisions. It identifies, quantifies and assesses all risks and sets prudential limits. Where appropriate, these limits are approved by the Executive Committee and the Board.
• Centralised prudential management - RMG’s responsibility covers the whole of Macquarie, meaning it can assess risks from a Macquarie-wide perspective and ensure a consistent approach across all areas.
• Approval of all new business activities - Other areas of Macquarie cannot undertake new businesses or activities, offer new products or enter new markets without RMG’s approval.
• Continuous assessment - RMG continually reviews changes in risks brought about by both external developments and internal circumstances.
• Frequent monitoring - Centralised systems allow RMG to monitor credit and market risks daily. RMG staff liaise closely with other areas of Macquarie to ensure that, should any limit breaches occur, they are immediately addressed, and escalated as necessary.

Further details of Macquarie’s risk management practices are outlined in the Risk Management Report