Opportunities Arising from this Risk Innovate products to enhance competitiveness and positioning in the industry. Development of customer-centric products and services. Introduce solutions for mitigation and adaptation projects. Description The potential risks that may arise from climate change, their related impacts and their economic and financial consequences, which include drivers of climate risks, namely physical, transition and liability risks. Response and Mitigating Actions Implement climate-related risk framework in accordance with the BNM Climate Risk Management and Scenario Analysis policy document. Conduct BNM Climate Change Principles-based Taxonomy (CCPT) due diligence. Perform selected ESG due diligence for financing customers with high climate risk exposure. Incorporate climate-related risk into the Group RAS. Perform Climate Risk Stress Testing (CRST). How does this impact us? Negatively impacts the Group’s assets and operations, and the ability to generate long-term value to stakeholders. CLIMATE-RELATED RISKS Opportunities Arising from this Risk Streamline the roles, responsibilities and approaches to handle compliance matters across the organisation to better mitigate compliance and conduct risk. Maintain a robust compliance function through continuous innovation by supporting the Group’s strategic objectives. This includes enhancing the compliance ecosystem and supporting business resilience through optimisation of the compliance governance structure by embedding digital initiatives, ensuring adherence to regulatory requirement with capability to comply to ESG regulation set by the regulator. Able to fulfil the standard and expectation of regulatory requirements, i.e., BNM by implementing a robust AML system to ensure sanctions and customer onboarding screenings are observed while championing AML agenda to ensure terrorism activities and proliferation financing are combatted. Description Risk of regulatory sanctions, material financial loss, or reputational loss suffered as a result of failure to comply with the laws, rules and regulations issued by Regulators applicable to the Group’s banking activities. Response and Mitigating Actions Streamline compliance policies and procedures to ensure consistency and strength across the Group, with adaptations at the subsidiary level for specific regulatory needs. Deploy compliance risk management tools for proactive regulatory risk management. Implement a rigorous onboarding process for Outsourcing Service Providers (OSPs) to align with the Group’s VBI and ESG initiatives. Having a robust Anti-Money Laundering (AML) system across the Group to mitigate, prevent, detect, and respond to evolving money laundering, terrorist financing, and proliferation financing activities. Promptly report all non-compliant issues and incidents to Management and Board Committees, with detailed root cause analysis and action plans. How does this impact us? Group’s reputation and financial results may be affected arising from noncompliance issues and potential regulatory penalties. REGULATORY/COMPLIANCE RISK 59 1 2 3 4 5 6 7 8 9 www.bankislam.com MANAGEMENT DISCUSSION AND ANALYSIS – STRATEGIC REVIEW
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