Daiwa Securities Group Annual Report 2012 Corporate Summary Executive Messages Business Strategy Financial Section Management Systems & CSR Other Information Risk Management While the Daiwa Securities Group pursues profitability and growth, it also recognizes the importance of  accurately identifying, evaluating, and effectively controlling the various risks associated with its business  operations. Our objective is to steadily improve corporate value by maintaining a sound financial base and profit  structure by properly balancing risks and returns and by implementing effective risk control and management. The Daiwa Securities Group Inc. has established “basic risk man- agement regulations” governing all activities by the Group compa- nies to manage risk in order to ensure that they conform to the  following basic policies: The Daiwa Securities Group faces various risks in the course of its  business activities. The Group therefore believes that it is important  to properly identify, evaluate, and manage these risks in order to  maintain healthy financial and earnings structures. Daiwa Securities  Group Inc. engages in risk management to clearly identify risks  based on the respective Group company’s business characteristics  and risk profile. The types of risks that have been deemed impor- tant to manage include market risk, credit risk, liquidity risk, opera- tional risk, and reputation risk. The Board of Directors of Daiwa Securities Group Inc. has  approved “basic risk management regulations.” These regulations  define basic policies related to risk management, the types of risk  that are necessary to be managed, and the executive and depart- ment for each major risk. Each subsidiary conducts risk manage- ment suitable for the risk profile and size of each business in  accordance with these basic policies related to risk management.  Daiwa Securities Group Inc. monitors the system and situation of  its subsidiaries’ risk management. Also, the Group Risk Manage- ment Committee, as a sub-committee of the Executive Manage- ment Committee of Daiwa Securities Group Inc., receives reports  about risk exposures obtained via the aforementioned monitoring of  subsidiaries and themes concerning their risk management system  and discusses and resolves those issues. In addition, major Group  companies regularly hold risk management committees in order to  strengthen their risk management. Basic Risk Management Policy Risk Management System Risk Management System 40 1. Management shall demonstrate an active concern for risk  management. 2. A risk management system shall be established to address the  specific characteristics of risk faced by the Group. 3. Management shall, through the aforementioned comprehensive  risk management structure, ascertain the aggregate risk faced  by the Group and enhance capital adequacy accordingly. 4. All risk management processes shall be clearly identified. Limits are set for each type of risk so as to control risk within an  amount suitable for the management strength of the Group. Daiwa Securities Group Inc. Reporting Comprehensive risk management structure Risk Management Department Market  Risk Credit  Risk Liquidity  Risk Operational risk Office  Work  Risk Systems- related  Risk Informa- tion  Security  Risk Compli- ance  Risk Legal  Risk Human  Resources  Risk Tangible  Asset  Risk Policy  formulation and instruction Discussion  and reporting Group companies Daiwa Securities Daiwa Next Bank Daiwa Capital Markets Europe Daiwa Capital Markets America Daiwa Capital Markets Hong Kong Daiwa Asset Management Daiwa Corporate Investment Daiwa PI Partners Daiwa Securities SMBC  Principal Investments Other Group companies Nominating Committee Audit Committee Compensation Committee Board of Directors Executive Management Committee Representative Executive Officer Group Internal Audit Committee Group Risk Management Committee CRO