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ANNUAL REPORT 2021 331
SUSTAINABILITY STATEMENT OUR GOVERNANCE OUR NUMBERS OTHER INFORMATION

46. fINANcIAL RIsk MANAGeMeNT OBJecTIves AND POLIcIes (cONT’D.)

(d) Operational risk
Operational risk is defined as the risk of losses resulting from inadequate or failed internal processes and systems,
human factors, and/or from various external events. The objective of operational risk management (“ORM”) is to
effectively manage these risks to minimise possible financial losses arising from operational lapses. In relation to ORM,
the key risk organs which play a critical role in the overall integrated risk management framework are the ORM unit,
Operational Risk Management Committee (“ORMC”), Internal Audit, Compliance, and the business lines.
The operational risk management processes include establishment of system of internal controls, identification and
assessment of operational risk inherent in new and existing products, processes and systems, regular disaster recovery
and business continuity planning and simulations, self-compliance audit, and operational risk incident reporting and
data collection.

47. fAIR vALue MeAsuReMeNTs
(a) financial and non-financial instruments measured at fair value

Determination of fair value and the fair value hierarchy
Level 1 - Quoted (unadjusted) market prices in active markets for identical instruments;

Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement either
directly (i.e. prices) or indirectly (i.e. derived from prices), observable; and
Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is
unobservable.
Where such quoted and observable market prices are not available, fair values are determined using appropriate valuation
techniques, which include the use of mathematical models, such as discounted cash flow models and option pricing
models, comparison to similar instruments for which market observable prices exist and other valuation techniques.
The objective of valuation techniques is to arrive at a fair value determination that reflects the price of the financial and
non-financial instruments at the reporting date, that would have been determined by market participants acting at arm’s
length. Valuation techniques used incorporate assumptions regarding discount rates, profit rate yield curves, estimates
of future cash flows and other factors. Changes in these assumptions could materially affect the fair values derived.
The Group and the Bank generally uses widely recognised valuation techniques with market observable inputs for the
determination of fair value, which require minimal Management’s judgement and estimation, due to the low complexity
of the financial instruments held.