KENANGA ANNUAL REPORT 2019

289 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2019 50. FINANCIAL RISK MANAGEMENT (CONT’D.) (d) Operational risk Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or resulting from external events. Operational risk is managed through an effective operational risk management framework which include development of policies, processes and procedures for managing operational risk in the Group’s and the Bank’s products, activities, processes and system, effective internal audit function, monitoring and reporting by independent risk management function and oversight by the management and Board of Directors. The operational risk management processes include identifying and assessing operational risks inherent in the Group’s and the Bank’s existing, as well as new products, activities, processes and systems, monitoring of operational risk profiles and reporting of material exposures, documented policies, processes and procedures to control and mitigate material operational risks and contingency and business continuity plans. 51. FAIR VALUE OF FINANCIAL INSTRUMENTS Fair value measurement The Group and the Bank use the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Level 1 - quoted (unadjusted) market prices in active for identical assets or liabilities. Level 2 - other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly. Level 3 - techniques which use inputs that have a significant effect on the recorded fair value that are not based on observable market data.