FSLTM manages risks under an overall strategy determined by the Board of Directors and supported by the Audit and Risk Committee (ARC).

At senior management level, the Board has appointed the Chief Executive Officer to take the role of the Chief Risk Officer. The Chief Risk Officer oversees and ensures that risks are being managed by appropriate units holistically across the Trust.

The Chief Risk Officer assesses the risks arising from lease or charter transactions and asset acquisitions, monitors the market and portfolio risk exposure as well as the possibility for lessee or charterer defaults and residual value risks, manages the liquidity and financing risks, monitors foreign exchange and interest rate risks and considers appropriate hedging strategies, and mitigates operational risk by actively engaging with its third party commercial and technical managers.

FSLTM is committed to ensure that the Trust has an effective and practical enterprise risk management framework in place to safeguard unitholder's interest, the sustainability of the Trust operations and to make informed decisions to maximise value creation. The Board and senior management review the significant risks on a regular basis and update the Enterprise Risk Management Programme to reflect any changes that may be relevant.

Credit Risk
Prior to entering into or extending a long-term lease or charter, the Trustee-Manager's risk assessment process focuses on the counterparty credit risk associated with the lessee or charterer, concentration risks, and asset risks attached to the transaction to ensure investment returns are commensurate with the transaction's overall risk profile. This involves a comprehensive due diligence process to ascertain the credit strength of the counterparty and may also include obtaining third party advice and/or credit reports.

To evaluate the suitability of counterparties and transaction parameters, risk assessment does not only focus on the financial strength and track record of the counterparties. It is also supported by market insights gained from the experience of senior management and the Board, and their extensive networks in the global marine transportation industry.

Asset Risk
The asset risk assessment process evaluates the expected economic of a vessel and its residual value, estimating asset residual values based on a statistical analysis of historical transaction and asset price data provided by reputable third parties, quality and fungibility, and industry developments.

Market Risk
As the Trust deploys a diversified employment strategy, the Chief Risk Officer also monitors the overall shipping market environment for risks and opportunities and actively monitors the availability of new or alternative employment options and prospects for vessel redeployment, and, when deemed appropriate, weighing the costs and benefits of asset disposals.

Liquidity Risk
The ownership of vessels is a capital intense business. The Trustee-Manager manages the liquidity risks involved in the employment and operation of the vessels in the portfolio and the financing of the same. The Trustee-Manager also monitors the loan markets, maintains relationships with banks and other financiers and arranges (re-) financing for the Trust’s vessels in line with the overall financing strategy.

Regulatory Risk
The operation of vessels is subject to rules and regulations by international bodies, governments, flag states, classification societies, and other regulatory authorities, with regard to, amongst others, the safety management of vessels, ballast water management, the reduction of carbon emissions. Changes in the regulatory framework may lead to increased cost and affect the asset values and asset residual values. The Trustee-Manager monitors the changes in the regulatory frameworks, including environmental and technological regulations, and the (potential) impact on the business of the Trust.

Cyber Security Risk
FSLTM and its appointed IT vendor is responsible for the implementation and maintenance of cybersecurity controls in system(s) supporting business activities. They identify the potential threats to a system, conceptualise cybersecurity risk scenarios, determine risk likelihood, as well as advise the appropriate measures to address the identified threats/ attacks as tabled in their Business Continuity Plan.

Risk Monitoring
FSLTM monitors risks through regular reviews of the financial performance of counterparties, lease payment conduct, credit rating (if available) and compliance with the respective vessel insurance covenants. FSLTM also maintains a regular dialogue with each counterparty to monitor developments in their business. For vessels not employed under bareboat charters, FSLTM also actively monitors the commercial and technical management of the Trust's vessels through the rigorous assessment and appointment of third party commercial and technical managers.

Concentration Risk
As at 31 December 2022, 8 vessels of the Trust were employed under fixed-rate period charters. Hence, the Trust is exposed to more types of risks than a pure lessor would be exposed to. These include counterparty or transaction-specific risks. Operating vessels also exposes the Trust to industry and market-related risks, as well as operational and compliance risks. FSLTM aims to mitigate these risks by actively managing its relationships with third party commercial and technical managers and thorough consultation with intermediaries, insurance service providers, legal advisers and regulatory authorities. This ensures that the Trust is able to operate safely and maintain a fleet of commercially viable vessels.

Interest Rate and Foreign Currency Risk Hedging
To manage interest rate and foreign exchange risks that may arise in the course of FSL Trust's business as well as in the financing of its transactions, FSLTM may from time to time enter into derivative transactions. This may include interest rate swaps to convert floating interest rates to fixed rates, foreign currency forward contracts or cross currency swaps. FSLTM believes that the use of these risk hedging instruments may help to reduce the volatility and increase the stability of the cash flows from the lease portfolio. FSL Trust does not hedge the credit risk related to its lessees.

Periodic Risk Reports
Periodic risks report will be prepared by the Chief Risk Officer to highlight any emerging risks or high risk issues to the ARC on a timely basis. In addition, any new risk of significant values will be assessed using prescribed risk templates and reported to the ARC.

Annual Risk Report
Annually, a risk refresher will be performed within the Group to understand if there are any changes to the existing top risks identified and if there are any risks that require more detailed assessment. A report with the updated top risks to the company will be compiled by the Chief Risk Officer and submitted to the ARC. The Risk Register maintained will also be updated to reflect any changes highlighted.