b'Principal risks and uncertaintiesRisk management frameworkThe Board considers that the risks detailed inDuring the year Mercia has continued to build this Annual Report represent the key potentialon its risk management framework with a obstacles to achieving the Groups strategicspecific focus on risks and opportunities objectives. The key controls over the Groupsassociated with the Groups successful principal risks are documented in Mercias riskacquisition of the VCT fund management register, which includes an assessment of thebusiness of NVM Private Equity LLP. More risk, likelihood of occurrence, severity oflatterly, focus has been on the range of impact and mitigating actions. An assessmentsignificant risks associated with COVID-19. The of the strength of mitigating controlspandemic and its effects will potentially impact determines the net risk score and any furtherall risks and, where appropriate, we have noted actions required. below the impacts that we believe are potentially the most severe.The Group considers identified risks under three main categories with sub-categories asWe have continued our focus on regulatory appropriate: compliance and implementation of the Senior Managers and Certification Regime (SMCR). Internalincluding the Groups strategy andFocus has also been maintained on business planning. cybersecurity, effective talent management and internal audits on investment activity. The Externalincluding competitor risk,Board has also considered the possible effects, regulatory and legal risk, and force majeure on the Group and on its investee companies, of eg pandemic risk from COVID-19. the United Kingdoms exit from the European Union without a trade deal in place. The risk Operationalincluding internal systems management framework has been further and controls, people and talent risk, andstrengthened through the Senior Management compliance risks such as financial crime. Team escalating new, emerging or increased risk exposure to the Executive Team, together The Board monitors, evaluates and mitigateswith the Groups Compliance Director risks to ensure that appropriate measures arecommunicating directly with the Audit and Risk in place to minimise the likely occurrence andCommittee and ultimately, the Board.impact of those risks identified.The Groups principal risks and uncertainties, There may be additional risks and uncertaintiestheir possible consequences and mitigating that are not known to the Board and there areactions are set out in the following pages.risks and uncertainties which are currently deemed to be less material, which may also adversely impact performance and thus are monitored within the Groups risk management framework. The framework provides reasonable, but not absolute, assurance that principal risks are managed to an acceptable level, whilst also acknowledging the fact that the specialist asset management sectors in which Mercia operates have investment risk inherent within them. Mercias risk framework is therefore constructed so as to identify and navigate the inherent downside risks, whilst seeking to exploit upside risk, particularly when investing in young companies.52 Mercia Asset Management PLC Annual Report and Accounts 2020'