Operational risk assessment at investment funds level

The operational risk has been analysed quite recently, both by the academic environment and by financial entities in their practical activity. This new risk has recently been introduced into the “solvency models” provided by the Capital Requirement and Solvency legislation. The “solvency models” are absolute assessment models and are based on the idea of determining an optimal solvency ratio between the level of potential losses associated with the risks a financial entity is exposed to and the level of own funds it holds. Below this optimal ratio it is considered that, in the event of a materialization of the risk, the entity will go bankrupt. In the financial industry there is also a category of financial entities that legally cannot go bankrupt, at worst they may be affected by a galloping decapitalization. This category includes investment and pension funds. Due to the fact that investment and pension funds are managed externally, the operational risk originates at the level of the manager and produces its effects on the assets held by the fund, namely on the unit value of the net asset or on the value of the net asset in case of decapitalization. In order to assess the operational risk of the funds, different approaches to Capital Requirement and Solvency should be applied. In this respect, the classification of funds according to the level of risk to which they are exposed can be done through relative assessment models, and the determination of the loss amount caused by the operational risk can be done by indirect methods. Such relative risk assessment models can also be used by financial/non-financial entities that have legal personality, as a mechanism for controlling absolute assessment models, or as a stand-alone assessment methodology if there is no regulated methodology

Determination by the Settlement Systems of the Required Collateral Imposed to Participants

The dynamics of the increase in volume and amount of the financial or commercial transactions during the last decennials has amplified the role of clearing and settlement systems, along with the payment ones. From the quality of these systems as a financial markets stability provider also derives the concern for the management of financial risks mainly generated by the participants in these systems. The clearing-settlement systems, operated by infrastructure entities of the capital markets, ensure, within certain limits, a risk management for the incidents that could occur in the settlement activity regarding the financial transactions concluded between participants. We are going to present a methodology for determining the required collateral that must be maintained/updated by the debtor participants of a clearing-settlement system in order to ensure a robust management of the risks that could occur in the settlement operations. This methodology can be applied by any infrastructure entity of the capital market that manages collateral systems to limit the number of cases of settlement fails in financial transactions