To manage the regulatory (compliance) risk, NCC:
- identifies, analyzes, assesses, monitors the compliance risk related to NCC’s activity and manages it, inter alia, develops measures aimed at preventing and excluding consequences of compliance risk occurrence;
- monitors the activity of NCC’s structural divisions (employees of structural divisions), inter alia, their abiding by the deadlines for reporting submission to the Bank of Russia;
- analyzes new products, services launched by NCC and proposed methods for introduction thereof as to compliance risk existence;
- interacts with the Bank of Russia regarding the matters associated with establishment of new requirements related to regulation of NCC and obtaining of the necessary recommendations and clarifications;
- updates NCC’s internal documents on a timely basis;
- implements the internal control rules to combat legitimization (laundering) of the proceeds of crime and terrorism financing/countering proliferation financing, also encompassing compliance with the regulatory requirements to identify clients, their representatives, beneficiaries, beneficial owners; to document data (information) and submit thereof to the authorized agency, to keep documents and information, to educate and train the personnel;
- develops professional skills of NCC’s personnel;
- distributes competencies/powers between Executive Board members / employees of NCC;
- analyzes complaints and claims of clearing members, infrastructure organizations, develops measures for rectification thereof;
- ensures adherence to the timeframes set for information disclosure on the official website and the timeframes for report submission to the Bank Russia;
- prevents and manages the conflicts of interest taking into account the specifics of NCC’s activities;
- uses the best compliance practices, standards and rules of professional ethics;
Reputational Risk Management
In 2020, NCC managed the reputational risk (hereinafter RR) in compliance with the regulator’s requirements, RR Management Regulation of NCC, RR Calculation Method supplemented with the Risk Events Rubricator (hereinafter the Framework, Rubricator). The activities in this area were carried out by the RR Management Officer using the automated control system (hereinafter RR ACS) aimed at evaluation of documented RR events and impact thereof on the dynamics of change in the current and forecasted levels of the above risk (hereinafter CLR and PLRR, respectively) and the capability, as appropriate, of rapid response to occurring situations posing a threat for the Company’s reputation.
In 2020, reputational risk management was aimed at attaining the following key objectives:
- interacting with NCC’s business units and employees who manage financial and nonfinancial risks, providing ongoing monitoring of the incidents and events, which took place both in the Company and in the external environment and which were directly or indirectly related to NCC; assessing and analyzing their association with RR events, and determining the degree of impact on the current and projected levels of the above risk type;
- informing promptly the sole and collective executive bodies and the relevant structural divisions of NCC about any events posing a reputation threat impacting on the negative dynamics in the changing risk level;
- fulfilling of the assignment of the Company’s Executive Board to update the RR events Rubricator and develop RR ACS functionality, as well as to comply with the recommendations of the Internal Audit Service based on the results of audit of the reputational risk management effectiveness.
By their categorization, the RR events, documented during the reporting period, were classified to the groups of internal and external factors. Events pertinent to the internal factors group were mainly caused by occurring operational risk events associates with RR events. The above events had no impact on the RR level, as they had not reached the established sensitivity thresholds – the values causing occurrence of the specific risk event.
The events included in the group of external factors that were revealed during monitoring were mostly associated with emerging negative information in the external environment – mainly about Moscow Exchange and, in a few cases – about NCC. The newsworthy event, giving rise to such publications, were class-action lawsuits lodged by oil traders, who allegedly suffered losses due to decrease of quoted prices for oil futures to negative values due to cessation of trading therein at the exchange. Though the above RR events had produced certain impact on the changing RR level, however they were within the set risk appetite limits (300 points) and did not require any rapid response to prevent potential damage.
During the reporting period, according to NCC Executive Board’s assignment to update the Rubricator and develop RR ACS functionality, the Reputational Risk Management Officer took the set of measures, inter alia, analysis and research of the information and raw data accumulated during the previous period of risk management, questionnaire survey of internal and external experts to calibrate the value of scores (weight) of RR events, their scales and sensitivity thresholds. Along with it, RR ACS was adapted to the updated Rubricator; the capability to amend the Rubricator was created through front-end application and the function to generate RR ACS reports at the full depth of archival data. The interim results of project implementation and it outcomes were considered at the meetings of NCC Executive Board.
Custody Risk Management
For its payments and settlements, NCC uses the services provided by the counterparty banks, depositories and settlement institutions (including NCO JSC “National Settlement Depository” (NCO JSC NSD)). NCC uses the infrastructure of commercial banks and third-party depositories in cases where there is no possibility to use the infrastructure of the Bank of Russia and NCO JSC NSD. The quality of such counterparties is assessed in the process of the Company’s credit risk management.
To mitigate its custody risks, NCC assesses the quality of depositories in compliance with the Company’s Regulation on Provisioning for Possible Losses.
Commercial Risk Management
Commercial risk means any potential deterioration of NCC’s financial position (as a for-profit organization) due to the excess of expenses over earnings, provided that they cause losses not associated with occurrence of credit or custody risk.
To manage its commercial risk, NCC applies the following measures:
- develops action plans to restore or orderly reduce the scope of activities in case of occurrence of common business risk, reputational risk, and strategic risk;
- provides analysis of income and expenses in case of introduction of new instruments and products.
In 2020, the commercial risk management measures were supplemented with the post-investment monitoring of all projects implemented at Moscow Exchange Group, including NCC, and analysis of the risk weighed income of projects before making decision on launch thereof.