Risk management in securities settlement systems

Abstract

This paper looks at how risk management in securities settlement systems seeks to ensure the continued robustness of an essential part of the financial market infrastructure. It takes the example of Euroclear and describes the role of the risk management function and how it has evolved. The paper outlines the three lines of defence model which ensure clarity of roles and responsibilities, and how the different components of risk management, including compliance with rules and regulations, can be implemented in practice. The particular importance of ensuring business continuity through high levels of operational resilience is noted and how that can be achieved is described. The risks that need to be considered by the risk function are likely to include some or all credit, market, liquidity, operational, business and strategic risks, as well as derived risks such as reputation risk. All financial market infrastructures will have to pay particular attention to operational risk and service reliability. For all financial market infrastructures, relevant stakeholders will want to be confident that the full range of risks facing those infrastructures is properly controlled. The risk function, therefore, will be subject to considerable scrutiny.