Financial Markets Act, 2012 (Act No. 19 of 2012)RegulationsFinancial Markets Act RegulationsChapter VI : Central Counterparties13. Risk management framework13.8 Controlling body and senior management |
| (1) | A member of the controlling body and senior management of a central counterparty must— |
| (a) | possess sufficiently detailed knowledge of all the functions and major business lines of the central counterparty to ensure that the policies, processes, procedures, controls and risk monitoring systems envisaged in Regulations 13.1 (2) and (3) are appropriate and effective; |
| (b) | have sufficient expertise to understand the various instruments, markets and activities in which the central counterparty conducts business, including capital market activities such as the related off-balance sheet-activities, and the associated risks; |
| (c) | ensure that the monitoring and the reporting of individual and aggregate exposure(s) to related persons are subject to an independent credit review process; |
| (d) | remain informed about the risks and changes thereto as financial markets, risk management practices and the central counterparty’s activities evolve; |
| (e) | ensure that accountability and lines of authority are clearly delineated; |
| (f) | ensure adequate segregation of duties to promote sound governance and effective risk management in the central counterparty, and avoid conflict of interest; |
| (g) | ensure that, before embarking on new activities, investing in new instruments or introducing products new to the central counterparty— |
| (i) | the potential changes in the central counterparty’s exposure to risk arising from the new instruments, products or activities have been duly identified, considered and reviewed; and |
| (ii) | the central counterparty’s infrastructure, policies, processes, procedures and internal controls necessary to manage the related risks are duly updated and in place; |
| (h) | consider the possible difficulty related to the valuation of new products, and how the products might perform in a stressed economic environment; |
| (i) | ensure that the risks to which the central counterparty is exposed are appropriately managed; |
| (j) | set capital targets commensurate with the central counterparty’s risk profile and control environment; |
| (k) | implement robust and effective risk management and internal control processes; |
| (l) | develop and maintain an- |
| (i) | appropriate strategy that ensures that the central counterparty maintains adequate capital based on the nature, complexity and risk inherent in its on-balance sheet and off-balance sheet activities, including its activities relating to risk mitigation; |
| (ii) | internal capital adequacy assessment process that responds to changes in the business cycle within which the central counterparty conducts business; |
| (m) | with respect to new or complex products or activities, understand the underlying assumptions regarding business models, valuation and risk management practices, and evaluate the central counterparty’s potential risk exposure should the assumptions fail; and |
| (n) | on a periodic basis, conduct relevant stress tests, particularly in respect of the central counterparty’s main risk exposures, in order to identify events or changes in market conditions that may have an adverse impact on the central counterparty. |
| (2) | A central counterparty must— |
| (a) | implement a system of reporting to senior management to ensure that operational risk reports are provided to the relevant functions within the central counterparty; and |
| (b) | have in place procedures for taking appropriate action according to the information within the reports to management. |