Risk Management Policy at the Depositories
Summary
This circular mandates depositories to establish a comprehensive, board-approved risk management framework in alignment with PFMI principles. It requires the formation of a Risk Management Group headed by a Chief Risk Officer responsible for identifying and mitigating risks. Depositories must implement these provisions within three months and report status to SEBI.
Text
The Depository System was reviewed by the DSRC inter alia in the context of Principles for Financial Market Infrastructures (PFMI) laid down by CPSS and IOSCO.
The FMI principles lay emphasis on the need to have a robust risk management framework to identify, monitor and manage various risks emanating from multiple sources to its operations.
There should be a Board approved policy providing for a well documented comprehensive risk management framework at both depositories... A Chief Risk officer should be made responsible, accountable, accessible & answerable to the board on overall risk management issues.
In view of the above, the depositories are advised to establish a clear, comprehensive and well documented risk management framework which shall include: an integrated and comprehensive view of risks... list out all relevant risks... systems, policies and procedures... risk-tolerance policy; responsibilities and accountability...
The Depositories shall put in place mechanism to implement the Risk Management Framework through a Risk Management Group/ Committee which shall be headed by a Chief Risk Officer(CRO).
It shall meet periodically in order to continuously identify, evaluate and assess applicable risks in depository system through various sources such as investor complaints, inspections, system audit etc.
It shall suggest measures to mitigate risk wherever applicable.
It shall monitor and assess the adequacy and effectiveness of the risk management framework and the system of internal control.
It shall review and update the risk management framework periodically.
The Board of the depository shall approve the Risk Management Framework. The Chief Risk Officer shall have access to the Board and shall be responsible, accountable and answerable to the board on overall risk management issues.
The depositories shall implement the provisions of this circular within three months from the date of this circular.
make amendments to the relevant bye-laws, rules and regulations for the implementation of the above decision as may be applicable / necessary.
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Source: SecMarx — Risk Management Policy at the Depositories. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.