Risk Committee Update: October 2023

Highlights from September 2023

Ukraine and Russia: Capital markets update  

We know from conversations with our clients that interest in the Ukrainian and Russian capital markets remains high.   

Germán Gutiérrez Mejia, Associate Director of Financial Market Infrastructure, has written an in-depth update on these markets that provides an overview of the current situation in terms of foreign investment, custodian banks and foreign exchange. His review also includes Thomas Murray’s risk grades for each market.  

You can read Germán’s full report here.  

As an aside, Poland, Ukraine, and Lithuania have reached an agreement to transfer Ukrainian grain inspections from the Polish border to a Lithuanian port. This will allow Ukraine to keep moving its grain through Poland, even though Poland banned Ukrainian grain imports in mid-September.  

Lima Stock Exchange to integrate with Chile and Colombia  

Network managers from Thomas Murray conducted an on-site visit to Peru and met with representatives from the stock exchange, the central securities depository (CSD), the regulator, Citibank, and BNP Paribas. They reported back to the Risk Committee in September.   

The main development in this market is the integration of the Peruvian exchange with those of Colombia and Chile. This has been approved by the regulators, and will begin with a common trading platform once a provider is found.  

Peru has had liquidity issues in the past, and this integration is a vote of confidence in the work done so far to improve its position.   

However, there is still a lot to be done. Peru will need to create a central counterparty clearing house (CCP), as Chile and Colombia have done already. The supporting regulation for a CCP will need to be in place before the clearing house is launched.

Kazakhstan readies to merge its exchanges  

Kazakhstan, a nation of 19 million people, currently operates exchanges through two separate jurisdictions – the Astana International Exchange (including the registrar and AIX CSD) servicing the Astana International Financial Centre (AIFC), and the Kazakhstan Stock Exchange (KASE) and Kazakhstan CSD servicing the onshore market, each with their own regulators.  

Kazakhstan’s president, Kassym-Jomart Tokayev, has said that such a small volume market should function on a single exchange. Merging the two will be complicated, but a plan for doing just that has been promised for the beginning of next year.  

In Thomas Murray’s previous public assessments, the Risk Committee highlighted Kazakhstan’s recovery and resolution plan for AIX CSD as an area for improvement. Encouragingly, this plan has now been completed and will be implemented from January 2024.  

KASE will introduce a subsidiary, KASE a CCP into the market which has now received clearing and banking licences. The aim is to complete the implementation of KACC by the end of 2023.   

Cash correspondent monitoring explained  

The Risk Committee’s Cash Correspondent Monitoring subgroup meets on an as-needed basis to assess the risks posed by cash correspondents.  

A cash correspondent bank (or agent bank) provides banking services to another bank (the client bank). Client banks usually have a global ‘correspondent network’ of agent banks, which the client relies on for its foreign currency transactions. In recent years, regulators have demanded that client banks monitor these networks more closely.  

Thomas Murray, in partnership with more than 25 banks around the world, created a standardised approach to monitoring cash correspondent agents. The managed service solution is driven by an industry-agreed questionnaire. The agent banks’ responses are validated against agreed KPIs during due diligence visits from Thomas Murray’s bank network managers.   

The results are benchmarked by market, region, and currency to give banks global, regional, and local insight into their agent bank networks, and how their providers compare to local competitors.   

In case you missed it…  

October is Cybersecurity Awareness Month: What DORA means for you

This Cybersecurity Awareness Month should serve as a reminder that the EU’s Digital Operational Resilience Act (DORA) will take effect in January 2025.   

The aim of this new financial regulation is to address the risks posed to the entire financial system by information and communication technology incidents and a lack of operational resilience. DORA’s implications therefore go far beyond the borders of the EU.  

Christine Young put our clients’ DORA-related FAQs to Jean-Baptiste Poulle and Lise Wantier of Spitz Poulle Kannan. SPK is a law firm that provides advice exclusively on financial services and regulations. Based in Paris, the firm mainly assists French and international banks, investment firms, portfolio managers and insurance companies.

Jean-Baptiste and Lise were kind enough to answer our questions in detail, and you can read the interview here.

JP Morgan makes its final Epstein settlements 

The US’s largest bank, JPMorgan Chase, has reached settlements with both its former executive Jes Staley and the US Virgin Islands (USVI). The settlements mean that a trial scheduled for 23 October will not go ahead, ending the legal proceedings stemming from the bank’s dealings with disgraced financier Jeffrey Epstein. Epstein died in 2019.  

JP Morgan will pay $75m to the USVI. The terms of its settlement with Staley are confidential.   

Fico wins Slovakian election as Polish-Ukrainian relations sour 

As anticipated and mentioned in the last Update, Robert Fico has won the election as Slovakia’s prime minister. The populist has vowed to end military aid to Ukraine, and his return to the premiership after five years out of office has been celebrated by Hungary’s leader, Victor Orbán.   

Political analysts expect that Slovakia’s new ruling coalition will likely be formed by Fico’s party Smer, Hlas, and the nationalist, pro-Russian Slovak National Party (SNS).  

Slovakia’s neighbour, Poland, goes to the polls on 15 October. The ruling party is expected to return to power, and Kyiv will be watching closely: the Polish foreign minister attributed his recent absence from an EU foreign ministers’ meeting in Kyiv to a “downturn” in relations between Poland and Ukraine.   

In remarks to the UN that were ill-received in Poland, Ukrainian president Volodymyr Zelenskyy accused some EU member states of feigning support for Ukraine while “secretly” supporting Russia.