Untitled - Saxo World

to all guidelines and local regulations. Therefore, it cannotbe ruled out that the Bank could experience an incidentthat may have a material adverse effect on the Bank.Operational RiskOperational risks are inherent in all business activities andtherefore can never be completely eliminated. However,the Bank continues to strengthen its risk managementframework and continuously seeks to understand the business’exposure to risks arising from failures in internal controls,operational processes or the systems that supportthem. In addition, the Bank seeks to maintain appropriatelevels of insurance. However, the Bank may incur liabilitiesthat are not covered by insurance as not all claims are insurable.Thus, there can be no assurance that the Bank willnot experience major incidents of a nature that are not coveredby insurance and which could thereby have a materialnegative impact on the Bank’s financial performance. Additionallythe insurance taken out might prove inadequate.Product flawsThe software that supports the Bank’s operations is modifiedand updated on an ongoing basis to accommodate newproducts and business ideas. However, despite test proceduresin place aiming at ensuring that implemented softwareis flawless, there can be no assurance that these procedureswill prove to be sufficient to analyse all aspects of thesoftware. As a result, the Bank may incur financial losses.Business disruptionThe Bank is highly dependent on the continuous operationof its IT infrastructure. Extensive automation is paramountfor the Bank to reduce errors and processing time.Therefore, system failures could impact the Bank’s servicesto its clients or critical internal business processes. For example,the complete loss of IT infrastructure means thatthe Bank and its clients are unable to see their exposuresas well as execute trades electronically, which during marketturmoil could result in material losses. Consequently, asystem outage may have a severe financial and reputationalimpact on the Bank.The success and smooth operation of the Bank to a largeextent depends on staff being able to perform their dailytasks. In a catastrophic event such as a global pandemicor severe fire, a large proportion of staff might not beable to carry out their daily duties. As a result, the Bankmight be affected adversely.Although the Bank has contingency plans in place thatcover the above-mentioned situations, and these are reviewedand challenged regularly, there can be no assurancethat the contingency plans will prove to be sufficient,as actual developments might differ significantly fromwhat is accounted for in the plans.Third partiesSaxo Bank’s business model relies to a certain extent onIntroducing Brokers or white label partners who have adirect relationship with the client but who delegate thework of the operation and trade execution to Saxo Bank.Although the Bank has procedures in place to manage therisk associated with such Introducing Brokers and whitelabel partners there can be no assurance that an unlawfulor unethical act by the broker or partner would not have anegative effect on Saxo Bank’s reputation or otherwisehave a material adverse effect on the Bank’s financial results.Furthermore, Saxo Bank relies on outsourced service providersto perform certain functions. These service providersalso face technology and operating risks and any significantfailures by them, including the improper use ordisclosure of the Bank’s confidential information, couldcause Saxo Bank to incur losses and could harm theBank’s reputation. An interruption in or the cessation ofservice by any external service provider as a result of systemsfailures, capacity constraints, financial difficulties orfor any other reason, and the Bank’s inability to make alternativearrangements in a timely manner could disruptthe Bank’s operations.FraudAlthough the Bank has controls in place, these might notprove to be sufficient. The high number of transactionsand interactions increases the risk of irregularities or mis-22 · SAXO BANK · ANNUAL REPORT 2009