saxo-bank-annual-report-2015

Security risk
Saxo Bank Group operates in various countries and pursues
a decentralised decision-making authority based on
guidelines established by the parent company. Although
the Group has various control systems in place in order to
monitor decentralised business units, these might not
prove sufficient to ensure that local managers adhere to
all guidelines and local regulations and therefore, it cannot
be ruled out that the Group could experience an incident
that may have a material adverse effect on the
Group.
Compliance risk
Although Saxo Bank Group continuously monitors and accommodates
regulatory changes, it cannot be ruled out
that the Group might fail to adhere to certain regulations.
The Group’s failure to comply with applicable regulations
could result in substantial costs, losses and other negative
consequences such as revocation of license(s).
Cyber risk
Cyber-attacks on financial institutions are increasing and
becoming more sophisticated and targeted than ever before.
These emerging threats could harm the Group and
its clients, which might affect the Group financially or
harm its reputation.
As with any other business solution, the Group’s trading
infrastructure might be exploited or misused by cyber
criminals. The Group has taken several steps to protect its
infrastructure both with policies and procedures as well as
mitigating technical controls for these emerging threats.
The Group furthermore keeps an eye on the evolution of
cyber-attacks, ensuring an adaptive defense.
CREDIT RISK
The Group is subject to credit risks from its retail banking
operation, trading operation and its brokerage operation.
Client trading exposures may lead to uncollateralised client
trading exposures in the event of an unexpected large
price gap in one or several markets. In these instances the
collateral posted by clients may not offset sustained trading
deficits. To mitigate these risks the Group uses a near
real-time monitoring system, which can intervene appropriately.
The Group also faces credit risks in its brokerage operation
from liquidity providers, financial brokers and counterparties
to derivative trades. The counterparty default
risk is mitigated by pledging collateral via third party custody
accounts, by implementing bilateral collateral agreements,
by the use of trade compression as well as other
means. However, all credit exposures cannot be totally
eliminated on an intraday basis. In acknowledgement of
this fact, the Group only operates with regulated counterparties
carrying a high credit rating and within a set of
predefined limits.
Lastly, the Group encounters credit risk through traditional
banking operations. The day to day business of granting
credit to retail clients and SME’s exposes the Group to potential
losses if these clients can’t meet their obligations.
The granting of a credit facility is based on the Group’s insight
into the client’s financial position. As part of this process,
the Group strives to ensure that each facility matches
the credit quality and financial position of the client. Furthermore,
the Group strives to avoid single-name concentration
risks as well as concentrations within certain business
segments.
MARKET RISK
The Group encounters market risk from the investment of
client funds deposited in Saxobank as margin to support
the clients trading activities. A large portion of the deposited
funds are invested conservatively in short term government
bonds on a daily basis by the Group’s treasury
department in order to generate extra yield. The difference
in the variability of short term interest rates for deposited
client funds and the variability for short to medium
term Government or other bonds bought by the
group treasury creates market risk.
Market risks arise also from the market making activities
in the Markets department. As part of offering competitive
prices, the main role of Saxo Bank Group’s trading
SAXO BANK · ANNUAL REPORT 2015 · 33