The objectives of our risk management strategy are to demonstrate how we assess risks faced by MTS Gold Bullion Limited (hereafter referred to as “MTS Bullion”) and our clients, and to set up effective risk management policies to minimize the risk exposure of our Company and the clients.
MAIN BUSINESS RISKS
MTS Bullion will mainly trade with the following financial instruments:
- Contracts for difference in relation to precious metals, bullion and other financial commodities;
- Bullion products;
As a result of the intended nature of the Company’s business the key risks identified are as follows:
Marketing / Financial Promotions
The risk of issuing unclear financial promotions and information during the client acquisition process has been identified.
This will be mitigated through staff training, implementation of a sign off process managed by the Compliance Officer for all financial promotions and compliance monitoring of sales staff.
The risk that clients are unable to make complaints/claims or that complaints/claims are not handled correctly.
This will be mitigated by staff training, implementation of a clear complaints handling policy that complies with regulatory requirements, group policies and root cause analysis reports and monitoring of staff e-mails.
Procedures for raising a complaint/claims and associated rights will be clearly displayed and explained to all clients in the MTS Bullion Customer Agreement and on our website too.
Complaints will be addressed using MTS Bullion designated complaint policy.
Conflicts of Interest
The risk that any conflicts of interest may impact on clients.
The will be mitigated by the firm operating a conflicts of interest policy and management ensuring that any potential conflicts are kept to an absolute minimum through regular review and monitoring.
MTS Bullion aims to identify and prevent any conflicts of interest which may occur between us and our clients, or between one client and another, to avoid possible adverse effects which may arise. The measures which will be used include:
- taking all reasonable steps to identify conflicts of interest between us and our clients
- keeping and updating a record of the services we undertake, in which a conflict of interest entails a material risk of damage to the interests of one or more of our clients, which has arisen or may arise.
- MTS Bullion have identified the types of conflicts that may occur and which carry a material risk of damage to the interests of a client. These include, but are not limited to, when MTS Bullion or any person directly or indirectly linked to us:
- have an interest in the outcome of a service or product provided to, or of a transaction carried out on behalf of our client, which is distinct from our clients’ interest in that outcome.
- design, market or recommenda product or service without properly considering all of our other products and services and the interests of our clients.
- are likely to make a financial gain or reduce/avoid a financial loss at the expense of our
- have a financial or other incentive to favour the interests of another client or groupof clients over the interests of a client.
MTS Bullion will implement the systems and procedures referred to below, to minimize the potential causes for conflicts of interest, to manage all conflicts of interest and where possible avoid material conflicts of interest.
Market Exposure Risk
To mitigate market risk MTS Bullion will have in place arrangements for a portion of client trades to be automatically offset by an equal and opposite position with its counterparty. We expect to establish lines with other liquidity providers to diversify our risk (though these may not become active unless issues arise.
Bad Debt Risk
MTS Bullion will not give credit to clients. In addition, the trading platform will ensure that no trades can be opened unless clients have deposited sufficient monies to cover the initial margin. The system will also incorporate an automatic closing function whereby should markets move against a client, open positions not sufficiently funded will be closed according to the client agreement and prior Board approved conditions.
All firms operating in the financial services industry must always consider the possibility of loss through fraud. Fast moving markets can heighten those risks, with electronic transfers involving large amounts of money as a normal and accepted part of daily operations. Any incident of fraud can therefore involve much higher amounts than those seen in other forms of business.
To mitigate the risks posed by bad debt and fraud, MTS Bullion will:
- have a strong and highly experienced team managing this area;
- vet all client account applications in accordance with the firm’s vetting procedures;
- limit positions as per company policy;
- automatically monitor clients with open positions;
- set procedures to prevent fraud – particular in relation to returning monies to original accounts only; clear policies against third party payments; calls to landlines to prevent ID theft;
- set rigid expenditure and monetary transfer authorisation procedures; and
- segregate duties; particularly in relation to reporting, including exception reporting and daily reconciliations.
There are a number of events that could result in the firm having a liquidity risk, including:
i. the firm having inadequate funds to be able to settle a trade, through losses, bad debtetc.;
ii. downtime of the international banking system preventing receipt of in-bound margin monies; iii. default of a liquidity provider from whom margining or cash balance monies are due.
To mitigate against liquidity risk MTS Bullion will have those measures outlined below in relation to markets and counterparties also apply to liquidity risk. It will also have quarterly reports as to cash liquidity.
In addition, the firm will regularly perform both scenario analysis (e.g. bank failure / liquidity provider failure) and stress tests regarding various levels of severity of a situation designed to assess whether increased preventative measures need to be implemented or adjusted as part of its general capital and liquidity planning.
Counterparty Exposure Risk – Banks and Liquidity providers
The risk of exposure to counterparties focuses on the necessary relationship with banks, who will hold the Company’s regulatory capital and Client Money, and liquidity providers through which financial positions obtained from client trading are hedged. The firm is therefore at risk should such a bank or liquidity provider fail whilst holding some of the firm’s monies for capital or margin purposes.
The Company’s mitigating measures to protect against counterparty risk in relation to banks and liquidity providers are:
- regular review of exposures by the Risk Committee and Board of Directors;
- checks performed on the credit rating of every bank used and therefore any downgrading in credit rating can be addressed immediately.
- sophisticated systems to enable the monitoring of hedged liquidity provider positions on a real-time cross-currency basis by Senior management;
- internal controls to ensure that only the required margins are maintained with liquidity provider(s) and any excess funds are swept back from liquidity provider to bank on a regular basis
Business Interruption / Disaster Recovery Risk:
A risk to any business, but particularly one in this firm’s industry with real time volatile markets, large client bases and involving high denomination contracts. It can be caused by a variety of event of a disaster as discussed in the disaster recovery plan.
MTS Bullion has in place a disaster recovery plan designed to best mitigate such risks.
Long-Term Market Downturn Risk
As to the potential risk of a long term market downturn, being a key risk to many types of financial businesses and institutions. In relation to the industry sector that MTS Bullion will be operating in, however, this is not viewed to be such a risk, as the main requirement for MTS Prime target customers are aware of the financial products and the volatility in those markets.
In addition, the industry is increasingly targeting multi territorial customer bases which has a natural smoothing effect on any potential downturn from one particular country. MTS Bullion’s planned access to overseas markets; and the ability to do so based on only marginal cost increases afforded by global reaching internet trading services; means that all of the relatively few players in this segment industry have a very large market to target.
The following factors are designed to mitigate against the risk of a long term market downturn:
- the client base will be broadly spread across a number of jurisdictions
- the client base is, in general; knowledgeable with regards to opportunities afforded by the financial markets;
- the potential growth in other international client bases;
MTS Bullion’s customer base will be large in volume terms and although will comprise high net worth individuals no single client would amount to any concentrated risk. The products offered are by their nature wide and varied and negates any concentration risk. MTS Bullion’s will mitigate any over reliance on a business counterparty via extending its broker network as the firm’s business grows to enable diversification.
The firm will have to comply with a rigorous regulatory regime which covers the firm’s conduct of business, financial security, internal systems and controls and areas of general management and integrity. It must therefore consider the potential risk of regulatory sanctions which would threaten its viability due to catastrophic non-compliance. The Board is very conscious that regulatory failure which could result in sanctions is a material risk, but it feels that it is better placed than most due to the background and experience of its Management Team in relation to minimising any such risk.
MTS Bullion will mitigate the risks posed by regulation through the following:
- strong corporate governance structure;
- strictly enforced procedures and reports to ensure compliance with rules having first obtained external consultancy advice on those procedures and controls;
- implementation of systems designed to improve reporting and the general financial regulatory control functionality.
- Experienced staff have been recruited into Senior roles including Compliance andAML.
- Operational procedures designed to comply with regulatory requirements
- A dedicated training programme for all staff
- Implementation of written Compliance policies and procedures and associated Compliance Monitoring programme
- the support of a specialist compliance consultancy and law firm; both of which have particular experience in the financial industry; to help ensure compliance if necessary.
Risk of a Change in Legislation
There is a possibility that legislation may change in respect of leveraged products. The most likely risks are that leverage may be restricted, or that OTC products may be forced onto a trading exchange. The firm believes these risks are mitigated by the following:
- It is considered unlikely that leverage restrictions will be put in place for Professional clients and Eligible counterparties due to their higher level of sophistication.
- Current opinion is that forex will remain an OTCproduct.
Loss of key person(s)
Although one of the main strengths behind MTS Bullion is the considerable experience its Management Team have of the industry, unless there was a major loss of personnel due to terrorist, major accident, health incident or the like, the firm cannot see any major risk to its viability from loss of key personnel.
RISK MANAGEMENT PROCEDURES
Any business operating in the financial services industry needs to have in place sound, effective and complete processes, strategies and systems to determine adequate capital and to identify and manage the major sources of risk. MTS Bullion will meet those needs by establishing a robust control environment fully supported with strong internal procedures and specific risk management controls.
MTS Bullion shall implement and maintain adequate risk management policies and procedures which identify the risks relating to the company’s activities, processes and systems, and; where appropriate; set the level of risk tolerated by the company. The company shall adopt effective arrangements, processes and systems in light of that level of risk tolerance in order to:
- allow such identification, measurement and reporting of risks as well as their management, monitoring and control in accordance with the firm’s risk appetite; and
- facilitate contingency planning where identified as necessary in order to strengthen the firm to withstand their potential impact.
MTS Bullion shall always adopt effective arrangements, processes and mechanisms to manage the risks relating to the company’s activities, processes and systems, in light of that level of risk tolerance.
The risk management framework comprises the corporate and internal organisation structure; the internal procedures and controls; and the various management reports and documents that all form part of the overall corporate governance of the firm.
Although many of these processes, controls and documents will be subject to separate regular formal review, more ‘stand-back’ perspective reviews will also be undertaken on an annual basis.
RISK MANAGEMENT COMMITTEE
A Risk Management Committee shall be formed with the view to ensure the efficient management of the risks inherent in the provision of the investment services to clients as well as the risks underlying the operation of the company. In accordance with the need for businesses operating within the financial services industry to have in place sound, effective and complete processes, strategies and systems to determine adequate capital and to identify and manage the major sources of risk, the committee; alongside the Risk Management function; will ensure that a robust control environment is established and fully supported with strong internal procedures and specific risk management controls.
The Risk Management committee shall operate independently and shall be assigned the monitoring of the following:
- the adequacy and effectiveness of the company’s risk management policies and procedures;
- the level of compliance by the company and its relevant persons with the arrangements, processes and mechanisms adopted;
- the adequacy and effectiveness of measures taken to address any deficiencies in those policies, procedures, arrangements, processes and mechanisms, including failures by the relevant persons of the company to comply with such arrangements, processes and mechanisms or follow such policies and procedures.
The Risk Management Committee shall meet at least quarterly in the offices of the company, or via conference call, and as requested by any of its members.
Nevertheless, risk management strategy and procedures will be modified at any time when the procedures are found to be improper, inadequate, or insufficient.
MTS Bullion shall ensure that all clients are altered to the Company’s risk disclaimer which shall provide information about the risks associated with investment products, which you Clients may invest in through services provided by MTS Prime.
This will, in particular, highlight to clients that Foreign Exchange (‘FX’) and Contracts for Difference (‘CFDs’) are all margin traded products. Therefore, they inherently carry a high level of risk compared to other investments and as such you could lose more than your initial investment. For the full viewing of the Company’s Risk Disclaimer, you may visit our website.