Depositories to set up risk management framework in 3 mths

Aiming to mitigate risks in the nation's depository system, capital market regulator Sebi today asked depositories to put in place a comprehensive risk management framework within three months.
Both the depositories, NSDL and CDSL, would have to set up a risk management group headed by a Chief Risk Officer to oversee the implementation of the framework, Securities and Exchange Board of India said in a circular today.
Sebi directives are based on the suggestions made by the Depository Systems Review Committee (DSRC) which has pitched for "a board approved policy providing for a well documented comprehensive risk management framework at both depositories".

As per the market watchdog, the risk management framework would have to include "an integrated and comprehensive view of risks to the depository" such as those emanating from participants, participants' clients and third parties to whom activities are outsourced.
Besides, the depositories would have to list out all relevant risks, including technological, legal, operational, custody and general business risks and the ways and means to address the same.
Among others, the systems, policies and procedures to identify, assess, monitor and manage the risks as well as the depository's risk-tolerance policy form part of the framework.

They would also have to include "responsibilities and accountability for risk decisions and decision making process in crises and emergencies", under the framework.

Sebi has directed the depositories to "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)".
The committee, would have to meet periodically to continuously identify, evaluate and assess applicable risks in depository system through various sources such as investor complaints, inspections and system audit.
It would also have to suggest measures to mitigate risk, and would have to review and update the framework periodically, among others, the market regulator said.
"The depositories shall implement the provisions of this circular within three months from the date of this circular," Sebi said.

The depository system was reviewed by the DSRC in the context of Principles for Financial Market Infrastructures and International Organisation of Securities Commissions.
The 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.