Operations Risk - Risks of human error, fraud or misconduct that were failed to be prevented by internal controls. Natural disasters are also included.
mitigation: independent audits of systems used to mitigate risk (both internal and external), remote back up systems
Model Risk - risk of using a model to monitor investments eg model does not take into account relevant variables for he task.
mitigation: regularly review model assumptions, list of variables, making sure the correct-upto date and correctly adjusted inputs are used
Regulatory Risk - the risk that laws or regulations will change and affect the nature of an existing or planned transaction. Regulatory risk for transactions increases with the number of jurisdictions that they must comply with.
Herstatt Risk or Settlement Risk - risk that the counterparty cannot make a required payment or delivery. The risk is named after a German bank that failed to deliver on tranactions it initiated during the day after it was shut down by regulators.
Legal Risk - the risk that the counterparty does not honor a contract or the contract or a provision is not enforceabe. This one also includes the risk of a lawsuit brought by the client or the counterparty.
Legal risk tends to increase when counterparties are located in different countries.
Tax Risk - risk of changes in tax laws or the enforcement of existing ones. Complex securities, structures or deals increases tax risk.
Accounting Risk - risk arising from difference in accounting rules and their application. Risks could arise from aggressive accounting, managed earnings or disparaties of in accounting rules.
Sovereign Risk - risk that the government defaults on its debt either through lack of willingness or abiliy to pay
Political Risk - either minor or major changes in government that affect the invetment environment within the country.
ESG Risk - Environmental, Social and Governance risks. Social risk ivolves changes in workplace standards, human resource practices and employee policies and procedures.
Performance netting - the loss in return ot the investor when paying for positive performance in one portfolio and losing as much in another portfolio.
mitigation: independent audits of systems used to mitigate risk (both internal and external), remote back up systems
Model Risk - risk of using a model to monitor investments eg model does not take into account relevant variables for he task.
mitigation: regularly review model assumptions, list of variables, making sure the correct-upto date and correctly adjusted inputs are used
Regulatory Risk - the risk that laws or regulations will change and affect the nature of an existing or planned transaction. Regulatory risk for transactions increases with the number of jurisdictions that they must comply with.
Herstatt Risk or Settlement Risk - risk that the counterparty cannot make a required payment or delivery. The risk is named after a German bank that failed to deliver on tranactions it initiated during the day after it was shut down by regulators.
Legal Risk - the risk that the counterparty does not honor a contract or the contract or a provision is not enforceabe. This one also includes the risk of a lawsuit brought by the client or the counterparty.
Legal risk tends to increase when counterparties are located in different countries.
Tax Risk - risk of changes in tax laws or the enforcement of existing ones. Complex securities, structures or deals increases tax risk.
Accounting Risk - risk arising from difference in accounting rules and their application. Risks could arise from aggressive accounting, managed earnings or disparaties of in accounting rules.
Sovereign Risk - risk that the government defaults on its debt either through lack of willingness or abiliy to pay
Political Risk - either minor or major changes in government that affect the invetment environment within the country.
ESG Risk - Environmental, Social and Governance risks. Social risk ivolves changes in workplace standards, human resource practices and employee policies and procedures.
Performance netting - the loss in return ot the investor when paying for positive performance in one portfolio and losing as much in another portfolio.
Financial risks = credit +market + liquidity
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