Operating risk is defined as the risk of incurring losses due to an inadequacy or failure of processes, persons and internal systems, or due to external events. This definition includes any events that may occur as a consequence of legal or regulatory, technological and reputation risks.

The Risk Management model of S3 CACEIS considers the following for an optimal management of risks:

• The operating risk appetite, an adequate monitoring of this risk and its communication to the Executive Management.
• A management and control structure built on three independent lines of defence.
• A government model for operating risk management involving the Executive Management.
• The use and integration of information sources: databases of internal events, external events and analysis of scenarios.

Market risk refers to the probability of incurring losses on a portfolio or an instrument as a consequence of adverse changes in the market risk factors. These risks generally include exchange rates, interest rates, securities pricing and the possibility that an entity may incur losses related to a decrease in their portfolio values or a fall in the value of the collective portfolios or funds managed by the entity as a result of changes in the price of the financial instruments held on or off balance.

Liquidity risk refers to the inability to meet payment obligations (either expected and unexpected, current or future) in a timely and effective manner, affecting the daily operations or the financial situation of the entity. This contingency (funding liquidity risk) results in an insufficient amount of available liquid assets available and/or the need to incur unusual costs of funding. In turn, the capacity of an entity to create or unwind financial positions at market prices is restricted, either due to a lack of an adequate market depth or because of dramatic changes in rates and prices (market liquidity risk).

Liquidity risk can be managed in two ways:

• Regarding the liquidity of a market or a group of financial instruments, the facility to enter purchase and sale transactions of a given asset class without affecting their price in a meaningful way.
• Regarding liquidity taken in the sense of the short term solvency of a company, i.e. its ability to obtain at any time the cash needed to carry out operations and meet its payment obligations at reasonable cost.

Credit risk is the probability of incurring losses, resulting in a decrease of the entity’s assets, due to a failure by its counterparties or the issuers to meet any contractual terms agreed in full or in a timely manner.

According to the Colombian regulations on the management of fiduciary portfolios, the provisions of Chapter II of the Basic and Accountancy Circular shall apply.

This risk refers to the possibility that an entity incurs losses or damages while being surveyed due to a track record of being used for asset laundering and/or channelling of resources to any terrorist activities, or to hide assets resulting from those activities.

In fulfilment of the regulation requirements and clients’ requests, below are listed the main PBC and compliance certifications:

• AML Certification – English and Spanish versions
• USA PATRIOT Certificate (only in English)
•  Wolfsberg