STRATE Supervision strives to build fair and credible supervisory processes consistent with low to medium intensity supervision. STRATE Supervision aims to apply and enforce its supervisory approach consistently.
Risk based Supervision
Extensive work has been conducted to identify and fully understand the scope of Strate’s supervisory responsibilities and the ambit of regulatory risks. This has resulted in the development of the Regulatory Pyramids, a comprehensive Regulatory Risk Summary and specifically the development of a variety of “supervisory tools”. These tools are defined as the sources of information used by STRATE Supervision to identify, manage and mitigate the various regulatory risks.
Participant Monitoring Model (PMM)
The supervisory tools include, inter alia, information received by the appointed Strate Compliance Officers, external and internal auditors and, most importantly, information extracted from Strate's settlement systems. The information is collated on a monthly basis into what is known as the Participant Monitoring Model (PMM). Obtaining a regular and consistent understanding of the risk profile of a Participant is important. The PMM incorporates a broad spectrum of information gathered on the performance of a Participant including, for example, the number and frequency of settlement transgressions (i.e. fines); outstanding client mandates and securities in their record keeping. This information is risk weighted and “scored” in terms of pre-determined scales. This model has enabled STRATE Supervision to monitor and track Participant activities and performance using an objective, risk based method. Low scores would indicate areas of concern or weaknesses which need to be addressed.
Strate Compliance Officers play a vital role and are a key supervisory tool. Regular Compliance Officer Forums are held to discuss, debate and share knowledge on new Rules and Directives or amendments, changes to operational procedures or new market practices. The structure that is being supported is one which cultivates the independence of the Compliance Officer role and one which encourages their performance as Strate’s “eyes and ears” within their respective organisations. The roles and responsibilities of the Compliance Officer in terms of the Rules requires daily review, monitoring and investigation and immediate notification to STRATE Supervision when errors or transgressions are identified.
The on-site program was developed as a proactive supervisory tool to enable STRATE Supervision to obtain direct confirmation that regulated entities are abiding by the Act, Rules and Directives. The program will also ensure that Participants have robust systems of internal control and risk management in place. Where weaknesses are identified, this may result in the need for higher levels of management oversight or the implementation of stricter system controls.
STRATE Supervision's approach to on-site visits aims to promote the following outcomes and benefits to:
- Assist Participants in identifying unacceptable conduct and practices;
- Determine a process to resolve transgressions and discrepancies (i.e. reduce the exposure to risks and improve processes) for the benefit of both the Participants, their clients and Strate as the CSD and the regulator; and
- Assist our stakeholders (the Strate Regulatory and Supervisory Committee and FSB) in assessing STRATE Supervision’s efficiency and effectiveness in discharging Strate's supervisory and enforcement responsibilities and objectives namely:
- protect investors;
- ensure markets are fair and efficient; and
- reduce systemic risk.
Investor complaints could be received directly or via the FSB. Where concerns have been raised, Participants have always responded timeously and resolved all complaints to the satisfaction of the investor concerned and STRATE Supervision.