Risk Committee Update: February 2025 

Last month Thomas Murray’s Risk Committee met to review several markets covering the latest developments and proposed changes in risk assessments for Oman, Thailand, Vietnam, Portugal, Slovakia, Spain and the UK.   

As always, should you need to talk to any one of our regional experts for further insights and guidance, please get in touch with me agiraldo@thomasmurray.com  and I'll be happy to connect you! 

Oman - Enhanced Risk Profile and Improved Operations  

The Risk Committee met to review the risk grades for Oman’s Muscat Clearing and Depository (MCD), the central securities depository (CSD), as part of a public risk assessment process. The CSD has shown significant improvements, particularly in asset servicing and operational risks, and is implementing new initiatives and operational enhancements that may result in improvements across most of the underlying risk components. The overall outlook has been set as “On Watch” reflecting several upcoming changes that may alter its risk profile, including the implementation of a centralised securities lending and borrowing facility, the possible inclusion of custodian banks as participants of the CSD, the revamping of the settlement guarantee fund and the introduction of users groups.

Improvements in operational efficiency were noted across asset servicing processing, including a new control in which corporate actions are only released following final confirmation by the issuer and the automation of the calculation of mandatory event entitlements. Regarding proxy voting, there have been improvements such as the mandate that all AGMs shall be held electronically via MCD’s e-AGM platform, MCD facilitating proxy voting on the e-AGM platform through the investor’s number, which facilitates increased functionality and operational efficiency for investors.  

Regarding Operational Risk, the functions of the internal audit and the risk department have been moved to the holding company, the Muscat Stock Exchange. The CSD has developed an Enterprise Risk Management Framework and has in place an Audit, Risk and Compliance department.  A risk register is in place and risk champions are appointed per department to identify the risks and implement controls to mitigate these risks. The internal audit programme is comprehensive, coupled with an extensive periodic audit by the State Audit Institution (SAI). Robust control cultures around IT and business recovery/redundancy facilities are now in place, while information security is ISO27000 certified and renewed annually. Penetration testing is conducted annually by a third party.

Overall, Oman MCD’s commitment to support the market growth is pivotal in navigating the market's challenges and securing its future growth and stability. Ongoing vigilance and adaptation are crucial in managing risks and capitalising on opportunities in the Omani market. With these upgrades and a focus on continuous improvement, Oman's financial market infrastructure is expected to continue its positive trajectory, offering a stable and attractive market for participants. 

Thailand: Navigating Risk Assessment Changes Amidst Macro Factors  

International Banking and Market Stability: Only international banks, such as HSBC, Citibank, and Standard Chartered, are now being offering custody services in Thailand. This shift reflects the growing importance of global financial institutions in the country's banking sector. Meanwhile, Thailand's capital markets remain stable, with a focus on tightening rules to prevent practices like naked short selling. 

Regulatory Adjustments and Innovations: Minor changes to foreign exchange regulations are aiming to support non-resident fund repatriation, demonstrating the government's efforts to facilitate international investment. Additionally, the introduction of a non-Thai settlement project by the Clearing House is expected to enhance foreign currency settlements, promoting greater efficiency and attractiveness for international investors.  

Vietnam: Enhancing the Financial Infrastructure   

The latest developments and proposed risk assessment changes in Vietnam are being driven by various factors, including the potential upgrade of Vietnam's market from Frontier to Emerging Market, which will be reviewed in September.  

Implementations of a non-prefunded trading model, a new clearing system under the Central Securities Depository (CSD), and a new trading system using Korea Exchange (KRX) technology are in the pipeline. These developments aim to enhance the country's financial infrastructure and services.  

The risk assessments we conducted focus on several areas, including Asset Safety, Financial Risk, Asset Servicing & Operational Risk, and Overall Custody Risk. Notably, the asset safety scoring has been adjusted to reflect beneficial owner recognition at the VSDC level, demonstrating efforts to improve transparency and security.  

Macroeconomic factors, including the country's growing economy and increasing integration into the global financial system, likely influence these risk assessment changes. The involvement of international banks, such as HSBC, Standard Chartered, and Deutsche Bank, in Vietnam's market also contributes to the evolving risk landscape.  

Overall, the proposed risk assessment changes and market developments in Vietnam signify the country's progress in enhancing its financial infrastructure, services, and risk management practices, aligning with its emerging market status.  

Portugal: Recent Developments and Improved Outlook  

A key highlight for Portugal is the removal of a negative financial risk outlook, driven by improvements in the financial health of banks, such as BCP Millennium. The removal of this negative outlook is attributed to strong financial performance, including robust earnings in 2024, as well as upgrades by major credit agencies.  

Macroeconomic factors, including the overall stability of Portugal's economy, have likely contributed to the positive developments in the financial sector. The country's efforts to maintain fiscal discipline and promote economic growth may have also played a role in the improved financial risk outlook.  

The removal of the negative financial risk outlook suggests a strengthening of the country's financial sector, which may have implications for risk assessments and investments in the region. Overall, we find an indication of a positive trajectory for Portugal's financial sector, driven by strong financials and improving economic conditions.  

Slovakia: Recent Developments and Revised Outlook  

There’s a favourable financial risk outlook for Slovakia, which has been revised in a positive direction for UniCredit in particular. The change in outlook is attributed to strong financial results, which have withstood the impact of a windfall tax. The temporary effect of the tax suggests that the financial sector is showing resilience and adaptability.  

Macroeconomic factors, including the overall stability of Slovakia's economy, have likely contributed to the improved financial risk outlook.  

Key topics discussed in the meeting include the financial performance of banks, the impact of regulatory measures such as windfall taxes, and the overall financial risk landscape in Slovakia. The revised outlook suggests a more stable and predictable financial environment, which may have positive implications for investment in the region. Overall, the updates indicate a positive trajectory for Slovakia's financial sector, driven by strong financial results and a stable economic environment.  

Spain: Financial Stability and Growth  

Macroeconomic factors, including Spain's strong economic growth (3% in 2024) and the country's recovery from the COVID-19 pandemic, have likely contributed to the positive developments in the financial sector in the country. The Spanish Market Reform, which aims to simplify securities settlement and registration processes, has been implemented on 10 March 2025. The previous inefficiencies in that respect have been removed and aligns Spain with other European markets in terms of post-trading practices.  

In Spain, we’re finding a focus on enhancing risk management practices, improving cybersecurity, and maintaining a stable financial environment. Recent events, such as cyberattacks, have also been considered in the risk assessments, highlighting the importance of resilience and adaptability in the financial sector.  

Overall, the updates indicate a dynamic financial environment in Spain, with a focus on risk management, cybersecurity, and economic growth. The country's financial sector appears to be evolving in response to various challenges and opportunities, with an emphasis on stability, security, and innovation.  

UK: Trends, Challenges, and Opportunities  

For the UK, this update focuses on the overall custody risk assessment of banks. The changes in risk assessment are attributed to various factors, such as adjustments to systems and controls, and revisions to reconciliation practices.  

Euroclear UK and International, the UK CSD, is focusing on operational resilience with the aim of strengthening its existing system, CREST, and avoiding operational disruptions that cause ripple effects in the UK financial system. Euroclear has embarked on a multi-year CREST replacement project to ensure the system continues to meet the market’s needs and regulatory requirements in the coming years. Euroclear is also an integral part of the T+1 taskforce and is helping to shape the industry’s adaptation to the shorter settlement cycle. 

The UK is readjusting its legal and regulatory framework for the financial sector in an effort to move away from restraints of retained EU law and shape a framework that better suits the needs of the domestic market while making the UK a competitive player on the international stage.