Risk Committee Update: May 2026

This month’s Risk Committee newsletter includes a brief assessment of the latest geopolitical situation in the Middle East. Plus, there are updates from our annual due diligence visits to Brazil, Australia and New Zealand, and the USA.

Middle East Update

As of 13 May, a conditional ceasefire between the United States and Iran remains technically in place but is under strain. While extending the ceasefire, President Trump has said the US blockade of Iranian ports will continue. Meanwhile, Iran's top negotiator says it is "not possible to reopen the Strait of Hormuz" due to what it calls "blatant violations” of the truce. Iran’s president describes these apparent violations as the "main obstacles to negotiations". Earlier, three cargo ships were attacked by the Islamic Revolutionary Guard Corps (IRGC) while attempting to cross the Strait of Hormuz - two of which belong to the world’s biggest shipping company, MSC. The crews of MSC Francesca and MSC Epaminondas have been detained by Iran - White House press secretary Karoline Leavitt said this does not violate the ceasefire. 

Markets operating as normal

It has been advised that the financial institutions, including the stock exchange, the central securities depository (CSD) and the central bank, are currently operating as normal in Bahrain, Egypt, Israel Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, and the United Arab Emirates (UAE).

Turkey, although not directly impacted by the war has put measures in place to reduce volatility.  The Capital Markets Board (CMB) of Turkey has extended the suspension of short selling transactions on the Borsa Istanbul (BIST) equities market. The suspension was put in place on 2 March 2026 and was due to originally end after the trading session on 6 March 2026. However, the suspension has been extended multiple times and is now extended until the end of trading session on 26 May 2026.

As usual, we’re monitoring the situation and are sending communications whenever the situation materially alters. 

Brazil Due Diligence Visit

During Q1, we conducted a light due diligence to Brazil, visiting the CSD, and a number of banks.

Key market developments:

• T+1 settlement cycle transition: The B3 S.A. (Brasil, Bolsa, Balcão) has formally confirmed February 2028 as the target go-live date for the migration from T+2 to T+1 settlement. This initiative aligns Brazil with other major markets, including the United States. To support the transition, seven dedicated industry working groups have been established, covering areas such as custody, trading, post-trade processing, securities lending, and operational risk. These groups have already commenced activities, focusing on impact assessments, system readiness, and market-wide coordination. 
• BASE – new stock exchange (expected 2026): BASE, the newly proposed stock exchange, is expected to commence operations in the second half of 2026. Initially, it will focus on equities, real estate investment funds (Fundos de Investimento Imobiliário – FIIs), and exchange traded funds (ETFs). BASE plans to operate with its own vertically integrated clearing and settlement infrastructure, positioning itself as a competitor to B3. Over time, it intends to expand into futures and derivatives markets. The entity has already submitted licence applications to the Comissão de Valores Mobiliários and the Banco Central do Brasil. 
• A5X – new listed derivatives exchange (expected 2026): A5X, a new exchange focused exclusively on listed derivatives, is expected to become operational by the end of 2026, subject to regulatory approval. It will function both as a trading venue and as a central counterparty clearing house (CCP), providing clearing and risk management services. A5X will operate independently from B3 and will assign its own International Securities Identification Numbers (ISINs) to listed instruments, which may introduce additional operational considerations for market participants, particularly in terms of instrument identification, settlement, and reporting. 
• Brazilian Federal Revenue Service Normative Instruction No. 2,290/2025: Issued by the Receita Federal do Brasil, this regulation introduces amendments to the federal framework governing ancillary tax obligations and taxpayer compliance. Key elements include enhanced requirements for taxpayer identification (Tax ID issuance), as well as stricter rules on the disclosure, verification, and ongoing maintenance of beneficial ownership information. The regulation also introduces the use of the electronic Beneficial Owner Register (e-BEF). The requirements will be implemented in phases, with initial provisions effective from 1 January 2026, and additional obligations relating to beneficial ownership disclosure and maintenance effective from 1 January 2027. 
• Law No. 15,270/2025 – dividends taxation: This law introduces changes to the taxation framework applicable to dividends in Brazil. While further regulatory guidance is still expected, the reform forms part of a broader effort by the Brazilian government to modernise and rebalance the tax system, potentially impacting both domestic and foreign investors. Market participants are currently assessing the implications for investment structures and cross-border flows. 
• Law No. 15,265/2025 – securities lending taxation: This law establishes that remuneration received by lenders in securities lending transactions will be subject to withholding income tax (Imposto de Renda Retido na Fonte – IRRF). The applicable rates follow those used for fixed income investments, as defined in Law No. 11,033/2004, ranging from 22.5% to 15%, depending on the tenor. This change, effective 1 January 2026, may impact the attractiveness of securities lending programmes, particularly for foreign investors. 
• B3 systems: B3 continues the implementation of its core system. Phase 1 has been completed and the CSD is now working on the implementation of phase 2.  

Regarding the banks, there are no significant changes, except for a one notch upgrade in financial risk following a Moody's upgrade at the end of the year to one bank’s (parent) credit rating.

Australia and New Zealand

Key points from the Q1 due diligence visit (which apply to both Australia and New Zealand):

• There are no overall risk grade changes for the three banks assessed.
• There are no risk grade changes across any of the risk areas for any of the banks that we monitor – with one exception. For one bank, removal of a negative manual adjustment applied to ‘AML / KYC Policies and Procedures’ (relating to an old fine from 2021) has resulted in a one notch upgrade to Ops Risk, without any change to the overall risk grade. This same bank remains ‘On Watch’ due to the group level organisational restructure that came into effect in January 2025.
• Another bank’s overall risk grade has been capped at the current score as, based on RC agreement from 2 December 2024, they are considered (at a group level) to still be working on remediating several issues linked to their risk management framework (they were fined as recently as July 2024). Their outlook therefore remains ‘On Watch.’ 
• In terms of financial risk outlook, one bank remains negative due to a USD 1.10 billion legal provision in relation to developments in ongoing litigation linked to the Bernard L. Madoff Investment Securities (BLMIS) LLC fraud.
• The asset servicing risk outlook remains unchanged for each of the banks assessed. 
• The operational risk outlook remains unchanged for each of the banks, though one remains ‘On Watch’ due to the additional fines applied by the Federal Reserve Board and the Office of the Comptroller of the Currency (OCC) who have determined that they haven’t made sufficient progress in remediating prolonged deficiencies in their enterprise-wide risk management, compliance risk management, data governance, and internal controls (from a 2020 Cease and Desist Order).
• In general, there is limited market activity in New Zealand, compared to Australia; dairy farming is a significant area, and a number of new minerals companies are being listed. Trading volume and volatility has decreased over the past year, even though the market has grown organically over the last 12 months. The derivatives market is planned for launch in Q3 of 2026, but this could be further delayed. Go-live of NZ Clear 3.0 is planned for the end of November 2026. This is essentially a new interface, revamping the way corporate actions will be processed.

USA

A light due diligence visit to the US took place in Q1, including an annual grading review of all banks. 

• Meetings took place with two major banks, while the visit also included two cash correspondent due diligence visits. There was also a meeting with the DTC who will be overhauling its systems, focusing on digital assets, stablecoin custody and a “DTC‑specific asset”. Furthermore, the US administration (since January 2025) has moved from a pause to an active push on digital asset regulation, tokenisation and real‑time trading (US payment infrastructure is still lagging behind as cheque use is still prevalent).
• One bank has been downgraded for financial risk, as their total capital ratio fell from 18.2% to 17.1%, while their Tier 1 ratio also fell from 16.5% to 15.2% (the three-year trend shows a modest decline).
• Finally, another bank has seen its asset safety score increased due to confirmation that they use several methods to notify clients of upcoming corporate events.