Statement of Financial Condition
UBS Securities LLC
Notes to the Statement of Financial Condition (continued)
(In Thousands)
12. Risk Management (continued)
Credit Risk (continued)
The Company may pledge clients' margin securities as collateral in support of securities loaned,
as well as to satisfy margin requirements at clearing organizations. For margin loans, the amounts
loaned or pledged are limited to the extent permitted by applicable margin regulations. Should the
counterparty fail to return the clients' securities, the Company may be required to replace them at
prevailing market prices.
Operational Risk
Operational risk is an inherent in all facets of the Company's business activities. Losses can result
from inadequate or failed internal processes, people and systems, or from external causes. The
operational risk definition incorporates both conduct and compliance risks.
The Company follows a Group-wide operational risk framework ("ORF") that supports
identifying, managing, assessing and mitigating operational risks to achieve an agreed balance
between risk and return. The ORF establishes requirements for managing and controlling
operational risks. It is built on the following pillars:
classifying inherent risks through the operational risk taxonomy, which defines the universe of
material operational risks which can arise as a consequence of the Company's business
activities, products, processes, systems, and external factors;
assessing the design and operating effectiveness of controls through the control assessment
process;
proactively and sustainably remediating identified control deficiencies;
defining operational risk appetite through quantitative metrics and thresholds and qualitative
measures, and assessing risk exposure against appetite; and
assessing inherent and residual risk through risk assessment processes, and assessing whether
additional remediation plans are required to address identified deficiencies.
Compliance & Operational Risk Control ("C&ORC") is responsible for providing an independent
and objective view of the adequacy of operational risk management across the Group, and for
ensuring that operational risks are understood, owned and managed in accordance with the Group's
risk appetite. The ORF forms the common basis for managing and assessing operational risk. There
are additional C&ORC activities intended to ensure the Company can demonstrate compliance
with applicable laws, rules and regulations.
All functions within the Company are required to assess the design and operating effectiveness of
their internal controls periodically. These assessments form the basis for testing and assurance of
financial reporting internal controls as required by the Sarbanes-Oxley Act, Section 404.
Key control deficiencies identified during the internal control and risk assessment processes must
be reported in the system of record, and sustainable remediation must be defined and executed.
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