Risk Management System

OTP Capital, as a part of banking group, which provides assets management services for institutional investors, in order to ensure stable business and  to protect the interests of investors implements in its work an effective risk management mechanism. This mechanism is implemented with Risk Management System(RMS) which ensures identification, monitoring, reporting and mitigation of all types of risks, can be faced by Company.. Risk Management System complies with minimum requirements set in National Bank of Ukraine’s Decree №64 “On the organization of risk management system in banks and banking groups”, as well as recommendations of Basel Committee on Banking Supervision and European Banking Authority.

The main goals of Risk Management System:

  • Protection of the investors in funds under management.
  • Fulfilling the strategy of the OTP Capital (Management Company).
  • Assuring compliance of funds’ asset composition and structure with legislation and Investment Declarations
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The complex and turbulent nature of modern financial markets, evolving regulatory environment, and technical progress require effective and proactive risk management. It is imperative for the Management Company to develop a comprehensive risk management system that efficiently identifies, measures, monitors and controls the risks. As a member of the OTP Bank Group, the Management Company takes into account the principles and policies outlined in OTP Bank Group’s regulations and recommendations.

Risk management principles

Risk management system is based on following principles:

  • Efficiency – RMS should perform full scope of risk management activities with optimal use of financial and human resouses, as well as information systems.
  • Timeliness – RMS should perform risk identification, measurement, control, and mitigation in time. Division of Responsibilities – functions and responsibilities of departments and employees should be clearly divided.
  • Control separation – the same person should not perform operations and control them at the same time.
  • Comprehensiveness - RMS should oversee all types of Management Company’s activities and interdependences between risks.
  • Transparency – Management Company provides access to information about RMS and fund risk profiles.
  • Adequacy – RMS should be adequate to the scope and complexity of Management Company’s activities.
  • Independence – the impartiality of decitions should be guaranteed.
  • Confidentiality - the access to sensitive information should be restricted.

How Risk Management System is built

The risk management system consists of three lines of defense, headed by the Supervisory Board and CEO, who directly supervise and control the Company.

Supervisory Board
Risk Management Committee
1st line
Marketing and Sales Department
Investment Department
Department of Operations
2nd line
Department for
control over compliance
with regulatory requirements
3rd line
Supervisory Board

Collegiate body that determines the strategic goals of company, including the field of risk management.


Head of the Company and exercises operational control over the Company’s activities

Risk Management Committee

Responsible for:

  • approval of the Risk Management Policy and other documents governing the company’s risk management process, control over their implementation and annual review to ensure their relevance;
  • setting internal limits on counterparties;
  • consideration and approval of company risk management reports;
  • providing recommendations for improving the company’s risk management system;
  • analysis of potential effects due to the introduction of significant changes in the company’s business ;
1st line

Carries out primary risk carry on by complying with established legal and internal rules. In particular, they undertake to provide competent advice to clients, to make timely settlements with them, as well as to analyze factors that may affect the market price of instruments and assets.

2nd line

Identifies, measures, controls and manages existing risks and monitors the Company’s compliance with applicable international and domestic legislation. The risk manager assess and aggregates indicators for all types of risks, takes measures to minimize or effectively manage them. The Regulatory Compliance Department checks customers or contractors for compliance with procedures, identifies and helps to eliminate weak legal positions in new or existing agreements.

3rd line

Checks existing rules for compliance and relevance, as well as identifies problem areas in it.

Main company’s risks

  • Market risk

    A risk related to fact, that fair value or future cash flows from financial asset will change due to market prices variability.

  • Liquidity risk

    is the risk that an asset management company or fund will have difficulty with fulfilment of their obligations related to financial liabilities that are settled by transfer of money or other financial asset.

  • Credit risk

    The present or potential risk that arises because a counterparty of financial instrument contract  can fails to meet its obligations and will cause the other party to incur a financial loss.

  • Operational risk

    Operational risk is the risk of direct or indirect losses due to improper or non-compliance with internal procedures, inadequate or incompetent individuals or systems, or external events. This definition includes legal risk, but excludes strategic risk and reputational risk

Determining the risk profile of public investment funds and NPFs

Each investment or pension fund , managed by AMC OTP Capital receive a level of risk (also known as fund’s risk profile). Fund gets his risk profile based on volatility figures. Volatility – the degree of variability of the fund’s profitability, calculated by the following formula

– volatility
– number of weeks per year
– measurement period, which is 5 years for funds with availiable history of observation, and at least 52 weeks (a year) for funds with no observation history
– fund income for the week f,
– average income during  Т period.

Thus, the value of the risk profile of a fund depends on the volatility of the fund (the variability of its return). The high level of the fund’s risk profile means that the fund’s performance has fluctuated significantly over the past 5 years. In such conditions, the investor of the fund understands that the profitability of investments will most likely be subject to significant fluctuations, respectively, his investments can bring both high profits and such significant damage. Conversely, investing in funds with a low level of risk, that is, with low volatility, is likely to generate little income, but with lower chance of losses.

The asset management company guarantees that the risk profile of the funds under management will correspond to the size, composition of the portfolio and investment policy announced in the investment declaration of the fund. The risk level of each fund is measured on a weekly basis.

There are 7 main risk groups, defined in accordance with the Recommendation of the Committee of European Securities Regulators on the methodology for calculating the synthetic risk and reward indicator №CESR / 10-673 of July 1, 2010.

Risk group
Risk description
to 0,5%
from 0,5% to 2%
from 2% to 5%
from 5% to 10%
from 10% to 15%
from 15% to 25%
from 25% and higher

The Risk manager determines risk level of each Fund each week. If the risk rating falls outside the range of risk group for each week during 16 weeks, then if the new level of risk is higher, the risk classification of the given fund should be automatically changed . If the new level of risk is lower – it is changed by RMC’s decision

Risk level of each fund is reflected on the page of the fund, and in case of change of the level of risk at the same time changes to the current one on the pages.

** Please note that according to the CERS Recommendation, the risk group is calculated only for investment funds. To ensure the maximum level of transparency and informing our clients, the Company accounts the risk group for  pension funds on the principle of investment funds with absolute returns (ie with a target portfolio).

Risk Management team

OTP Capital has a single team of like-minded professionals focused on success and achieving common goals. The main working criteria  of the company are efficiency, professionalism and innovation.