Development of Modern Mechanisms of Risk-based Supervision of the Bank of Russia in the Field of Brokerage

The aim of this research is to develop proposals of the supervisory activities of the Bank of Russia in the framework of broker organizations based on the risk-based approach. The study examines the regulatory framework for broker supervision based on a risk-based approach, and also analyzes the currently applied elements of risk-based supervision. The indicators characterizing the risks in the broker’s activity are determined on the basis of existing research and international supervision practice. These indicators are divided into dynamic and permanent. The risk indicators that have the most significant impact on the brokers' performance are determined based on the econometric analysis. Achievement of threshold values for dynamic indicators means an increase in the risk of the broker’s activity, are defined for dynamic indicators. The procedure for calculating the aggregate risk of a broker has been developed taking into account the results of econometric analysis. Based on this indicator, it is possible to assess the risks of all brokers and their distribution by risk categories. Also this paper proposes the procedure for distributing brokers to risk categories based on the magnitude of their risk and a list of measures that can be applied to brokers classified into each of the risk categories is proposed in the work. In addition, proposals for the application of risk indicators in the implementation of licensing and inspection activities have been developed. The application of the proposed measures by the Bank of Russia will improve the quality of supervision, as well as help reduce the risks in the field of brokerage.