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Risk and Capital Management

Risk and Capital Management

Resolution 4.553/17, of the National Monetary Council, establishes the five-level segmentation (S1 to S5) of the set of financial institutions and other financial institutions authorized to operate by the Central Bank of Brazil for the purpose of proportional application of prudential regulation, and the international activity of the institutions that make up each segment.

B&T Corretora is part of the "S4", a segment composed of institutions of less than 0.1% (one tenth percent) of GDP.

Resolution No. 4.557, published on February 23, 2017, by the National Monetary Council, consolidated several regulations and expanded the requirements that must be met in the institutions' risk and capital management structures. B&T's risk management structure complies with these regulations, other regulations in force and in line with best market practices.

Risk management aims to minimize any negative impact resulting from its materialization, as well as to evaluate Risk x Return relationships, acting not only in a preventive way to the uncertainty events, but mainly creating opportunities for gains.

Risk and capital management activities at B&T are performed by specific units, formally constituted and segregated from business and internal audit units, to ensure that risks are managed in an integrated manner and according to the risk appetite, policies, and procedures. With this structure, it is possible to provide the board with a full view of the exposure to risks, enabling a prospective assessment of the capital requirements to cover these risks, as well as the optimization of corporate decisions.

B&T's risk management enables the identification, measurement, evaluation, monitoring, reporting, control, and mitigation of adverse effects resulting from interactions between the following risks to which it is exposed and provides clearly documented policies and strategies, risk appetite statement (RAS), systems, processes and internal controls, stress testing program, among others.

Operational Risk Management

In accordance with Resolution No. 4.557/17, operational risk is defined as the possibility of losses arising from external events or from failure, deficiency or inadequacy of internal processes, people or systems and includes the legal risk associated with inadequacy or deficiency in contracts signed by the institution, penalties for noncompliance with legal provisions and damages for third parties arising from activities developed by the institution.

B&T permanently develops policies, systems and internal controls to mitigate and control possible losses arising from exposure to risks inherent to its activities, with a set of processes and routines appropriate to its operational modalities, aiming to monitor, control, and ensure compliance with rules and regulations so that inappropriate practices do not compromise the conduct of business and result in accounting losses.

Market Risk Management

In accordance with Resolution No. 4.557/17, market risk is defined as the likelihood of losses from fluctuations in the market values of instruments held by the institution. This definition includes the risk of changes in interest rates and stock prices for instruments classified in the trading book and the risk of exchange variation and commodity prices for the instruments classified in the trading book or in the bank account. B&T's operations identify the risk of exchange variation, risks associated with economic and political changes, as well as the variation of consumer behavior in relation to the products offered by the institution.

B&T's market risk management policy is in line with the principles of the National Monetary Council and constitutes a set of rules to control exposure to risk, keeping it daily at minimum levels, according to parameters established by the Board. It should be noted that the process of management and control of market risk is reviewed periodically in order to remain in line with current regulations and best market practices.

Accordingly, the structure created is capable of evaluating and monitoring associated risks, ensuring efficiency in the management of these risks, and controlling PR (Reference Equity) of its portfolio, as determined by Resolution No. 4.193/13 of the National Monetary Council.

Credit Risk Management

Based on Resolution No. 4.557/17, B&T's exposure to credit risk is associated with possible losses related to non-compliance, by a certain counterpart, of obligations related to the rendering of intermediation services. B&T does not carry out any credit operations to customers or suppliers. As mitigating instruments, B&T operates in a conservative manner, strictly observing the regulatory and prudential limits established by the Central Bank of Brazil.

Liquidity Risk Management

Pursuant to Resolution No. 4.557/17, liquidity risk is defined as the possibility of the institution not being able to efficiently honor its expected and unexpected obligations, current and future, including those arising from collateral, without affecting its daily operations and without incurring significant losses.

B&T's liquidity risk management Policy is in line with the principles of the National Monetary Council and constitutes a set of rules to control exposure to risk, keeping it daily at predefined minimum levels, according to the parameters established by Board of Directors. It should be noted that the liquidity risk management and control process is reviewed annually in order to keep in line with current regulations and best market practices. Thus, the current structure is able to evaluate and monitor associated risks, ensuring efficiency in the management of these risks.

Socio-environmental Risk Management

In accordance with Res. 4.237/14, socio-environmental risk is defined as the possibility of financial losses from social and environmental damages.

The degree of exposure to socio-environmental risk in activities, business relations, and products and services offered by B&T is low, considering that the totality of this exposure is related to practices and activities of the parties with whom the Currency Exchange maintains business relationship. B&T understands its need to grow in a sustainable way and to act with social and environmental responsibility, aiming at the preservation of the environment, respect for human rights, the well-being of its employees and the community in which it operates.

Socio-environmental risk management is carried out by monitoring exposure to operational/legal risk, compliance risk, reputation and conduct risk, which also aims to mitigate the socio-environmental risks associated with conducting business with clients, service providers, partners, and suppliers exposed to high environmental and social risks.

Reputation Risk and Conduct Management

Reputation risk is inherent in any person, whether physical or legal. Within the scope of B&T's business model, it encompasses factors such as legal and regulatory compliance, conduct of employees, partners, and clients, human resources management, information security management, among others. B&T seeks to minimize any negative perceptions that could affect its business, customers or other stakeholders because it understands that reputation is important to maintain the credibility necessary for the continuity of its business.

B&T's exposure to reputation and conduct risk management is supported by Know Your Employee, Know Your Correspondent, Know Your Partner, and Know Your Customer processes that identify, analyze, and mitigate potential issues that may be associated with the reputation of the institution.

Capital Management

Capital risk is due to the incapability to maintain an adequate level of capital in the institution, including prospective vision, to handling unexpected losses, stress situations, and business opportunities, in compliance with regulatory requirements and with a view to guaranteeing financial strength of B&T.

Capital means the set of long-term resources, own and third-party, that make up the Reference Equity (PR) and that were categorized and authorized by BACEN specifically for this purpose.

B&T's capital management relies on a prospective process for the monitoring and control of the institution's capital and its objective is to monitor, plan, and maintain capital at levels compatible with the risks incurred, in a manner consistent with the budget plan, targets, and business strategies.

Money Laundering Prevention and Combating Terrorist Financing

B&T has control instruments, policies, processes, and monitoring systems in its operations with customers, partners, and suppliers, through its products and services, in order to avoid and combat "money laundering" arising from illegal activities, including those linked to corruption and terrorism. The frequent participation of senior management in the prevention and detection of "money laundering" ensures an alignment across different areas and activities of the Currency Exchange, as well as making it possible to define policies adhering to the best international and market practices. "Know Your Customer" policy, employee training program, control processes and systems, and operation monitoring allow a timely identification of atypical situations. B&T's business areas are primarily responsible for identifying and refusing business and operations that it considers suspicious or atypical, always reporting to top management and Compliance.

Risk and Capital Reports