There is coordination among our primary regulators in Europe, the UK. The principal regulatory structures that apply to our operations are discussed below.
Alternative Economical Development Fund will have very little or will have very few legal restrictions but will be very fair and the will rely on international courts to protect the Fund countries where the fund will operate. Most countries have areas where there is a reasonable legal certainty but most emerging countries must have the political will to review their judicial system and find ways to reform to make their judicial system more efficient and increase the number of impartial judges. All transactions made by the fund will totally transparent and completely accountable. At the same time legislation will be introduced in the countries where the fund operates to improve the transparency where funding is received and to reduce corruption in the handling of funds.
Our Fund have increasingly looked to emerging markets for new business opportunities and continued growth. These funds provide for emerging markets opportunities for countries to increase revenues and enhance their country positions in the global market. There are many significant challenges that emerging economies present where their developing infrastructure is still inadequate and this is compounded by political uncertainty; underdeveloped rule of law; currency fluctuation; and the need for short-term capital in the hope of realizing long term economic growth.
There are many challenges for emerging economies in spite of some reforms and some development over the years. The emerging economies still remain very weak. There is a lack of resources and in some emerging economies the lack of policy and as well the power to implement them in a manner that will effectively bring them economic growth. The largest challenge are the politics of emerging economies which tend to undermine the function of their economies. It is not so much the politics that are in place but the lack of proper policy for the formulation and evaluation of economic politics. There are interest associations to which world governments have only recently begun to institutionalize. At the moment interest associations continue to lack the resources to be really effective.
In response to the extremely challenging financial and credit market conditions that began in the second half of 2007, regulators, including our primary regulators, announced that they are reviewing the regulatory framework for financial services firms. We expect regulation of the financial services industry to increase. For information on risks that may arise from an increase in regulation.
Economic capital is used as a consistent and comprehensive tool for risk management, capital management and performance measurement. Economic capital measures risks in terms of economic realities rather than regulatory or accounting rules and is the estimated capital needed to remain solvent and in business, even under extreme market.
We are hoping to be guided by Basel II framework (also referred to as the Supervisory Review Process), and implement robust and comprehensive framework for assessing capital adequacy, defining internal capital targets and ensuring that these capital targets are consistent with their overall risk profile and the current operating environment. Our economic capital framework has an important role, as it represents our internal view of the amount of capital required to support our business activities.
As we all awry of Economic capital is calculated separately for position risk, operational risk and other risks. These three risks are used to determine our utilized economic capital and are defined as follows.
Position risk: the level of unexpected loss in economic value on our portfolio of positions over a one-year horizon which is exceeded with a given small probability (1% for risk management purposes; 0.03% for capital management purposes);
Operational risk: the level of loss resulting from inadequate or failed internal processes, people and systems or from external events over a one-year horizon which is exceeded with a given small probability (0.03%). Estimating this type of economic capital is inherently more subjective, and reflects both quantitative tools as well as senior management judgment.