1. RISK AND COMPLIANCE
LESSONS LEARNED AND LOOKING
BEYOND THE COVID-19 ERA
WHITE PAPER
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2. Risk and Compliance – Lessons learned and looking beyond the COVID-19 Era A ComTechAdvisory Whitepaper
INTRODUCTION
While it is commonly believed that the pandemic was a black swan event, according
to most risk experts it wasn’t. As they point out, the COVID Pandemic was an event
that was foreseeable in its occurrence, though perhaps not in its timing. Despite
being (thankfully) rare, these types of events do occur and bring with them an
increased awareness of the importance of proper and holistic risk management
practices, not only as it applies to external risks (as the pandemic was), but also
commercial and internal risks as well.
When looking back at the events of 2020, the
impacts of the pandemic, both direct and those
catalyzed by it, rippled throughout virtually
every industry and commodity group. Supply
chain disruptions throughout the year increased
operational risks and forced often forced
companies to seek alternative sources for their
critical supplies. Initially these disruptions were
caused by international border closures, and
later caused temporary closure of facilities due
to infection and quarantine creating shortages
in the workforce. These disruptions impacted
the production and distribution of a number
of consumer goods such as paper products,
proteins and cleaning supplies. Lockdowns
also changed a mix in the types of commodities
and quantities being consumed, notoriously
toilet paper (as demand moved from industrial/
commercial packaging to retail).
Energycommoditieswerealsoheavilyimpacted,
notably oil and refined products due to Russia
and OPEC failing to agree a production level
extension and flooding the market with crude
oil at the very time demand collapsed due to
lockdowns. After falling below zero dollars per
barrel, prices have recovered, but volatility is
remains high and is expected to continue so for
the foreseeable future. Power demand also fell
significantly during the pandemic, as industrial
facilities shut down and load shifted to less
intensive residential needs as workers moved
to their dining room tables from the offices and
factories.
Work from home has increased the emphasis on
business continuity issues and on collaboration.
The pandemic exposed weakness in many
companies’ contingency and continuity plans,
particularly in the areas of collaboration due to
limited access to critical systems. These issues
have and will continue to force organizations to

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move more quickly to become more digitalized.
The events of 2020 provided a view of risk
that has never been seen in a truly globalized
marketplace and no industry was left unscathed
by its impacts. But, if there are silver lining in the
events of 2020, it is that companies that have
survived the year are more likely to be aware of,
and better equipped, to address similar risks in
the future.
ENTERPRISE RISK
The breadth of risks faced by commodity-centric firms can be broken into 3 broad categories:
1) market risks, 2) external risks (including environmental) and 3) internal risks.
Market risks are primarily those that manifest
themselves in the prices paid for commodities within
a given market; and are primarily driven by abnormal
(non-seasonal) changes in supply and demand, or the
perception that supply and demand may change rapidly
in the short-term. Market risks can include credit risk,
as rapid price swings can degrade the financial position
of companies, impacting both the firms themselves
and their counterparties. At various times during the
last year, the markets became oversensitive to news
developments and rumors. Prices for all commodities,
particularly energy products and metals become highly
unstable as demand forecasts swung rapidly as COVID
surged in the 2nd quarter of the year. The metals
markets did recover relatively quickly from a drop of
about 20% in the third quarter. However, energy prices
and particularly oil have struggled to recover to their
pre-COVID levels. The resultant loss of value to energy
producers has had a devastating impact, particularly in
the US shale market, where bankruptcies have been
numerous and credit risk has risen for many trading
organizations.
External risks can result in increased market risk if the
external events are of sufficient scale to impact more
than a single company or small region. These risks
can range from another COVID-like pandemic creating
havoc in global markets, to unusual weather events that
damage producing assets or result in closure of trade
routes. Other large scale and destabilizing external
events can include earthquakes, tidal waves, or even
crop diseased or insect infestations.
Internal risks are usually related to the breakdown
of internal processes. These can include equipment
failures due to improper maintenance, trading
exposures due to breaches of trader or aggregate desk
position limits, improper regulatory reporting, and many
others. Though many of the most high-profile failures
of internal controls disasters that had been caused by
rogue traders (with billions of dollars in losses) have
occurred in the not-too-distant past, recent scandals
in the Singapore fuels markets (exposed, in part, by
events related to the COVID pandemic) have again
shown a spotlight of the importance of adequate

4. Risk and Compliance – Lessons learned and looking beyond the COVID-19 Era A ComTechAdvisory Whitepaper
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RISKS REMAIN BEYOND THE COVID-19
ERA
Even after the pandemic has fully receded, risks of all kinds will continue as before, and many
are likely to grow in breadth and intensity. Among those:
• Environmental Risks - Western governments’
movement to a low carbon future has an impact
on all fossil fuels, renewables, and even other
commodities like proteins and animal feeds.
Questions remain as to the timing of legislation
across the various participating countries, how
resilient these regulations will be should there be
a significant global economic downturn, and how
willing will consumers be to continue to support
their countries’ politicians should these initiatives
result in much higher prices?
Additionally, many governments are looking to
phase out hydrocarbon fuels, with the initial push
focused on coal. This move to decarbonize has
been supported by subsidies, including tax breaks
and direct payments, helping accelerate end-
consumer adoption of ‘green’ energy and products
like electric vehicles. However, should some or all
these types of subsidies end, what impact will that
have on investment in new renewables projects and
consumer goods?
With the growing adoption of renewable energy
sources, market volatility in power markets is
likely to increase without a massive development
effort in energy storage. The power crisis in the
California markets in the summer of 2020 was
a clear indicator that without a comprehensive
strategy that embraces not only new investments
in renewables, but also battery and other storage
technologies, grid instability and market volatility
4
internal controls and financial reporting.
While many of these risks, such a price volatility,
can be ameliorated, at least in part, through existing
financial products such as hedges; and others, like
weather damage or earthquakes can be addressed
with insurance products, the impacts and timing of
events such as the recent global pandemic can only be
addressed reactively. The ability to effectively manage
any of these risks requires a complete view of not only
external market conditions, but also of the operational
risks and any optionality and/or alternative strategies
embedded in the assets of your company. The ability to
visualize and quantify risks, optionality and alternative
strategies requires a comprehensive technology
infrastructure in which the CTRM/CM system is central
component.

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will ensue, especially in markets that are isolated
from other sources of conventional generation.
Aside from green products and green power,
western consumers have also been moving toward
products that can demonstrate socially responsible
supply chains and products, such as non-GMO
produce and proteins, and commodities produced
without child labor or deforestation. Certifying
these types of commodities and products requires
traceable supply chains, from producer to consumer
and continuing investments in such capabilities will
be required. And should there be a high-profile
failure related to that tracing (food borne illness,
GMO controversy, etc.), the subsequent loss of
consumer confidence could cause significant
damage to market reputations across the affected
industries.
• Regulation/Oversight – In the same vein as
environmental risks, increasing regulation and
oversight globally in the form of a myriad of rules
and regulations (often regional and/or local in
extent) have impacted all aspects of commodity
supply chains and trade, such as IMO2020 for
marine fuels sulfur content which has required
increased investments by ship operators, refineries,
and bunker operators. These types regulations will
likely increase in intensity as governments and
industry consortiums seek to limit any number of
“bad” actions or by-products related to commodities
and the products produced from them.
Rules governing child labor practices and
commodities produced in areas of conflict have also
gained increasing attention in recent years. These
regulations, usually bound by treaties, require
that any company that transacts in the affected
commodities track their origin, movements,
transformation, and finally delivery to consumers
via traceability applications, as with the previously
mentioned environmental risks.
Some regulators have instituted, and others
are proposing market rules that essentially limit
positions in some commodities, such as energy
derivatives. These rules will impact trade volumes
and market liquidity, and almost certainly leading to
increased volatility in those markets.
Stakeholders, including company boards,
shareholders and banks are also increasing the
intensity of oversight are they seek assurances that
those companies in which they are involved are
maintaining and practicing sound risk management
policies to limit downside risks and potential legal
exposures.
• Trade and Project Financing - The entirety
of the various trends previously discussed, in
combination with massive losses by several trading
firms (including accusations of fraud such as in
Singapore) have led to a near crises in global trade
financing as banks continue to exit the commodity
trade financing market. In late August 2020,
ABN Amro announced it will exit the trade and
commodity finance business, joining BNP Paribas,
Société Générale, Natixis, and others that have

6. Risk and Compliance – Lessons learned and looking beyond the COVID-19 Era A ComTechAdvisory Whitepaper
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Of course, the end of the pandemic does not mark the
endofamyriadofinternal,externalorenvironmentsrisks,
and firms need to increase their focus on addressing
these through a combination of increased vigilance,
strengthened balance sheets, improved processes, and
investments in critical technologies. These steps will be
required to improve those companies’ ability to identify
and ameliorate financially erosive, or even catastrophic,
risks.
For most of these commodity-centric firms, their
CTRM/CM applications are at the technology center of
their risk management efforts. And though some of the
previously discussed external risks may not be directly
addressable by the scope of a CTRM/CM system,
such as extreme weather events, earthquakes, or even
increasing regulatory pressures, these types of external
risks will all have direct and sometimes massive impact
on commodity supplies and prices, in turn increasing
market & credit risks.
The COVID-19 pandemic has again pushed risk management, in all its forms, the top-of-mind
status for all companies, even those that exist outside of what is commonly termed “commodity
trading”. Any firm that produces, consumes, trades, or sells commodities or commodity derived
products has had some level of disruption in 2020, and those disruptions have impacted bottom-
line performance, up to and including some companies that have failed entirely.
RISK AND CTRM/CM
either entirely left the market or have declined to
take on new exposures in the commodity space.
The loss of structured, bank-backed financing
will undoubtedly increase trading costs across all
commodities, reducing liquidity and limiting market
growth - though the effects will almost certainly
be most pronounced in the Asia-Pac region where
alternative financing (funds, etc.) is limited.
Government-backed investments and private
investors have recently been limiting, or eliminating,
funding for various oil, gas, or other hydrocarbon
focused projects. In late 2020, the European Union
indicated they would limit their funding of natural
gas projects because of the “risk” they pose to the
group’s ambitious climate goals.
Activist investors may also pose problems in these
markets as they invest in various funds and then
seek to prevent those funds from engaging in
what they view as socially unacceptable investing,
including hydrocarbon energies, protein production
and some metals. However, despite these activists’
efforts to date, widescale disruptions in those
markets has yet to occur outside of a few local
markets, but there is little question their efforts will
continue.

7. Risk and Compliance – Lessons learned and looking beyond the COVID-19 Era A ComTechAdvisory Whitepaper
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Internal risks are a critical CTRM/CM consideration as
these systems not only capture and value commodity
transactions, but also serve as a central point of
control for policies, procedures, and compliance for
many companies. This can include the tracking of
trading limits, valuing and ensuring compliance with
financing covenants (including VAR limits and stress
testing), tracking trading activities across any number
of dimensions (from individual traders to global
commodity positions) and providing a complete audit
trail of all trading and marketing activities.
Risk analytics and supply management applications,
when properly integrated with CTRM/CM applications
can further assist in developing a proactive approach
to risk management. AI-powered analytics have proven
their worth during the pandemic in forecasting rapidly
changingdemandpatternsthathaveaffectednumerous
commodities, including energy and agricultural
commodities.
Unfortunately, there is no singular approach to
developing a truly comprehensive solution for managing
all risks, as the exposures any company faces will be
dependent on the markets in which they operate, the
assets deployed, and the length and breadth of their
supply chains. Developing such a system may require
any number of specific components to monitor market
conditions, communicate with suppliers, monitor supply
chains to identify constraints, etc.
The increasing awareness of enterprise risk is driving
a changing focus in software procurement – not just
of CTRM/CM and risk analytics, but of surrounding
solutions like contract management, document
management, workflow, supply chain solutions and
others. As these new components/systems are
implemented, many will need to integrate with and into
the CTRM/CM system. This requirement to tightly
couple these critical systems has driven increased
interest into “platform approaches” in which the
CTRM/CM retains its central importance, but it exists
within a more modular architecture on which these
other components reside.
When such a platform, one that incorporates not just
CTRM but also the other critical components of CM
and supply chain management, is available from a
single vendor (like that from EKA), users are able to
quickly add new capabilities as the need arises, without
costly and lengthy implementation projects. With either
generalized components (such as VAR or Credit Risk)
or commodity specific components (such those that
assistinidentifyingcropdiseasesorinsectinfestations),
platforms like EKA’s can accelerate information across
the enterprise and ensure their users have “first mover”
capabilities in the event of erosive or catastrophic risk
events.

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SUMMARY
The COVID pandemic has taught the world any number
of very painful lessons and has exacted a terrible toll
in lives and livelihoods lost. Though the effects on
the commodities industry may pale in comparison to
the personal losses suffered by many, it is important
that the lessons of 2020 are not forgotten and that
companies better prepare themselves not only for the
next catastrophic event, but also what now seem more
mundane (but no less threatening) events that may be
looming on the horizon.
Early identification of these threats, along with proper
risk controls and procedures, will be key to ameliorating
risks and helping to reduce the likelihood of internal
failures. For commodity-centric companies, continuing
to invest in the latest solutions that leverage new
technology to gain a holistic view of all enterprise risks,
from production to delivery to consumers, will be one of
the most critical success factors going forward.

9. ABOUT EKA
Are your ready to find the best CTRM/CM solution
for your organization? An extensible cloud platform
can help you create an agile, digital business – au-
tomating processes and delivering the depth of in-
sight you need to make better decisions for trading
and risk, supply chain and financial management.
Eka empowers you to prioritize and scale a solution
that meets your unique business. Customize and
develop the best-fit solution for your:
• Scope of functionality: Unlock the value of your
data from sourcing to trading and risk, supply
chain and financial management.
• Commodity and market versatility: Manage a
broad set of asset classes across geographies
by selecting the best solutions from our library of
50+ applications. Our solutions serve the entire
trading value chain across agriculture, energy,
metals and mining and manufacturing markets.
• Functional requirements: Perform on-demand
analysis using trusted data with custom dash-
boards, drill downs, visualizations, and embed-
ded machine learning algorithms for anomaly
detection.
• System integrations: 20+ built-in connectors
and open APIs enable you to easily bring exter-
nal data from ERP systems and other sources
including market, weather, compliance, and your
database.
Eka’s Cloud Platform provides advanced analytics,
one source of data and an automation engine, pro-
viding maximum flexibility and investment protec-
tion as business needs and market requirements
change. With our fully mobile platform enables in-
sight and analytics on the go, Eka is committed to
ensuring our 100+ clients can work from anywhere
and collaborate across ecosystems within a secure
and trusted environment.
If you’re ready to find a solution that can address
your specific business requirements, learn more
about at www.eka1.com

10. ABOUT
Commodity
Technology
Advisory
LLC
Commodity Technology Advisory is the leading analyst organization covering the ETRM and
CTRM markets. We provide the invaluable insights into the issues and trends affecting the
users and providers of the technologies that are crucial for success in the constantly evolving
global commodities markets.
Patrick Reames and Gary Vasey head our team, whose combined 60-plus years in the energy
and commodities markets, provides depth of understanding of the market and its issues that is
unmatched and unrivaled by any analyst group.
For more information, please visit:
www.comtechadvisory.com
ComTech Advisory also hosts the CTRMCenter, your online portal with news and views about
commodity markets and technology as well as a comprehensive online directory of software
and services providers.
Please visit the CTRMCenter at:
www.ctrmcenter.com
19901 Southwest Freeway
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+420 775 718 112
ComTechAdvisory.com
Email: info@comtechadvisory.com