MasterCard 2015 Annual Report Download - page 30

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24
• Our work with governments subjects us to U.S. and international anti-corruption laws, including the U.S. Foreign Corrupt
Practices Act and the U.K. Bribery Act. A violation and subsequent judgment or settlement under these laws could
subject us to substantial monetary penalties and damages and have a significant reputational impact.
• Working or contracting with governments, either directly or via our financial institution customers, can subject us to
heightened reputational risks, including extensive scrutiny and publicity, as well as a potential association with the
policies of a government as a result of a business arrangement with that government. Any negative publicity or negative
association with a government entity, regardless of its accuracy, may adversely affect our reputation.
Settlement and Third-Party Obligation Risk
Our role as guarantor exposes us to risk of loss or illiquidity.
As a guarantor of certain third-party obligations, including those of principal customers and affiliate debit licensees, we are
exposed to risk of loss or illiquidity:
• We may incur obligations in connection with transaction settlements if an issuer or acquirer fails to fund its daily
settlement obligations due to technical problems, liquidity shortfalls, insolvency or other reasons.
• If a principal customer or affiliate debit licensee of MasterCard is unable to fulfill its settlement obligations to other
customers, we may bear the loss.
• Although we are not obligated to do so, we may elect to keep merchants whole if an acquirer defaults on its merchant
payment obligations, or to keep prepaid cardholders whole if an issuer defaults on its obligation to safeguard unspent
prepaid funds.
Our gross settlement exposure for our brands was approximately $40 billion as of December 31, 2015.
While we believe that we have sufficient liquidity to cover a settlement failure by our largest customer on its peak day (including
the availability of our revolving credit facility), are able to seek assignment of underlying receivables from a failed customer and
may charge customers for settlement incurred during MasterCard’s ordinary course activities, the term and amount of our
guarantee of obligations to principal customers is unlimited. As a result:
• Concurrent settlement failures of more than one of our larger customers or of several of our smaller customers either
on a given day or over a condensed period of time may exceed our available resources and could materially and adversely
affect our overall business and liquidity.
• Even if we have sufficient liquidity to cover a settlement failure, we may not be able to recover the cost of such a payment
and may therefore be exposed to significant losses, which could materially and adversely affect our results of operations.
These conditions subject us to increased risk that we may have to perform under our settlement guarantees. For more information
on our settlement exposure and risk assessment and mitigation practices, see Note 19 (Settlement and Other Risk Management)
to the consolidated financial statements included in Part II, Item 8.
Separately, MasterCard also provides guarantees to certain customers and other companies indemnifying them from losses
stemming from our failure to perform with respect to our products and services or the failure of third parties to perform. Any
significant indemnification obligation which we owe to any such customers or other companies could materially and adversely
affect our overall business and results of operations.
Global Economic and Political Environment
Global financial market activity could result in a material and adverse impact on our overall business and results of operations.
Adverse economic trends (including distress in financial markets, turmoil in specific economies around the world and additional
government intervention) have impacted the environment in which we operate. The condition of the economic environment
may accelerate the timing of or increase the impact of risks to our financial performance. Such impact may include, but is not
limited to, the following:
• Our customers may
restrict credit lines to cardholders or limit the issuance of new cards to mitigate increasing cardholder defaults,