Welcome To The Latest RiskSystem Newsletter
Current Observations and Musings

Well it’s certainly been an interesting past few months- the escalation of the Ukraine situation, the horrendous shootings in Paris, the collapse in oil prices (and many other commodities eg copper), the commencement of QE in Europe and the coming to power of Syriza in Greece. One of the milestones we passed at the end of January was the deadline for Q4 Annexe IV (AIV) reporting. Whilst this was not actually the first AIV reporting period it was in fact the first reporting period for the vast majority of funds. Our experience reporting on our clients behalf was positive – no surprise given we have a comprehensive AIV solution – you can read more here.

Here at RiskSystem we have onboarded several new funds in the past few months. To be frank one of the things we are frustrated by is the poor fund documentation we are often supplied with. We have a very comprehensive onboarding programme designed to ensure we have agreed all risk limits and tolerances with the board and investment manager and are monitoring the correct risk metrics. This is designed to leave no room for error or difficult discussion in the future over interpretation. However this is proving easier said than done. For example there are widely differing views on what risk profiles actually are. One lawyer told us in their considered view the risk profile of a UCITS fund was simply the 20% VaR limit, another told us it’s the entire UCITS restrictions (notwithstanding most are compliance related). In our view neither answer is correct but it goes to show what we as risk service providers are up against. And we’re not blaming lawyers at all here – they are not risk experts, they are legal experts, and therefore shouldn’t be expected to write specific risk documentation – but some clear guidance from regulators wouldn’t go amiss neither. It’s clear when non-experts get involved in writing fund supplements a lot of copying and pasting goes on – often with humorous (but potentially costly) results. On a serious note we have seen a large increase in fines for mis-selling over the past few years. It is our strong view that these fines are going to rise – see here – with the increasing scrutiny imposed by AIFMD. Regulators are requesting risk profiles are designed and aligned with the investors the investment manager is selling to. Failure here will undoubtedly result in very large fines.

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