ADVANCED

Operational risk infrastructure design and review

Operational risk has become increasingly important for investment management firms and will become more important with the implementation of AIFMD.  The alternative asset management sector has not had to as much importance on the formal setting of risk appetite statements.  Unlike the UCITS sector, exposures are passed to the funds through legal arrangements, something that appears to be gaining regulatory criticism from the FCA as it pursues its Wholesale Conduct agenda.  Regulation will change the outlook for alternatives managers, but it is likely that these firms will still favour simpler definitions of risk appetite.  Business models are not normally complex and managers looking to implement operational risk structures should look to exploit synergies with existing risk governance arrangements such as ICAAP.

Cordium has experience of working with alternative investment managers implementing operational risk infrastructures. We have been invited to work with leading alternative investment managers who faced regulatory pressure to establish their operational risk frameworks. We have provided consulting support to design the operational risk framework, and to establish and maintain the risk identification, control assessment and reporting arrangements. We can also provide assistance with operational risk software selection.

Operational and Regulatory Due Diligence

Cordium will conduct regulatory and operational due diligence on external service providers. We have run the UK and European operational due diligence programme for an international multi-investment manager and undertake periodic outsourced service provider reviews for UK and overseas based managers. We have an investment due diligence team which undertakes external due diligence for manager selection purposes.

Outsourced service provided due diligence will become increasingly important with the implementation of AIFMD as fund boards and alternative fund managers are required to demonstrate the due diligence undertaken before and during appointment.