The 2008 financial crisis demonstrated just how important it is for investment managers to have strictly administered risk and compliance guidelines. While several factors were to blame for the crisis, a lack of due diligence and enforcement of risk procedures played a big role in precipitating it. Nowadays, any good fund manager should have compliance at the core of its operations. What is its role and what does this mean for your investments? Let’s explore below:
- Ensure all legal and regulatory requirements are met
Before anything else, the compliance division of an investment firm should ensure that the products or services it offers are in line with the laws of the land. The department will also work closely with regulators to ensure that the company is compliant with guidelines which are intended to protect investors and manage risk.
- Provide oversight over internal processes
One of the key duties of the compliance practitioner is to design, implement and oversee the compliance policy of the investment company. The policy should define risk boundaries, identify threats, outline corrective actions and monitor investments. This keeps employees accountable and ensures that all firm transactions are carried out in accordance with the guidelines. For this reason, the compliance department should enjoy some independence and report directly to the board or the chief executive.
- Keep records
The compliance department should maintain accurate records and make these easily available to concerned parties. These include external auditors, regulators and the internal team. Fastidious recordkeeping is an important risk management tool.
- Maintain quality
The compliance function should thoroughly analyze and track investment actions and ensure that the investment manager acts in the best interests of the client. This upholds the quality of the products and services it offers. It also ensures that inappropriate activity is flagged and dealt with early, before it becomes a bigger, harder-to-solve problem.
- Crisis planning and management
The compliance department is key in planning for and managing crises that may affect the fund manager’s operations. As the custodian of the compliance and risk management guidelines, the compliance officer should educate the rest of the employees, update them when changes are made and take the lead during implementation.
In conclusion, all companies could benefit from strong compliance and risk management frameworks. However, for an investment firm, it is not just a desirable feature; it is compulsory. It is the only way to uphold safe and trustworthy investing for clients.