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[PODCAST] Operational Risk Due Diligence with James Newman, PerfORM

Updated: Apr 28, 2020

Here’s our favourite take-aways from our discussion with James.

Operational Risk Due Diligence - 5 Best Practices

CP86 and CSSF Circular 18/698 provide some clarity on regulators’ expectations for how Fund Management Companies (“FMCs”) assess the operational risks that come from delegation (and sub-delegation). One of the key delegated activities in the fund environment is investment management. FMCs have a responsibility to identify and assess all risks from investment management delegation, including operational, financial, legal and reputational in order to manage them appropriately. This is achieved through a combination of on-site, Skype and desk-based analysis.

In this episode of The Aquest Podcast, we discuss 5 best practices for FMCs when conducting operational due diligence on delegate investment managers:

● Use a risk-based approach when it comes to the frequency of operational risk reviews, and be prepared to perform ad-hoc reviews in response to events – e.g. investment manager entering a new product space, key man event, liquidity event, etc.

● Due Diligence skills are needed to carry out delegate checks – either acquire these internally or engage an expert.

● Delegate on-sites are only one item in the toolkit. External verifications, reading policies, documents, fund financial statements are just as important.

● Be challenging at on-sites and ensure their targeted to make the most of everyone’s time.

● Important to keep the DD questionnaire ‘alive’ and relevant – operational risks change.

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