The key elements to a sound investment and regulatory limits monitoring framework cover:
- The ability to clearly define the investment policy, authorized instruments and any limitations or restrictions listed in the prospectus/offering memorandum as well as the relevant regulatory constraints.
- The ability to monitor these restrictions and limits accordingly, which involves defining how to measure the various exposures and comparing them to investment limits and regulatory restrictions.
- Defining the actions to be taken should any breach in compliance be detected (escalation procedure, remedial, best approach to protect the investors).
Recent regulatory changes – such as the latest UCITS IV guidelines – have clearly emphasized the need for more robust, precisely documented and carefully monitored risk management and compliance monitoring frameworks.