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.