Risk management challenges in UCITS III funds

Abstract

With the Circular 07/308, the Commission for the Supervision of the Financial Sector (CSSF) aims to provide undertakings for collective investment in transferable securities (UCITS) with rules of conduct to be followed at the time of the implementation of their risk management structure, and with rules for the coverage and daily valuation of over-the-counter (OTC) derivatives. A sound risk management process requires active involvement of the conducting officers and the board of directors of the UCITS, or of its management company, and the Circular defines the roles and responsibilities of these persons. The effectiveness of the risk management process depends on the existence of a proper risk management framework, including: risk governance; risk assessment; quantification and aggregation; monitoring and reporting; and control optimisation.This paper describes how to implement such an efficient risk management framework. It provides a number of items for consideration by risk officers, conducting officers and directors for each phase of the risk management framework, and enables them either to implement their framework properly or to challenge their existing one.