Compliance rules for an effective investment management system

Abstract

Investment management firms have dedicated compliance teams that take care of incorporating regulatory compliance rules as well as programme-specific compliance rules into the firm’s investment management programmes. There are a set of compliance rules that govern the investment management process and they are triggered when certain trade-related parameters like convexity or beta are breached. These rules are mainly to ensure that undue financial risks are avoided while investing the client’s funds. The financial as well as reputational damage to firms is significant when adverse events are triggered due to a lack of adequate compliance processes as has been seen in cases like Long Term Capital Management (LTCM). This paper looks at 15 compliance rules that a compliance manager can ponder when setting up their firm’s compliance programme. Although by no means exhaustive, these rules set the context for building a robust compliance engine.