Our industry is experiencing a steady increase in the amount of regulation that it is required to comply with, accompanied by a move to a regulatory regime based on risk appraisal and principles rather than rules. As a result, senior management are required to spend more time implementing regulatory change and disclosing information, with the added challenge of having to apply their judgement about how some regulation should be interpreted.
This topic originated as a result of increasing pressure in the investment management industry to strengthen corporate governance. For the purposes of this report, this means the need to ensure compliance with regulation and industry guidance, and the need to manage risk to the business across a range of operational areas.
This report allows investment managers to find increased value by streamlining the governance functions of operational risk, compliance and audit. In addressing this, we have considered how functions are organised, whether there is scope for outsourcing, the systems available to provide support, and the help and assistance firms can expect from regulators and trade associations.
This paper enables firms to have a clearer understanding the nature of compliance and operational risk, to provide insight into what it involves and how to tackle it, and as a result to be better placed to shape their own approach to the implementation of effective control functions.
Contact: Clare Vincent-Silk
|Management Summary 1
1.0 Introduction 3
2.0 The control functions 7
Convergence of control functions
Skill sets required
3.0 Compliance 17
The compliance function
The scale and cost of compliance
4.0 Operational risk management 29
What is operational risk management?
Evolution of operational risk management
The role of the operational risk manager
The challenges of the operational risk function
Supporting an operational risk function
How to create an effective operational risk framework
5.0 Control functions as an enabler 47
The value-add of compliance
The value-add of operational risk management
The role of control functions in the sales process
6.0 Business software applications 53
Enterprise risk management systems
Commercial software packages
7.0 Principle-based regulation 63
What is principle-based regulation?
Working with multiple regulators
How is it working in practice?
How do the trade associations fit in?
Issues with “providing industry guidance”