Investment compliance beyond ‘just controls’


Why Investment Compliance?

Why is Investment Compliance necessary to manage portfolios effectively?

  • SEBI — Securities and Exchange Board of India — India
  • SEC — Securities and Exchange Commission — United States
  • PRA — Prudential Regulatory Authority — United Kingdom
  • Bank of England — United Kingdom
  • Financial Policy Committee — United Kingdom
  • FINMA — The Swiss Financial Market Supervisory Authority
  • Enron — 2001 — fooled regulators with fake holdings and off-the-book accounting practices
  • WorldCom — 2002 — massive accounting fraud
  • Lehman Brothers — 2008 — repurchase agreements to disguise ‘at risk’ assets
  • Volkswagen — 2015 — installed emission-cheating devices in its vehicles, mostly in US
  • Equifax — 2017 — major security breach
  • Examples of Non-compliance to Investment Compliance. Financial US 64 scam
  • Harshad Mehta — 1992 securities scam
  • Satyam Scam — 2008

Risks which Investment Compliance helps managers to manage

  • Identification — Investment Compliance identifies risks that an organization faces and advises on how to address and avoid the risks. While it’s difficult to eliminate all of an organization’s risk exposure, the risk methodology and framework laid by Investment Compliance help the organization prioritize which risks it wants to more actively manage. Developing a methodology & framework helps organizations determine the extent to which an organization’s/company’s existing risk diminution activities are able to reduce risk.
  • Prevention — In order to prevent risks, firstly we need to understand what the risks which are associated with an organization, a scientific justification of risk assessment that make up compliance program like policies due diligence etc. will accomplish little if they do not address the right risks. Investment Compliance will always start with risk assessment. Investment Compliance ensures that a business adheres to internal controls and external rules. Investment Compliance work to meet key regulatory objectives in order to protect investors and ensure that markets are fair, efficient and transparent.
  • Monitoring and detection — Investment Compliance ensures an organization to initiate system of internal control systems that adequately detect and monitor the risk that it faces. A compliance officer with the help of Investment Compliance effectively support business areas in their duty to comply with relevant laws and regulations and internal procedures. Integrated compliance management (ICM) calls for rich data support.
  • Resolution — ICM helps in correctly portraying the capabilities by introducing RFP process which can help companies avoid or address any issue. Introduction of RFPs by ICM would help Institutional investors who require greater visibility into organization’s ICM capabilities and they tend to ask direct questions about those capabilities in their RFPs. With the help of RFPs, ICM may disclose the process followed in initiating the controls, types of restrictions involved which can be monitored and also the structure of the ICM team. ICM though RFPs, help manager to correctly portray client requirements.
  • Advisory — In the current world ICM has a major role though the investment management and banking has recovered to pre-crisis levels and the outlook is positive there are still many challenges to overcome. New regulations and laws are regularly introduced and in parallel the organizations need to ensure effective advisory to be in compliant with increasingly complex and varied requirements.



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Acuity Knowledge Partners

Acuity Knowledge Partners


We write about financial industry trends, the impact of regulatory changes and opinions on industry inflection points.