RC: Could you provide a brief overview of the key risk monitoring and reporting requirements stipulated by the AIFMD?

Burrows: The AIFMD provisions on risk and liquidity management and on investor and regulatory reporting present a significant challenge to managers. This includes the Annex 4 Reporting challenges. AIFMD reporting is just part of the theme of the increased regulatory reporting that managers need to address. Managers increasingly need systems and processes, or outsourced support, that can deal collectively with all of these challenges. The AIFMD provisions contain detailed rules governing the use of leverage, operational requirements including the risk management function and delegation, the role of the depositary, and the contents and frequency of reports to investors and regulators, including Annex 4 Reporting. Each AIFM must first establish a permanent and independent risk function with the necessary means and authority to fulfil its duties. They must also ensure that they have a documented and comprehensive risk management policy. AIFMs must be able to review their risk policy and risk management framework on a regular basis, and they must be able to measure and manage risk against quantitative and qualitative internal limits, including for market risk, credit risk, liquidity risks, counterparty risk and operational risk. They must also report to regulators in accordance with the Annex 4 Reporting requirements. The contents and frequency of those reports – quarterly, six-monthly or annual reporting – depend on the assets-under-management and levels of leverage.

Jul-Sep 2015 Issue

Miles Europe