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COLL 6.11 Risk control and internal reporting

Application

COLL 6.11.1 R
  1. (1)

    1This section applies to:

    1. (a)

      an authorised fund manager of a UCITS scheme; and

    2. (b)

      a UK UCITS management company providing collective portfolio management services for an EEA UCITS scheme from a branch in another EEA State or under the freedom to provide cross border services.

  2. (2)

    This section does not apply to an EEA UCITS management company providing collective portfolio management services for a UCITS scheme under the freedom to provide cross border services.

Permanent risk management function

COLL 6.11.2 R
  1. (1)

    An authorised fund manager of a UCITS scheme or a UK UCITS management company of an EEA UCITS scheme must establish and maintain a permanent risk management function.

  2. (2)

    The function referred to in (1) must be hierarchically and functionally independent from operating units, except where such independence would not be appropriate and proportionate in view of the nature, scale and complexity of the authorised fund manager’s or UK UCITS management company’s business and of each scheme it manages.

  3. (3)

    The authorised fund manager or UK UCITS management company must be able to demonstrate that:

    1. (a)

      appropriate safeguards against conflicts of interest have been adopted so as to allow an independent performance of risk management activities; and

    2. (b)

      its risk management process satisfies the requirements of COLL 6.12.3 R (Risk management process) or, where appropriate, the relevant UCITS Home State measures implementing article 51 of the UCITS Directive.

[Note: articles 12(1) and 12(2) of the UCITS implementing Directive]

COLL 6.11.3 G

Where the risk management function required under COLL 6.11.2 R (1) is not hierarchically and functionally independent, the authorised fund manager or UK UCITS management company should nevertheless be able to demonstrate that its risk management process satisfies the requirements of COLL 6.12.3 R (Risk management process) and that, in particular, the appropriate safeguards have been adopted.

[Note: article 12(2) third paragraph and recital (12) of the UCITS implementing Directive]

Duties of the permanent risk management function

COLL 6.11.4 R
  1. (1)

    The permanent risk management function must:

    1. (a)

      implement the risk management policy and procedures;

    2. (b)

      ensure compliance with the risk limit system, including statutory limits concerning global exposure and counterparty risk, as required by COLL 5.2 (General investment powers and limits for UCITS schemes) and COLL 5.3 (Derivative exposure) or, where appropriate, the relevant UCITS Home State measures implementing articles 41, 42 and 43 of the UCITS implementing Directive;

    3. (c)

      provide advice to the governing body, as regards the identification of the risk profile of each scheme it manages;

    4. (d)

      provide regular reports to the governing body and, where it exists, the supervisory function on:

      1. (i)

        the consistency between the current level of risk incurred by each scheme it manages and the risk profile agreed for that scheme;

      2. (ii)

        the compliance of each scheme it manages with the risk limit system referred to in (b); and

      3. (iii)

        the adequacy and effectiveness of the risk management process, indicating in particular whether appropriate remedial measures have been taken in the event of any deficiencies;

    5. (e)

      provide regular reports to the senior personnel outlining the current level of risk incurred by the relevant scheme and any actual or foreseeable breaches to their limits, so as to ensure that prompt and appropriate remedial action can be taken; and

    6. (f)

      review and support, where appropriate, the arrangements for the valuation of OTC derivatives, as referred to in COLL 5.2.23 R (OTC transactions in derivatives), COLL 5.2.23C R (Valuation of OTC derivatives) and in this rule or, where appropriate, the relevant UCITS Home State measures implementing article 44 of the UCITS implementing Directive.

  2. (2)

    The permanent risk management function must have the authority and access to all relevant information necessary to fulfil the duties set out in (1).

[Note: articles 12(3), 12(4) and 44(3) of the UCITS implementing Directive]