Our regulatory consulting expertise driven by Arendt Regulatory & Consulting S.A. (ARC) assists fund managers (AIFMs and UCITS management companies) and self-managed investment funds in the implementation of their risk management framework with a view to meeting the increasing standards of Luxembourg and European regulators. We help our clients with defining, assessing, monitoring, and reporting the risks inherent in the funds they manage and assist them in compliance matters related to their regulated risk management activities across Europe.
Delivered by a strong team of risk consultants, who are assisted when required by regulatory advisors and lawyers, our core services include:
The recent PRIIPs regulation and the obligation to produce and deliver a KID each time a packaged product is sold or advised to an investor who is not a “professional” has created a new and unwelcome difficulty for product producers, notably as regards computing the metrics required by the new rules. The combination of (i) a lack of methodology and the inadequacy of the prescribed approaches regarding the respective performance and cost estimates for “Category 1” PRIIPs and (ii) the absence of clear rules for selecting benchmark data as a way to circumvent the setting of default market risk classifications has triggered considerable disparities in the PRIIPs-KID metrics as produced by market participants. Similarly, the voluntary omission of the credit risk measure by certain service providers producing KIDs, or their consideration of default values in order to allow a full automation of the process, has led to several biases regarding the assessment of Synthetic Risk Indicators (SRIs) for “Category 2” PRIIPs. Not to mention data challenges imposed by the transaction cost methodologies for such products.
To help its clients understand and monitor effectively all the risk, performance and cost metrics underlying the PRIIPs regulation, whether these are produced by a service provider or in-house, we have developed OPRA. This software application enables its users to produce the quantitative metrics in a fully transparent and time efficient manner for the PRIIPs-KID and to fill in the European PRIIPs Template (EPT).
The granting of a license by the CSSF to any new or existing AIFM or UCITS management company wishing to establish or to extend its activities/strategies in Luxembourg is conditional upon the implementation of a sound risk management framework in which the RMP and its related risk procedures play a central role. We help clients to draft the documentation required and submit it to CSSF or, alternatively, to critically review documents belonging to the client or amend specific sections on request. This will be of particular relevance for those clients managing strategies which are more exotic or innovative, but also for those who wish to have an independent and fresh view on their process.
In connection with Arendt’s professional training division, Arendt Institute, we provide our clients (up to senior management level) with certified training sessions on key risk management topics. These training sessions can be attended by all interested clients or take the form of more tailored sessions, centered around specific strategies.
Both the UCITS and AIFM regulations, as further detailed by the relevant CSSF circulars, requires the Permanent Risk Management Function (PRMF) to report regularly to senior management on the level of risk incurred by each managed fund. To fulfill this objective, we assists our clients by implementing automated risk management reporting targeting PRMF for UCITS and AIFs.
Luxembourg regulations and the CSSF’s practical application thereof require that for UCITS adopting a Value at Risk approach the VaR model used must undergo a periodic validation by an independent third party which has not been involved in the building process of the model in order to ensure the robustness of the model.
To assist its clients, our expertise has developed a “VaR Backtesting” approach which is used to assess both the conceptual and empirical soundness of the VaR models adopted by a UCITS to evaluate its global exposure. Furthermore, we provide our clients with independent reviews of liquidity risk, operational risk models and stress testing.