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Investment Firms Must Capture All Relevant Risks in Client Asset Risk Matrix
In a bid to safeguard client assets, investment firms must capture all relevant risks in their Client Asset Risk Matrix (CAMP). According to regulatory requirements, these risks include:
- Counterparty risk
- Concentration risk
- Contagion risk
- Operational risk
- Complexity of assets
- Non-compliance with client instructions
- Outsourcing risk
- Over reliance on group arrangements
- Emerging risks
- Loss or misplacement of physical client financial instruments
- Key person risk
- IT risk
- Market risk
- Regulatory risk
Description of Processes and Controls
In addition to capturing these risks, investment firms must also describe the processes and controls that mitigate them. This includes:
- Controls associated with registering client financial instruments
- Removing non-client funds from third-party accounts
- Safeguarding physical client financial instruments
- Mitigating counterparty risk
The CAMP should also outline the approach taken when an investment firm is unable to identify a client on whose behalf client funds were deposited into a third-party account. Furthermore, firms must detail their controls for ensuring that any amendments to lists of third parties where client funds are deposited are made only after approval by senior management.
Operational Structures
Investment firms must also provide details of their operational structures in the CAMP, including:
- Key committees
- Support functions
This will enable regulators to assess the effectiveness of a firm’s governance framework in managing its client assets.
Governance and Outsourcing Arrangements
The CAMP should contain an organisational chart detailing the various roles involved in monitoring and overseeing client asset-related processes and controls. The document must also outline:
- Management information provided to the board and relevant governance forums
- Details of the recipients of this information
Where a firm outsources functions related to client assets, it must clearly document the arrangement in the CAMP, including:
- Name of the service provider
- Jurisdiction of incorporation
- Details of the oversight process
The firm must also maintain records of its oversight activities.
Processes, Procedures, and Records
Investment firms must include an overview of their:
- Client asset reconciliation and calculation processes
- Frequency at which these processes are performed
The CAMP should also outline the approach taken to investigating, identifying the cause of, and remediating client asset differences or discrepancies.
Insolvency Information
The insolvency section of the CAMP must operate as an effective “roadmap” for independent third parties, such as insolvency practitioners. Investment firms must ensure that there is sufficient information available to enable the efficient distribution of client assets in the event of insolvency.
This information may be contained in the CAMP or linked to other documentation through hyperlinks or pathways. Firms must conduct regular reviews of the content in this section and continually monitor hyperlinks to ensure that they remain effective and accessible to independent parties.
By capturing all relevant risks, describing processes and controls, outlining operational structures, governance arrangements, and insolvency information, investment firms can demonstrate their commitment to safeguarding client assets and ensuring business continuity in the event of insolvency.