FinSA and FinIA broaden the scope of the risk management function.
Traditionally, the concept of risk applicable to independent asset managers mainly covered the detection and prevention of money laundering (AML). From now on, asset managers must formalize and document the investment policy and risk management practices they employ on behalf of their clients.
In this new environment, more demanding in terms of monitoring and risk management, we are by your side to provide you with tools, expertise and support tailored to your needs.
Discover some of the new regulatory requirements below.
In our Services section you will find more information on how we can assist you to comply with these requirements.
FinSA and FinIA intend to better define the profile of each client and take it into consideration in the concrete implementation of portfolios (in the context of discretionary portfolios) or in the choice of the available instruments (in the context of an advisory mandate).
Article 4 FinSA imposes the requirement to categorize clients as private, professional, or institutional, with the option to opt out if a client willingly chooses to be classified in a less protective category.
However, in addition to this high-level classification (categorization of the client's profile) there is the need to know the client's risk aversion, investment objectives and investment horizon. More specific information about the clients requires an assessment of their knowledge and experience in the field of specific asset classes and instruments, an assessment of their general financial situation (their assets and income), their objective and subjective risk appetite, their risks constraints, their objectives (for example if the client needs to draw regular income from its portfolio) and possible investment restrictions.
Documentation of the management process
The obligation to document and report appears in article 15 of FinSA, and is specified in article 19 of the FinSO ordinance: the reports to the client should include the documentation relating to the orders received and executed, to the composition, evaluation and evolution of the portfolio in the case of the client's assets and costs incurred.
Note that the new laws and ordinances set a maximum period of 10 days to respond to an express request from clients.
Appropriateness and suitability
Article 10 of FinSA indicates the obligation to verify the appropriateness or suitability of investment advisory and asset management services.
A distinction must be made between appropriateness of a specific instrument within advisory mandates, and suitability, as an overall concept applied in the context of a discretionary mandate on a portfolio as a whole. In this second case, it is necessary to be able to assess everything that differentiates the risk of a portfolio from a simple addition of the risks associated with individual positions: possible hedging products as well as correlations and dependencies between positions.
It is important to emphasize that there is a static (initial) aspect and a dynamic aspect in the comparison of portfolio risk with the client's profile. In fact, both the needs of the client and the instruments themselves and their dependence evolve over time.
