Our Changing Future Unit Linked Fund Governance George McCutcheon FIA MSc– Director, Financial...
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Our Changing Future Unit Linked Fund Governance George McCutcheon FIA MSc– Director, Financial Risk Solutions [email protected] 18 Sep 2013
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Transcript of Our Changing Future Unit Linked Fund Governance George McCutcheon FIA MSc– Director, Financial...
Our Changing Future Unit Linked Fund
Governance
George McCutcheon FIA MSc– Director, Financial Risk Solutions
18 Sep 2013
Unit Linked FundsBusiness Critical
Complexity Regulated
Risk Controls Efficiency
𝑒±𝑖 𝜃=cos𝜃± 𝑖∗ sin 𝜃
Nightmare Scenario
It could be you!
“…Company X Reprimand and fine The Regulator reprimanded the Firm and required it to pay a monetary penalty of YBreaches The breaches identified are … .”
Fines
Non-Compliance with Investment Mandates
Inadequate Systems & Controls
Breaches of Fund Governance
Lack of Board Oversight
Securities Lending
Regulators
Auto enrolment
Complexity
Funds
Governance
Competition
Counterparties
UK Reference Sources FCA Handbook
COLL Provisions
2012 ABI Guide
European Perspective (EIOPA)
EIOPA Guidelines
Guidelines on preparation for Solvency II
NCAs, Undertakings
NCA progress reports to EIOPA
CP 13/08 to CP 13/11
EIOPA -CP13/08Preparation for Solvency II
(b) Effective Risk Management System
(c) Supporting Qualitative Information
Focus on managing processes and procedures
Effective 1/1/2014
(a) Effective System of Governance
EIOPA –CP13/08Articles 40-49, 93, 132 & 246
Proportionate Application
Guidelines on System of Governance
Also part of the Insurance Core Principles published by the International Association of Insurance Supervisors
EIOPA -CP13/08General Governance
Internal Audit, Internal Controls
Actuarial
Outsourcing
Group Specific
Fit and Proper
Risk Management
Compliance
Risk Management
Committees
AMSB
Actuarial
Senior Management
Internal Audit
Internal Reviews
Document Decisions
Monitoring & Reporting
AMSB
Risk Management
Qualifications,
Experience, Knowledge
Align with Business Strategy
Operational Risk
Identification & Mitigation
Activities & Processes & IT Systems
Risk Tolerance Limits
Investment RiskQuantitative Limits
Securities Lending
Valuation, Monitoring Performance
Security, Quality, Liquidity
Solvency II (2009/138/EC)Article 132 : Prudent person principle
Security, quality, liquidity & localisation
Best interests of policyholders (disclosed policy objectives)
UL – Technical provisions closely represented by units
Non-UL: Derivatives, not on RFM, diversification, concentration
Risks identify, measure, monitor , manage, control & report (IMMMCR)
Guideline 27
Investments selected in best interest of policyholders
Takes into Account & Manages Constraints
Custodial
Investment Activity
Valuations
Funds
Governance
Unit Liability
Matching
Counterparties
Systems
Procedures
Compliance Reporting
Data Validatio
nRisk
Management
Controls
Custodial
Investment Activity
Valuations
Funds
Governance
Unit Liability
Matching
Counterparties
Board
Board Committe
esCompliance
Operational Manageme
ntRisk
Management
Senior Manageme
nt
Fund Mandates
Fund Mandate
Monitoring
Portfolio Realignment
Mandate Reconfiguration
Customer Communications
FCA Thematic Review of Unit Linked Funds
UK Regulatory Structure
FSA
Prudential Regulation Authority
Financial Conduct Authority
1 April 2013
FCA Thematic Review: Assessment of Risks
Adequate Systems and Controls Appropriate Assets
Accurate and Fair Calculation
FCA Thematic Review: Key Emerging Issues
Securities Lending Stated Investment Objectives
Counterparty Credit Risk
Assessment Process
Step 1: Desk Based Analysis of
Governance & ControlStep 2: On-site Visits
Interviews and Walkthroughs of
Processes
Testing of Issues on Specific Funds
Step 3: Feedback
Desk Based Analysis
Overarching GovernanceGovernance Structure
Strategy & Approach
Risk Management
Breaches
Conflicts of Interest
Outsourcing
Investment ManagementMandate
Asset Matching
Reinsurance
Fund Mergers & Closures
Stock Lending
Fund AdministrationValuations
Pricing
Taxation
Charges & Expenses
Unit Allocation
Interview Subjects
Interview SubjectsOverarching Governance
Operational Governance
Compliance
Investment Management
Valuations
Pricing & Tax
Administration of Policies
Process Walkthrough
Process
Valuations Pricing Errors
Pricing & Unit Appropriation
Fund Closures & Mergers
Other
Conclusions
Themes
Risk & Reward Communicating
Investment Risks
Fund MandatesControl Environment &
Risk Controls
Regulation
ConclusionsIncreased Regulatory Focus
Greater Operational Challenges
Importance of Documentation
Adequate Systems and Controls
Communicating Investment Risk
Implementation of Guidelines
Greater Incidence of Sanctions
Action Points
Prepare for System of Governance
Review Fund Mandates
Communicating Investment Risks
Control & Compliance Culture
Other
