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Regulatory requirements across the world are becoming stringent as new and complex investment restrictions are being imposed. Investment compliance monitoring (ICM) is a vital risk-mitigation exercise carried out by investment management firms to predict and avoid breaching investment restrictions. ICM is considered to be one of the crucial activities in the investment business.
The consequences of breaching investment constraints can be significant. Apart from the risk of reputational damage, a company could incur significant ICM costs and breach-related payouts. The average cost of non-compliance borne by investment organizations is estimated at a staggering USD14.8m. Such expenses could paralyze a business. Therefore, outsourcing ICM activities to a competent partner/firm would not only ensure the prevention of such breaches but also enable an investment firm to focus on its core competence – identifying lucrative investment opportunities for its clients.
ICM functionalities and applications a capable outsourcing partner can help your organization with are as follows:
Regulation check and maintenance review
- The ICM team can ensure accurate interpretation, audit, and amendment of the existing set of guidelines on the firm’s investment compliance platform for rule validation and implementation, and assess the effect of different variables on the output of the firm to help identify scope for improvement and enhance performance.
- The proposition of the hierarchical mapping of accounts and documentation by a company’s subject-matter experts can help realize the standardization of rule coding to detect redundant accounts for termination and implement new optimized solutions in their place.
Pre- and post-trade surveillance
- For businesses in volatile markets, ICM teams offer constant monitoring of trades (expected as well as executed) to track regulatory compliance and avoid violating rules due to changing market trends or insufficient data.
- The ICM team also scrutinizes differences in trend analysis and volumetric analysis reports to ascertain root causes. They ensure relevant solutions are offered, supported by expert data science tools, to improve the performance of organizational management.
Extensive reporting
- The ICM firm compiles extensive documentation when both creating and consistently assessing the list of guidelines that need to be monitored for the timely detection of the rule violations and potential loopholes when executing a suitable upgrade of your company’s rulebook.
- The finance department of any organization must be closely monitored. The ICM team would verify the suitability of counterparties to your organization’s financial transactions, ensuring adherence with the investment compliance platform.
Constant supervision of market and trades
Common market abuse and manipulation practices include the following:
- Spreading misinformation to damage the reputation of an organization
- Rigging stock quotations to deceive buyers
- Wash trading or unnecessary selling and buying of the same stocks to reflect an inflated valuation
- Bear raiding, or reducing the price of a stock illegally by choreographed short-selling
- Market cornering by purchasing such a large number of stocks of a particular company that controlling the prices is now in the buyer’s hands
The ICM team constantly monitors for such malpractice and brings any alert to the immediate notice of the relevant personnel to implement protective measures; such action can give your organization an edge over competitors.
ICM support tools
ICM firms also monitor asset distribution, industrial limitations, investment risk characterizations, error tracking, and quality rating, and corporate governance regulations while keeping an eye on compliance with your company’s investment guidelines.
Outsourcing ICM functionalities has many advantages, such as the management of resources by subject-matter experts, your company’s increased focus on its core mission, and minimizing operating and hiring costs. Firms that focus on providing ICM functionalities also monitor trade order priority, to ensure your organization makes the best use of ICM process facilitation and support tools.
