On Friday, the CSSF published an annual report. Included in the report was information on the review conducted by the CSSF on management procedures risks of investment fund managers (IFMs).
The review identified the following shortcomings most often identified during the review of risk management procedures of IFMs:
- Stress Testing;
- Liquidity Risk;
- Operational Risk;
- Counterparty Risk;
- Leverage
The review established that over half of the GFIs did not provide a satisfactory explanation of the systems used for stress testing and the management of liquidity risk.
On stress testing, the CSSF noted that stress tests should take into account at security level and portfolio level.
Specifically, on liquidity risk, the CSSF note that 59% of IFMs surveyed described a process insufficient for the calculation of liquidity risk. The CSSF stated that IFMs must be able to assess the liquidity of each of the assets of its AIFs and take into account the time and cost required for the sale.