The 2022 Expert-In-The-Loop Forum by Compliance.ai is now available on-demand! Watch sessions here

A guide to asset manager ethics: risk management and compliance

As an asset manager, you’re responsible for each of your client’s resources and the markets they invest in. This includes adhering to high ethical standards and practicing risk management techniques to help protect both your clients and market integrity. 

This guide will discuss the basics of risk management and compliance and how to implement these concepts in your business. The information below will help you navigate the complex world of asset management compliance ethics.

What Are Asset Manager Ethics?

Asset managers hold a position of trust when it comes to managing assets on behalf of their clients. They must adhere to a high standard of ethics in all aspects of their business. The CFA Institute Asset Manager Code is one framework that outlines the ethical responsibilities of asset managers. The code is organized into six broad categories:

  • Performance reporting and valuation.
  • Loyalty to clients.
  • Trading.
  • Investment process and actions.
  • Risk management compliance and support. 
  • Disclosures.

Each of these categories contains several specific guidelines asset managers should follow to maintain ethical standards. Consequently, risk management and compliance are essential considerations for all asset managers, regardless of firm size or type.

Why Is Risk Management Important?

Risk management is critical for asset managers because it helps protect clients and markets. By understanding and managing risk, asset managers can make informed decisions that help preserve asset value and avoid potential losses. In addition, risk management can help identify potential problems early, before they can cause significant damage.

There are many approaches to risk management, but all effective strategies share these common features:

  • Identifying risk: The first step in any risk management strategy is identifying the risks specific to your business. You can do this using various methods, including interviews, surveys, and data analysis.
  • Assessing risk: Once you have identified the risks your business faces, it’s vital to determine their potential impact. This will help you prioritize risks and develop a plan to address them.
  • Controlling risk: After you have assessed your business risks, you must put controls in place to manage them. This might include developing policies and procedures, implementing training programs, or investing in risk management software.
  • Monitoring risk: Risk management is ongoing, not a one-time event. Once you put controls in place, you must monitor them regularly to ensure they are effective. This might involve conducting irm audits or reviews, updating policies and procedures, or monitoring market conditions.

Why Is Compliance Important?

Compliance is another critical consideration for asset managers. Compliance refers to adhering to laws, regulations, and other standards. In the asset management industry, businesses must meet many compliance requirements, including regulations related to money laundering, insider trading, and market manipulation. Failure to comply with these regulations can result in significant penalties, including fines and jail time.

In addition to financial penalties, noncompliance can damage a firm’s reputation. This can lead to loss of business, reduced market share, and decreased investor confidence. For these reasons, asset managers must have a robust compliance program that might include hiring a compliance officer, developing policies and procedures, and investing in financial compliance software.

Why Are Asset Manager Ethics Important?

Asset manager ethics are integral for a variety of reasons, including:

  • Ethical asset managers help create an environment of trust and confidence in the market. This is essential for attracting and retaining clients and employees.
  • Ethical asset managers help ensure assets are managed responsibly and sustainably. This helps protect the long-term value of assets and safeguard the interests of all stakeholders.
  • Finally, ethical asset managers help create a level playing field in the market. This ensures all market participants have a fair chance of success and that the market operates efficiently.

In sum, ethics are crucial for asset managers because they help create a favorable market environment, ensure individuals manage assets responsibly, and promote a level playing field in the market.

How Can Software and Tools Help?

Financial regulatory compliance software and tools can help asset managers streamline the compliance process and improve risk management. Regulatory compliance tools can automate tasks, allowing compliance officers to focus on more strategic tasks. In addition, a financial regulatory compliance platform can provide real-time alerts of potential compliance breaches, helping businesses address problems quickly and avoid financial penalties.

When choosing regulatory compliance solution, selecting a tool specific to your needs is paramount. You can find a range of compliance software products on the market, so choosing one tailored to your business is important. Also consider a software’s scalability, as your compliance needs are likely to change over time.

How We Can Help

Compliance.ai is an excellent example of financial regulatory compliance software specific to the asset management industry. The software includes features such as a modern command center, compliance process automation, and regulatory update monitoring. Additionally, the Compliance.ai team can provide tailored support and advice to asset managers looking to improve their compliance practices.Contact the Compliance.ai team today to learn how they can help your business improve its compliance program. The company serves clients in various industries, including asset management, FinTech, banking, and insurance. They can help you mitigate risk and remain compliant with the ever-changing regulatory landscape.

X