Home / CY AIFM Law of 2013 / PART ΙΙΙ – OPERATING CONDITIONS FOR AIFMs / CHAPTER 1 - General Requirements /  Section 16 - Risk management.

Risk management.

16.-(1) AIFMs shall functionally and hierarchically separate the functions of risk management from the operating units, including from the functions of portfolio management. The Commission shall review the functional and hierarchical separation of the functions of risk management, in accordance with the principle of proportionality and understanding that the AIFM shall, in any event, be able to demonstrate that specific safeguards against conflicts of interest allow for the independent performance of risk management activities and that the risk management process satisfies the requirements of this section and is consistently effective.

(2) AIFMs shall establish and implement adequate risk management systems in order to identify, measure, manage and monitor appropriately all risks relevant to each AIF investment strategy and to which each AIF is or may be exposed. In particular, AIFMs shall not solely or mechanistically rely on credit ratings issued by credit rating agencies as defined in Article 3(1)(b) of Regulation (EC) No 1060/2009 of the European Parliament and of the Council of 16 September 2009 on credit rating agencies, for assessing the creditworthiness of the AIFs’ assets. (i)

(3A) The Securities and Exchange Commission, taking into account the nature, scale and complexity of the AIFs’ activities, monitors the adequacy of the credit assessment processes of AIFMs, assesses the use or reference to credit ratings, as referred to in subsection (2), in the AIFs’ investment policies and, where appropriate, encourages mitigation of the impact of such references, with a view to reducing sole and mechanistic reliance on such credit ratings.(ii)

(3) AIFMs shall -

(a) establish and implement appropriate, documented and regularly updated due diligence process when investing on behalf of the AIF, according to the investment strategy, the objectives and risk profile of the AIF;

(b) ensure that the risks associated with each investment position of the AIF and their overall effect on the AIF’s portfolio can be properly identified, measured, managed and monitored on an ongoing basis, including through the use of appropriate stress testing procedures; and

(c) ensure that the risk profile of the AIF shall correspond to the size, portfolio structure and investment strategies and objectives of the AIF as laid down in the AIF rules or instruments of incorporation, prospectus and offering documents.

(4) AIFMs shall set a maximum level of leverage which they may employ on behalf of each AIF they manage as well as the extent of the right to reuse collateral or guarantee that could be granted under the leveraging arrangement, taking into account, inter alia -

(a) the type of the AIF; and

(b) the investment strategy of the AIF; and

(c) the sources of leverage of the AIF; and

(d) any other connection or relevant relationship with other financial services institutions, which could pose systemic risk; and

(e) the need to limit the exposure to any single counterparty; and

(f) the extent to which the leverage is collateralised; and

(g) the asset-liability ratio; and

(h) the scale, nature and extent of the activity of the AIFM on the markets concerned.

(i) 8(I) of 2015

(ii) 8(I) of 2015