IMP Leads Compliance Rule Library Analysis to Prevent Discrepancies and Reduce Risk for Trade Errors
Client: An investment management firm with AUM of over $174 billion
- Client Need: A slight misinterpretation from an institutional IMA caused a discrepancy between the directive of the IMA and the automated rule library. As a result, the rule was set up incorrectly during the conversion from Charles River V8 to V9 and a costly trading error occurred, despite the small size of the discrepancy.
- Why IMP Was Selected: IMP was selected by the client due to its team’s extensive hands on experience with Charles River Development’s Investment Management System (CRIMS) and reputation for meticulous analysis of the automated compliance rule library Additionally, a long and successful history with the client, including multiple system implementations over the years, prompted the CCO to approach IMP to review its CRD rules library in order to help ensure that the library was covering all of the compliance guidelines in its source documents, and that the rules assigned matched the guidelines.
- IMP Solution: Even the slightest discrepancies between the IMA and the rule library can lead to costly trading errors. IMP consultants were engaged to perform an independent, third party review of the compliance rules set up during the conversion to ensure that other misinterpretations did not exist. IMP’s analysis incorporated a thorough review of the source documentation, including Investment Management Agreements (IMA’s) and prospectuses, to ensure that the documents were interpreted correctly and that all of the investment guidelines were being monitored on the system.
IMP’s goal was to identify trends gaps, deficiencies and actionable improvements that could be made to the library. To accomplish that
goal, IMP conducted the following activities:
- Identify each rule within the source documentation and cross reference to Charles River
- Compare rule name and description to the rule coding
- Validate that the coding is consistent across the library based on coding best practices and that data elements used in the rule are accurate per the intent
- Outcome: IMP provided weekly status reports to the CCO and compliance team throughout the project in addition to a final report that outlined recommendations for the implementation of short and long-term remedial action to fix inaccurate rules. The detailed review prompted the compliance group to re-write a number of rules to eliminate future discrepancies. The CCO presented the final report to Senior Management. This independent third-party detailed review ultimately provided Senior Management with the reassurance that the rule library was set up with a high degree of accuracy and the risk of future discrepancies had been reduced.