Under the IFPR, investment firms are required to have robust internal governance arrangements, including:
- A clear organisational structure with well defined, transparent, and consistent lines of responsibility.
- Adequate internal control mechanisms including sound administration and accounting procedures. Firms are required to have a permanent and effective internal compliance function that has sufficient authority and access to the management body’s risk management framework.
- Effective risk management processes allowing firms to identify, manage, monitor, and report the risks that investment firms are or might be exposed to, or the risks that they pose or might pose to others.
- Remuneration policies and practices that are consistent with and promote sound and effective risk management.
Role of the management body
An investment firm’s management body must approve and periodically review the strategies and policies around the firm’s risk appetite and how it manages, monitors and mitigates risks. It must ensure that it devotes sufficient time to these matters, allocate adequate resources to risk management, and ensure that appropriate reporting lines are established for all material risks.
Investment firms that meet certain criteria with respect to their on and off-balance sheet assets must establish a risk committee. The risk committee must be composed of members of the management body who do not perform any executive function in the firm, and who have appropriate knowledge, skills and expertise to fully understand, manage and monitor the firm’s risk strategy and risk appetite. It must advise the management body on the firm’s overall current and future risk appetite and strategy, and assist in overseeing its implementation.
Investment firms that meet certain criteria with respect to their on and off-balance sheet assets must establish a remuneration committee, which may be established at group level.
The remuneration committee is responsible for preparing decisions regarding remuneration and must be gender balanced, exercise competent and independent judgement on remuneration policies and practices, and the incentives created for managing risk, capital and liquidity.
The Chair and members of the remuneration committee must be members of the management body who do not perform any executive function in the investment firm.