“Competence in risk management alongside proper corporate governance are today investment criteria that should be satisfied before a portfolio manager will invest in a business,” said Roy Leighton, chairman of the FOA, adding that the new guidelines will help companies implement the necessary checks and balances.
The updated guidelines, which were published in association with PricewaterhouseCoopers and the Clifford Chance law firm, comprise six ‘core principles’ for managing derivatives risk. Four of these focus on the identification and management of market risk, credit risk, operational risk and legal risk. The other two focus on how senior management should set up and organise effective internal oversight of derivatives.
Gay Huey Evans, director of markets and exchanges at the UK Financial Services Authority (FSA), said the guidelines will make a timely and topical contribution to the supervision and management of derivatives risk. “Derivatives play a key role in managing risk, but also generate their own risk,” said Evans. “The responsibility for managing risk lies not with the regulators but with the organisations themselves.”