COLL 7.4.14 Risk Management for Transactions in Derivatives and Forward Transactions—QFC Retail Schemes

(1) The operator of a QFC retail scheme must use a risk management process that enables it to monitor and measure, as frequently as appropriate, the risks associated with—
(a) the scheme's derivatives and forward positions; and
(b) their contribution to the overall risk profile of the scheme.
(2) The operator must tell the Regulatory Authority about the following details of the risk management process before using the process:
(a) the methods for estimating risks in derivative and forward transactions;
(b) the types of derivatives and forward transactions to be used within the scheme together with their underlying risks and any relevant quantitative limits.
(3) The operator must tell the Regulatory Authority in advance about any material change proposed for the details of the risk management process mentioned in subrule (2) (a) or (b).

Guidance on risk management process
1 The risk management process for a QFC retail scheme should take account of the investment objectives, strategies and policy of the scheme as stated in the constitutional document and latest filed prospectus.
2 The independent entity should take reasonable care to review the appropriateness of the risk management process in accordance with its functions under these rules.
3 The operator is expected to demonstrate more sophistication in its risk management process for a QFC retail scheme with a complex risk profile than for a QFC retail scheme with a simple risk profile. In particular, the risk management process should take account of any characteristic of non-linear dependence in the value of a position to its underlying.
4 The operator should take reasonable care to establish and maintain the systems and controls appropriate to its business that are required by CTRL.
5 The risk management process should enable the re-calculation required by rule 7.5.3 (Continuing nature of limits and requirements for derivatives and forward positions—QFC retail schemes) to be undertaken at least daily or at each valuation point, whichever the more frequent.
6 The operator should undertake the risk assessment with the highest degree of care if the counterparty to the derivative is an associate of the operator or the credit issuer.
Derived from QFCRA RM/2010-05 (as from 1st January 2011)