Review of Collateral Management Policy

Client Requirement: 

The fund manager had embarked upon an initiative to enhance its collateral management processes as part of a wider upgrade of its risk management approach. It wished to define and implement a series of procedures to bring its approach to counterparty risk and collateral management in line with market best practice.

Our Engagement:

InteDelta was engaged to review the fund manager’s collateral management and risk management policies and procedures, benchmark them against market best practice and make recommendations for changes.

Additionally, we produced a policy defining how the Pension Fund should treat non-cash collateral and recommendations on how to adapt its internal environment to support this, covering:

• Trade booking processes;
• Trade settlement processes;
• Reconciliations;
• Management of asset lifecycle events (such as corporate actions etc);
• Inventory management (re-hypothecation, re-investment of the collateral assets etc);
• Legal and documentation issues;
• Credit policies required to control acceptable collateral;
• Eligibility checking processes;
• Concentration monitoring;
• Accounting processes;
• Impact on portfolio structures;
• Impact on coverage ratios in the event of default;

Our Approach:

On commencement of the engagement we undertook a review of the client’s existing processes, organisational structure and supporting technology for collateral management. Considering the output of this review against market best practice we upgraded their policies to reflect this whilst also reflecting the uniqueness of their own internal environment. We also produced a roadmap for the implementation of any changes required to meet the newly defined policies.

Business Benefits:

Through leveraging InteDelta’s subject matter expertise, the client ensured that the developments made to their approach to managing collateral and counterparty risk were in-line with market best practice standards and delivered true business benefit.