Q&A on CSSF Circular 11/512 - Alfi

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Q&A on CSSF Circular 11/512 - Alfi

ALFI Q&A CSSF 11/512QuestionsProposed AnswersDue to the differences in scope, structure and frequency of theregular reports made by the various ManCos, the level ofdocumentation may vary. It is our understanding that theManCo shall provide CSSF with examples of report(s) provingthat a holistic risk reporting is provided to Senior Management/Board of Directors.II. Questions related to Portfolio Risk Calculationmethods:7. Does the maximum potential loss approach mentioned inCSSF Circular 11/512 in IV.4.1 (concentration risk) beinterpreted in applying a Value-at-Risk figure?Paragraph IV.4.1. refers to the situation where, for a specificFDI, the conversion of the FDI into the equivalent position inthe underlying asset (i.e., commitment approach) proves to beinadequate. In this case, the maximum potential loss linked tothe FDI shall be used as its exposure for concentration risk inthe event of default by the issuer.It is our understanding that the VaR contribution of anindividual FDI cannot be deemed to reflect the maximumpotential loss of that FDI.8. What risk categories should be included in the stresstesting?As part of a general requirement on risk measurement aManCo shall – where appropriate - conduct stress tests andscenario analyses to address risks arising from potentialchanges in market conditions that might have an adverseimpact upon the managed UCITS.6

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