Alpha’s view on Investment Guideline Monitoring


  • Investment Guideline Monitoring is the automated pre and post-trade monitoring of Contractual Client Restrictions, Regulatory Rules, Operational Rules and Internal Risk Limits and is executed through an Investment Guideline Monitoring System
  • Investment guidelines are typically coded into the compliance engine of a trade order management system. Rule coding references specific security data attributes and classifications within the system sourced from data vendors Investment Guidelines are measures of portfolio exposures such as issuer diversification, currency exposure, asset allocation, duration, leverage, borrowing, permissions/prohibitions such as asset types, credit ratings, industry sectors and trade level checks such as broker and OTC counterparty restrictions
  • Given the importance of Investment Guideline monitoring in risk management, there is currently a lack of industry wide standards in terms of Operating Model Design, Data Model (compliance Asset Tree) set up, standard definitions and handling of interpretive issues

Why is it important for our clients?

  • Automated pre-trade prevention of contractual and regulatory guideline breaches resulting from trading activities, is vital for all investment managers. The cost of compensating a single investment guideline breach can run into the millions. Failure to demonstrate control of investment guidelines attracts reputational risk and can lead to loss of clients
  • Investment managers must be able to demonstrate to regulators and clients that they run a systematic pre and post-trade monitoring programme for investment and regulatory guidelines
  • Investment managers also need to demonstrate that there is a department independent from portfolio management running a guideline monitoring programme (segregation of duties)

Key challenges for investment managers

Alpha is assisting investment managers in addressing their major investment guideline monitoring objectives and challenges, including:

  • How to best control the overall rule universe – including the standardisation of rule names and the removal of duplicate rules within investment guideline monitoring systems
  • How to best utilise and structure data to create the “building block” definitions of assets to be used for coding compliance rules, and how to address system data limitations
  • Best practise compliance rule test planning
  • How to best set up the investment guideline operating model
  • Interpretive issues and standard definitions: how to best obtain organisation-wide consensus on interpretive investment guideline issues
  • How to monitor complex investment guidelines

How can Alpha help?

  • Best Practice Project Implementation Process: Rule Extraction Methodology, Creation of Asset Tree, Rule Coding, Rule Testing and Documentation, Operating Model Design
  • Quality Assessment of the Investment Compliance Function against a set criteria: Utilisation and coverage of data within compliance rules, consistency and quality of rule coding, set up of the Investment Compliance Function/Monitoring Team and the operating model, the degree of pre- and post-trade risk mitigation achieved and the coverage of instrument and rule types
  • Support for day to day Investment Guideline Operation: Provision of high quality resource to support day to day Investment guideline monitoring operation
  • Operating Model Design: Operating model that ensures Investment Compliance function is properly run and achieves high risk management standards

“Many of our clients are recognising the need to ensure their Investment Guideline Operation is following best practices and standards. Our expertise and methodology provides a clear roadmap of change to ensure that monitoring technology is appropriately utilised to provide best practice contractual and regulatory guideline risk mitigation to clients.”


Mikko Ala-Ilomaki, Alpha Director