SFC highlights importance of risk management

20 Jan 2020



The Securities and Futures Commission (SFC) today published the latest SFC Compliance Bulletin: Intermediaries which emphasises the importance of sound risk management for brokers and fund managers during times of market volatility. Liquidity and credit risks associated with exposures to illiquid assets are highlighted along with precautionary responses and good risk management practices.

The bulletin also includes case studies illustrating risks that may arise in transactions with related parties and in relation to other complex financing arrangements, and stresses the need for licensed firms’ holding companies and controllers to prudently manage risks at group level.

"Fund managers should conduct stress tests and closely monitor the liquidity profiles of their fund portfolios throughout the entire life cycle of their funds," said Ms Julia Leung, SFC’s Deputy Chief Executive Officer and Executive Director of Intermediaries. "Brokers and their holding companies or controllers should also take steps to mitigate any potential default risks on their own balance sheets, where high leverage might result in a liquidity crunch for the entire group."

The bulletin also warns investors to be cautious when investing in high-risk investment products as well as to be wary of investing in funds with a high concentration of hard-to-sell assets or those with long or extendable redemption dates.

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Page last updated : 20 Jan 2020