BAFIN, the national regulatory body for financial services supervision in Germany, recently introduced a comprehensive set of guidelines for risk management for all German asset and investment firms. Of critical note, BAFIN encourages German asset managers to begin calculating absolute risk measures, rather than relying on relative risk marked against specified benchmarks. Furthermore, the regulations set out detailed requirements for portfolio analysis, stress testing and back testing.
"The new regulations for German asset management firms are a strong endorsement to use a risk management platform, such as Algo Asset Management, that provides an integrated approach to both risk and fund management," says Andrew Aziz, Vice President for Buy-Side Solutions at Algorithmics. "A basic solution will not cut it. Asset management firms must now demonstrate that fund managers follow the same approach for managing their risk that the middle office uses for regulatory reporting."
Algorithmics has successfully implemented risk solutions globally and helped their clients obtain regulatory approval, including many financial institutions in Germany. Algo Asset Management provides a prepackaged risk management platform that delivers advanced analytics to calculate VaR, back-testing and stress-testing, as well as measure credit limits - requirements now mandated by BAFIN for German asset managers. Furthermore, the solution integrates fully with portfolio management, thereby providing a consistent platform for effective asset allocation and optimization.
"The BAFIN regulations formalize risk management strategies for German asset managers, in the same way Basel I did for the international banks in the late 1990s. The challenge, however, is not only to ensure regulatory compliance but to take advantage of new investment options allowed by BAFIN," says Michael Zerbs, Chief Executive Officer at Algorithmics. "Algorithmics has enabled over 150 financial institutions worldwide to improve business performance and competitive advantage through the intelligent management of risk."