Background

On 29 May 2026, MAS published an information paper on risk management practices of Fund Management Companies (“FMCs”) arising from MAS’s thematic inspections concerning how FMCs manage their overall investment and operational risks. This paper provides supervisory guidance and best practices regarding 5 broad areas: governance frameworks, policy and procedures (“P&Ps”), new fund launches and changes to existing funds, investment due diligence and ongoing monitoring of investment. 

Identified Gaps

1. Governance: Board and Senior Management (“BSM”) failed to address certain risks such as liquidity and had unresolved trade reconciliation issues, leading to repeated delays in NAV calculations. They also overlooked conflicts of interest by channelling investor funds into related entities without proper disclosure. Additionally, there were other issues, e.g. risk monitoring was incomplete, compliance certifications were falsely signed, support functions lacked the authority to challenge decisions, and committee discussions were poorly documented.
   
2. P&Ps: Some FMCs launched funds without established investment P&Ps and failed to review them at least annually, resulting in insufficient guidance and inconsistency on risk metrics and escalation procedures, and undefined roles. Additionally, some FMCs also failed to comply with their own due diligence and breach reporting protocols.
   
3. New Fund Launches or Changes to Existing Funds: FMCs failed to thoroughly assess critical risk factors before launching or altering funds, appointing portfolio managers with under two years of relevant experience, and selecting service providers based on general track records rather than specialized asset expertise. Furthermore, firms distributed inaccurate marketing materials that misrepresented product features and maintained poor records, often relying on verbal rather than documented approvals of their strategic evaluations.
   
4. Investment due diligence: Some FMCs failed to verify trade receivable authenticity, neglecting to assess borrower or guarantor creditworthiness, and ignoring redemption frequency mismatches in fund-of-funds. Additionally, firms failed to evaluate underlying fund manager’s expertise and maintained poor records, omitting crucial quantitative and qualitative investment assessments.
   
5. Ongoing Monitoring of Investments: Several FMCs failed to independently monitor investment and risk limits, with portfolio managers instead performing these checks, while others lacked thresholds, monitored funds too infrequently, or failed to safeguard collateral. Additional lapses included neglecting credit reviews for extended periods, miscalculating credit scores, and providing inaccurate or outdated investor disclosures, and absence of records of effective implementation. 

Regulatory Expectations to Address Gaps

1. Governance Frameworks: Direct and active involvement by the BSM, including establishing a culture of accountability where executive layers systematically debate risk metrics and receive detailed, periodic risk dashboards.
   
2. Comprehensive Risk P&Ps: Regular maintenance and mandatory annual reviews of written risk manuals covering all relevant risk categories, establishing explicit rules for defining, documenting, and resolving internal policy deviations.
   
3. Independent Risk Structures: FMCs are expected to maintain a functionally independent risk management unit with clear reporting lines to the BSM, ensuring that risk identification and limit enforcement remain entirely segregated from front-office portfolio management activities.
   
4. Disclosures to Stakeholders: FMCs must assess factors such as investment strategy, investor profile, liquidity, internal expertise, systems, and regulatory requirements to ensure effective execution and risk management. They should also perform due diligence on any models used, update fund documents and marketing materials to be accurate and not misleading, and ensure all changes are properly reviewed and approved by the relevant authority with clear documentation.
   
5. Ongoing Monitoring Systems: Firms are expected to implement ongoing, proactive risk measurement systems (e.g., automated pre- and post-trade compliance checks) to ensure the timely detection, tracking, and escalation of portfolio concentration or leverage anomalies.
   
6. Competent Service Providers: FMCs must exercise strict oversight over external risk technology vendors and custodians by conducting thorough initial and ongoing due diligence on their operational resilience, systems, and controls while maintaining complete audit trails.
   
7. Record-Keeping: MAS expects accurate and comprehensive documentation for accountability and audit trail.

What’s Next?

FMCs are best advised to immediately review their risk management framework and ensure that that senior management across all departments—including support teams—who have the necessary skills and experience, provide robust governance and supervision of the investment process. Failure to maintain robust risk assessment framework and operations may result in regulatory reprimands. 

How Can We Help?

Capital Governance assists Financial Institutions through:  

1. Reviewing Governance Framework: Conducting comprehensive gap analysis and designing standard operating procedures to streamline the tracking, escalation, and recording of risk limit breaches and stress-testing anomalies. 
2. Refreshing P&Ps and Record Keeping: Proposing tailored structural improvements and policy enhancements to ensure your risk management manuals and various terms of reference can be documented to match the newly implemented MAS expectations. 
    
3. Outsourcing Vendor Due Diligence: Reviewing current or potential service providers to ensure compliant collaboration, verifying their operational capabilities, and establishing key performance metrics that align with regulatory standards. 
   
   and more …