The CFA Institute Centre for Financial Market Integrity is seeking public comment on a proposed risk management requirement that it plans to add to its code of conduct for asset managers.

The proposal establishes a more detailed risk management process that identifies, monitors, and analyzes the risk position and exposure of a manager. This new provision provides asset managers with guidance that addresses many of the risk management concerns that have risen from the current market crisis, it says.

“The types of risks faced by managers include, but are not limited to, market risk, credit risk, liquidity risk, counterparty risk, operational risk and style drift,” says the provision. “Risk management that is objective and independent of the portfolio management process is imperative to understanding and controlling these types of risk.”

“We can think of no more important addition to the Asset Manager Code than to expand its focus on more thorough risk analysis procedures,” said Kurt Schacht, CFA, managing director of the CFA Institute Centre. “It is easy with hindsight to say that managers should have been much more aware of counterparty and liquidity risk in our sub-prime era. At this point, investors believe that it is more important to help refocus and fix the process than to point fingers.”

The proposal was developed in cooperation with the global 13-member CFA Institute Standards of Practice Council, which is responsible for the CFA Institute Code of Ethics and Standards of Professional Conduct and all associated codes. The comment period ends Jan. 15, 2009.

IE