With SEC Regulation 18f-4 now in full force – Derivatives Risk Managers are considering:

  • Did we miss anything?
  • What are the biggest compliance challenges?
  • What are the most common errors?
  • What can be done to revise and enhance compliance? 

NextGen has these answers, and we can help you
reconfirm and/or enhance compliance
.

Click Here: Compliance Review Information

The NextGen 18f-4 Service
Leadership Team


Gary Mandelblatt

Gary is a Managing Partner at NextGen Strategic Advisors with over 35 years of experience working with financial institutions in managing market, credit and operational risks, managing regulatory relations, implementing regulatory requirements, defining strategies and building businesses. Gary was the Chief Risk Officer for Nomura Americas and Chairman of Nomura’s Global Dodd-Frank Implementation program. Prior to Nomura, Gary was a Managing Director at the Lehman Brothers Estate where he was responsible for building the valuation capabilities for 1.2 million derivatives contracts and hedging open risk exposures. Prior to that, Gary was the Global Head of Fixed Income Strategy at Lehman Brothers and helped build the commodities and emerging markets businesses. Before joining Lehman, Gary was Managing Director at Smith Barney, Salomon Smith Barney and Citigroup and was a senior Market Risk Manager for Fixed Income and supported numerous regulatory efforts. Prior to that, Gary was a consultant with Coopers & Lybrand and First Manhattan Consulting Group.

Donna Parks

Donna is a Principal Consultant with 30 years of comprehensive risk management and banking experience.  Donna’s global experience extends across the Americas and Asia in all aspects of risk management including enterprise, credit, market, and operational risks, managing regulatory relations, implementing regulatory requirements, defining strategy, building businesses and governance.   Donna was Chief Risk Officer for Standard Chartered Bank (SCB), Americas and the accountable executive for the implementation of Section 165 of the Dodd-Frank Act.   Prior to this role, Donna was Senior Regional Credit Officer for SCB, Asia based in Hong Kong.  She was responsible, with her team, for managing 70% of SCB’s credit portfolio and supported the build out of the global commodities and hedge fund businesses.  Before joining SCB, Donna was Managing Director at Citigroup and was a senior Credit Risk Manager for Banks and non-Bank Financial Institutions.  In addition, she managed a Governance team that was responsible for regulatory relations and implementation of various regulatory projects.

John Monaghan

John is a Principal Consultant with over 25 years of experience working in the Financial Services industry in North America, South America, Europe and Africa. John has been involved in and managed most of the significant regulatory compliance initiatives including Basel II; Dodd-Frank; EMIR; MIFID II; FRTB; LIBOR transition and CFTC Swap Dealer and SBSD Rules. John worked at Royal Bank of Canada where he managed strategic initiatives which required cross-functional and multi-region coordination. Prior to RBC, he was at Morgan Stanley where he was Head of Operational Risk for Trading and Sales in the Americas. Prior to that, he spent 11 years at Barclays in increasingly senior roles. He managed the build out of a Front Office Risk and Supervisory Control function, Program Managed a multi-year program of work tasked with building out a new OTC Client Clearing business to align with the market structure changes imposed by Dodd-Frank and EMIR. Prior to Barclays, he was employed by Accenture as a management consultant. John has a B. Com degree in Law and Economics, an MSc in Finance and an MBA.

John Skrypa

John is leading the new client business development function for NextGen.  John has been responsible for similar functions at PWC, Deloitte, KPMG, and most recently at EY where he was part of the team that build their Managed Services business unit. He brings over twenty years of major account management experience, developing relationships related to consulting, managed services, and applications implementation to banking and capital markets clients. An innovative thinker with a strong history and a proven track record of business-focused solution sales, client relationship management, and experience developing relationships and managing teams in large scale and global accounts.

The NextGen 18f-4 Service Leadership Team


Gary Mandelblatt

Gary is a Managing Partner at NextGen Strategic Advisors with over 35 years of experience working with financial institutions in managing market, credit and operational risks, managing regulatory relations, implementing regulatory requirements, defining strategies and building businesses. Gary was the Chief Risk Officer for Nomura Americas and Chairman of Nomura’s Global Dodd-Frank Implementation program. Prior to Nomura, Gary was a Managing Director at the Lehman Brothers Estate where he was responsible for building the valuation capabilities for 1.2 million derivatives contracts and hedging open risk exposures. Prior to that, Gary was the Global Head of Fixed Income Strategy at Lehman Brothers and helped build the commodities and emerging markets businesses. Before joining Lehman, Gary was Managing Director at Smith Barney, Salomon Smith Barney and Citigroup and was a senior Market Risk Manager for Fixed Income and supported numerous regulatory efforts. Prior to that, Gary was a consultant with Coopers & Lybrand and First Manhattan Consulting Group.

Donna Parks

Donna is a Principal Consultant with 30 years of comprehensive risk management and banking experience.  Donna’s global experience extends across the Americas and Asia in all aspects of risk management including enterprise, credit, market, and operational risks, managing regulatory relations, implementing regulatory requirements, defining strategy, building businesses and governance.   Donna was Chief Risk Officer for Standard Chartered Bank (SCB), Americas and the accountable executive for the implementation of Section 165 of the Dodd-Frank Act.   Prior to this role, Donna was Senior Regional Credit Officer for SCB, Asia based in Hong Kong.  She was responsible, with her team, for managing 70% of SCB’s credit portfolio and supported the build out of the global commodities and hedge fund businesses.  Before joining SCB, Donna was Managing Director at Citigroup and was a senior Credit Risk Manager for Banks and non-Bank Financial Institutions.  In addition, she managed a Governance team that was responsible for regulatory relations and implementation of various regulatory projects.

John Monaghan

John is a Principal Consultant with over 25 years of experience working in the Financial Services industry in North America, South America, Europe and Africa. John has been involved in and managed most of the significant regulatory compliance initiatives including Basel II; Dodd-Frank; EMIR; MIFID II; FRTB; LIBOR transition and CFTC Swap Dealer and SBSD Rules. John worked at Royal Bank of Canada where he managed strategic initiatives which required cross-functional and multi-region coordination. Prior to RBC, he was at Morgan Stanley where he was Head of Operational Risk for Trading and Sales in the Americas. Prior to that, he spent 11 years at Barclays in increasingly senior roles. He managed the build out of a Front Office Risk and Supervisory Control function, Program Managed a multi-year program of work tasked with building out a new OTC Client Clearing business to align with the market structure changes imposed by Dodd-Frank and EMIR. Prior to Barclays, he was employed by Accenture as a management consultant. John has a B. Com degree in Law and Economics, an MSc in Finance and an MBA.

John Skrypa

John is leading the new client business development function for NextGen.  John has been responsible for similar functions at PWC, Deloitte, KPMG, and most recently at EY where he was part of the team that build their Managed Services business unit. He brings over twenty years of major account management experience, developing relationships related to consulting, managed services, and applications implementation to banking and capital markets clients. An innovative thinker with a strong history and a proven track record of business-focused solution sales, client relationship management, and experience developing relationships and managing teams in large scale and global accounts.

Scope / Impact of the Regulation

SEC Rule 18f-4 is a major update to the regulatory landscape for mutual funds, exchange-traded funds, closed end funds, and business development companies which addresses the fact that that derivatives play a significant role for many of them and limits the amount of leverage that a fund may obtain through derivatives, based on the calculation of VAR, by mandating a strict risk governance structure including limits on VaR, performance of model back-testing, risk reporting, and creating a capability to quickly cure any noncompliance.

Impact - The rule imposes new restrictions on these funds and requires materially enhanced:​Do you have enough funding to achieve compliance?

  • Board of Directors (BOD) Oversight and Reporting​
  • BOD designation of a Derivatives Risk Manager that is independent from the portfolio management​
  • Implementation of a comprehensive Risk Management Program that defines the risk management approach for managing the risk of a fund​
  • Value-at-Risk (VaR) calculation and stress testing requirements​
  • VaR Limits, limit excess compliance, documentation and reporting requirements​
  • Recordkeeping and record retention requirements.​

NextGen can help -

The biggest challenge for most funds will be developing the capability to competently perform the SEC mandated Derivatives Risk Management (DRM) activities every day, every week, every month, and every quarter:

NextGen can help -

At a high level – Funds will now have numerous new and complex responsibilities which include:

  • Monitoring Relative or Absolute VaR Limits
  • Escalating Limit Excesses: Must be Escalated and Be Back Into Compliance "Promptly".
  • If Excess is Not Back Within Compliance in 5 Days, the DRM Must:
  • Provide Written Report to the Board of Directors
  • Explain How and by When it Will Be Back Into Compliance
  • Analyze Why Fund Exceeds Limits for More than 5 Days
  • Provide written report within 30 calendar days of the exceedance to the fund’s board of directors explaining how the fund came back into compliance and the results of the analysis
  • If the fund remains out of compliance with the applicable VaR test the derivatives risk manager must update the board of directors on the fund’s progress in coming back into compliance at regularly scheduled intervals at a frequency determined by the board.
  • Revise RMP as Appropriate to Address Circumstances

  • Performing Back-testing Analysis

  • Reporting to SEC on FORM N-RN Within One Day of the Event, With Commentary, When:
  • More than 15% of Net Assets are Illiquid / Illiquid Assets Are Less Than 15% of Net Assets
  • Highly Liquid Investments Below Minimum More  than 7 Consecutive Calendar Days
  • Relative VaR or Absolute Test Breaches
  • Compliance with VaR Testing

  • Monitoring Reverse Repo Activities - Compliance with Asset Coverage Requirements Rule
  • Monitoring Compliance with When Issued, Forward Settling and Non-Standard Settlement Requirements (Physical Settlement/35 Days Max.)
  • Monitoring Highly Liquid Investments Pledged as Margin or Collateral For Derivatives Transactions % by Type

In order to comply, many funds will need to make substantial changes to their policies, organizational structure, and technology systems.

The official compliance deadline for this new rule is August 19, 2022.

NextGen can help you plan and implement cost-effective compliance with SEC Regulation 18f-4

Fundamentally, an effective compliance program can be characterized as doing three things very well:

The first challenge – Where to begin / How to get started?

How can fund managers and business development corporations determine specifically what this means to their fund operations (liability / level of effort / staffing / functional responsibilities / logistics / technology support / etc.)?

How can you create an effective yet ‘right-sized’ compliance program?

  • What resources are available to you now to address these questions (What tools, planning guides, advice, counseling are available)?
  • How can you build a tailored plan matching the size of your response with the specific requirements and risks that pertain to your fund(s)?
  • What are your implementation options and what are their associated costs? (can some or all of it be outsourced?
  • Who can help you navigate the implementation of your compliance program?  How can you ensure that your firm gets it right and in time to meet the deadline?

At NextGen we have extensive experience in Planning, Implementation, and ongoing Operational support for SEC regulatory compliance and are eager to help you determine what the right sized and cost-effective response to 18f-4 is for your organization.  Issues Including:

  • Navigating the rules effectively
  • Organizational and procedural changes that may be necessary
  • Identifying the right third party data services to engage for your specific needs and fund parameters with respect to VaR
  • NextGen can also support the Derivative Risk Management (DRM) role as an ongoing service, which can drive very robust and cost-effective solutions.

The answer – Start by taking advantage of the NEXTGEN 18f-4 RESOURCE CENTER to Jump-Start your compliance program

NextGen has developed a comprehensive set of 18f-4 Resources with six highly developed components, designed to accelerate the development of your compliance program to meet the SEC requirements, while minimizing implementation time and ongoing expenses:

Time is no longer on your side –

NextGen estimates that it will take some funds several months to achieve compliance with the new rules, leaving little room for error or delay in their implementations in order to meet the August 19, 2022 compliance deadline:

With the deadline fast approaching, many funds are discovering that the required level of effort is much more detailed and far more complex than previously estimated:

  • The rules are more challenging than anticipated
  • The compliance effort is a much more intense than expected
  • With less than 3 months left there is no room for missteps/errors

NextGen can help -