Wednesday, February 10, 2010

Bernie's mark can be seen in GIPS 2010

It isn't difficult to recognize that some of the changes planned for the Global Investment Performance Standards (GIPS(R)) in 2011 are the result of the misdeeds of one Bernie Madoff. I've already commented on the increased attention examinations are getting. But there's an even clearer example, though one that might be easily overlooked (I'll confess that I didn't notice it until I saw a reference way in the back, in the verifier section).

The 2005 edition has the following requirements for policies and procedures (see section 0.A.6):
  • "Firms must document, in writing, their policies and procedures used in establishing and maintaining compliance with all the applicable requirements of the GIPS standards."
It's been expanded a bit for 2011 (and changed to 0.A.5):
  • Firms must document their policies and procedures used in establishing and maintaining compliance with the GIPS standards, including ensuring the existence and ownership of client assets, and must apply them consistently."
Note also that the verifier is charged with performing "sufficient procedures to determine that ... the firm's policies and procedures for ensuring the existence and ownership of client assets are appropriate and have been consistently applied."

Did someone say, "Bernie Madoff"?

This delineation of a specific required procedure, to me, speaks volumes. Hopefully, some guidance will be forthcoming regarding this, as it's doubtful that many firms today have such procedures or would know where to begin to develop them. We haven't yet given this much thought ourselves, but will offer our thoughts in the near future.

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