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IXIS Asset Management Group (IXIS AM), with €340 billion assets under management, is the global asset management arm of Caisses d’Epargne. One of Europe’s leading asset management institutions, it offers services to insurance, financial and banking organizations, mutual funds, retirement funds and non-profit organizations.

Headquartered in Paris, IXIS Asset Management Group has a significant global presence, particularly in the United States where it has investment management subsidiaries involved in asset management and commercial activities.

IXIS AM’s philosophy is to offer both a long-term commitment to its clients in line with their requirements, and to develop first-rate, innovative financial solutions that meet stringent risk management and compliance requirements. As a result, risk management is one of the company’s key values.

The compliance challenge
Until recently, IXIS AM had suffered from the lack of an automated compliance system that would have enabled the company to achieve its goals of guaranteeing full control of risk management issues and meeting increasingly demanding regulatory and investment restrictions and more complex client mandates.

In-house risk management and compliance systems, as well as the control processes implemented within IXIS were not satisfactory. There was clearly a need to have a simple and easy-to-update solution that could be integrated with new and increasingly complex investment restrictions.

Solving the problem with Capstone Sentinel
To overcome this challenge, IXIS AM commissioned a Request For Proposal in 2003 that was aimed at selecting the best compliance solution in the marketplace. IXIS AM was looking for a product that would adhere to its organizational IT processes and requirements, as well as meet the requirements of the French regulatory authority, the Autorité des Marchés Financiers (AMF), which was increasingly demanding pre-trade portfolio compliance controls.

Workshops involving three short-listed providers were conducted, involving the key members of IXIS AM’s portfolio management and compliance teams. Following these, IXIS AM unanimously selected Capstone Sentinel™ from LatentZero™.

Michel Levenez, LatentZero’s key contact at IXIS AM, explains: “Sentinel was by far the most robust, powerful system both in terms of integration and reliability. Sentinel can quickly and automatically integrate client-based investment restrictions previously identified, and its modern architecture provides a rule-building language and web-based client access for faster implementation and easier monitoring of incidents within subsidiaries. It also gives us faster response times, and has the potential to conduct pre-trade checks.”

Faced with timing and budget pressures, Capstone Sentinel was implemented in six months, finally completing in mid-2004. The emphasis of the project implementation was on building rules as quickly as possible and importing rule narratives directly from an existing database.

IXIS AM then set up a dedicated team, headed by Michel Levenez, which was committed to optimizing the use of Sentinel, including monitoring all the rules in the system, and managing the rule-building, validation and control process. The group’s aim was to be independent from the portfolio management team while remaining close to the compliance team. As a result, the detection and management of investment breaches identified by Sentinel was given to a specific team that was part of the Middle Office. This team was called the ‘Sentinel Cell’ and was integrated within the internal control department.

The first mission of the Sentinel Cell was to review all investment restrictions covering the 400 portfolios that were IXIS AM’s responsibility. These investment restrictions include AMF regulatory rules and client rules, as well as internal and client-specific mandates. The upgrade to version 4.3 of Sentinel enabled IXIS AM to build universal rules and substantially reduce the total number from 7,200 to 1,200.

“The LatentZero Paris office also opened around that time. This greatly enhanced our relationship with LatentZero, as we were able to deal directly with the French team who quickly understood our needs and explained them to their London colleagues much better than we could. In addition, their extensive expertise in compliance issues and fund management systems was invaluable, particularly when we upgraded to the new version or had to build specific complex rules,” says Michel Levenez. “Because of their precise and efficient responses, and the improvements incorporated into their software upgrades, LatentZero has proven that they are definitely a first-rate software provider well aware of full compliance requirements, especially those specific to the French market. It is important to stress the fact that this is unique for an Anglo-Saxon vendor who, at the time we first contacted them, had had no prior experience of dealing with French clients.”

Results
Today, Sentinel is the only system used to manage and control rules at IXIS AM, including universal rules, AMF regulatory rules and client mandates. The workflow implemented by the Sentinel Cell has validated the importance of the compliance engine to the organization, as well as enhancing fund managers’ knowledge of portfolio rules.

Levenez explains: “Sentinel has been very well accepted by the fund managers. They felt they were better informed of the regulatory implications of the way they manage funds, and were more equipped to control client mandates. The Sentinel Cell is involved very early in the validation of client, regulatory and statutory rules. As a result, the Sentinel Cell enables asset managers and account managers to accelerate the building of new rules, such as the AMF ‘Nouveau ratio d’engagement, AMF, Chapter VI’, and better understand the needs of different types of clients. The Sentinel Cell guides and monitors the Middle Office people involved in managing investment breaches, and assigns them to the asset managers responsible in order to find the most appropriate solutions when specific investment breaches occur.”

“I believe that IXIS AM can be proud of the result achieved in terms of post-trade compliance. This is the result of our strong collaboration with the LatentZero teams. We were among one of the first institutions in France to commit fully to the compliance requirements using a robust and scalable solution. The result speaks for itself: Sentinel currently controls 97 per cent of all our investment restrictions. This has enabled us to strengthen our relationships with our clients, and has helped our fund managers to concentrate on fund performance.”