An internal Standard Operating Procedures (SOP) manual is essential for a new portfolio management practice. This article provides a complete governance framework for building an SOP manual.
Why an SOP Manual is Essential
Regulatory Requirements
SEBI has mandated that portfolio managers put in place a written down policy which inter-alia detail the specific activities, role and responsibilities of various teams engaged in fund management, dealing, compliance, risk management, back office, etc., with regard to management of client funds and securities including the order placement, execution of order, trade allocation amongst clients and other related matters.
Business Benefits
- Ensures consistency in operations
- Provides training material for staff
- Demonstrates compliance to regulators
- Mitigates operational risks
Key Components of an SOP Manual
1. Governance Framework
Company Overview:
- Business description and vision
- Legal structure and registration details
- Key personnel and their roles
- Organizational structure
Board/Partner Responsibilities:
- Governance structure
- Decision-making authorities
- Approval processes
2. Compliance Framework
Registration Management:
- SEBI registration maintenance
- Fee payment management
- Renewal procedures
Compliance Calendar:
- Regulatory obligations
- Reporting deadlines
- Filing requirements
3. Client Onboarding
KYC Procedures:
- Document collection and verification
- Record maintenance
- AML/CFT compliance
Client Agreement:
- Terms and conditions
- Fee disclosure
- Consent collection
Risk Profiling:
- Risk assessment methodology
- Documentation
- Review process
4. Fund Management
Investment Process:
- Investment approach documentation
- Research and analysis
- Investment decision-making
Order Management:
- Order placement procedures
- Trade execution
- Allocation of securities
Dealing Team:
- Dealing room procedures
- Recorded telephone lines
- Access restrictions
5. Client Reporting
Periodic Reports:
- Quarterly client reports
- Monthly reports to SEBI
- Half-yearly reports
Performance Reporting:
- TWRR calculation
- Benchmarking
- Performance disclosure
6. Record Keeping
Required Records:
- Books of accounts
- Client records
- Transaction records
- Compliance records
Retention:
- Minimum five-year retention
- Secure storage
- Confidentiality
7. Risk Management
Operational Risk:
- Risk identification
- Risk mitigation
- Monitoring
Cybersecurity:
- Security policies
- Data protection
- Incident response
8. Business Continuity
Continuity Planning:
- Business continuity plan
- Disaster recovery plan
- Testing procedures
Recovery Objectives:
- Recovery Time Objective (RTO)
- Recovery Point Objective (RPO)
9. Grievance Redressal
Internal Redressal:
- Complaint receipt procedure
- Resolution timeline (21 days)
- Escalation procedure
SCORES Compliance:
- SCORES complaint handling
- Monthly complaint disclosure
10. Audit and Compliance
Internal Audit:
- Audit scope
- Audit timeline
- Reporting
Annual Compliance Audit:
- Audit by ICAI/ICSI/ICMAI
- Report submission
- Adverse findings
Implementation Considerations
Board Approval
All policies must be approved by the Board or equivalent body of the portfolio manager.
Staff Training
All staff must be trained on the SOP manual.
Regular Review
The SOP manual should be reviewed regularly and updated as needed.
Documentation
Maintain comprehensive documentation of all policies and procedures.
Expert Legal Guidance
Anuj Desai & Associates provides expert legal advisory services on SOP development for portfolio managers. Our securities law experts help clients develop comprehensive SOP manuals, implement compliant policies, and ensure regulatory compliance. Contact us for guidance on SOP development and other regulatory matters.