SD-10.3 — Regulatory Investment Compliance

Business Domain: BD-10 Investment Compliance & Guideline Monitoring (Middle office) · Applies: BOTH

Purpose

Owns the firm’s interpretation of the securities and markets regulation that constrains what a portfolio may hold and how it may be built — and keeps that interpretation current. Where SD-10.1 runs the compliance engine and SD-10.2 codes the rules, SD-10.3 is the regulatory-domain authority that determines what the regulation requires: which external regime applies to a given portfolio, what each regime mandates as a checkable constraint, and how that determination changes as regulation evolves. The regimes are many — the UCITS eligible-assets and 5/10/40 diversification rules, the US Investment Company Act diversification and concentration tests, AIFMD leverage limits, MiFID II instrument-eligibility, exchange and statutory position limits, and short-selling regulation. SD-10.3’s exclusive capability is the regulatory currency and accuracy of the rule set: it answers “what does this regulation require of this portfolio, today?” — the interpretive judgement that SD-10.2 then codes and SD-10.1 then checks. Neither of the other two SDs carries it: SD-10.2 codes whatever interpreted constraint it is handed without judging which regulation applies, and SD-10.1 runs whatever is coded without judging what the regulation means. SD-10.3 is the source of that judgement, and it answers for the portfolio’s regulatory compliance to the regulator and the external auditor. It is not the running of the checks — that is SD-10.1’s engine, which SD-10.3 consumes — nor the mechanical coding and library governance — that is SD-10.2’s. It is not market-abuse surveillance — that is SD-10.7 — and it is not the firm’s own regulatory obligations as a licensed entity, which are BD-14’s.

Service Operations

Determine the regulatory requirement — for a given portfolio, judge which external regimes apply (UCITS, the 1940 Act, AIFMD, MiFID II, exchange and statutory position-limit regimes, short-selling regulation) and what each requires of it as a checkable constraint. This interpretive determination is SD-10.3’s alone — it is the regulatory-domain expertise the other two SDs depend on but do not hold.
Keep the regulatory interpretation current — own the regulatory currency and accuracy of the constraint set: as a regime changes, re-judge what it now requires, and hand the revised interpretation to SD-10.2 for coding. SD-10.3 owns whether the rule is right against the regulation; SD-10.2 owns whether it is coded correctly.
Translate regulatory change into rule changes — consume the firm-wide regulatory-change horizon-scan from SD-14.2, identify the investment-rule-affecting subset, interpret what it now requires, and commission the corresponding library change through SD-10.2.
Consume the engine for regulatory monitoring — invoke SD-10.1’s compliance engine to monitor portfolios against the regulation-sourced rules (position limits, short-selling, eligibility), and answer for the regulatory result. The running of the check is SD-10.1’s; the regulatory accountability for the result is SD-10.3’s.
Report regulatory compliance — produce the regulatory-compliance attestation: the evidence that the portfolio complies with the regulation that governs it, for the regulator and the external auditor.

Inputs and outputs

Inputs: securities and fund regulation (the primary source the interpretation is judged against); the firm-wide regulatory-change horizon-scan from SD-14.2; the compliance results from SD-10.1’s engine run against the regulation-sourced rules; the portfolio and holdings from SD-12.1.
Outputs: the interpreted regulatory requirement — the determination of what each applicable regime requires — into the SD-10.2 library for coding; the regulatory-compliance attestation consumed by BD-14 and the external auditor; regulatory breach accountability into SD-10.8.

Entities

Consumes: E-03 Portfolio / Mandate, E-04 Holding / Position (book = ibor — the IBOR position SD-10.1’s engine monitors the regulation-sourced rules against), E-02 Instrument / Asset; the SD-12.1 portfolio and holdings; the SD-14.2 firm-wide regulatory-change horizon-scan; the SD-10.1 compliance-engine results for the regulation-sourced rules.
Owns: the regulatory interpretation — the firm’s authoritative determination of what each applicable regime requires of a portfolio, and its currency as regulation changes. This is the interpretive content the coded rules express; the coded rules themselves are owned by SD-10.2, and the running of the checks by SD-10.1. SD-10.3 owns no separate entity; the open question of a versioned Regulatory Rule record is named below.

Standards

The UCITS Directive — Article 50 eligible assets; Article 52 the 5/10/40 diversification rule; the 20/35 index-tracking exception.
AIFMD — leverage limits and transparency.
The US Investment Company Act 1940 — the diversified-fund 75/5/10 test and the 25% single-industry concentration rule.
MiFID II instrument-eligibility; the EU Short Selling Regulation; CFTC and exchange position-limit regimes.

Open extensions

A versioned Regulatory Rule record — the interpreted regulatory requirement as an owned, versioned entity (distinct from SD-10.2’s coded expression and from E-16’s mandate-typed limits), so a determination is traceable to the regime version it was judged against. The same open question SD-10.2 raises from the coding side.
The regulatory-rule sub-model per regime — UCITS, AIFMD, the 1940 Act.
The position-limit aggregation model.
The SD-14.2 → SD-10.3 → SD-10.2 regulatory-change interface.
The boundary inside BD-10 — interpret / code / run. The three capabilities are one chain, three owners: SD-10.3 interprets (owns the regulatory-domain judgement of what each applicable regime requires of a portfolio, and keeps it current — it does not code the rule or run the check); SD-10.2 codes (owns the machine-checkable expression of the interpreted requirement and the library governance — it does not judge which regulation applies or what it means); SD-10.1 runs (owns the engine that evaluates the coded rules against the live portfolio — it does not own the rule’s meaning or its coded form). SD-10.3 consumes SD-10.1’s engine for regulatory monitoring rather than carrying its own; the regulatory accountability for the result is SD-10.3’s, the running of the check is SD-10.1’s. The boundary clause is mirrored on SD-10.1.