Risk Oversight: Responding to the European Sovereign Debt Crisis

March 22, 2012

While there are, in general, no specific rules or regulations governing a mutual fund board’s oversight of risk, the board’s fiduciary duty to act in the best interests of the fund and its shareholders extends to risk oversight. In addition, certain provisions of the Investment Company Act of 1940 and its rules impose specific responsibilities on a board with respect to certain areas of risk, such as valuation and compliance.

The recent European sovereign debt crisis provides a good opportunity for fund boards to exercise their risk oversight responsibilities and to examine the effectiveness of a fund’s current risk management program. This article provides examples of questions that a fund board may wish to ask in analyzing whether the risks posed to a fund by the European debt (and related euro) crisis are being effectively identified, assessed and addressed.