3 Colo. Code Regs. § 704-1-51-9.4

Current through Register Vol. 47, No. 22, November 25, 2024

Section 3 CCR 704-1-51-9.4 - Written Policies and Procedures

All LGIPs shall establish, maintain, and enforce written policies and procedures that are reasonably designed to achieve compliance with the following requirements:

A. Written policies and procedures intended to ensure that each entity that seeks to become a participating local government, and entities actively participating in an LGIP are "local governments" as that term is defined in section 24-75-701(8), C.R.S., for the duration of the local governments' participation in an LGIP.

B. Written policies and procedures to ensure that the LGIP complies with GASB Statement No. 79, Certain External Investment Pools and Pool Participants, if the LGIP elects to report on an amortized cost basis. An LGIP that does not comply with GASB Statement No. 79 may continue to operate as a stable Net Asset Value pool but must use fair value for financial reporting purposes in accordance with GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools, or FASB Accounting Standards Codification 820, Fair Value Measurement.

C. Written investment policies and procedures that define the credit, liquidity, maturity, and diversification objectives of the LGIP and the means to achieve these objectives. These policies and procedures shall, at a minimum, address:

1. Safety of capital as a priority so as to ensure preservation of principal;

2. Sufficient liquidity be maintained to enable funding of all reasonably expected cash needs given the participant composition and history as well as economic and market conditions;

3. Investment return, taking into consideration a pool's cash flow expectations;

4. Diversification of investment, including deposits adequate to reduce portfolio risks from an over concentration in any specific maturity, issuer, counterparty, depository, security, or class of securities;

5. Defining, monitoring and controlling interest rate risk; and,

6. Compliance with section 24-75-601.1,C.R.S.

D. Written policies and procedures that require the LGIP to monitor redemptions and reduce risk of unusually high redemptions in order to meet participants' daily cash flow needs. The written policies and procedures shall require the LGIP to position its portfolio so as to be able to fund unexpected withdrawals. The level of liquidity may be adjusted to take into consideration the distinctive characteristics and composition of the participating local governments and historical redemption patterns for the pool. A minimum of 90 percent of an LGIP's portfolio should be comprised of highly liquid investments and deposits. Liquid investments and deposits are investments and deposits that can be redeemed or sold within five business days.

E. Written policies and procedures for managing credit that require a thorough, constant and independent credit analysis process that adequately assess and manage the credit risk of an LGIP's investments. These policies shall at a minimum require:

1. Utilization of an experienced credit analyst that has the ability to manage and analyze credit risk;

2. For securities other than U.S. Treasuries and Agencies, an approved issuer list that is updated regularly; and

3. Policies that address assessing and liquidating positions in distressed credit situations as well as assessing and monitoring the credit quality and value of pledged collateral.

F. Written policies and procedures requiring LGIP's to perform and maintain the results of, and assumptions used in connection with, monthly, or more frequent, stress testing. Such written policies and procedures shall further require the board of trustees and investment adviser of the LGIP to review the results of each stress test performed.

G. Written policies and procedures that require each LGIP that utilizes amortized cost accounting to calculate a "shadow" NAV daily.

H. Written policies and procedures that require compliance reviews to be performed at least weekly to assure compliance with investment policies, guidelines and procedures.

I. Written policies and procedures intended to ensure that private information of an LGIP's participants remains confidential at all times;

J. Written policies and procedures intended to ensure that LGIP's and its investment adviser(s)' computers, servers, cloud storage and backup system(s), and web-based portals and applications are reasonably protected against cyber-attacks and hardware failure;

K. Written business continuity plan intended to ensure continuous, efficient and timely critical business operations in the event of an emergency and/or unforeseen disruption to normal business operations of the LGIP and/or its investment adviser(s).

3 CCR 704-1-51-9.4

38 CR 01, January 10, 2015, effective 1/30/2015

38 CR 08, April 25, 2015, effective 6/1/2015

38 CR 18, September 25, 2015, effective 10/15/2015

39 CR 01, January 10, 2016, effective 1/30/2016

40 CR 01, January 10, 2017, effective 1/30/2017

40 CR 12, June 25, 2017, effective 7/15/2017

41 CR 13, July 10, 2018, effective 7/31/2018

43 CR 05, March 10, 2020, effective 3/30/2020

46 CR 05, March 10, 2023, effective 3/30/2023