Recent Regulatory Developments in EU and the Roles and Responsibilities of Compliance Officers‘

Presentation at the Banks Association of Turkey

TBB - TÜRKİYE BANKALAR BİRLİĞİ

Andrew Procter13 June 2006

Andrew Procter · 13 June 2006 · page 2

Hot Topics

Market Abuse

Reputational Risk

Conflicts of Interest

MiFID– The role of Compliance– Conflicts– Best execution

The Role of Compliance

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The Market Abuse Directive

Single set of rules for market conduct but…

Some inconsistency in application eg block trades – 2006 program

New CESR Surveillance & Intelligence WG

CESR “Urgent Issues” Group to co-ordinate investigations

CESR “Urgent Issues” Group to co-ordinate investigations

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MiFID

Preparing for implementation on 1 Nov 2007

Business led implementation

Many challenges but many opportunities

Likely to see some major changes in the market landscape

Major implications for relationships with clients and for trading

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MiFID – Clients Relations

Client classification & documentation

Suitability

Client money & custody

Conflicts

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MiFID – trading requirements

Pre-trade transparency

Post trade transparency

Transaction reporting

Order handling

Best execution

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MiFID – Operational Matters

Compliance function

Outsourcing

Record keeping

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Regulatory Preoccupations

Conflicts – Mapping of conflicts – Development of mitigation strategies

Non-standard transactions– Reputational Risk

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The Role of Compliance

Need to demonstrate that you are worth the money!

Need to meet MiFID requirements.

Need to ensure that there is adequate protection for the Bank/Firm

Three key roles:– Prevention– Detection– Advice

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Prevention – The Cost of Failure

Loss of clients/business – Reputational Risk

Financial penalties, prosecutions, litigation

Restrictions on business activity

Personal liability of executives

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A Culture of Compliance

Reputational risk and other key messages – from the top!

“Tone at the Top” and Reputational Risk training

Training for supervisors and managers

Taking action when things go wrong

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Preventative Measures:Knowledge, Processes & Systems

“Heat Maps” and business “self-assessments” drive priorities

Policies and procedures – reviewed every 2 years– NCA & NPA– Reputational Risk – secretariat

Comprehensive training program

The Control Room– PA dealing, wall crossing, conflict clearance and advice, research clearance,

Restricted & Watch Lists

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Detection - Focus

Focus on risk areas identified by heat maps and self-assessments

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Detection – What do we do?

Electronic transaction & portfolio monitoring – market abuse, embargo breaches, restricted list breaches, money laundering, mandate breaches

Desk reviews (compare Internal Audit)

Monitoring – Restricted List, Watch List

Compliance “on the floor” – identifying problems in real time

Compliance led month end look back

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Excellence as Advisors

Practical application of law and regulation

On the floor, in the (NCA/NPA) process

Support for business initiatives – new products, new markets, growth – due diligence, advice on regulation, advice of necessary compliance support

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Advocate to Regulators & Industry

Compliance the relationship manager for principal regulators – more than 200 globally

Requires:– Pro-active engagement– Management of supervisory visits, ad hoc inquiries and investigations– Co-ordination of responses to consultations– Introduction of business to regulators– Membership of industry consultative groups