risk regulations and compliance - volume 1api.ning.com/files/pq8pe*dabumuhdkjmgtd5rxmgwqt1w0... ·...

RISK REGULATION AND COMPLIANCE VOLUME 1

Global Risk Series-Book 2 2

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CONTENTS


Contents

Copyrights ............................................................................................. 2

Contents ................................................................................................. 3

Introduction ........................................................................................... 5

Are EMIR implementation dates fixed? ............................................... 7

The CCP registration process .............................................................................. 8

When does clearing become mandatory? ............................................................ 8

Reporting .............................................................................................................. 9

Social Media Governance .................................................................... 11

DELL Leads The Way ........................................................................................ 12

Advertising financial products or services ........................................................ 13

Endorsements and testimonials in advertising ................................................ 14

Suitability of investment recommendations and products .............................. 14

SEC’s Books & Records Rules & FINRA Notice 10-06 .................................... 15

Business activities performed outside of firm activity ..................................... 15

Regulation S-P ................................................................................................... 16

Customer complaint filings ............................................................................... 16

Solutions ............................................................................................................. 17

My pick is the Market Leading GRC Platform MetricStream ......................... 18

Return on Compliance - The New ROI For Business Performance ... 19

Asset and License Management ........................................................................ 19

Automated IT Controls ...................................................................................... 20

Network Intelligence and Troubleshooting ...................................................... 21

Keeping Outsourced Vendors Compliant .......................................................... 21

Business Intelligence and Process Improvement ............................................. 21

MiFID II is coming – are you prepared? ............................................. 22

Solving Data Governance by Scaling Agile/Scrum ............................. 25



Derivatives regulation - a corporate treasurer’s nightmare .............. 28

End-user exemption under DFA ....................................................................... 29

End-user exemption under EMIR ..................................................................... 29

Visibility and control: the liquidity management mantra ................. 32

Trading swaps in a cleared world ....................................................... 34

Building a Global Tax Strategy .......................................................... 37

About the Tax Officers Summit XIV 2012 ........................................................ 40

About Marcus Evans Summits .......................................................................... 40

Cementing the Requirements of Dodd-Frank .................................... 42

About Marcus Evans .......................................................................................... 46

SOX Compliance with ERM: Managing the Risk of Misstatements .. 47

Setting priorities ................................................................................................ 48

Joining IT SOX and SOX compliance at the activity level ............................... 48

Assurance ........................................................................................................... 49

Saving money ..................................................................................................... 49

How SOX with ERM benefits the enterprise .................................................... 50

INTRODUCTION


Introduction

Dear GlobalRisk Community member,

Regulation and Compliance Risks are the most

serious perceived threat both to global

corporations and small local based companies.

Understanding the issues around Regulatory

Compliance can be a difficult and frustrating

endeavor. Most Risk managers do not have a

legal background.

The language and requirements described in

legislation are not easy to pin to practical

working requirements. The problem is

compounded by the growing diversity of

regulations on a variety of levels — state, federal,

and international.

The second book in the Global Risk Series is

dedicated to Regulatory and Compliance affairs

to help you master this field.

Learn from some top experts in the industry as

they clearly explain how to tackle major

regulatory requirements. Check out their expert

tips and use the link at the end of each article to

navigate back to the website to leave your

comment or ask a question.



Special thanks go to members who contributed to

this report: Tom Riesack, Dheeraj Prasad, Mack

Frankfurter, Nicholas Downes, Jennifer Keljik,

Michele Westergaard, Steven Minsky.

ARE EMIR IMPLEMENTATION DATES FIXED?


Are EMIR implementation dates fixed?

Posted by Tom Riesack on March 12, 2013 at 3:42pm

With ESMA’s (European Securities and

Markets Authority) regulatory technical

standards (RTS) codifying the European

Market Infrastructure Regulation (EMIR) into an

applicable set of rules entering into force on 15 March

2013, the implementation timeline for EMIR has now

become much clearer.

Tom Riesack



The CCP registration process

Under EMIR CCPs apply for authorisation with ESMA

to clear under EMIR. It is expected that this will happen

sooner rather than later. CCPs will have the required

paperwork ready to submit as soon as the regulatory

technical standards (RTS) enter into force. Rumours are

that up to 25 CCPs (EU as well as non-EU) might stand

in line to apply. The national competent authority then

has up to six months to review and approve the CCP

application and authorise the CCP.

When does clearing become mandatory?

The clearing obligation needs to be defined and put into

a respective regulatory standard. This is nothing more

than defining which products ought to be cleared via a

clearing house and in what time frame. The national

competent authorities (NCAs) will have one month to

notify ESMA of the classes of OTC derivatives already

cleared by CCPs in their jurisdiction. With the

authorisation of a CCP by a NCA a notification of the

clearing obligation should be issued to all market

participants. ESMA then has up to six months to prepare

a draft RTS specifying the classes of derivatives to be

cleared and from when.

ARE EMIR IMPLEMENTATION DATES FIXED?


As for the clearing obligation, following the submission

by ESMA, the draft RTS will need to be endorsed by the

European Commission (one to three months) and non-

objected by the European Parliament and the Council

(one to three months) to become effective. The actual

date of application of the clearing obligation will depend

on the date of entry into force of these RTS and the

expected phase-in period per type of counterparty, to be

defined in the RTS.

Reporting

After the RTS enter into force, trade repositories (TRs)

can immediately start sending their applications to

ESMA. It is believed that up to eight TRs intend to

apply. ESMA then has up to two months to authorise

and register a TR but the exact duration of the

registration process will depend on several factors

including whether the application is complete, when it is

filed, and whether additional information has to be

submitted to ESMA.

Once the TRs have been registered, ESMA has up to 90

working days to enforce reporting to TRs for Interest

Rate Swaps and Credit Default Swaps (there are ongoing

discussions whether this already includes listed products

or OTC only). All other product types will need to be

reported from 1 January 2014 onwards. Reporting start



dates for certain asset classes are only applicable if a TR

has been registered for this asset class.

With timelines becoming clearer market participants

now have guidelines for their own implementation

projects. Those that have started already will feel

relieved that some of the dates have moved back (again).

But if you haven't initiated your own projects the time to

start is now.

Read this article on the website Click Here

http://globalriskcommunity.com/profiles/blogs/are-emir-implementation-dates-fixed

SOCIAL MEDIA GOVERNANCE


Social Media Governance

Posted by Dheeraj Prasad on February 17, 2013 at 2:00pm

BREAKING NEWS: Reed Hastings, the CEO of

Netflix an active Facebook user commonly posts

about the success of Netflix, often thanking

users of the service for their loyal support, which sounds

like the first line from a book on how to correctly promote

a product using social media. But Hastings may have

become a little too comfortable sharing certain aspects of

the company’s information. In July of this year, he

posted to his 240,000+ Facebook subscribers that

“Netflix monthly viewing exceeded 1 billion hours for the

first time....” SEC issued Netflix a Wells Notice, which

means SEC staff will recommend that the SEC issue

either a cease-and-desist action and/or a civil injunction

against Netflix and Hastings over the alleged violation.

(Source: Risk Management Monitor Link)

Did Hastings violate rules regarding selective disclosure?

Should all companies, especially those the size of Netflix,

have legal counsel review all social media posts

representing the company’s views? Should every

company employ a social media risk manager?

Here is a storified version I just published from my

twitter feed.

Dheeraj Prasad

http://ir.netflix.com/management.cfm

http://www.cnbc.com/id/100289227

http://www.cnbc.com/id/100289227

http://www.riskmanagementmonitor.com/the-risks-of-social-media-facebook-post-attracts-sec-action/

http://storify.com/dheeraj_prasad/social-media-governance#publicize



DELL Leads The Way

Dell was one of the first companies to realize the

enterprise side risks around Social Media usage and

came up with a very innovative and industry leading

Social Media Certification through its Social Media

University.

Amy Fowler-Tennison is Dell’s SMaC University

Program Lead. Dell’s Social Media and Community

University program or SMaCU. The program is designed

to educate Dell team members on our overall social

media strategy, governance and principles. While many

social media training classes and documents are

available online, our program focuses specifically on how

Dell team members can use these tools to build authentic

and long lasting relationships with our customers.

The certification program was established last year to

equip team members to be effective Brand Ambassadors

for our company. Any team member, regardless of their

function or business unit, that wants to engage on behalf

of Dell in the social media space is required to complete

SMaC Professional Certification. Once certified, team

members receive an official certificate and they can start

interacting with customers within their area of expertise.

They can also request new social media pages, groups or

http://www.salesforcemarketingcloud.com/blog/2011/05/social-media-university/

http://www.salesforcemarketingcloud.com/blog/2011/05/social-media-university/

https://twitter.com/#!/AmyTennison



accounts to be created with approval from the social

media leadership team.

Social Media Policy

Policy is a guiding light that governs organization and

individual behaviour. Building a Social Media Policy is

just the right FIRST step for an organization to start the

journey towards de-risking itself. Getting Started With

Your Social Media Policy is a very useful Step 1 for

organizations that are just beginning to build a Social

Media Policy.

Regulated companies have to be conscious about the

following aspects to stay compliant. (Source: Hearsay

Social).

Advertising financial products or services

Many regulated industries, such as life insurance and

securities, have strict rules on advertising language and

archiving procedures. For example, many states’

insurance laws provide keywords that cannot be used in

life insurance advertisements. Make sure your

employees are trained to avoid prohibited terms.

http://www.iabc.com/cwb/archive/2010/1010/Fleet.htm

http://www.iabc.com/cwb/archive/2010/1010/Fleet.htm



Endorsements and testimonials in

advertising

If you are a financial adviser, the SEC Adviser’s Act Rule

206(4)-1 bans client testimonials in advertisements

altogether. Hearsay Social recommends that investment

advisers disable LinkedIn’s recommendation function. If

you choose to enable the LinkedIn recommendation

function, pay special attention to third-party content, as

your employees’ recommenders may think they are doing

you a favor by providing a high level of detail about an

investment, product, or service. In reality, comments

may trigger suitability, monitoring, and archiving

violations. Similar challenges and concerns arise from

Facebook’s “like” function.

Suitability of investment recommendations

and products

Any recommendation to buy or sell a security must be

specific to each prospective investor to whom it is made.

As a result, specific investment products, services, or

valuations should never be recommended via social

media, as unsuitable investors will have access to the

recommendation on public social media sites.



SEC’s Books & Records Rules & FINRA

Notice 10-06

Together, SEC Rules 17a-3 and 17a-4 of the Securities

Exchange Act and FINRA Notice 10-06 instruct broker-

dealers that they must 1) create a written social media

policy reasonably designed to supervise firm

communications, 2) train employees on the policy, 3)

distribute only suitable content, 4) pre-approve static

content, 5) monitor static and interactive content, and 6)

capture and archive firm advertisements and sales

literature for a minimum period of 3 years in an indexed,

readily retrievable format. For more information on

these regulations, please consult our whitepaper The

Financial Professional’s Guide to Brand and Regulatory

Compliance on Social Media. SEC Rule 204-2(a) of the

Investment Adviser’s Act of 1940 sets out similar

content, monitoring, and archiving rules for registered

investment advisers (RIAs) on investment

recommendations, advertisements, and other “business

as such.”

Business activities performed outside of

firm activity

Because securities firms may be held responsible for the

personal conduct of employees, it is especially crucial



that financial services companies prohibit their

employees from using personal social media sites for

professional use. Make sure your policy creates clear

boundaries on personal vs. professional accounts.

Regulation S-P

In addition to Regulation FD, financial institutions

should also consult the SEC’s Regulation S-P, privacy

rules promulgated under section 504 of the Gramm-

Leach-Bliley Act. This regulation concerns the disclosure

of nonpublic personal information about customers.

Nonpublic information includes any list, description, or

other grouping of consumers (and publicly available

information pertaining to them) that is derived without

using any personally identifiable financial information

that is not publicly available.

Customer complaint filings

FINRA requires that member firms report statistical

information regarding written customer complaints

relating to annuities and life settlement products. Make

sure to report customer complaints transmitted via social

media and handle them according to established

complaint handling procedures. This may require

workflow functionality.



Solutions

CMP.LY Social Media disclosure solutions allow you to

mitigate risk, fulfill regulatory obligations and reduce

the overhead of social initiatives. Our easy-to-implement

social media disclosure platform leaves plenty of room for

companies of all sizes — even those in the most highly

regulated industries — to run effective and creative

programs.

HearSaySocial Enterprise-ready compliance for

regulated companies, including FINRA, IIROC, SEC,

and FSA regulated financial firms. Delight and equip

your compliance team with pre-approval workflow, real-

time alerts, supervision and approval trails.

Attensity Enterprise organizations recognize that

today’s social customers are actively talking about their

products and services on millions of sites across the

social web. Buried in these conversations are valuable

insights that can have a significant impact on their

business.

The Attensity Pipeline collects data from more than 150

million social media and online sources including the full

Twitter Firehose, public Facebook and Google Plus posts,

YouTube, Reddit, Pinterest, LinkedIn, blogs, forums, and

video and review sites. It uses the full power of

http://cmp.ly/

http://hearsaysocial.com/product/compliance/

http://www.attensity.com/products/attensity-pipeline/



Attensity’s patented semantic engines to transform the

chaos of social chatter into actionable information for the

enterprise.

My pick is the Market Leading GRC Platform

MetricStream

MetricStream Compliance Management Solution

provides a common framework and an integrated

approach to manage all compliance requirements faced

by an organization. It enables companies to manage

cross-industry mandates and regulations such as SOX,

OSHA, EH&S, and FCPA as well as industry focused

regulatory guidelines from FDA, FERC, FAA, HACCP,

AML, Basel II, and Data Retention laws.


http://info.metricstream.com/social-media-risk.html

http://globalriskcommunity.com/profiles/blogs/social-media-governance

RETURN ON COMPLIANCE - THE NEW ROI FOR BUSINESS PERFORMANCE


Return on Compliance - The New ROI For

Business Performance

Posted by Dheeraj Prasad on February 17, 2013 at 2:00pm

The business community spends a lot of time

worrying over the hidden costs of compliance

and risk management programs--but what

about the hidden returns?

Business Executives are looking to find ways to gain far

more value beyond risk mitigation or regulatory

conformance from the monitoring and policy enforcement

technology and procedures they put in place to support

compliance program. They just need to know where to

look. According to governance, risk and compliance

experts, there are a multitude of likely places where

enterprises can uncover added value from the compliance

investments they've already made.

Let us take the example of IT Security and Compliance.

The following benefits add value to a business.

Asset and License Management

Jason Creech, director of policy compliance for Qualys.

says he worked with one enterprise that saved close to $2

million simply by eliminating systems that their audit

tools had shown had not been logged into in over a year.

Dheeraj Prasad



"IT GRC programs with precise knowledge of exactly

what version software is running on each end-point can

give very accurate estimates when planning or justifying

an enterprise-wide software upgrades," says Tim "TK"

Keanini, chief research officer for nCircle. "This data also

helps govern commercial license agreements and

effectively monitors open source software deployed on

the network."

In this age of stiff penalties and lawsuits meted out by

the Business Software Alliance (BSA), the added value

that an audit tool that can double as a tool for

enumerating not just licensed applications being used,

but also unlicensed can pay big dividends in avoiding

more than malware risk, Creech says.

"I am sure any organization would want to know how

prevalent unlicensed app usage is in their environment

before the BSA knocks on their door," he says.

Automated IT Controls

Many organizations today are deploying automated

firewall management solutions to comply with

requirements set out by mandates like PCI DSS

According to Caroline Leies, managing director at

MorganFranklin, she once worked with a client that was

able to reduce the cost of IT controls by 10 percent as a

RETURN ON COMPLIANCE - THE NEW ROI FOR BUSINESS PERFORMANCE


result of unexpected dividends from compliance-related

monitoring.

Network Intelligence and Troubleshooting

Monitoring utilities and Automated Vulnerability Tools

like security information and event management (SIEM)

tools are great for correlating security incidents, but

they're also quite useful as troubleshooting tools during

network-wide deployment projects.

Keeping Outsourced Vendors Compliant

With increase in outsourcing and deployment of IT

processes to global supply of IT vendors, compliance is a

critical factor that is on the mind of the CIO and

business leaders. Automated Audit tools and a GRC

platform is key to proactively managing risk.

Business Intelligence and Process

Improvement

Perhaps the most impactful hidden benefit of compliance

programs to the overall bottom line of the business are

the analytics that can offer actionable data to improve

business processes. (Adapted from a news on

http://www.darkreading.com/compliance/)


http://www.darkreading.com/compliance/

http://globalriskcommunity.com/profiles/blogs/return-on-compliance-the-new-roi-for-business-performance



MiFID II is coming – are you prepared?

Posted by Tom Riesack on February 13, 2013 at 11:30am

After EMIR, Basel III and Dodd Frank, MiFID

II is now on the horizon. Are you keeping up

with the latest regulatory developments in the

market?

Alarmed by the impact of the latest financial crisis,

regulators globally have released a set of new

regulations. While most financial institutions are

already working diligently on the implementation of

EMIR, Basel III and Dodd Frank, the change in the EU

Council presidency to Ireland and the current

consultations around MiFID II give further incentives to

have a closer look at the challenges that the revision of

the Markets in Financial Instruments Directive (MiFID)

brings to market participants.

The final implementation challenges for Dodd Frank,

EMIR and Basel III are still coming, but now is the time

to prepare for MiFID II

The original MiFID legislation was introduced in 2007.

Since then, a number of changes to the marketplace have

taken place, including the rise of high-frequency trading.

The financial crisis has shown that transparency is key

to ensuring financial market stability, therefore a review

Tom Riesack

MIFID II IS COMING – ARE YOU PREPARED?


of this critical piece of legislation was ordered and is now

in the final stages of the rule-making process.

While its impact concerns all areas of the securities

market and organisations involved in this space (e.g.

sell-side and buy-side banks, corporate end-users,

trading and post-trade venues, CCPs, CSDs) the

question that should be asked is not “Will I be

impacted?” but rather “How do I proceed?”

Better be involved before you get involved

Being a complex piece of regulation, MiFiD II requires a

thorough analysis to identify the impact it will have on

financial services firms. While the regulation affects the

full value chain, the main focus can be broken down to

the following areas:

Market Structure: Introduction of Organised

Trading Facilities (OTFs) and regulatory

requirements for Multilateral Trading Facilities

(MTFs)

Trade Automation: Introduction of tighter rules

governing the use of high frequency and algorithmic

trading

OTC Derivatives and Commodities: Extension to

further products not yet part of MiFID as well as

stricter regulation of commodities and corresponding

derivatives



Transparency: New requirements on transaction

reporting and data consolidation as well as on pre-

and post-trade transparency

Investor Protection: Strengthening client

protection and information disclosure

Organisational Requirements: Strengthening

customer rights and revision of sales staff incentives

(inducements)

Quick and decisive action may yield the chance to realise

synergies from the regulation and find new business

opportunities

Adapting to the required changes of MiFID II will no

doubt be costly and take a huge effort but there is light

at the end of the tunnel. A smart and structured

approach will enable institutions to leverage solutions

that have already been introduced as part of other

regulatory efforts.

With the start of this new blog series, Capco will report

selected developments and challenges regarding MiFID

II, and will run a forum for discussion. In regular

releases we plan to post updates on this topic, diving

deeper into certain parts of the regulation and, thus,

probe our understanding of the challenges ahead.

Blog authored Florian Zimmermann, Nicky Heber and Tom Riesack


http://globalriskcommunity.com/profiles/blogs/mifid-ii-is-coming-are-you-prepared

SOLVING DATA GOVERNANCE BY SCALING AGILE/SCRUM


Solving Data Governance by Scaling

Agile/Scrum

Posted by Mack Frankfurter on December 10, 2012 at 5:04pm

When all is said and done, regulatory

requirements comes down to data management.

Legislation like Sarbanes-Oxley and Dodd-

Frank have ushered in the necessity of adopting a data

governance program to align information accountabilities

amongst stakeholders, and to foster intelligent

collaboration between the business and technology.

“Data governance is a set of processes that ensures that

important data assets are formally managed throughout

the enterprise. Data governance ensures that data can be

trusted and that people can be made accountable for any

adverse event that happens because of low data quality. It

is about putting people in charge of fixing and preventing

issues with data so that the enterprise can become more

efficient. Data governance also describes an evolutionary

process for a company, altering the company’s way of

thinking and setting up the processes to handle

information so that it may be utilized by the entire

organization. It’s about using technology when necessary

in many forms to help aid the process. When companies

desire, or are required, to gain control of their data, they

Mack Frankfurter



empower their people, set up processes and get help from

technology to do it.”[3]

Key is providing checks and balances between those who

create/collect information, and those who

consume/analyze information. In any enterprise, much

less a large institution, this is not an easy task.

Some stakeholders are concerned with operational

systems and data; while others care mostly about

analysis, reporting, and decision-making. In fact, the

needs of stakeholders who are concerned about data

quality and controlling access to information may conflict

with stakeholders who want to increase the ability to

acquire and share content, records, and reports. In

addition, these needs must consider risk management,

data security, and legal issues. To make matters more

complicated, stakeholders tend to have different

vernaculars to describe their assumptions, requirements,

drivers, and constraints.

The question is how to best implement data governance

within an organization? It is one thing for a company to

desire or be required “to gain control of their data,” but it

is all together another issue to “empower their people”

and do it in practice.

SOLVING DATA GOVERNANCE BY SCALING AGILE/SCRUM


The answer to the above question may exist in applying

Agile/Scrum methodologies and scaling the agile mindset

across the enterprise by implementing a matrix

organization.

Figure 1. Iron Triangle Waterfall / Agile Paradigm Shift

Continue reading Solving Data Governance by Scaling

Agile/Scrum


http://iq3group.blogspot.com/2012/12/solving-data-governance-by-scaling.html

http://iq3group.blogspot.com/2012/12/solving-data-governance-by-scaling.html

http://globalriskcommunity.com/profiles/blogs/solving-data-governance-by-scaling-agile-scrum



Derivatives regulation - a corporate

treasurer’s nightmare

Posted by Tom Riesack on December 4, 2012 at 7:00am

By Tom Riesack and Ute Herzog

In the ‘new normal’ of highly regulated

financial markets, corporate treasurers are

feeling the reverberations in their daily activities.

Corporates are using swaps to hedge their commercial

risks, stemming from currency, interest and commodity

price exposure. To mitigate such risks treasurers have a

whole arsenal of instruments ready to deploy such as

swaps, forwards and options as well as individually

structured products.

Under current bilateral trading agreements, corporates

typically do not put up any collateral with mostly one-

way netting agreements in place and sometimes no

netting agreements at all. Swap activities and the

resulting mark-to-market valuations are covered by

extended credit lines of their financial counterparties.

Pending regulations for the financial sector (especially

Dodd-Frank Act (DFA), EMIR and Basel III) will have a

direct impact on corporates who are classified within

these frameworks as non-financial end-users. Whereas

Tom Riesack

DERIVATIVES REGULATION - A CORPORATE TREASURER’S NIGHTMARE


Dodd-Frank and EMIR require standardised swaps to be

centrally cleared, Basel III introduces the CVA (credit

value adjustment) charge which makes bilateral swaps

vastly more expensive as the amount of core capital

required is three times higher than before.

But corporates are granted exemptions under DFA and

EMIR:

End-user exemption under DFA

Exemption from mandatory clearing and trading if

swaps are used “to hedge or mitigate commercial

risk”

Notification to the Commodity Futures Trading

Commission required

Board approval to opt out of the central clearing

requirement

End-user exemption under EMIR

No clearing obligation as long as certain thresholds

are not breached

Thresholds apply to all trades not “objectively

measurable as reducing risks”, which means not

used to hedge commercial risks

Current thresholds for credit and equity derivatives

are € 1bn and for interest rate, FX, commodity and

other derivatives, € 3bn



Here’s the catch – no such exemption has been granted

under Basel III until now. The result is the application of

a CVA charge by financials when calculating the core

capital consumption needed for deals with corporates

although such trades would not be required to be cleared.

The respective cost of trading is likely to be transferred

to corporates making their hedging activities more

expensive. One estimate by a group of 17 large German

corporates puts this fi... and consequently there is still

industry confusion about which exemptions will be

granted.

The European Association of Corporate Treasurers

(EACT) is at the forefront of lobbying efforts to bring in

line the CVA charge application with EMIR exemptions.

But currently, corporate treasurers’ use of swaps could

move in different directions if an exemption under Basel

III is not achieved. Firms may:

Keep going as before and bear the additional cost of

trading

Adjust current processes to enable central clearing

of swaps, which would alleviate the cost stemming

from the CVA charge but would require corporates

to put up collateral that they typically do not have

http://www.dai.de/internet/dai/dai-2-0.nsf/dai_publikationen.htm?openPage&ID=1A2E366F190E809BC12579610038ADD8

http://www.dai.de/internet/dai/dai-2-0.nsf/dai_publikationen.htm?openPage&ID=1A2E366F190E809BC12579610038ADD8

http://eactchairman.wordpress.com/2012/10/21/approaching-a-win-on-crd-ivcrr/

DERIVATIVES REGULATION - A CORPORATE TREASURER’S NIGHTMARE


Reduce or effectively stop the hedging of their

commercial risks to take on the risk rather than the

cost.

As David Lawton, Director of Markets at the FSA put it

in a recent ...: “These are not challenges that will go

away overnight […] I would encourage you to engage as

much as possible. Consider whether you need to amend

existing or enter into new bilateral credit support

documentation to meet new margin requirements.

Review existing operational processes to ensure they

conform with the new technical standards. Provide

notifications in good time to regulators if intending to

rely on exemption.”


http://www.fsa.gov.uk/library/communication/speeches/2012/1122-dl.shtml

http://www.fsa.gov.uk/library/communication/speeches/2012/1122-dl.shtml

http://globalriskcommunity.com/profiles/blogs/derivatives-regulation-a-corporate-treasurer-s-nightmare



Visibility and control: the liquidity

management mantra

Posted by Nicholas Downes on November 27, 2012 at 3:23pm

Liquidity has moved further and further up

banking executives’ agendas thanks to the

growing industry focus as well as regulatory

demands for more liquidity to be available in banks.

Following the 2008 crash, liquidity has established itself

as a risk concern for banks like never before – the failure

of Northern Rock was essentially one of liquidity not

funds. As a result, liquidity management strategies

continue to be at the forefront of any strategic risk plan.

A fundamental challenge for banks is that increasing

amounts of liquidity are needed to support clearing and

settlement, customer business flows and regulatory

requirements. This is happening in parallel with rising

costs of cash and high quality collateral while supply

remains restricted. To illustrate the extent of the issue,

it’s been estimated that European banks will need

approximately €2 trillion in qualifying assets to meet

new regulatory requirements.

As liquidity is a key resource, banks are reforming their

liquidity operating models so that systems give real-time

visibility to liquidity information. Visibility and control is

Nicholas Downes

VISIBILITY AND CONTROL: THE LIQUIDITY MANAGEMENT MANTRA


now the mantra for effective liquidity management. This

trend for visibility and control meets its greatest

challenge in the supervision and management of

currencies that are cleared and settled indirectly through

agents. Pressure is rising from regulators and central

banks for banks with significant cash flows to be direct

members of clearing and settlement systems. Changes to

risk policies and pricing among leading settlement banks

are also driving rationalisation of correspondent banking

models and arrangements. Large networks with

replicated capacity are being trimmed down and demand

is growing for improved intraday information services.

As many bank departments use liquidity on a daily

basis, there must be enhanced controls in place and

banks must demonstrate active management, allocation

and pricing of liquidity. In addition, the payment

processes that handle intraday cash flows must provide

real-time control over scheduling and exposure to

external accounts and counterparties. Banks must take

steps to adjust their liquidity management strategies or

risk being hit by expensive collateral costs or

unfavourable liquidity risk profiles.

Nick Downes, principle consultant, Logica, part of CGI


http://globalriskcommunity.com/profiles/blogs/visibility-and-control-the-liquidity-management-mantra



Trading swaps in a cleared world

Posted by Tom Riesack on October 31, 2012 at 6:43am

Meet Joe. Joe is a swaps trader within a small

institution that has a straightforward hedging

strategy at both the micro and macro level.

Being a price-taker, Joe has built and maintained broker

relationships that enable him to easily get a swap priced

at an acceptable level provided counterparty limits allow.

Joe’s back office is practicing weekly collateral exchange

with various counterparties in cash. As such, Joe lives in

a very comfortable world.

But Joe is in for a nasty surprise. The practice of looking

for a good price from a trusted broker dealer is about to

be turned upside down. Regulations spanning from Basel

III and CRD IV to Dodd-Frank and EMIR will make the

decision of where to trade what and with whom a lot

more complicated. Deciding on a trade has become

extremely varied across cleared trades, electronic trading

and bilateral trades. A number of additional influencing

factors play a significant role with the added

complication that these factors are not always correlated.

Some factors are the:

cost of clearing

Tom Riesack

TRADING SWAPS IN A CLEARED WORLD


size and cost of posting initial margin, at the CCP as

well as bilaterally

cost of collateral transformation

cost of capital

These are some examples of what Joe needs to consider

in the future:

If the intended swap is eligible for clearing, what

will the clearing cost be?

Collateral now needs to be posted daily, and not only

variation margin but also initial margin. And

margin posted to the clearing broker needs to be

paid on the same day. Where does Joe fund that

money from?

Which clearing broker do I use?

o This involves thinking about the impact on

initial margin requirements that the change of

the swap portfolio held at that clearing broker

would result in

o Interest on initial margins at clearing houses

typically does not yield market rates as clearing

houses take a cut, e.g. EONIA -30 basis points,

which would mean an interest loss as Joe needs

to fund the amount posted as initial margin at

market rates

o Would it now make sense to backload some

existing bilateral trades into clearing to reduce



the initial margin? How does that offset

correlate with the cost of backloading?

This train of thought is endless and it puts Joe in a very

dire situation. There is no immediate remedy such as an

algorithm that could be employed to help with his

trading decision. This calls for a set of strategic trading

policies that Joe should adhere to which should be

combined with regular reviews of such policies and their

resultant cost of trading.

The incoming regulations will no doubt be costly but

being smart and strategic in dealing with the

consequences ensures that the cost will not break Joe’s

or your business.

Next week marks the last instalment of the OTC blog

series, this time covering the impact of the new regulatory

regimes on corporates.


http://globalriskcommunity.com/profiles/blogs/trading-swaps-in-a-cleared-world

BUILDING A GLOBAL TAX STRATEGY


Building a Global Tax Strategy

Posted by Jennifer Keljik on September 4, 2012 at 6:44pm

Melton L. Spivak, a speaker at the marcus evans Tax Officers

Summit XIV 2012, stresses the importance of having an

international network of contacts to help construct a global tax

strategy.

Interview with: Melton L. Spivak, Vice President of Property Tax, JPMorgan

Chase & Co.

Tax Officers must continuously build an education around the changes in tax

laws and procedures, says Melton L. Spivak, Vice President of Property Tax,

JPMorgan Chase & Co. Developing a matrix system that is relative to the

company and looking out for tax exemptions, are how property taxes can be

better managed and money saved, he adds.

A speaker at the marcus evans Tax Officers Summit XIV 2012, in Las Vegas,

Nevada, November 8-10, Spivak talks about the process for administrating

property tax being completely decentralized and how that is why organizations

fail to recognize property tax.

What strategies should tax professionals follow to manage property tax and save

money?

Professionals must stay current on changes in tax laws

and procedures. They should centralize all tax notices,

compliance forms and tax bills, and make sure that these

bills are the right ones. Opportunities for tax

exemptions, abatements and rebates should be chased.

Corporate professionals have to develop their own matrix

systems relative to their company. Companies that lease

a lot of properties should make sure that tax escalations

Jennifer Keljik

http://www.taxofficerssummit.com/


http://www.me-uk.com/summit/newsletter.asp?eventid=19284&RecID=4230&me_cid=&Date=28%20September%202011

http://www.me-uk.com/summit/newsletter.asp?eventid=19284&RecID=3367&me_cid=&Date=21%20March%202011






are audited. Maintaining a good relationship with tax

authorities is also an essential part of the strategy.

How can global tax directors prepare for the future in

these economic circumstances?

An international network of contacts must be built to fit

the needs of the corporation. These resources can then be

utilized to foster a global tax strategy. Successful

planning requires insight of political and tax issues.

Most importantly, tax professionals must never

compromise their integrity.

External connections can lead tax professionals to

information that is internally unavailable, and with this

knowledge they can gather advice on how to do a better

job.

Why do organizations fail to recognize property tax?

The administration, payment and approval of property

tax is typically decentralized. As a result, no methodical

way of determining where the tax opportunities are can

be calculated.

What advice could you give on property rates?

Corporate property tax managers should be preparing for

the 2015 Revaluation of the UK property tax/rates

system. These costs will be better handled by engaging

with a carefully selected rating surveyor who will review



and propose an adjustment plan, or negotiate the

rateable values for corporations with significant

exposure to property rates.

How can tax executives efficiently benefit from tax

credits?

Depending on the amount of money involved and the

complexity of the credits, staff must be trained to handle

the tax credit process. Tax consultants or attorneys can

also be retained to maximize the available benefits.

What are some of the technology issues that they will have

to face in the future?

Government tax authorities will have to employ

sophisticated technologies to gather, analyze, validate

and process information to determine tax liabilities.

Global corporations will need to have the right software

to deal with growing informational demands, and find

ways of saving and recovering income from incorrect tax

bills. Training will be necessary to keep them ahead of

the curve.

Contact: Jennifer Keljik, marketing manager, marcus

evans, Summits Division

Tel: 312.540.3000 x6592

Email: [email protected]

mailto:[email protected]



About the Tax Officers Summit XIV 2012

This unique forum will take place at the Red Rock

Casino, Resort & Spa, Las Vegas, Nevada, November 8-

10, 2012. Offering much more than any conference,

exhibition or trade show, this exclusive meeting will

bring together esteemed industry thought leaders and

solution providers to a highly focused and interactive

networking event. The Summit includes presentations on

corporate tax management, global property tax

management, marketing the tax department, transfer

pricing, and identifying mitigating transfer pricing risks.

The Finance Network – marcus evans Summits group

delivers peer-to-peer information on strategic matters,

professional trends and breakthrough innovations.

Please note that the Summit is a closed business event

and the number of participants strictly limited.

About Marcus Evans Summits

Marcus Evans Summits are high level business forums

for the world’s leading decision-makers to meet, learn

and discuss strategies and solutions. Held at exclusive

locations around the world, these events provide

attendees with a unique opportunity to individually

tailor their schedules of keynote presentations, think

tanks, seminars and one-on-one business meetings. For



more information, please contact summits-

[email protected]




http://globalriskcommunity.com/profiles/blogs/building-a-global-tax-strategy



Cementing the Requirements of Dodd-

Frank

Posted by Michele Westergaard on September 4, 2012 at 11:10pm

Interview with Houman B. Shadab, Associate

Professor of Law at New York Law School.

Houman B. Shadab is an Associate Professor of

Law at New York Law School. He is an internationally

recognized expert in financial law and regulation whose

research focuses on hedge funds, derivatives, and

securitization. Professor Shadab is a director of the

Center on Financial Services Law and the Editor-in-

Chief of the Journal of Taxation and Regulation of

Financial Institutions.

Marcus Evans had the privilege to hear from Houman B.

Shadab. Below he shares with us his perspective on key

issues facing the clearing and settlement process,

including how the Dodd Frank Act will affect the

regulatory landscape and how to prepare for the new

requirements.

Who do you think will feel the biggest impact of the

incoming regulations and why?

Houman B. Shadab: Dealer banks will probably feel the

biggest impact of the new regulatory framework as they

Michele Westergaard

CEMENTING THE REQUIREMENTS OF DODD-FRANK


are one of the primary direct targets of the new

regulations. This impact will not only be due to the new

capital and margin requirements and general compliance

burden, but also due to the sea change in moving from a

bilateral, telephone-negotiated OTC derivatives market

to one where transactions are increasingly intermediated

electronically by clearinghouses and trading platforms.

The great shift from a bilateral environment to an

intermediated one will also provide new business

opportunities for the institutions and firms that directly

provide central clearing and trading services, and for

third parties that help make the process more efficient

and less risky, including brokers and providers of data

and collateral management systems. Asset managers

and other buy-side participants will also feel the impact

of the new regulations in the form of developing the

infrastructure required to trade in a centrally cleared

environment.

How smoothly is the regulatory process running and are

things running according to the anticipated timeline?

HS: It has been about two years since the Dodd Frank

Act was passed and so far the regulatory process is

running far behind its official schedule. In the area of

derivatives rulemaking, regulators have missed about

half of their deadlines for final rules. The regulatory

process is moving slower than mandated due to the



enormous volume of new rules required, the complexity

of the rules, and the fact that many rulemakings must be

coordinated among different regulatory bodies.

Regulators are also moving at a measured pace in

response to the large volume of input from industry and

other interested parties.

Is change for the better and how will it benefit the C&S

process?

HS: Overall, the operational and market structure

changes to the C&S process that began prior to the

financial crisis will make it more robust, efficient, and

transparent. Changes mandated by or that result from

the regulatory overhaul may also have the same effect.

But the movement towards a cleared environment will

also introduce new types of costs and risks to the C&S

process. For example, elevating the importance of

clearinghouses raises the stakes for regulators in

properly overseeing the operations of a new class of “too

big to fail” institutions. In this way, reducing

counterparty risks may increase systemic ones. Another

example of a new cost to the C&S process comes from

less cross-margining across different positions. Collateral

demands and operational costs may increase to the

extent central clearing does not enable as much cross-

margining as bilateral trading previously did.

CEMENTING THE REQUIREMENTS OF DODD-FRANK


To what extent do you believe extra-territoriality will be

an issue?

HS: The extra-territorial reach of domestic laws in light

of changing local rules and market practices will be an

important issue for the foreseeable future. Derivatives

transactions often take place across two or more

jurisdictions and no two jurisdictions are developing the

exact same regulations or requirements. National

regulators are aware that their rules will lack any teeth

if they can be avoided simply by being carried out by

foreign subsidiaries or affiliates. Accordingly, Title VII of

the Dodd-Frank Act and other national derivatives

regimes will necessarily have an extra-territorial aspect

that may need to be addressed as part of a firm’s routine

compliance and operational practices.

Do you believe regulatory harmonization/ co-operation is

realistic and how do you think the regulatory process

could work towards this?

HS: Pure harmonization of regulatory requirements

across jurisdictions is neither realistic nor desirable. A

better and more feasible alternative to harmonization is

substituted compliance (or “mutual recognition”), which

entails a regulatory body exempting compliance with its

own rules so long as an entity is complying with a foreign

regime of comparable quality. Recently, the Commodity



Futures Trading Commission released guidance on how

to interpret the Dodd-Frank Act’s extra-territorial

application. That guidance relies largely on the concept

of substituted compliance in determining whether U.S.

rules apply to non-U.S. swap dealers or non-U.S.

branches and affiliates of U.S. swap dealers. Going

forward, we should expect to see other regulatory bodies

rely on substituted compliance as an alternative to

harmonization.

Houman B. Shadab will be a speaker at the upcoming

Collateral Management Conference, November 5-7, 2012

in New York, NY. For more information please contact

Michele Westergaard, Senior Marketing Manager, Media

& PR, Marcus Evans at 312-540-3000 ext. 6625 or

[email protected].

About Marcus Evans

Marcus Evans conferences annually produce over 2,000 high

quality events designed to provide key strategic business

information, best practice and networking opportunities for

senior industry decision-makers. Our global reach is utilized

to attract over 30,000 speakers annually, ensuring niche

focused subject matter presented directly by practitioners

and a diversity of information to assist our clients in

adopting best practice in all business disciplines.


http://www.mefinance.com/Collateral_HS

http://www.mefinance.com/Collateral_HS


http://globalriskcommunity.com/profiles/blogs/cementing-the-requirements-of-dodd-frank

SOX COMPLIANCE WITH ERM: MANAGING THE RISK OF MISSTATEMENTS


SOX Compliance with ERM: Managing the

Risk of Misstatements

Posted by Steven Minsky on June 12, 2012 at 2:00pm

First, what is Sarbanes-Oxley (SOX)

compliance? It is the legal requirement for

public companies that senior management state

that their company’s financial reporting is accurate.

Sounds simple? The expense and the value are all in the

execution. How is that done? Simply put, the flow of

information from the financial reports themselves is

traced and connected to the activities that generate that

information and the resources that are depended upon to

generate that information. That sounds like, and can be,

a very difficult and time consuming process, but that is

where Enterprise Risk Management steps in to manage

the complexity.

How ERM Software benefits SOX

An ERM approach to SOX 404 compliance will

dramatically reduce control maintenance and compliance

testing activities as well as reduce your external audit

fees. What in specific you ask?

Steven Minsky

http://www.logicmanager.com/erm-solutions/sox-software.php

http://www.logicmanager.com/erm-software/erm-software.php




Setting priorities

Most organizations find it difficult to determine

objectively and systematically across business silos what

makes an operational control “key” or prioritize test

activities based on materiality of the risk of the control

they are evaluating. Risk assessments identify which

risks, and which controls over those risks within each

business process are scored the highest.

Joining IT SOX and SOX compliance at the

activity level

Any automated financial control depends on an

underlying IT system to run and be accurate. Most

organizations evaluate IT SOX compliance by one group

and the internal controls over financial reporting in

another without a direct connection between the two.

Connecting the specifics of all the touch points in IT and

vendor management to a control dramatically reduces

the scope of work for what needs to be tested. For

example, if an IT resource to a material control has not

changed within the past year, there is no need for

retesting. But most organizations not being able to

connect IT to key controls end up testing for SOX

compliance too many applications because their IT group

cannot determine what specific controls depend on what

http://www.logicmanager.com/erm-software/risk-assessment-template.php

http://www.logicmanager.com/erm-solutions/it-risk-management.php


SOX COMPLIANCE WITH ERM: MANAGING THE RISK OF MISSTATEMENTS


parts of their IT infrastructure. The result is not only

wasted resources internally, but wasted expense paying

external auditors large fees do check and recheck this

redundancy!

Assurance

Having everything in one place and connected through a

risk taxonomy makes automated fact checking easy.

Combined with the setting of priorities in point #1 above

ensures you that your organization's most material

issues are covered by appropriate controls and testing is

up-to-date so that management has full transparency

and confidence in making their attestations.

Saving money

Removing the unnecessary redundancy and overlap

between IT SOX and SOX business controls reduces SOX

compliance testing and sign-off of testing activities.

Finally it reduces the external audit fees companies are

paying to review all of this unnecessary redundancy and

overlap. Look up your company’s audit fees disclosed in

your organization’s 10k to see what a 15-20% reduction

of that number is worth to your company each year.

Multiply that number by 2 times to get a sense of the

time your organization is putting in preparing for that

audit and supporting that audit.



How SOX with ERM benefits the enterprise

CFOs need greater transparency into operational

activities, not just financial reporting accuracy. In the

process of achieving SOX compliance, a lot of valuable

information is collected that should be used to help other

functional areas and bring value to the rest of the

organization far beyond just SOX.

By using your ERM software to streamline SOX

compliance, like the six degrees of separation theory, all

the relationships between the activities and the effects of

the outcome of these activities can be used for other

purposes like business continuity, IT access rights

auditing, user defined application management, PCI

compliance, and so much more. Not only does this result

in a reduction of all these other activities by 40-60% due

to the reuse of information, but short term cost savings

are just the beginning as all this information becomes

connected to board strategy and performance

management goal achievement at virtually no additional

cost or time commitment. The result is better business

decisions and better performance management.

Watch this 5 min video for a case study on how others

add value to their existing SOX programs and reduce the

time to get their work done.


http://info.logicmanager.com/bid/86132/ERM-and-the-Six-Degrees-of-Separation-Theory

http://www.logicmanager.com/erm-software/risk-governance-success-story.php

http://globalriskcommunity.com/profiles/blogs/sarbanes-oxley-sox-with-erm-turning-lemons-into-lemonade

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