Risk Management Presentation July 9 2012

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International Association of Risk and Compliance Professionals (IARCP)

1200 G Street N W Suite 800 Washington, DC 20005-6705 USA Tel: 202-449-9750 www.risk-compliance-association.com
Top 10 risk and compliance management related news stories and world events that (for better or for worse) shaped the week's agenda, and what is next
George Lekatis President of the IARCP
Dear Member, According to the European Economic and Social Committee (EESC), international accounting standards were designed to protect the interests of investors and markets: the focus must now be on the public interest. The role of the IASB a private body needs to be rethought, as does its function in laying down accounting rules, which should be far simpler and readily and clearly comprehensible. Uh-oh Uh-oh again What? Redesign the accounting standards and rethink the role of the IASB? According to the EESC, the European Union must use every possible means to step up its action within the G-20, the OECD and the FATF (Financial Action Task Force) to eradicate opaque tax jurisdictions as quickly as possible and to oblige Member States to combat the crime originating in many of these jurisdictions. Read our N umber 6 below for more. Welcome to the Top 10 list.
I nternational Association of Risk and Compliance Professionals (I ARCP) www.risk-compliance-association.com
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A.Basel I I I CRD 4: Impact and stakes Introductory speech by Mr Christian Noyer, Governor of the Bank of France and Chairman of the Board of Directors of the Bank for International Settlements, at the Autorit de contrle prudentiel (ACP) conference, Paris, 27 June 2012. B.Anand Sinha: I T and governance in banks some thoughts Address by Mr. Anand Sinha, Deputy Governor, Reserve Bank of India at the Program for Independent Directors of Banks organized by I DRBT, Hyderabad
Stephanie Martin, Associate General Counsel Mobile payments
Before the Subcommittee on Financial Institutions and Consumer Credit, Committee on Financial Services, Washington, D.C.
Last year, Monitoring indicators for intraday liquidity management - consultative document Intraday liquidity can be defined as funds that are accessible during the business day, usually to enable financial institutions to make payments in real time.
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Synthesis of the Comments from the Call for Evidence of the I nternal Market and Services Directorate General on the fundamental review of the FINANCIAL CONGLOMERATES DIRECTIVE The Call for Evidence for the Fundamental Review of the Financial Conglomerates Directive (hereafter "FICOD"), which was announced in February 2012, aimed at engaging interested stakeholders with the debate
Credible deterrence: here to stay 02 Jul 2012 - Speech by Tracey McDermott, acting director of the Enforcement and Financial Crime Division at the FSAs Enforcement Conference
Tax and financial havens OPI N ION of the European Economic and Social Committee on Tax and financial havens: a threat to the EU's internal market. The European Union must use every possible means to step up its action within the G-20, the OECD and the FATF (Financial Action Task Force) to eradicate opaque tax jurisdictions as quickly as possible and to oblige Member States to combat the crime originating in many of these jurisdictions.
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Celebrating I ndependence Day at the White House In each of the past three years, President Obama has marked Independence Day with a celebration at the White House featuring a concert, organized by the USO, to honor members of the U.S. military and their families.
Fahad Almubarak: Brief review of financial developments in Saudi Arabia Speech by His Excellency Dr Fahad Almubarak, Governor of the Saudi Arabian Monetary Agency (SAMA), marking the Seventh Anniversary of Blessed Allegiance Pledge to the Custodian of the Two Holy Mosques King Abdullah bin Abdulaziz, Riyadh.
"We affirm that it is imperative to break the vicious circle between banks and sovereigns." At the Euro area summit on 29 June, 2012, heads of state or government decided to: - Establish a single banking supervisory mechanism run the by the European Central Bank; and once this meachnism has been created;
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Provide the ESM with the possibility to inject funds into banks directly.
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Statement by the Chancellor of the Exchequer, Rt Hon George Osborne MP, on LIBOR
Check against delivery

[Note: The London Interbank Offered Rate (LIBOR) is the average interest rate estimated by leading banks in London that they would be charged if borrowing from other banks]
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NUMBER 1
Basel I I I CRD 4: I mpact and stakes

Introductory speech by Mr Christian Noyer, Governor of the Bank of France and Chairman of the Board of Directors of the Bank for International Settlements, at the Autorit de contrle prudentiel (ACP) conference, Paris, 27 June 2012. Ladies and gentlemen, I am delighted to welcome you today to this new conference organised by the Autorit de contrle prudentiel (ACP). This morning, the conference will be dedicated to the impact and stakes of the Basel I I I reform and, this afternoon, to the supervision of business practices in banking and insurance. I would like to thank all the participants for the interest they have shown in these crucial exchanges between regulators, supervisors and market participants. This conference is being held against the backdrop of an economic and financial environment that remains very difficult, characterised in particular in Europe by the ongoing sovereign debt crisis. Many questions surround the future of the European banking system, which has already undergone major transformations in the recent period while significant changes in its prudential framework and the organisation of its supervision are currently being reviewed. Far from putting on the back burner questions concerning Basel I I I and its application in Europe, that is to say CRD I V and its project to create a single rule book for European banks, I believe, on the contrary, these developments underscore the importance of better understanding the current reform and taking time to reflect, in order to ensure that the new
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framework for banking regulation and the distribution of supervisory responsibilities in Europe will deliver all their expected benefits.
Before leaving you to discuss in greater detail the impact and stakes of the Basel I I I reform, I would like to make a few remarks on this topic in relation to the current environment.
1. Basel I I I and CRD IV represent a quantitative and qualitative leap aimed at addressing the shortcomings highlighted by the current financial crisis
First, I believe that it would be useful to rapidly place the Basel I I I reform in its context, in order to fully understand its scope. Basel I I I is first and foremost a response to the financial crisis that started in 2007. This crisis and the subsequent wave of shocks to the banking system have not merely resulted in a temporary loss of output for the major advanced economies.
They have also had a lasting impact on employment, industrial production, the confidence of investors and households, and needless to say on public finances, which make crisis exit even more difficult.
In response to these developments, the international community adopted in 2009, under the impetus of the G20, an ambitious reform programme including Basel I I I, which is a key element for the banking sector. Indeed, a banking system that is more robust as a whole and capable of absorbing major shocks is vital to avoid the repetition of such chain reactions in the future. In this respect, despite the delay in the reform agenda in the United States, Europe must clearly press forward: the credibility of our banks and our economies is at stake.
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Basel I I I is naturally based on Basel I I which establishes the current capital adequacy rules.
However, Basel I I I goes further than merely changing and updating the existing rules. Basel I I I indeed considerably strengthens the capital requirements that banks must meet, but this reform is more extensive in that it significantly enhances the prudential framework: in addition to capital requirements, it establishes liquidity requirements, and a leverage ratio is set to be introduced in the medium term. From this point of view, Basel I I I is a far-reaching reform of banking regulation. Furthermore, and most importantly, I believe that Basel I I I is a major step forward in that it leads to a much closer interaction than has been the case to date between the individual supervision of banks, known as microprudential supervision, and the overall supervision of the banking and financial system, or macroprudential supervision.
This broader view of banking supervision, taking account of all its facets, translates into a number of provisions and notably introduces additional capital buffers (a capital conservation buffer, a countercyclical buffer and a buffer for systemically important financial institutions) in excess of the regulatory minimum.
Basel I I I therefore represents a quantitative and also a qualitative leap. Given the magnitude of the changes to be made, Basel I I I has major repercussions on market participants, who must adapt to this new environment. These repercussions are both anticipated and desirable, but the potentially negative consequences of this reform must be kept to a minimum.
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In this respect, many associated risks were highlighted during its drafting and even more so recently, due to the current economic and financial difficulties.
These included the risk of a rise in the cost of credit or of a credit crunch. Hence, the impact and stakes of Basel I I I must be carefully analysed and addressed.
2. The difficult economic environment stresses the importance of implementing Basel I I I in an appropriate manner but does not call into question the rationale of the reform
Without playing down the potential risks associated with the implementation of Basel I I I, to which the ACP pays close attention, I believe that this reform can be successfully implemented. Allow me to mention some reasons for this conviction and offer some avenues for actions: First, French banks, which have complied with Basel 2.5 rules since December 2011, are in a strong position to meet the new capital adequacy requirements when they come into force. Moreover, French banks are ahead of the Basel I I I schedule. Currently with Core Tier 1 capital ratios of over 9%, the main French groups demonstrate their ability to meet the European Banking Authority deadline of 30 June 2012. They should also fully comply with the new Basel I I I requirements by 2013. The ACP is closely monitoring credit institutions preparations for Basel I I I. By doing so, any problems can be identified at an early stage and issues relating to its implementation can be addressed, which I believe is essential for a smooth transition.
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More generally, in addition to the individual monitoring of banks preparation, coordination between supervisors and the players concerned is also important to ensure a clear understanding of the rules and identify any questions relating to the reform and their potential consequences.
The ACP liaises on a regular basis with the profession on all prudential matters. Indeed, todays conference is a prime illustration of this. It is also essential to closely monitor and take into account the impact of the new regulations on the financial system and the economy and to assess the different interactions in order, if necessary, to deal with the unforeseen consequences of Basel I I I. In this respect, the ACP, which maintains close links to the Banque de France and operates under its aegis, is naturally particularly attentive to and involved in all these matters. This is why we are accompanying the prudential reform with more general and macroeconomic reflections on the financing of the economy, and in particular on credit developments and the relationship between banking regulation and monetary policy . The new liquidity ratios therefore cannot be applied as they stand as they do not take into account all their consequences and interactions beyond the prudential objectives themselves, which include in particular the functioning of the interbank market, the level of intermediation or the conditions of monetary policy implementation. I therefore believe that the work underway on the calibration of these ratios is of the utmost importance in order to properly manage all the consequences of these new rules. Before handing the floor to Danile Nouy, Secretary General of the Autorit de contrle prudentiel, I would like to conclude with a few words on recent developments in Europe.
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You are aware of my commitment to full harmonisation in Europe: this single rule book is the only way to achieve a truly efficient single market.
You are also aware that the negotiations between the European Council and Parliament might reintroduce the national options that the Commission had removed. They may also, under a compromise text, render partly redundant and ineffective the responsibilities of supervisors of home and host countries, as well as those of micro-prudential and macro-prudential supervisors. In this context, I believe that the creation of a banking union is to be supported. It would be a major development for banking supervision in Europe, which would bring numerous benefits and would enable us to efficiently address the current difficulties. Such a development would most likely have very positive consequences in that it would be a step towards greater European harmonisation. Naturally, the benefits of such a reform would be more far-reaching but such questions go beyond the scope of todays conference. Questions regarding the impact and stakes of Basel I I I will already give ample food for thought in the rich debates and discussions this morning. I wish you all a fruitful conference.
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Anand Sinha: I T and governance in banks some thoughts

Address by Mr. Anand Sinha, Deputy Governor, Reserve Bank of India at the Program for Independent Directors of Banks organized by I DRBT, Hyderabad Shri Sambamurthy, Director, I DRBT; Shri Prabhakar, Chairman and Managing Director, Andhra Bank, Shri Rao, Managing Director, SBH, Shri Siva Kumar, member of faculty, ID RBT, distinguished fellows of ID RBT; other members of the faculty; and directors on the Boards of banks. Wish you all a very good morning. Independent directors are looked upon by both the stakeholders and regulators as important contributors to the value additive and ethically positive oversight of executive management activities. The organization of this programme, by I DRBT and its Director, Mr. Sambamurthy, which focuses on I T governance, I nformation Security and the role of Board therein, is very timely as these factors have assumed critical importance in the sphere of corporate governance in general and bank governance in particular.
While talking about this programme organized by I DRBT, it would be appropriate to recall, in brief, that this institution, conceptualized in 1994 and established in 1996 by the RBI to function as a centre for research and development in banking technology, has been commendably striving to meet its objectives.
It has to its credit several achievements like launch of Structured Financial Messaging System (SFMS) and National Financial Switch (NFS) management; besides publication of guidance on best practices and a number of research papers on topics of contemporary relevance to the I ndian banking industry. Now, with the reviewed and redefined goals, the I nstitute is all set to support the banking I ndustry, by working at the intersection of banking and technology, mainly in the areas of financial networks and applications, electronic payments and settlement systems, security
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technologies for the financial sector, financial information systems and business intelligence.
I am sure the institute will continue to enrich the banking I ndustry in the times to come through its good work.
Corporate governance
Coming to the theme of this programme, I would dwell, first of all, on the concept of governance. At the core of corporate governance is the principle of fiduciary duty, centered on oversight of management functioning in order to optimize stakeholder interests, within the limits of legal and regulatory compliance. This had its origin and basis in the need to balance the powers of executive management and the interests of diffused owners, i.e. shareholders, through an oversight process. This dominant view of governance comes from Agency theory, which emphasizes monitoring and control functions. In this perspective, directors responsibilities take two forms: ensuring accountability to minimize downside risks and enabling managerial entrepreneurship to reap upside potential. Over a period of time, the optimization of shareholders interest objective has broadened to include strategic efficiency and social responsibility. Connotation of oversight has changed and expanded, to mean effective leadership in guiding the management in strategic decisions, creation of suitable structures and processes for effective implementation and monitoring of managerial performance; and ensuring compliance with laws and regulations.
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The scope of oversight has undergone further change with implied inclusion of an ethic that transcends strict response to regulations.
This interpretation of the meaning of governance and role of the Board has gained greater currency in the wake of some big ticket events like collapse of Enron, WorldCom, H IH insurance, and, in the aftermath of the recent crisis, where a large part of the blame was attributed, inter alia, to unethical conduct by banks and market participants. Over all, the concept of governance has come to signify strategic leadership support and objective oversight by the Board to ensure optimized resource utilization, effective compliance and robust management. It is in this overall context of governance that IT governance has evolved as an area of great contemporary interest. Information technology has grown from a mere enabler to an essential component of business processes in the banking industry where information and data are considered most valued resources.
IT is a critical asset, not simply in enabling organizational success but also in providing opportunities for competitive advantage.
IT and I ndian banking

Banking in India, as all of us know, has traversed a long way from the days of manual work processes to mechanization, followed by word processing on standalone PCs and onto IT based applications and so on. As things stand today, it would be difficult to imagine a bank of any significance which does not have some or most of the key processes being run on I T based applications. Most of the customer related functions in banks, be it account opening, transaction processing or account and data maintenance, are all run on IT enabled systems.
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It is the reach and capacity of information technology that has facilitated banks to transcend the limitations of, geographical spread, burgeoning transaction volumes and, to an extent, human resources.
Banks are expanding their size and services to cater to fast increasing customer needs through technology enabled payment systems, internet based access and innovative service delivery modes. Other important business activities of banks such as participation in securities, currency and money markets, besides compliance functions like reserve maintenance, regulatory reporting etc. are all having processes heavily dependent on information technology. Even in case of internal work processes having large component of manual processing, dependence on computers and I T based communication mechanism is increasingly felt. Overall, banks are dependent on I T based systems for almost all of their activities, although the level of sophistication and refinement in such systems may vary from bank to bank or across activities or banking Industry segments (commercial banks, cooperative banks etc.). Reasons for this are not far to seek. Technology has become essential component for customer related and market related activities and participant banks cannot meet the requirements imposed by timelines or volumes without leveraging on technology. Even for backend and internal work processes, cost and time constraints are pushing banks to lean upon technology. It may not be possible to store and retrieve huge amounts of customer data, transaction data and business information, but for the power of technology based systems.
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More so, the globalization, competition and compliance requirements make it imperative for banks to increasingly use I T based platforms and applications for most of their activities.
It has become necessary for banks to use modern marketing as well as customer service tools to survive in a competitive environment; which involve large scale data collection, analysis and efficient communication which are not possible without the help of IT.
IT and financial inclusion

IT has a great role to play in furthering the financial inclusion drive, involving expansion of banking access to remote locations in a cost effective way. Reaching banking to the excluded segments has been the focus of regulatory agenda and many initiatives have been taken in this regard. Of the 74,414 villages with a population of more than 2000 identified as unbanked, 74,199 (99.7 per cent) villages have already been provided with banking services, on the back of concerted efforts of the banking fraternity encouraged by the Government and Reserve Bank of India. In the next stage, it has been proposed to cover unbanked villages with population less than 2000. Considering the vast geographical expanse of the country, such a gigantic task would not be possible at all without the help of technology. Technology has the potential to cut down the costs, bring down the barriers and make the financial inclusion a viable business proposition. Financial inclusion, apart from its social welfare enhancing role, should make a lot of business sense for banks in as much as they can get a large stable pool of retail deposits which will contribute very significantly to the robustness of the individual banks and to financial stability at the systemic level.
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Additionally, there would be small value but large volume of lending and other business.
What is constraining the full realization of this business potential is the comparatively large transaction costs. Several technological efforts and innovations have been made for increasing the reach which has reduced the transaction costs. However, much more needs to be done to make the financial inclusion an attractive and profitable business for banks.
IT in banking concerns
While the increased deployment of I T certainly has its own benefits in terms of enabling banks to meet the business requirements and enhance their service delivery capacity, such IT usage and dependence, however, bring in some new challenges and concerns. These challenges keep on getting more complex and qualitatively different, as technology keeps on evolving rapidly. For instance, technologies like cloud computing bring in advantages and efficiencies along with new risks which have to be managed. Any delay in adoption of new technologies would only let the competition pass by the laggard institutions. Cloud computing is an innovative concept which enables participants to leverage on collaborative sharing of resources, which not only brings down costs but also facilitates the participants to concentrate more on their core activities, leaving the management of I T resources to the service providers. This facility, by making the sophisticated applications affordable, has the potential to enable even the marginal players to make use of the technology and develop their businesses.
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However, this being a new technology data integrity and confidentiality seem to be a major concern at this stage.
Further, if too many participants rely on a single service provider, it may lead to a risk of over-concentration inasmuch as the failure of the service provider will be catastrophic. Banks will have to assess the pros and cons of new technologies and put in place adequate safe guards while adopting them.
As regulator and supervisor of the banking system in I ndia, inter alia, its many other roles, RBI is concerned about the soundness of the financial system in general and banking system in particular.
While IT usage contributes to efficiency, it brings, along with it, certain issues such as, issues of technology selection with strategic, financial and compliance considerations; process management to ensure cost effective and timely service delivery; security of customer and business data at access, storage and retrieval level, as also the accuracy of data and information for internal and external reporting.
Important issues and concerns in this context have been flagged by RBI in the I T vision document 201117 and the recent Monetary Policy statement (April 2012).
These concerns mainly revolve around the areas of governance, information security and MIS/ reporting and banks have to address these issues, on priority.
Technology and information security

Information security is an area that needs constant and continuing attention, considering, particularly, the operational risks associated with the use of technology.
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Security and integrity of data, communication and storage has acquired challenging dimensions as all of these activities are carried out over technology enabled systems.
Internet and remote access are necessities today, while threats through these modes come in newer forms each day. Privacy and confidentiality of customer as well as business data are at stake.
Denial of service, disruption, permanent data loss and even data manipulation are risks that cannot be ignored.
The IT management systems and processes in banks, therefore, have to be robust enough to meet these challenges effectively, on continuing basis. Any lapse in this regard can lead to several kinds of risks to the bank, its customers as well as other market participants, depending on the size and significance of the institution as well as magnitude of risk event.
Regulatory reporting and MIS

Another area of significant importance to the top managements, regulators and shareholders is the quality and efficiency of data reporting. Indian banking, even today, has housekeeping, M IS and reporting processes which are largely interspersed with manual intervention. This has implications for the quality, consistency and timeliness of data, with the risk of subjective interpretation, manipulation and delays, leading to potential adverse consequences in many forms. Even where the information collection and submission process is largely IT based, process design itself has to be in sync with information and reporting requirements.
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The top management, Board, regulators, the shareholders and customers may not get correct or timely information and disclosures due to inadvertent or deliberate action on the part of those compiling or submitting information.
There have been instances of process design facilitating manipulation of data, with serious implications. So, it is imperative that information systems are designed and managed in a way that data and information are efficiently and accurately compiled and reported. Automated data flow (ADF) initiative by RBI is a step in this direction. Banks are being exhorted to ensure ADF implementation at the earliest, not only as a matter of regulatory comfort but also in their own interest. Benefits for banks in such implementation are many. One, reduction in the number of procedures and sub-processes in procuring information, leading to enhanced efficiency on cost and time parameters. Two, more efficient internal monitoring, review and managerial decision making, reducing the scope for misreporting. Three, accurate and timely regulatory reporting leading to reduced risk of adverse regulatory action and timely support for course correction, where required. I would urge the Independent Directors to provide an oversight in their banks to this project so that the complete switchover to ADF is achieved in a timely and efficient manner.
Regulatory compliance and single view of information

As we all know, banking regulation across the globe is being tightened in the wake of recent financial crisis.
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Both Basel I I, which, for large banks, focusses on internal processes for measuring and managing risks and, Basel I I I, have enhanced the need for continuous monitoring of data on several parameters to ensure continuing, rather than point in time compliance.
There are new regulatory provisioning requirements as well, which can be complied with, only by proper data collection, compilation, and analysis and reporting. It is mandated that business decision making and regulatory reporting processes use the same data and information. Any lapse in this regard is increasingly being viewed adversely by the markets, customers, shareholders and regulators. It may, in fact, become highly time and cost intensive proposition for banks to collect, compile and report on the basis of voluminous data on diverse parameters through processes having manual interventions. The time criticality, even for internal reporting, is further amplified, by the fact that in a severely competitive market environment, quick information dissemination and decision making is an absolute requirement for growth and, may be for survival itself. Risks and opportunities have to be recognized quickly, followed by swift action to avoid being swamped by events. So, it is in the interest of all stakeholders to ensure that there is a single view of information and data in the banks with automated/ straight through processing for internal and external reporting. As recent events have shown, ability to identify the risks in time and manage them effectively differentiates successful institutions from the unsuccessful ones. To survive in the fast changing environment, institutions are required to have complete handle on the risks they face which helps them in taking corrective action.
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For this they need to have robust I T systems which can collect risk information from across different business segments and different geographical locations in a timely and comprehensive manner.
The systems should be able to process data and provide necessary reports to the management to enable quick action where necessary. Building of such systems involves significant investments and, therefore, requires, a dedicated focus from the Board and the top managements.
Weak and ineffective governance has been a very important contributory factor to the current crisis and clearly this is an area which needs considerable improvement.
In this context, maintaining robust risk information technology (IT ) systems that can generate timely, comprehensive, cross-geography, and cross-product information on exposure is of vital importance and, therefore, needs closer attention of the Board. Let me quote from a recent G-30 document Toward Effective Governance of Financial Institutions which succinctly emphasises the role of risk information technology in financial Institutions and the critical role Boards can play in implementing them. Ultimately, the quality of risk information that FI boards and management teams receive depends largely on the quality of the organizations I T systems. Ideally, FIs need risk IT systems that can gather risk information quickly and comprehensively, producing global, cross-product, cross-legal entity estimates of their exposures promptly. Unfortunately, few global FIs are capable of this. They are hampered by legacy systems that are inefficient, costly, and burdensome. Boards are well advised to press management to maintain and where
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necessary increase investment in risk I T systems, both as a short-term priority and as part of a long-term strategic initiative.
Risk I T investments must not be sidelined by necessary upgrades to finance and customer data systems. Instead, they must be integrated and prioritized. Given that for many large firms, necessary investments will run to several billion dollars over the coming years, boards may need to rethink their approach to evaluating managements investment in core I T spending. While some firms still have the audit or risk committee review I T investments, others have established committees dedicated to I T oversight. That is an interesting trend, and worth further consideration.
IT governance
Coming to I T governance, there are two ways to look at it. One is to view it as a sub-set of overall corporate governance and the other is to see it as a distinct concept/ discipline by itself. There are arguments on both sides, but the former looks more appropriate. Corporate governance, with its holistic definition covering fiduciary, strategic leadership/ guidance and ethics related roles, is inclusive of I T strategy and IT management oversight as IT systems and information are as valuable as any other resource for a bank, and may be more. Dependence on these resources and systems make it imperative that these are managed and governed through an appropriate I T governance framework (IT G).
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There are several alternative I TG frameworks (over 14 as per a 2009 research), with many more evolving, suitability of which depends on the overall ecosystem in which a bank operates.
In an early research on governance, IT governance mechanisms were categorized into three: decision making, alignment processes and communication approaches. Some IT G frameworks like Cobit (Control Objectives for Information and Related Technologies), COSO (Committee of Sponsoring Organisations of the Treadway Commission) and I TIL (Information Technology Infrastructure Library) provide guidance from micro level onwards. AS 8015, the Australian standard for ICT governance, is targeted at strategic level. However, there is no single dominant approach for IT G. Some recent research has conceived I TG as having: (i)Defensive or
(ii)Strategic approach where defensive approach refers to preventing or mitigating disasters while strategic approach aims to create sustainable shareholder value by either reducing costs or creating a sustainable competitive advantage.
In practice, holistic understanding of legal, regulatory, business and internal ethic environment contexts should determine the suitability of the framework for a particular bank. What is important is that I TG achieves its applicable objectives, both defensive and strategic, and enhances the overall corporate governance in a bank, by facilitating maximization of benefits and minimization of risks emanating from I T deployment. It focuses specifically on information technology systems, their performance and risk management.
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Role of board and independent directors

While we have discussed about governance in general and, IT governance in particular, one aspect which remains to be mentioned is the importance of the role that independent directors on the Boards of banks are expected to play. Banks, basically, are organizations which mainly have roles of intermediaries as well as financial market participants.
Their soundness and stability has potential impact much beyond their own well being.
So, the role of Board in banks is more focused on compliance, organizational ethic and strategic guidance. In the Indian banking context, Boards have a lot to contribute to strategic IT G as the I T implementation is still evolving and structures for robust oversight on acquisition, deployment and management of IT systems and information security mechanisms need closer attention and strengthening. Investments required in acquisition, maintenance and regular upgradation of technology systems in banks, along with the need to have appropriate human resource, are significant, and, therefore, require appropriate management controls and accountability framework under a watchful Board. Regulations and laws do contribute, but do not constitute the whole story about governance, as recent global events have shown. Governance landscape, including I T governance, has much more to be covered by quality of Board oversight than mere compliance with the written word. Good governance should be, and is often, the result of endogenous factors those that emerge from within, not without.
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Governance is not about what decisions get made that is management but it is about who makes the decisions and how they are made.
Independent directors, with an assumption of higher level of objectivity and professionalism, are expected to guide the banks in a manner that our banks as well as customers reap the fruits of I T deployment while the risks are contained through appropriate assessment and mitigation measures. Aristotle said it is better for a city to be governed by a good man than good laws. Board and its Directors can contribute towards governance, including I T governance, more than the law under which it is constituted, and that is what is expected of them. In conclusion, I would exhort the independent directors to perform their role at a level expected of them, so as to benefit the I ndustry, economy and society and once again convey my thanks to I DRBT for organizing the program.
I wish the program great success. Thank you.
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NUMBER 2
Communications with the Public

The Federal Reserve Board will be involved in many rulemakings to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. During the rulemaking process, meetings will take place between the Board and the public--representatives of bank organizations, consumer groups, trade associations, researchers and academics--that allow the Board to gather information and help educate the public on matters subject to agency rulemaking. The meetings contribute to an informed rulemaking process.
To help ensure the process is conducted in a fair, open, and transparent manner, Federal Reserve staff who communicate with the public on any matter subject to potential or proposed rulemaking under the Act will submit a written summary of the meeting or other contact.
Contacts and meeting summaries will be posted below. Summaries will generally be posted on Monday afternoons.
Categories:
- Systemic Designations, Enhanced Prudential Standards, and Banking Supervision and Regulation - Derivatives Markets and Products - Interchange Fees - Payments, Settlement and Clearing Activities and Utilities
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- Consumer Financial Protection

- Resolution Framework Stephanie Martin, Associate General Counsel
Mobile payments
Before the Subcommittee on Financial Institutions and Consumer Credit, Committee on Financial Services, Washington, D.C.
Chairman Capito, Ranking Member Maloney, and members of the Subcommittee, thank you for inviting me to appear before you today to talk about the regulation of mobile payments.
The evolution of technologies that enable consumers to conduct financial transactions using mobile devices has the potential to affect their financial lives in important and new ways. In discussing "mobile payments," I am referring to making purchases, bill payments, charitable donations, or payments to other persons using your mobile device, with the payment applied to your phone bill, charged to your credit card, or withdrawn directly from your bank account. Beyond payments, mobile devices have the potential to be useful tools in helping consumers track their spending, saving, investing, and borrowing, and in making financial decisions. These technologies also hold the potential to expand access to mainstream financial services to segments of the population that are currently unbanked or underbanked. That said, the technologies are still new, and there are important issues to consider, such as the reliability and security of these technologies. With any type of payment system, including mobile payment systems, regulators have two key concerns: (1) Whether consumers are protected if something goes wrong, such as an unauthorized transaction; and
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(2) Whether the system provides appropriate security and confidentiality for the transmission and storage of payment instructions and the personal financial information of consumers.
A legal framework exists to address the payment activities of insured depository institutions--collectively, "banks." This framework includes consumer protection statutes, such as the Electronic Fund Transfer Act (EFTA) and the Truth in Lending Act, as well as the bank supervisory process. To the extent that nonbanks are involved, whether and the degree to which federal or state statutes and rules are applicable depends on the nonbank's role in the transaction and the specific provisions of the particular statute or rule. Even so, many of our payments laws were initially drafted long before mobile payments (or the devices that facilitate them) were even envisioned. Therefore, those laws may not be well-tailored to address the full range of mobile payment services in the marketplace.
The Evolution of Payments

The U.S. payments landscape has changed dramatically in recent decades and continues to evolve rapidly. Electronic payments made through payment card networks and the automated clearinghouse system have become increasingly prevalent, and now represent about four out of every five noncash payments in this country. Virtually all check payments, which have been declining in number since the mid-1990s, are now cleared electronically rather than in paper form. The cumulative effects of automation and innovation have driven several waves of new banking and payment services that continue to improve the efficiency and effectiveness of our payment systems.
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The evolution of mobile payments encompasses a combination of continued advances in hardware, software, and payment systems.
These advances include contactless payments, online banking, mobile phones (particularly smart phones) and other remote devices, applications, and the convergence of Internet or e-commerce and mobile commerce. At its core, however, a mobile payment, like any other type of payment, results in money moving between bank accounts--for example, from a consumer's checking account at the consumer's bank to the merchant's checking account at the merchant's bank. This is true even if the payment initially is charged to a consumer's bill for services or to a prepaid balance held by a nonbank. For example, in the case of a mobile payment charged to a phone bill, ultimately, the consumer pays the bill with funds from an account at a bank. In the "back end" bank-to-bank settlement of these payments, the funds will typically travel on existing payment "rails," such as the automated clearinghouse system or a card network. The settlements between bank accounts over these existing systems are subject to the statutes, rules, or procedures that are already in place. There are, though, new and evolving aspects of mobile payments --typically related to the consumer interface and non traditional payment or settlement arrangements--which can involve new types of intermediaries or service providers. A new interface is not a new phenomenon. The evolution of consumer payments has gone from paper checks to debit and credit cards to home banking through personal computers and is now moving to smart phones and other remote devices, which have some of the processing and communications characteristics of home computers.
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In the case of bank-offered payment products, a new communication channel to an existing payment mechanism, such as a smart phone connection to the debit card or credit card system, generally does not result in changes to the basic rights afforded to consumers under those systems or to a bank's responsibility to ensure the security of that communication channel.
However, consumers may make payments in new ways using the services of entities that have not traditionally been in the payments business. For example, a consumer may settle a mobile payment transaction via a bill from a telephone company. Making payments through nontraditional arrangements may change the legal protections related to the purchase, depending on the details of the arrangement and the applicable federal or state statutes and rules.
Regulation of Mobile Payment Services Offered by Banks

As I stated, a legal framework to address the activities of banks already is in place, and to the extent that existing laws and rules apply, federal bank regulators have the tools to ensure that banks offer mobile payment services in compliance with the consumer protection provisions of those laws and rules. For example, electronic debits or credits to certain consumer asset accounts would generally be covered by the error-resolution, disclosure, and other provisions of the EFTA. The application of this act and most other federal consumer laws to bank or nonbank mobile payment transactions, including the extent to which transactions involving prepaid balances are covered, is subject to the rulemaking and interpretive authority of the Consumer Financial Protection Bureau (CFPB). When reviewing new payment interfaces that banks offer to their customers, the banking agencies look at the security and confidentiality protections that the bank has instituted. For example, the Federal Financial Institutions Examination Council Information Technology Handbooks provide guidance to examiners and
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financial institutions on identifying and controlling the information security risks associated with electronic banking activities, including banking through mobile phones.
Under section 501(b) of the Gramm-Leach-Bliley Act (GLBA), banks are required to implement programs that ensure the security and confidentiality of customer information, protect against unanticipated threats or hazards to the security or integrity of that information, protect against unauthorized access to or use of information that could result in substantial harm or inconvenience to any customer, and ensure the proper disposal of customer information. Banks are also subject to the so-called "red flags" rules that require financial institutions and creditors to implement programs designed to detect, prevent, and mitigate identity theft, as well as a variety of anti-money-laundering and other rules under the Bank Secrecy Act.
Regulation of Mobile Payment Services Offered by N onbanks

Many of the questions that have arisen with respect to mobile payments, however, relate to the involvement of nonbanks as intermediaries or service providers. The applicability of existing laws to nonbanks that are providing mobile payment services often depends on the nonbank's role in the transaction. For example, a bank might use a payments processor to offer its customers a means to initiate payments to third parties from mobile phones. In that case, the bank would continue to be responsible for ensuring that its agent complies with the laws and rules that are applicable to the bank. In other cases, however, a nonbank can have a more independent role, such as a manager of a prepaid value program, a money transmitter, or a telephone company that bills customers for payment transactions. In these cases, it is necessary to examine the specific provisions of law to determine their applicability to the nonbank's particular role in the transaction.
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As I mentioned earlier, the applicability of many federal consumer laws, such as the EFTA, to mobile payment services is subject to the rulemaking and interpretation of the CFPB.
Other laws also may apply, depending on the specific facts and circumstances of the arrangement. For example, the security guidelines mandated by section 501(b) of the GLBA and the "red flags" rules apply to certain nonbank entities that engage in financial activities as well as to banks, and therefore could be applicable to a nonbank's mobile payment interface with consumers. The Federal Trade Commission administers these requirements to the extent they apply to nonbanking firms. Further, the Treasury Department's Financial Crimes Enforcement Network (commonly known as FinCEN) applies know-your-customer and anti-money-laundering rules to providers and sellers of certain types of prepaid access, including prepaid cards. A nonbank service provider also may be subject to state money transmitter laws.
Although these laws are not uniform among the states, many of them include registration and bonding requirements and investment restrictions.
For international payments, both bank and nonbank service providers may also be subject to the remittance provisions in the EFTA, as implemented by the CFPB.
Conclusion
In conclusion, it is difficult to make broad generalizations about the applicability of existing statutes and rules to mobile payments. This is due to the different types of service providers (bank and nonbank), the wide variety of payment arrangements that are in place and under development, and the potential applicability of both banking and nonbanking laws to any given arrangement.
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Given recent technological developments in mobile payments, further analysis of existing laws may be needed to ensure that consumers are adequately protected.
At the same time, given the fast-paced nature of changes in this area and the potential for significant improvements in consumer financial services through mobile payments, further fact-finding would aid that analysis and would be helpful to ensure that any legislative or regulatory proposals do not stifle the very innovations that would benefit consumers overall. Thank you again for inviting me to appear today. I am happy to answer any of your questions.
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NUMBER 3
Monitoring indicators for intraday liquidity management consultative document

July 2012 Intraday liquidity can be defined as funds that are accessible during the business day, usually to enable financial institutions to make payments in real time. The Basel Committee's proposed Monitoring indicators for intraday liquidity management are intended to allow banking supervisors to monitor a bank's intraday liquidity risk management. Over time, the indicators will also help supervisors to gain a better understanding of banks' payment and settlement behaviour and their management of intraday liquidity risk. The Basel Committee welcomes comments on this consultative document. Comments should be submitted by Friday 14 September 2012 by e-mail to: baselcommittee@bis.org. Alternatively, comments may be sent by post to the Secretariat of the Basel Committee on Banking Supervision, Bank for I nternational Settlements, CH-4002 Basel, Switzerland. All comments may be published on the website of the Bank for International Settlements unless a comment contributor specifically requests confidential treatment. Issued for comment by 14 September 2012
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A. Background
1.The management of intraday liquidity risk forms a key element of a banks overall liquidity risk management framework. In September 2008, the Basel Committee on Banking Supervision (BCBS) published its Principles for Sound Liquidity Risk Management and Supervision (Sound Principles), which set guidelines for banks on their management of liquidity risk and collateral. Principle 8 of the Sound Principles focuses specifically on intraday liquidity risk and states that: A bank should actively manage its intraday liquidity positions and risks to meet payment and settlement obligations on a timely basis under both normal and stressed conditions and thus contribute to the smooth functioning of payment and settlement systems. 2.Principle 8 identifies six operational elements that should be included in a banks strategy for managing intraday liquidity risk and indicate that a bank should: (i)have the capacity to measure expected daily gross liquidity inflows and outflows, anticipate the intraday timing of these flows where possible, and forecast the range of potential net funding shortfalls that might arise at different points during the day; (ii)have the capacity to monitor intraday liquidity positions against expected activities and available resources (balances, remaining intraday credit capacity, available collateral); (iii)arrange to acquire sufficient intraday funding to meet its intraday objectives; (iv)have the ability to manage and mobilise collateral as necessary to obtain intraday funds;
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(v)have a robust capability to manage the timing of its liquidity outflows in line with its intraday objectives; and
(vi)be prepared to deal with unexpected disruptions to its intraday liquidity flows. 3.In December 2010, the BCBS published Basel I I I: I nternational framework for liquidity risk measurements, standards and monitoring (Basel I I I liquidity rules), which set out the Basel Committees reforms to strengthen liquidity regulations. The framework is centred upon two new minimum liquidity standards: the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio. Although the LCR is designed to promote the short term resilience of a banks liquidity profile, it does not currently include intraday liquidity within its calibration. The Basel I I I liquidity rules state: Banks and regulators should be aware that the LCR stress does not cover expected or unexpected intraday liquidity needs that occur during the day and disappear by the end of the day... The Committee is currently reviewing if and how intraday liquidity risk should be addressed. The liquidity rules also state that: One area in particular where more work on monitoring tools will be conducted relates to intraday liquidity risk. 4.To complement the guidance in the Sound Principles and to take forward its further work on monitoring tools for intraday liquidity, the BCBS, in consultation with the Committee on Payment and Settlement Systems (CPSS), has developed a proposed set of indicators to monitor banks intraday liquidity risk. The aim of the proposed indicators is to enable banking supervisors to monitor a banks intraday liquidity risk management and its ability to
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meet payment and settlement obligations on a timely basis, both in normal times and in stressed scenarios.
Over time, the indicators will also enable supervisors to gain a better understanding of payment and settlement behaviour and the management of intraday liquidity risk by banks. 5.Given the close relationship between the management of banks intraday liquidity risk and the smooth functioning of payment and settlement systems, the indicators are also likely to be of benefit to overseers of payment and settlement systems. Close cooperation between banking supervisors and the overseers is envisaged. 6.It should be noted that the proposed indicators are for monitoring purposes only and do not represent the introduction of new standards around intraday liquidity management.
B. Consultative document
7.This consultative document seeks comments on the design of the proposed indicators and on the supporting regulatory reporting regime. Although the indicators will apply specifically to internationally active banks, they have been designed equally to apply to all banks, including those that access payment and settlement systems indirectly via the services of a correspondent bank. 8.This document sets out:
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The definition of intraday liquidity and the elements that constitute a banks intraday liquidity sources and needs;
- The detailed design of the proposed monitoring indicators of a banks intraday liquidity risk in normal times;
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- Proposed stress scenarios;

- Key application issues; and - The proposed reporting regime. 9. Comments are welcomed on the proposed monitoring framework generally, but specifically on the following questions: (i)Do the proposed indicators adequately capture the intraday liquidity risk run by banks? (ii) Are the stress scenarios identified in the paper comprehensive? ( i i i )I s the proposed scope of application of the indicators clear? (iv)What, if any, implementation challenges would the proposed reporting requirements present to banks? (v)Are the different monitoring and reporting requirements for direct and indirect payment and settlement system participants clear? 10. Further guidance on the detailed implementation of the indicators will be issued by the BCBS when the proposals are finalised.
C. Definition and constituent elements of intraday liquidity

1 1. I ntraday liquidity is defined by the CPSS as Funds which can be accessed during the business day, usually to enable financial institutions to make payments in real time.
For the purpose of this document, business day is defined as the opening hours of the payment and settlement system (or group of systems) during which it is possible for a bank to receive and make payments.
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12.The following are the constituent elements of a banks intraday liquidity sources and needs.
Intraday Liquidity Sources

Own sources - Reserve balances at the central bank; - Eligible collateral pledged with the central bank; - Unencumbered liquid assets on a banks balance sheet that can be freely transferred to the central bank and converted into central bank money; - Secured or unsecured, committed or uncommitted credit lines available intraday; - Balances with other banks that can be used for settlement on the same day.
Other sources
- Payments received from other payment system participants,9 including operations carried out in intraday, and/ or overnight money markets; - Payments received from ancillary systems.
Intraday Liquidity N eeds

These arise from:
- Payments that need to be made, directly or indirectly, to other system participants, including operations carried out in intraday, and/ or overnight money markets;
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- Payments to be made to ancillary systems;

- Contingent payments (eg as an emergency liquidity provider) relating to a payment systems failure to settle procedures; - Contingent intraday liquidity liabilities to customers. - Payments arising from providing correspondent banking services In practice, some customer banks payments are made to other customers of the same correspondent bank. These payments do not give rise to intraday liquidity needs for the correspondent bank as they are made across its own books and do not enter the payment system. However, these internalised payments do have intraday liquidity implications for both the sending and receiving customer banks.
I I . The intraday liquidity monitoring indicators

13.A number of factors influence a banks usage of intraday liquidity in payment and settlement systems and the vulnerability to intraday liquidity shocks.
As such, no single indicator can provide supervisors with sufficient information on intraday liquidity risks or on how well risks are managed. For this reason a set of indicators is proposed. These aim to monitor: - A banks usage of, and requirement for, intraday liquidity both in normal times and in times of stress; - The intraday liquidity available to each bank on a daily basis, both in normal times and times of stress; and
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- Changes in banks behaviour over time within the payment and settlement systems.
A. The set of monitoring indicators

14. The detailed description of each indicator is set out below and stylised examples of the indicators are given in Annex 1. The reporting requirements of each indicator are set out in Section D.
(i) Daily maximum liquidity requirement

15.This indicator will show a banks daily maximum requirement for intraday liquidity in normal times by establishing its net cumulative intraday liquidity position over a period of time. The net cumulative intraday liquidity position of a bank is the difference between the value of its payments received and the value of its payments made at any point in the day. The banks largest negative net cumulative position during the day will determine its maximum intraday liquidity requirement on that day. 16.The indicator is shown in figure 1. A positive net cumulative position signifies that the bank has received more payments than it has made at a point in time during the day.
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Conversely, a negative net cumulative position signifies that the bank has made more payments than it has received.
For direct participants, the net position represents the change in its opening balance with the central bank. For indirect participants, the net position represents the change in the opening balance on its account(s) with its correspondent bank(s).
17.For the purpose of this indicator, intraday liquidity positions should be calculated on actual settlement times, rather than on submission times of payments to the system or to a correspondent bank, as appropriate. 18.Assuming that a bank runs a negative net cumulative position at some point intraday, it will need access to intraday liquidity to fund this balance. The minimum amount of intraday liquidity that a bank would need to have available on any given day would be equivalent to its largest negative net cumulative position. (In the illustration above, the intraday liquidity requirement would be 10 units.)
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19.Conversely, when a bank runs a positive net cumulative position at some point intraday, it has surplus liquidity available to meet its intraday liquidity obligations.
This position may arise because the bank is relying on payments received from other system participants to fund its outgoing payments. The larger the positive net cumulative position, the greater a banks usage of incoming payments to fund its own payment obligations.
(In the illustration above, the largest positive net cumulative position would be 8.6 units.)
20.For an indirect participant, payments are made across the banks account(s) held with its correspondent bank(s). The timing of receipts to, and payments made from, the account(s) will determine the banks intraday liquidity usage/requirement.
(ii) Available intraday liquidity

21. This indicator will show the amount of intraday liquidity available to a bank on a daily basis in normal times. Banks will be required to report the amount of intraday liquidity available to them at the start of each business day and the lowest amount of available intraday liquidity by value on a daily basis throughout the reporting period. This will require banks to monitor changes to their available intraday liquidity. The indicator will enable supervisors to assess whether a bank has sufficient intraday liquidity available on a daily basis to meet its normal intraday liquidity requirement.
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The Own Sources of liquidity set out in Section I C above are available for inclusion in the calculation of this indicator.
22. Where banks manage collateral on a cross-currency and/ or cross-system basis, liquidity sources not denominated in the currency of the intraday liquidity requirement and/ or which are located in a different jurisdiction, may be included in the calculation of the indicator if the bank can demonstrate to the satisfaction of its supervisor that the collateral can be transferred intraday freely to the system where it is needed.
(iii) Total payments

23. This indicator will require banks to report the total value of their gross daily payments made and received in payment and settlement systems. This will enable supervisors to establish the overall scale of their payment and settlement activity.
(iv) Time-specific and other critical obligations

24.The Sound Principles state that a bank should adopt intraday liquidity management objectives that allow it to identify and prioritise time-specific and other critical obligations in order to meet them when expected. These are obligations which must be settled at a specific time within the day or have an expected intraday settlement deadline. Failure to settle such obligations on time could result in financial penalty, reputational damage or loss of future business. 25.This indicator has two components. Banks will be required to report the volume and value of their time-specific and other critical obligations and the total number and
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value of time critical obligations that were missed during the reporting period.
This will enable supervisors to gain a better understanding of banks time-specific obligations and to monitor that those obligations are being managed appropriately. The following two indicators apply to banks which provide correspondent banking services or extend intraday credit as part of providing payment services to other customers.
(v) Value of customer payments made on behalf of financial institution customers

26. This indicator will require correspondent banks to report the gross value of their daily payments made on behalf of all of their financial institution customers. This will enable supervisors to gain a better understanding of the drivers of a correspondent banks payment flows. The bank will also be required to report the value of payments settled on behalf of each of its five largest financial institution customers (by value), including internalised payments that are settled across its books. This will enable supervisors to assess the degree of payment concentration in the banks provision of correspondent banking services
(vi) I ntraday credit lines extended to financial institution customers

27. This indicator will require correspondent banks to report the total sum of intraday credit lines extended by them to all of their financial institution customers.
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The correspondent bank will also be required to report the value of the credit lines extended to each of its largest five financial institution customers (by value), distinguishing between secured and unsecured credit and committed and uncommitted lines.
For those same five customers, the bank will also be required to report the maximum daily usage of credit lines granted, again distinguishing between secured and unsecured and committed and uncommitted lines. This indicator will enable supervisors to gain a better understanding of a banks correspondent banking business and the extent of any concentration in its provision of intraday credit.
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NUMBER 4
Synthesis of the Comments from the Call for Evidence of the I nternal Market and Services Directorate General on the fundamental review of the FINANCIAL CONGLOMERATES DIRECTIVE EXECUTIVE SUMMARY The Call for Evidence for the Fundamental Review of the Financial Conglomerates Directive (hereafter "FICOD"), which was announced in February 2012, aimed at engaging interested stakeholders with the debate on the supervision of large complex financial groups in Europe in the context of the Financial Conglomerates Directive review. The European Commission asked interested stakeholders to reply to three sets of questions, relating to: a)The general concept of supplementary supervision on groups that meet certain thresholds; b)An invitation for comments on the European specific perspective on Joint Forum principles of supervision in their five areas (Supervisory powers, Supervisory Responsibilities, Governance, Capital adequacy and liquidity and Risk management), c)Certain specific elements of the Financial Conglomerates Directive. The Commission received 13 responses to the Call for Evidence. More than half of respondents represent banking and insurance industry views. Other respondents consist of private stakeholders and one supervisory authority.
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Five responses were received from the United Kingdom, and one from France, Portugal, the Netherlands, Germany and Belgium each. Four responses were received from European level organizations.
Many respondents welcome the idea of revisiting the current supervisory framework for financial conglomerates. However, only a few are advocating for a strengthening of the current supervisory regime for conglomerates.
The overall impression is that most respondents are satisfied with the current regulatory framework on financial conglomerates and find it adequately ensures efficient supervision in the EU.
Some agree that potential gaps arising from cross-sectoral risks and unregulated entities need to be captured in order to ensure effective supervision, however most respondents believe that upcoming improvements in the sectoral supervisory regimes already guarantee comprehensive group-wide supervision. While many of the respondents acknowledge that coherence between sectoral rules could be improved, most claim that current sectoral rules are sufficient and adequate. Taking into account the fact that prudential frameworks (CRD, Solvency I I , shadow banking) are currently undergoing a review, they express the need for the new prudential rules to settle and for the gaps, where supplementary regulation is necessary, to crystallise. Only a few respondents express more ambitious views towards strengthening supplementary supervision of financial conglomerates. They advocate for powers for supervisors to impose all group requirements on the parent entity whether regulated or unregulated and for capturing special purpose vehicles (SPVs) within the scope of group supervision.
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First set of questions - views on the general concept of supplementary supervision on groups that meet certain thresholds
In the light of the objective of this kind of supervision, the detection and correction of group risks in groups with many different licenses (i.e. contagion, concentration of risks, conflicts of interest, management complexity, multiple use of capital), is the concept of supplementing group risk related supervision to the sector-specific supervision of individually authorized entities in a financial conglomerate still effective? The majority of respondents share the opinion that the current regulatory framework on financial conglomerates is adequate and ensures efficient supervision. Those respondents think that existing sectoral rules are sufficient and that proposed changes to current legislation should be allowed to settle before further reform. According to the some industry stakeholders, the upcoming Solvency I I regime provides for an extensive set of rules for insurance groups' supervision. Enhanced cooperation and information sharing will enable supervisors to maintain a sufficient level of oversight at the group level. I ntragroup transactions and risk concentrations will be continuously monitored and reported to the supervisors. A few respondents think that financial conglomerates should be subject to a supplementary supervisory framework.
This is necessary for addressing cross-sectoral risks which may not be adequately addressed in sectoral group supervision to ensure that all avenues for contagion between the two sectors are captured.
Is the application of this supplementary supervision only to groups that meet the cross-sector thresholds effective in the light of the objective of
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this kind of supervision, or should it be applied to a differently defined set of groups active in the financial sector?
As regards thresholds for identifying conglomerates, opinions diverge: i)There is no need for specific thresholds, provided that the definition of a group in CRD is aligned with Solvency I I , ii)The 10% threshold should be removed, replacing it with an alternative threshold, iii)There is no need for any modification to current rules. The majority of the respondents support the third option. They are satisfied with the current provisions and find the application still effective. They share the view that adding supplementary layers of supervision onto financial conglomerates would overburden the financial industry and would not be effective. The Solvency I I regime is sufficiently risk-based and as such, additional requirements at the financial conglomerates level should not result in duplicate or contradictory requirements. Some respondents acknowledge the need to revise the current framework and some question current waiver provisions. Few respondents suggest that entities that are not subsidiaries (particularly holdings of 10%-20%) should not be part of the group. In view of the objective of this framework, is stress testing at sector-specific level only sufficient to take account of unexpected scenarios in financial conglomerates?
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While most respondents agree on the usefulness of stress tests for financial institutions, they are sceptical towards stress tests at the conglomerate level.
Some industry stakeholders argue that Solvency I I is a risk-based regime which in itself acts as a stress test of (re)insurers. They feel that stress tests at the financial conglomerate level would be counterproductive.
Most respondents underline the priority of the implementation of the sectoral legislation and find the implementation of the stress testing analysis developed at the level of the individual sector more efficient.
Existing rules, issued at national, EU and Basel levels, are sufficient to check the resilience of firms and enable corrective action. Those respondents that think that stress testing at the level of financial conglomerates would be useful recognise that it could enable conglomerates to better evaluate and manage group-wide risks and to assess inter-sectorial effects. In that case stress tests should be robust and consider sufficiently adverse circumstances. Respondents, however, list possible practical limits to such exercises (company law restrictions, the heterogeneity of the business models, different techniques of measuring risks etc.)
Second set of questions related to the Joint Forum principles 1. Supervisory powers (Joint Forum principles 1-4)
The question is, whether, in the context of group wide supervision, supervisors in Europe should at all times be empowered to access this head of the financial conglomerate in its leading role and impose corrective measures on this entity, if it is not an authorized entity itself.
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With regard to this question, there are two diverging views.

Half of respondents strongly advocate for providing the supervisors with the ability to impose group requirements directly on the parent entity whether regulated or unregulated, the other half think this question has to be addressed at the sectoral level. Respondents that argue for the need to strengthen supervisory powers towards the head of the financial conglomerate point out that since it is the parent entity that generates controls and manages group risk as well as raising and allocating capital, it is essential to be able to apply group requirements on that parent entity directly even if it is unregulated. It provides an extra dimension for enforcement of requirements and it also creates an incentive for group boards to take sufficient account of the possible impact of their actions on regulated entities. There should be a single point of contact for a financial conglomerate, regulated or not, on which the group supervisor could enforce all group related supervisory requirements.
Financial conglomerates should be subject to supervision supplementary to supervision on a stand-alone, consolidated or group basis, without duplicating or affecting the group supervision and regardless of the legal structure of the group.
This group of respondents support the reinforcement of powers of the coordinator supervisor, and the strengthening of cooperation, coordination and information exchange between supervisors within the college of supervisors. They advocate for suitable supervisory discretion to be given to the competent authorities to apply any rules on Financial Conglomerates in a way that is proportionate to the nature of the conglomerate itself. Respondents flag several related issues: i) Possible distortion of competition in the form of lower requirements for
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financial conglomerates where the head of the group is not a regulated entity;
ii) Existing conflict of supervisory and corporate laws, as to whether the ultimate parent undertaking of the group has the necessary powers under corporate law to fulfil its obligations. A transparent and consistent regime must allocate responsibilities to the entity which has the means to comply with it.
Those respondents that see that the question as needing to be addressed at the sectoral level claim that the existing and proposed EU regulatory framework for the banking sector deals with this issue in an appropriate matter.
They feel that proposed (capital) rules enable corrective measures which should be sufficient to address risks to financial stability, including from unregulated parts of a group.
2. Supervisory responsibilities (Joint Forum principles 5-9)

The question is, whether the discretion to apply the rules in the supervisory approach as chosen by the respective authorities is effective in the context of cross-border and cross-sector groups, or whether other enforceable provisions (such as transparency, or obligatory cooperation, (see the Joint Forum document for more provisions) are necessary.
Most respondents are content with the current regulatory framework. They find it adequate and allowing for sharing of supervisory approaches and information within a college setting. Respondents emphasize the importance of information-sharing and supervisory coordination in a secure and efficiently organised manner. A conglomerates lead supervisor should remain clearly accountable.
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It is essential to monitor national implementation of these measures to ensure equivalence across jurisdictions.
In a European context where banking, insurance and securities sector supervision is subject to the ESAs' mandate of preventing regulatory arbitrage and promoting equal conditions of competition, it would be inconsistent not to also include financial conglomerates in the same logic. Another opinion advocates for building more productive working relationships between supervisors through the college system, which would reduce the need for additional detailed rules for financial conglomerates. It is thought that the effectiveness of qualitative supervision will vary depending upon legal systems and the experience of supervisors, and the effectiveness of cross-sector and cross-border supervisory colleges.
3. Governance (Joint Forum principles 10-14)

The question is whether explicit new or amended legal provisions are necessary to achieve sound group-wide governance systems in Europe, or whether sufficient legally clear provisions already exist to implement the suggested principles. The general view is that explicit new or amended legal provisions are not necessary as the current regulatory framework on financial conglomerates ensures sound governance of financial conglomerates and provides supervisors with sufficient tools to intervene if needed. Financial conglomerates-specific regulation should be limited to the minimum necessary enabling the closure of any identified gaps rather than establishing a full set of specific principles. Most respondents think that the possibility for the coordinator supervisor to intervene in the governance of a conglomerate, to influence the structure of it, would be too far-reaching a power.
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They advocate for flexible and principles-based governance requirements for conglomerates.
Several respondents suggest that unregulated and non-financial entities should be excluded from the governance specific requirements, especially when corresponding requirements are applied at sectoral level. The opponents to this view would welcome more explicit governance requirements, such as adding group-wide remuneration rules.
Supervisors should ensure that the conglomerates capital management policy is robust and takes into account risks emanating from unregulated activities.
It should include in that exercise the regulated as well as non-regulated entities. One respondent expressed an opinion that any reference to the governance framework should be sufficiently broad to encompass all possible local company law frameworks.
It was flagged that the element of public disclosure is completely overlooked.

Supervisors should also encourage public disclosure in several areas (other than only risk concentrations, intra-group transactions and exposures) such as the structure, remuneration elements, overall capital situation and stress testing results.
4. Capital adequacy and liquidity (Joint Forum principles 15-20)

The question is, whether the European prudential framework should remain confined to enforceable capital- and liquidity-ratios, and leave discretion to firms to ensure they always meet those minimum ratios, or that additional provisions are necessary, as suggested by the Joint Forum, to ensure that a conglomerate's internal capital and liquidity policy is sufficient to meet the required standards at all times in all of its authorized entities.
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The majority of respondents are of an opinion that additional requirements are not needed and they support a Pillar I I approach.
Existing and proposed sectoral prudential frameworks, including the use of Pillar I I , allow or will enable regulators to ensure that financial conglomerates have sufficient capital and liquidity to cover group risks. Some respondents note that it is important that unregulated entities that are part of a financial conglomerate are not treated differently to unregulated entities that are part of other regulated financial groups. The interaction between unregulated entities and regulated entities should be taken into account as "environmental" factors as part of the Pillar I I supervisory review and evaluation process. The requirements for banking and insurance should remain different in order to ensure an efficient and relevant supervision at the sectoral level. Some respondents support a global supervisory oversight of financial conglomerates. It has been pointed out that Solvency I I has two mandatory capital requirements at group level and supervisors can impose capital add-ons based on assessments of both Pillar I and I I provisions.
5. Risk management (Joint Forum principles 21-29)

Experts are invited to give their views on the European implementation of more specific regulation of group risks of this kind and introducing relevant requirements at the level of the head of a financial conglomerate. The majority of respondents see no need for any further requirements at the financial conglomerate level. According to them, all risks identified are adequately covered at the sector-specific level and current rules allow for corrective measures to be imposed at any regulated level.
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It is argued that existing tools also allow the influencing of any unregulated head of the group.
In addition to that, several respondents stress the diversification benefits deriving from the different risk profiles of the banking sector and insurance sector, as regards contagion and risk concentration. Given the wide range of changes taking place in these domains, allowing some time to better assess their end results seems appropriate before embarking on implementing additional minimum standard requirements. Some respondents acknowledge that it would be beneficial to have explicit requirements to address risk management culture and tolerance. Some support was expressed towards more detailed requirements in FICOD Article 9 to ensure that the full spectrum of risks is captured, particularly with respect to off balance sheet activities including special purpose entities (SPEs). FICOD could have explicit requirements to determine whether to consolidate an SPE and if so, what proportion. This could include requirements for an assessment of the risk transfer between the financial conglomerate obligations towards the SPE and a requirement to assess other factors such as control or economic interconnectedness to determine whether contagion risk is present (using stress and scenario testing where appropriate). Respondents note that coherence of the core principles of supervision for banks and insurance would be beneficial. The objective should be to achieve regulation which is aligned with the risks posed by institutions in their respective sectors but whose design takes into account cross-sectoral effects. Some support the development of cross-conglomerate consolidated reporting of risks.
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Third set of questions: essential elements of the Financial Conglomerate Directive

The question is whether the structure of the Directive, of this set of provisions that must supplement sector-specific provisions, is clear and whether legal certainty is optimal. I f not, how could legal clarity and certainty be improved? Most respondents are satisfied by the legal clarity and certainty provided by the Directive. Issues flagged by several respondents are: i)Possible conflicts between FICOD and national company law particularly between the group-wide/centralized controlling-obligation of the superordinate entity versus the persisting responsibility of the boards of the subordinated entities, ii)The failure of the present Directive to address the problem of how to enforce conglomerate-related duties and obligations over a non-controlled minority-held (20-50%) conglomerate member, iii)That the responsibility of evaluating the systemic relevance of the risks posed by any economic group - and not solely the financial conglomerate - could rest within the European Systemic Risk Board.
How could the definition of the relevant "group" and the determination of responsible entities be improved?
As regards the definition of a group and the determination of responsible entities, there are two opposing views. Some respondents see the need for parent entity provisions ensuring powers at both regulated entity level and at parent entity level. In that respect provisions should allow the identification of the ultimate parent, taking into account factors such as control and ability of the entity to influence the group strategy and structure.
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New provisions should be introduced to ensure that the parent entity is responsible for requirements on corporate governance, risk management including capital adequacy policy, risk concentrations and intra group transaction monitoring and reporting.
Other respondents support the current definition of a group. They stress that the Directive should not cover non-regulated or non-financial entities since these are not covered by the sectoral rules.
The notion of a group in the FICOD should be consistent with sectoral rules (if banking groups are not required to consolidate a SPV for example, the financial conglomerate should not be obliged to consolidate it either).
The question is whether the framework for prudential supervision of financial groups could benefit from this "legal tandem" with company law, or whether the financial supervision framework should be complete and clear in and of itself. Respondents generally agree on the fact that effective supervision should be achieved through a clear and complete supervisory framework. As regards company law, the views expressed are quite heterogeneous: i)Certain rules under the supervisory framework are impossible to be applied under the national company laws, ii)The prudential supervision framework for groups should be constructed in such a way that it can accommodate the different national company laws, iii)Company law should act as lex generalis to be complemented by particular sectoral rules catering for sector specificities iv)A conflict between supervisory law and corporate law could be solved by providing the obliged entity with the necessary powers under corporate law to fulfil its obligations,
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v) It is important to wait for the final versions of CRD IV/ CRR and Solvency I I , to analyse the conflicts with company law and make suggestions on how to fit these regulatory frameworks together.
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NUMBER 5
Credible deterrence: here to stay

02 Jul 2012 - Speech by Tracey McDermott, acting director of the Enforcement and Financial Crime Division at the FSAs Enforcement Conference Good morning. Thank you to Martin for his comments. Todays conference, which takes place against a backdrop of unprecedented interest in our enforcement activity, will almost certainly be the last Enforcement Conference hosted by the FSA. Regulatory reform continues apace, the necessary legislation is making its way through Parliament, and we expect the formal legal creation of the FCA (the Financial Conduct Authority) and the PRA (the Prudential Regulation Authority) to happen early next year. And that process of legal and structural change takes place in extraordinarily challenging circumstances. The financial services industry, and those of us who regulate it, have faced significant challenges in the two years since our last conference and indeed in the 2 or 3 years before that. And those challenges continue everyone in this room could come up with a long list perhaps right now starting with LIBOR, but lets not forget issues as wide ranging as the eurozone crisis to the Retail Distribution Review, from billions of pounds of compensation for payment protection insurance (PPI) mis-selling to fragmentation of markets and trading platforms.
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Many of those challenges may threaten the viability of some existing business models.
But ultimately I believe that the biggest challenge the industry faces something which potentially threatens the viability of the industry as a whole is that it is no longer an industry that society respects, trusts or has confidence in. And if anyone had doubted that, the reaction to last weeks penalty should surely have removed any remaining doubt. There are of course many factors which have contributed to this view the financial crisis has certainly played its part but it has built on a legacy of mistrust driven by perceptions of widespread abuse in the wholesale markets and wave after wave of mis-selling scandals. And, of course, those events have also impacted on the confidence of the public in the regulation of the industry. So, while regulatory reform comes at a time when it is competing with many other issues, it is vital that we take the opportunity it presents to think again about the role of the regulator what do we do and how do we do it? What has worked well in the past and what hasnt? And what have we learned from all of that? Some of the lessons may be controversial or uncomfortable for the industry, and indeed for the regulator, but it is very clear that the status quo needs to change. As you heard from Martin there will be significant changes in the way in which the FCA regulates in the future many of those changes are already starting to take place within the FSA. We are not, however, looking to make change for changes sake we are trying to make regulation work better for consumers, markets and the industry.
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So, in some areas, enforcement being the one that is most relevant for today, there will be much continuity building on, and developing from, the solid foundations we have built up in recent years.
Past performance does give some indications of what the future holds. So today I would like to talk a little about what we have been up to in the past two years, and to talk to you about what you can expect from enforcement in the future.
Strong, effective enforcement

Enforcement is only one of the tools available to the FSA, but its public nature means that it plays an important role in setting the tone and reinforcing the regulators priorities.
The job of enforcement is to help the FSA change behaviour by making it clear that there are real and meaningful consequences for those firms or individuals who dont play by the rules. Effective, visible enforcement is good for consumers who need to have confidence that the regulator is looking after their interests where things do go wrong; it is good for other market participants who can see that it pays to do the right, rather than the wrong, thing; and ultimately it is good for the industry and society as a whole as we begin to rebuild the reputation of UK financial services and ensure those who need financial products and advice can have confidence in those who provide them.
The past two years

It would not be possible, in the time allotted, to summarise everything we have done in the past two years and indeed I expect most of you in this room are very familiar with our work. But to briefly summarise: Since January 2010 we have:

published 260 final notices; imposed penalties in excess of 248m, including 29m on individuals;
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prohibited 129 individuals from the industry;

obtained redress in excess of 290m (not including PPI) for customers of regulated firms; secured criminal convictions against 10 individuals for insider dealing, and another 10 individuals are currently standing trial for market offences and we expect verdicts in the coming weeks; we have fought 22 disciplinary cases in the tribunal and succeeded in 16 (we await decisions in 5 others);
we have published 16 Decision Notices using the power given to us in 2010;

we have dealt with almost 2,000 requests for assistance from overseas authorities; and we have also, as I will talk about later, taken action, in several ways, to tackle the threats presented by unauthorised business.
Apart from the fact that we have been busy what should you take from these statistics?
I would like to highlight a few things.
Consumer protection
We have continued to devote significant resource to cases where firms have failed to deal appropriately with consumers. In the last two years we have levied in excess of 94m in fines in cases relating to the retail sector, 5m of those on individuals. We have also prohibited 96 individuals in relation to misconduct relating to retail customers. But the formal disciplinary sanctions are only part of the story. A key aspect of our work is securing appropriate redress for consumers who have been harmed by misconduct. And those numbers dwarf the penalties themselves.
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We estimate that over the past two years redress paid by authorised firms solely in connection with enforcement related matters is in the region of 290m.
The costs to firms of implementing and monitoring those redress packages, which are usually overseen by an independent third party, also run into many many tens of millions of pounds. But, be under no illusions, whatever we (and our supervision colleagues) do to try to ensure customers dont ultimately lose out in monetary terms the distress, delay and aggravation resulting from misconduct cannot be easily rectified and the cost to the industry of the resulting mistrust is, in my view, unquantifiable. Let me illustrate this with a couple of examples: Twenty of those outcomes have related to the promotion and sale of Unregulated Collective I nvestment Schemes (UCIS). UCIS are very often high-risk complex products and there are specific rules preventing their promotion to retail consumers. Thematic work undertaken in 2010, however, identified widespread failures to comply with those rules with the result that many consumers ended up with wholly unsuitable products. In one case we looked at we saw a woman who had retired due to ill health and, sensibly, wished to invest cautiously to provide for her husband in the event of her death. She was advised to invest almost all of her assets into a high risk UCIS. Another mother earning a small salary, with a dependant child, was advised to invest almost all of her pension into a UCIS. Last year we also imposed a penalty of 10.5m on HSBC in relation to the mis-selling of investment bonds to elderly individuals. Again, this demonstrated clear cases of unsuitable advice to a particularly vulnerable set of customers.
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For example, one 94-year-old was sold a five-year investment, despite only having a life expectancy of only three years.
And sadly, we could go back over many years and find similar examples concerning slightly different products sold in slightly different ways. So why does this happen? As you would expect, in our work, we see a range of cases where misconduct is driven by a number of different factors ranging from ignorance, incompetence to a lack of integrity.
And the action we take in each case will differ as a result.

But, to the end consumer, they care little about the cause what they are concerned about is the effect. So what can we do in the FSA, and going forward the FCA, to stop it? Effective enforcement is, in my view, clearly part of the answer. But that enforcement needs to get further up the chain of command to look increasingly at those in senior management who fail to recognise and manage the risks their firm is running, who fail to control the way their products are sold, and who fail to ensure that the interests of consumers are at the forefront of the minds of those designing, and working out profit projections and sales channels for new products. We also need to be quicker to respond to emerging issues and to intervene earlier to minimise consumer detriment. Which means we need to be better at identifying emerging trends or potential drivers of poor behaviour and, where we are concerned about them, acting to nip problems in the bud. To do this we will work in a more integrated way with supervision and other colleagues earlier in the cycle on both thematic and firm specific work to ensure that the FCA is able to deploy all of its regulatory tools (including discipline) quickly and effectively. Part of this will be about new tools such as the power to make rules to ban products on a temporary basis but some will be about using existing tools
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such as own initiative variation of permission (OIVOPs) more readily. The UCIS example is a good demonstration of why this is needed.
There are already rules in place to prevent these products ending up in the wrong hands. But they have been widely misunderstood, ignored, or misapplied. So more radical action may be called for. Early intervention is the topic of the next panel session so I will leave further comment on that to Clive Adamson and colleagues. Finally, we need to have a low tolerance for firms that constantly bump along the bottom. We will be much more prepared to intervene and limit business where each time we raise an issue or take action against a firm when we see it fixing only the immediate problem but failing to think about how the underlying causes whether they be culture, product design, training or reward might read across and cause similar problems in other areas. I expect the FCA to have a lower tolerance for repeat offenders.
Protecting the integrity of our markets

But although consumer protection is a key part of the FSAs responsibilities and will remain so in the FCA, it is not our only objective. The FCA will continue policing the wholesale as well as the retail markets and will, in the same way as the FSA, take action where misconduct in those markets threatens confidence in them or undermines their integrity. You cannot have missed the penalty imposed on Barclays last week for misconduct in relation to their LIBOR submissions. In that case, the interests of the bank and its traders were put ahead of the interests of the market.
The bank took into account its own traders requests in making submissions, when the traders were motivated by profit and sought to benefit the firms trading positions.
The bank also reduced LIBOR submissions in the financial crisis to try to counter negative media comment about Barclays.
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LIBOR is of fundamental importance to the markets and, as demonstrated by the reaction, this behaviour was not acceptable either to the regulator or society. Barclays have paid the price for their failures.
I wish I could say that this was an isolated case, but unfortunately it does not appear to be. We have a number of ongoing investigations into LIBOR so you will hear more on this in due course. We will continue our work to ensure that UK markets are clean and fair, building on the significant successes we have had to date. We will continue to work closely with colleagues in Markets and Intelligence to pursue cases whether civil or criminal where market participants are seeking to gain an advantage by failing to play by the rules. In the last two years we have, as I have mentioned, seen ten further convictions for insider dealing. Notably, seven of those have followed guilty pleas. While most of those pleas have come late in the day it is still encouraging to see that defendants are now recognising that juries are well able to understand and return guilty verdicts in these cases. And we hope, and expect, that as our track record continues to develop, defendants will consider earlier pleas much more seriously. There are, after all, real advantages to them in doing so. In one insider dealing case, for Anjam Ahmad, who entered a guilty plea at an early stage, received a ten-month suspended sentence. This was in stark contrast to the two year sentence that his co conspirator, Rupinder Sidhu, received after being found guilty, following a full trial by the jury. We recently concluded our most complex case to date.
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This concerned James Sanders, his wife Miranda Sanders and his business partner James Swallow.
You will hear a lot more about this case in one of the sessions later today. But what I wanted to mention now was the description of James Sanders by his own counsel who stated that Sanders had been driven by greed, arrogance and a sense of his own invincibility in committing his crimes. I assume the latter comment meant that he thought he would get away with it.
We may not be able to control greed and arrogance but we are determined to use all the tools at our disposal to ensure that those who may be tempted to break the law realise that no-one is invincible.
Ten more defendants are currently standing trial for criminal offences and five more are due to go on trial in the next 12 months. And as we have often said, our criminal work to keep markets clean is complementary to our civil cases in this area. You will have seen that we have continued to publish a steady stream of market abuse cases in the last two years. I would like draw out three themes from those cases. The first is the role of professionals in stamping out misconduct in the markets. In the Greenlight case, we not only took action against David Einhorn, who directed the trading, but also against Alexander Ten H olter, the compliance officer who failed to recognise the risk that inside information had been disclosed, Andrew Osborne of Merrill Lynch who had improperly disclosed information, and Casper Agnew of JP Morgan who failed to recognise and report the trading as suspicious. Any one of those individuals could, by acting properly and complying with their regulatory obligations, have done something about the abuse. None of them did so.
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All of them ultimately paid a price for that inaction.

Secondly, some of our cases concern people who are not setting out to break the rules. Indeed they sometimes are attempting, albeit ineptly, to stay within the letter rather than the spirit of the law. An example of this is in the Kyprios case. Nicolas Kyprios, a trader at Credit Suisse, was given confidential information which he knew he should not disclose.
So instead he decided to try and give a client a hint by engaging in a bizarre guessing game the end result of which was that he disclosed confidential information and was landed with a 210,000 penalty.
Of course, we can only take disciplinary action where rules are actually breached, but those who seek to push them to the limit and end up on the wrong side should expect little sympathy from us. Thirdly, several of our cases have applied the new penalties policy, which we introduced in March 2010. The changes to our penalties framework gave us a minimum starting point of 100,000 for individuals who commit serious market abuse. Our first fine under the new penalties system was imposed on Samuel Kahn, who was fined 1m for market manipulation. This was followed by our largest penalty on an individual to date on Rameshkumar Goenka, an investor based in Dubai, who manipulated the closing price of shares traded on the LSE. We fined him $6.5m and ordered him to pay $3.1m in restitution the counterparty who had lost out as a result of his abuse.
Financial Crime
The last two years have also seen large penalties imposed on firms that have failed to meet our requirements in relation to financial crime. Willis was fined 6.9m for failures in relations to Anti-Bribery and Corruption controls in July 2011.
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Coutts was fined 8.8m in March 2012 for failures in its Anti-Money Laundering controls relating to high risk customers.
This was followed by a fine on H abib Bank and its MLRO for similar issues. Both of these cases emerged from our thematic review published last year. We expect this to be a continuing trend into the FCA where enforcement will work closely with supervision colleagues to ensure that where industry wide issues are identified swift action can be taken.
Unauthorised business
Last week we published another thematic review in to banks defences against investment fraud. This is an area which is of considerable importance to us where thousands of customers each year lose many millions of pounds to unscrupulous and dishonest operations outside our regulatory remit. As we told you at our 2010 conference, in 2009 we made a decision to double the number of enforcement staff dedicated to tackling unauthorised businesses this has reaped significant dividends. In the last year alone we obtained 12 injunctions to prevent unauthorised businesses from continuing to operate. We have frozen a further 27m of fraudsters assets to distribute back to victims in the future. This is however a tiny proportion of the losses we see through these scams. We saw the final conclusion outcome of a long running joint investigation into a major share fraud syndicate with the City of London Police, which resulted in four prison sentences. Three members of the Wilmot family defrauded at least 1,700 victims of 27.5m and were sentenced to a total of 19 years imprisonment. Michael McInerney, who laundered the proceeds, received 4.5 years.
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This was a hugely complex case which involved assistance from 16 other agencies across the world and required much skill, dedication and hard work to bring home.
But you dont have to take my word for that. The work of the joint FSA and CPS prosecution team was recognised both in the Attorney Generals Prosecutors Convention team of the year awards and also by the trial judge who commended the work of the FSA investigative staff.
We also continued to expend considerable effort in helping customers to help themselves by educating them in how avoid losing money to these fraudsters.
At the last Enforcement Conference we told you about how we had contacted thousands of people who were on fraudsters target lists. This year we contacted a further 76,000 potential victims to warn them that they were targets for fraudsters trying to con them out of their money. Alongside this we ran TV, radio and print media campaigns providing guidance to millions of consumers about the risks of unauthorised business. We have also for the first time this year put up videos on YouTube warning of the dangers of dealing with unauthorised firms. Our thematic review is another angle on this problem banks can play a key role in identifying and preventing suspicious transactions taking place. We found some examples of good practice and some of very poor practice.
This is an area we will continue to focus on as part of our commitment to using all the tools at our disposal to tackle this problem.
Conclusions
That quick canter through the last two years will, I hope, have reminded you of the scale and breadth of our work.
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Of course, it has not been plain sailing for the last two years.
We have seen cases go against us, including one of the first cases we brought against a significant influence function holder (SIF) at a large firm. With that case, as with any other that goes against us, we have looked at the outcome, learned the lessons and moved on. A good enforcer cannot operate if it is not prepared to lose. We have shown not only that we can succeed but that we have the resilience and self-confidence to lose as well.
This is an essential trait for an effective enforcement function and, while we have no intention of making rash or ill-considered decisions, we recognise that intervening earlier will be a test of that resilience and self-confidence.
I am absolutely sure we will meet that test and you should be in no doubt of our commitment to do so. All of those in the financial services industry have a legal, as well as social and ethical, responsibility to act with integrity. We expect to hold them to that standard. Trust and confidence in financial services is at an all time low. Both the industry and the regulator have an interest in changing this. But I do sometimes worry about whether it will happen not because the spirit is not there in the regulator but because I sometimes wonder if, despite everything, the industry has realised the seriousness of the situation. I would like to give an example here. I attended a conference recently where product intervention was being discussed. We all recognise there are serious issues to be debated here. Using this power indiscriminately will serve no-ones interests. But one delegate expressed a very firm view that it was wrong that the FCA should even contemplate such intervention.
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He said that the FCA should leave the industry to get on with what it does best designing and providing products to ensure that consumers, at all stages of their life, have a financial product available to them to meet their needs.
That is indeed what the FCA would love to do. Unfortunately, however, history has demonstrated that, left to its own devices, the industry does not design such products. Instead, it sells products to the wrong people at the wrong time in the wrong way. And no doubt some hackles are now being raised in the room as this is, of course, a sweeping generalisation. But unfortunately as with any stereotype it is very difficult to shift. And if your only experiences of financial services are of hearing about insider dealers driven by a sense of greed and arrogance, or being pressured to buy insurance you dont want or need, or your pension being put into the wrong product, then its not hard to see why it persists. To change things in the future, to restore that trust and confidence and to ensure that financial services can make a positive contribution to the lives and wellbeing of individuals and the economy, requires tough action from the regulator. But it is not our job alone. Perhaps the Barclays penalty and the reaction to it may be a watershed moment. The point is industry must realise it has to rise the challenge to and recognise that things must change. Thank you.
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NUMBER 6
Tax and financial havens OPINION of the European Economic and Social Committee on Tax and financial havens: a threat to the EU's internal market
Rapporteur: Mr Iozia Co-rapporteur: Mr Hernndez Bataller
On 14 July 2011 the European Economic and Social Committee, acting under Rule 29(2) of its Rules of Procedure, decided to draw up an opinion on Tax and financial havens: a threat to the EU's internal market (own-initiative opinion).
The Section for the Single Market, Production and Consumption, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 8 May 2012. At its 481st plenary session, held on 23 and 24 May 2012 (meeting of 24 May), the European Economic and Social Committee adopted the following opinion by 144 votes to 30, with 13 abstentions.
Conclusions and recommendations

The European Union must use every possible means to step up its action within the G-20, the OECD and the FATF (Financial Action Task Force) to eradicate opaque tax jurisdictions as quickly as possible and to oblige Member States to combat the crime originating in many of these jurisdictions.
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The progress made in terms of fiscal governance in international fora, such as the OECD and the G-20, should not prevent the European Union from applying stricter rules making it easier to recover capital moved abroad through illegal activities to the detriment of the internal market.
The EESC calls on the Union's institutions to adopt measures to prevent abuse of the principle of "residence" by means of ownership arrangements and fictitious residency, whereby holding companies not actively engaged in business, or bogus companies, allow the owners to avoid paying taxes in their country of domicile. It welcomes the Commission's decision to present a new proposal on tax and financial havens before the end of the year, and hopes that the resistance on the part of a number of Member States to an effective and incisive response to activities geared to avoiding or evading national tax systems will be overcome. The Commission has published a proposal for a directive (COM(2012) 85 final) putting forward, for the first time, rules on the freezing and confiscation of the proceeds of crime in the European Union.
The EESC strongly recommends including tax-related crime arising from the exploitation of tax havens within the scope of the directive.
The proposal comes as part of a broader political initiative aimed at protecting the licit economy from criminal infiltration, and is based on Articles 82(2) and 83(1) of the Treaty on the Functioning of the European Union (TFEU). It is common knowledge that tax havens exist in a large number of territories 44 in all either linked to a sovereign state or themselves constituting sovereign states. Even when they are not sovereign states, they enjoy substantial administrative autonomy, apply opaque rules on information, tax exemptions and reductions, on the ownership and source of capital and the operation of financial bodies and commercial companies established within their borders.
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It is, in the Committee's view, particularly reprehensible that legal and tax advisors and some consultancies offer to set up legal entities and indeed advertise such services in order to use tax and financial havens as a means of avoiding the obligations incumbent upon companies operating in the Union.
This applies in particular to their obligations regarding company tax and transparency of company transactions and financing. Tax havens distort the internal market: effective EU action is therefore needed that can ensure fiscal justice and prevent destabilising opacity, tax evasion and corruption through tax havens. The introduction of criminal offences in this area should not be ruled out. All obstacles to the automatic exchange of bank information must be removed so that the authors of transactions and owners of bank accounts can be easily identified. Multinational companies must be required to draw up statements of account, broken down by country, stating the scale of their activities, the number of employees and the profits made in each country. Progress must be made in all these areas, subject to any advances that may be made as a result of global initiatives by multilateral international organisations, especially the UN and OECD. These aims should be pursued in a climate of trust, seeking equivalence of laws and new and higher international cooperation standards regarding tax havens. The EESC hopes to see a strategy coordinated with the leading countries, first and foremost the United States, for adopting an approach to regulating this area that is as global as possible. At the same time, however, the EESC emphasises that the difficulty involved in establishing an agreed international plan of action must under no circumstances slow down or delay action by the European Union.
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European standards, such as those laid down in the European Savings Directive, are among the best in the world.
The Foreign Account Tax Compliance Act represents a significant stepping-up of efforts by the United States to increase compliance with the tax rules for US citizens holding foreign financial instruments and accounts. The US tax authorities are calling on foreign financial institutions to "automatically" notify them of the identities of citizens with business overseas. Within Europe, Belgium has very advanced legislation based on the principle of confidentiality in exchange for anticrime policy. Secrecy serves as an alibi for sidelining the tax agenda and the development of an anti-evasion policy. Integrated policies must be developed to link up the various areas of work. International accounting standards were designed to protect the interests of investors and markets: the focus must now be on the public interest. The role of the I ASB a private body needs to be rethought, as does its function in laying down accounting rules, which should be far simpler and readily and clearly comprehensible. The EESC deplores the fact that all police, judicial and economic authorities have long been aware that most cases of misappropriating public funds, defrauding public finances and diverting the proceeds to tax havens, concealing assets behind front companies and laundering money if they were not part of a technical and legal set-up that masks these activities, derives a very healthy profit from them and in some cases ends up overseeing them. European Union action is thus called for in this area. The EESC calls for a coordinated strategy to step up the fight against tax evasion and particularly against abusive practices, and to restrict the right
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to free establishment in the case of completely bogus businesses set up exclusively for tax purposes.
Introduction
Tax havens are places where senior executives of the world's largest financial and industrial corporations mix with figures from the artistic or social "jet-set", together with multimillionaires who combine business with pleasure.
They all rub shoulders with somewhat dubious individuals and use the same money that has been gained not only by legal means, but also from crime and economic offences, including even the most serious crimes such as murder, extortion, arms and drugs trafficking, counterfeiting, fraud, embezzlement, trafficking in human beings and illicit gaming.
These territories display a number of common features, such as the lack of transparency on how they function and the low levels of taxation for non-residents who, in fact, do not carry out any activity there. This gives rise to harmful competition with a hidden structure, creating a legal status entirely lacking in transparency. The question of tax havens must be analysed in terms of three main dimensions: the tax rules and the ensuing opportunities for tax evasion; the opening-up of breaches in the structure of financial legislation with the resulting threat to financial stability; the lack of transparent information with the possibility of criminal activity using havens as a platform. The common denominator of these dimensions, which are respectively overseen by the OECD, the FSB and the FATF, is secrecy or the difficulty of accessing information. Abolishing or curtailing this concealment of information would allow the problems and dangers of tax havens to be significantly diminished.
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The debate on standards under way within the OECD should continue, with the aim of reducing the burden of the tax and judicial authorities.
The real risk is of agreement being reached on standards that are too weak and complex, simply as window-dressing to satisfy public opinion. The simplest solution for dealing with these problems would be automatic exchange of information. Tax and finance havens are part of the history of capitalism, with examples dating back as far as the late Middle Ages. The French and industrial revolutions were milestones for speeding up the creation and consolidation of tax havens. The phenomenon has now ballooned to massive proportions, having spread to every part of the world the Pacific, the Caribbean and islands in the Atlantic since the Second World War, including small and micro-states in Europe. It is estimated that one million companies, and twice that number of trusts, have been set up in the tax, financial and business havens spread across Europe alone. According to Raymond Baker, director of Global Finance Integrity, 619 916 companies are registered in the British Virgin I slands alone, which equates to 20 per inhabitant. The current economic scene is marked by the globalisation of the trade in goods and services, the free movement of capital and across-the-board use of new technology applications in international financial transactions and trade.
Although most financial institutions have compliance departments, there are not enough rules governing the enormous volume of daily transactions.
Europe's internal market, the well-being of the financial and commercial market and the sound development of an economy that keeps to the
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common rules adopted in order to safeguard the general interest must face up to the huge amounts of money salted away in areas and countries of convenience.
They are protected by vast interests and are able to corrupt and bend entire governments to their purposes. Tax havens introduce distortions at both the macroeconomic and microeconomic levels. As pointed out previously, at the macroeconomic level they can threaten the stability of financial systems. Moreover, the possibility of evading or avoiding tax on real and/ or financial investment reduces state revenue, which must inevitably be clawed back through income tax: tax havens consequently distort the proper balance between tax on capital and on labour. At the microeconomic level, distortion occurs between large, small and micro-enterprises: for these three types of actor, the possibility of taking advantage of opportunities for evasion or at least, for aggressive tax planning diminishes with their size. In the wake of the dual disasters that struck the United States of America the criminal attacks of 1 1 September 2001on New York and Washington, and the financial crisis triggered by the Lehman Brothers collapse in September 2008 the international community took steps during the first decade of the 21st century to regulate how so-called tax and financial havens work.
Tax and financial havens

The harmful effects of these arrangements have, in many cases, led to criminal proceedings in relation to the funding of international terrorism and organised crime, tax evasion and money laundering. They have created systemic risks on the financial markets and undermined the founding principles of free competition, amongst others.
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Consequently, as indicated above, steps have been taken around the world in recent years and it has been decided to introduce structures and mechanisms in a joint response to the threat to the national security of states and the well-being of their citizens.
The various international-level decisions taken represent, perhaps, a substantial shift away from the approaches used prior to the agreement reached at the London G-20 summit on 2 April 2009. The EESC is in favour of drafting measures to help combat tax evasion and other illegal activities that harm the EU's and Member States' financial interests and to ensure cooperation between administrations via the exchange of information on tax issues. It would also like the EU to be authorised to begin negotiations to reach an agreement with the Swiss Confederation on combating direct tax fraud and evasion and on guaranteeing administrative cooperation via the exchange of information on tax matters. Since the G-20 agreement, the analysis and recommendation method typical of the earlier practice of the bodies and forums tackling this issue has given way to calls for condemnation of "non-cooperative jurisdictions", including all tax and financial havens. This includes presenting proposals for unilateral, bilateral and multilateral sanctions, the progressive abolition of banking secrecy and the regular publication of lists of non-complying territories. The subsequent implementation of these commitments given by the G-20 has, however, been highly disappointing. A variety of reasons for this have been put forward.
Many areas have escaped being rated as non-cooperative jurisdictions simply by signing at least 12 bilateral tax agreements between each other (such as the agreement between Liechtenstein and Monaco).
In brief, exchange of information can be ensured simply by means of a request from the authority applying the relevant measures (tax, criminal
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law, etc.). The authorities of the territory concerned cannot refuse such a request on the grounds of national interest, banking secrecy or similar.
It is clear that the bilateral action model is ineffective in these cases; efforts must therefore concentrate on improving international (multilateral) and supranational action. This is borne out by the report published by the Tax Justice Network on 4 October 2011, which deems virtually all the bilateral agreements signed since 2009 to be of no worth. The organisation has thus drawn up a financial secrecy index based on two criteria: barriers to requests for information from the relevant authorities in another country and the weight of the jurisdictions suspected of opacity in the global financial market. Moreover, as pointed out in a number of specialist reports (such as the Global Financial Integrity report), illicit capital flows have continued to rise by more than 10% annually, with disastrous implications that are, for example, worsening the on-going sovereign debt crises in many members of the international community, notably certain EU Member States. Unfortunately, only the EU has outlined a credible framework for action in this area, which it might be added is not adequately implemented. A glaring example is provided by Directive 2003 /48 on taxation of savings income in the form of interest payments, which covers non-residents (natural persons). This is despite that fact that since the directive came into force, systems have been set up for the automatic exchange of information between all the Member States, and agreements have been signed with the four European countries previously considered to be financial and tax havens: Andorra, Liechtenstein, Monaco and San Marino. These European countries, however, like Switzerland, have differing ties with the Union, making the application of these conventions a highly complex matter.
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Liechtenstein, for example, has joined the European Economic Area agreement but is not obliged to cooperate with the respective administrative authorities in civil and commercial judicial matters, because it is not a signatory to the Lugano I I Convention of 30 October 2007 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters.
It is our hope that this change in legal status will produce the expected changes soon, given the entry into force of the Lisbon Treaty which, in Article 8(2) of the Treaty on European Union and the annexed declaration No 3, provides for the establishment of structural relations with small-sized neighbouring countries. The ideal instrument for governing this issue would clearly be a multilateral partnership, in order to bring these non-cooperative jurisdictions together within a single model in a natural geopolitical, legal and economic area. Similarly, four Member States have been taken to the Court of Justice by the European Commission for failing to transpose Directive 2005/ 60 on the prevention of money laundering. In order to promote action with a real supranational impact, the EESC should adopt the vigorous line taken by the European Parliament in its April 2011 resolution, which included support for stepping up the fight to ensure more transparent information regarding international financial transactions. A whistle-blowing mechanism could also be introduced along the lines of the pardon granted in the area of competition, in order to encourage reporting of such behaviour, rewarding whistle-blowers financially by reducing the penalty they would otherwise pay. In addition to this measure, there is a pressing need for agreed G-20 mechanisms to close the offshore legislative loopholes by which the tax laws in the world's main financial centres can be circumvented.
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Even within the strict framework of EU competences, binding ad-hoc rules in the form of secondary legislation must be adopted as a matter of urgency, and should include provisions prohibiting anypersons, natural or legal, who control funds or entities domiciled in tax or financial havens from receiving public funds.
In 2009, the OECD calculated that between USD 1 700 billion and USD 1 1 000 billion had been placed in these havens. It drew up a list which the G-20 used as a starting-point for a tough confrontation with those states that were not applying any or only some of the international conventions on banking and tax transparency. The OECD report raised a storm of protest, in particular from Switzerland, Luxembourg and, of course, Uruguay. The case of Delaware in the United States was hotly debated. Americans are well aware that Delaware is a sort of tax haven: almost half of companies quoted on Wall Street and Nasdaq are established in US Vice-President Joe Biden's home state, as they pay lower local taxes and profits are not taxable. Fewer people are aware that this small state, south of Pennsylvania, offers major benefits to offshore companies, presenting itself as an alternative to the Cayman I slands or Bermuda, but those working in the sector have long been in the know. The profits of companies established in Delaware are, on the grounds of transparency, deemed to belong to owners who, if not US citizens and provided the company's business is conducted outside the USA, are not subject to tax in the United States.
The most important and widespread driving forces for these havens are money laundering, tax evasion, and funds for corruption or for diverting money to own companies.
They are the launching pad for attacks on sovereign debts in difficulty, and for large-scale campaigns to protect the untrammelled free
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movement of capital, drawing in the media, political parties and representatives of institutions.
Poor fiscal governance encourages tax evasion and fraud and has serious consequences for national budgets and the European Union's own resources system. Many multinational companies are structured in such a way as to take advantage of tax avoidance opportunities in the various jurisdictions under which they operate. Different tax arrangements in the various jurisdictions benefit the large, international or well-established companies more than the small, domestic or new companies (in their start-up phase). These tax avoidance strategies are at odds with the principle of fair competition and corporate responsibility . These territories are also used by organisations and companies as operating bases from which to put goods onto the internal market without proper certification of origin or guarantees demanded by the EU: this is seriously detrimental to consumers' interests and sometimes to public health. One such practice is to misuse transfer pricing, setting the prices of transactions within a group by applying evaluation criteria that reflect the group's tax needs rather than normal market conditions. Multinational companies certainly have the resources to provide, without incurring a serious administrative overload, public country-by-country reporting on their sales, operating profits, infragroup transactions, pre-tax profits and taxes. If this information were placed in the public domain, the identity of those misusing transfer pricing or pursuing aggressive tax planning would become clearer.
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The absence of fiscal controls or existence of weak prudential oversight, the opacity of information for identifying natural or legal persons or any other legal or administrative circumstance, enable companies operating from these territories to enjoy almost total impunity, unacceptable competitive advantages, and immunity against action by the judicial and administrative authorities of third countries.
The EESC expressly condemns the role played by tax havens in encouraging and taking advantage of tax avoidance, tax evasion and capital flight. The EU should step up its measures to combat these practices and enforce sanctions. The international community, aware of the serious damage caused by the existence of such territories to international trade, the interests of national treasuries, to security and public order and, as shown by the crisis that erupted in 2008, to the very stability of financial systems, has taken a few timid steps towards identifying them and seeking their progressive disappearance.
The results yielded by the combined efforts of the G-20 and the United Nations, together with the efforts undertaken as part of OECD initiatives, are still not enough to meet the challenges posed by tax havens and offshore financial centres and should be followed up with decisive, effective and joined-up initiatives.
The action of the G-20, FATF and OECD, amongst others, has however so far only alleviated the grave damage caused by tax and financial havens. It is essential to identify those jurisdictions that are not cooperating, assess compliance with the rules, and enforce deterrent measures. Furthermore, the EESC believes that the OECD is not a satisfactory framework for combating tax havens and that it is necessary to improve the indicator used to establish the status of cooperating countries, by giving it a qualitative value.
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Also, the OECD should not allow governments to be removed from their blacklist simply by promising to fulfil the exchange of information principles without guaranteeing that they will effectively enforce them.
There are reasonable grounds for stating that the financial crisis has been driven in part by complex and opaque transactions carried out by financial operators domiciled in jurisdictions that maintain financial secrecy, causing serious loss for investors and the purchasers of such financial products. Tax havens host off-balance sheet transactions by financial institutions, as well as complex financial products that have contributed nothing to innovation in the financial sector, but generate financial instability. There is clear evidence that much foreign direct investment, especially in developing countries, comes from tax havens. The European Union, mindful of this situation, has on occasion denounced such regimes through various institutional authorities. Unfortunately, it has proved unable to promote a supranational administrative legal framework that would help narrow the scope for impunity. The EU's work has centred on abolishing some 100 harmful regimes situated within Member State jurisdictions with scanty financial controls, or externally on third-country territory. In this respect, the European Commission adopted two communications on good fiscal governance in 2009 and 2010, together with a code of conduct.
There are also three directives in force, on the proceeds recovered from tax evasion, administrative cooperation, and the taxation of savings (currently being revised).
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Moreover, the inclusion of clauses requiring compliance with best practices or good governance in the tax field is very widespread in EU association, trade and cooperation agreements with third countries.
Nevertheless, very little progress has been made because the powers of investigation and sanction lie with the Member States. According to banking companies, those US rules have shown that unilateral adoption of this type of measure can create problems for financial institutions due to the incompatibility of the communication, withholding and closure of accounts obligations imposed by the FATCA with EU rules and/ or the domestic rules of financial institutions' countries of residence. On 4 March 2009, the then British Prime Minister delivered a major speech to the US Congress, urging his ally to join in the common task of creating a globally regulated economic system, and striving against the use of financial resources for personal enrichment only. Brussels, 24 May 2012.
The President of the European Economic and Social Committee

Staffan Nilsson
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NUMBER 7
Liberty is the breath of life to nations George Bernard Shaw
Celebrating Independence Day at the White House

In each of the past three years, President Obama has marked Independence Day with a celebration at the White House featuring a concert, organized by the USO, to honor members of the U.S. military and their families. And that tradition will continue this year with a performance from country music star Brad Paisley. President Obama began his I ndependence Day celebrations by hosting a naturalization ceremony for active duty service members in the East Room of the White House. The President told the audience, which included the families of the service members who were taking the oath of citizenship, that it is one of his favorite things to do. "It brings me great joy and inspiration because it reminds us that we are a country that is bound together not simply by ethnicity or bloodlines, but by fidelity to a set of ideas."
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NUMBER 8
Fahad Almubarak: Brief review of financial developments in Saudi Arabia

Speech by His Excellency Dr Fahad Almubarak, Governor of the Saudi Arabian Monetary Agency (SAMA), marking the Seventh Anniversary of Blessed Allegiance Pledge to the Custodian of the Two Holy Mosques King Abdullah bin Abdulaziz, Riyadh.
***
Saudis celebrate on the 26th of Jumada I I 1433H (May 17, 2012) the Seventh Anniversary of the blessed allegiance pledge to the Custodian of the Two H oly Mosques King Abdullah bin Abdulaziz. The celebration is a true image of loyalty to the Custodian of the Two Holy Mosques, who is faithful to his nations interests. It is based on well-established bases, in the forefront of which are the tributes of our wise leadership such as the great keenness on the welfare of citizens and the enhancement of the development process. It is difficult to enumerate the achievements of the Custodian of the Two Holy Mosques in a few words, but, however, I will touch upon some of them. The Custodian of the Two Holy Mosques has taken a broad range of decisions and measures aiming at restructuring and regulating the economy, updating regulations and legislation to enhance the efficiency and competitiveness of the economy and support the optimal operation of production factors, apart from providing an advanced regulatory and
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administrative framework and an attractive environment for domestic and foreign investments to achieve diversity in the economic and productive environment in order to continue creating job opportunities for the sons and daughters of the Kingdom.
Fortunately, oil prices have constantly improved, helping to accomplish many of the development objectives. As a result, the private sector during the period from 2005 up to the end of 2011 achieved a real annual growth rate averaging 5.5 percent.
The balance of payments (BOP) recorded a surplus of Rls 2.5 trillion.

The actual expenditure of the public finance stood at Rls 3.8 trillion, of which Rls 1.0 trillion were for capital expenditures. Moreover, the ratio of public debt to GDP declined from 39.2 percent in 2005 to 6.3 percent in 2011. The banking sector recorded strong and constant growth during that period, surpassing significantly the repercussions of the global financial crisis, and total assets of banks rose by more than two fold. Many development projects have been approved for enhancing and modernizing the infrastructure, including roads, airports, telecommunications, water & electricity, health & educational services and the Custodian of the Two Holy Mosques Foreign Scholarship Program, which is considered as a long-term investment of human resources. The Kingdom has maintained high sovereign credit ratings as assessed by global rating agencies for its financial solvency. The last rating was AA- awarded by Standard & Poors and Fitch for long-term credit rating in national and foreign currency, with a stable outlook .
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Confidence is still great and solid that strong growth and comprehensive development of the Saudi economy will continue under the wise leadership of the Custodian of the Two Holy Mosques.
The Custodian of the Two Holy Mosques is well-known for his concern about his citizens, and he is determined to closely follow up their needs, including reduction of poverty, supporting Social Security, approving salaries increase & cost of living allowance, confirming wage earners, addressing the housing issue, supporting specialized development funds, etc. and other decisions aiming at improving citizens living conditions, which he deems as the objective and tool of the development process. We pray to Almighty Allah that there will be many happy returns of this dear national occasion for years and years for the citizens of this country, hoping that the Custodian of the Two H oly Mosques and his Crown Prince will continue to enjoy full health and wellbeing, with the Kingdom enjoying security and stability, to continue the development process, under our wise leadership.
Notes
Saudi Arabian Monetary Agency (SAMA), the central bank of the Kingdom of Saudi Arabia, was established in 1952. Functions: - Issues national currency, the Saudi Riyal. - Acts as a banker to the government. - Supervises commercial banks. - Manages Kingdoms foreign exchange reserves. - Conducts monetary policy for promoting price and exchange rate stability. - Promotes the growth and ensures the soundness of the financial system.
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NUMBER 9
"We affirm that it is imperative to break the vicious circle between banks and sovereigns." At the Euro area summit on 29 June, 2012, heads of state or government decided to: - Establish a single banking supervisory mechanism run the by the European Central Bank; and once this meachnism has been created;
-
Provide the ESM with the possibility to inject funds into banks directly.
Spain's bank recapitalisation would begin under current rules, i.e. funds are provided by the EFSF until the ESM becomes available. It will then be transferred to the ESM without gaining seniority status. It was also agree that EFSF /ESM funds can be used flexibly to buy bonds for Member States that respect: - Their country - Specific Recommendations - Other commitments, including timelines under the European Semester, Stability and Growth Pact, and the Macroeconomic Imbalances Procedure. These decisions will be implemented by the Eurogroup by 9 July 2012.
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EURO AREA SUMMIT STATEMENT - 29 June 2012

- We affirm that it is imperative to break the vicious circle between banks and sovereigns. The Commission will present Proposals on the basis of Article 127(6) for a single supervisory mechanism shortly. We ask the Council to consider these Proposals as a matter of urgency by the end of 2012. When an effective single supervisory mechanism is established, involving the ECB, for banks in the euro area the ESM could, following a regular decision, have the possibility to recapitalize banks directly. This would rely on appropriate conditionality, including compliance with state aid rules, which should be institution specific, sector-specific or economy-wide and would be formalised in a Memorandum of Understanding. The Eurogroup will examine the situation of the Irish financial sector with the view of further improving the sustainability of the well-performing adjustment programme. Similar cases will be treated equally. - We urge the rapid conclusion of the Memorandum of Understanding attached to the financial support to Spain for recapitalisation of its banking sector. We reaffirm that the financial assistance will be provided by the EFSF until the ESM becomes available, and that it will then be transferred to the ESM, without gaining seniority status.
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- We affirm our strong commitment to do what is necessary to ensure the financial stability of the euro area, in particular by using the existing EFSF /ESM instruments in a flexible and efficient manner in order to stabilise markets for Member States respecting their Country Specific Recommendations and their other commitments including their respective timelines, under the European Semester, the Stability and Growth Pact and the Macroeconomic Imbalances Procedure.
These conditions should be reflected in a Memorandum of Understanding. We welcome that the ECB has agreed to serve as an agent to EFSF/ ESM in conducting market operations in an effective and efficient manner. - We task the Eurogroup to implement these decisions by 9 July 2012.
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NUMBER 10
02 July 2012
Statement by the Chancellor of the Exchequer, Rt H on George Osborne MP, on LIBOR Check against delivery
[Note: The London Interbank Offered Rate (LIBOR) is the average interest rate estimated by leading banks in London that they would be charged if borrowing from other banks] Mr Speaker, on Thursday I updated the House on the Financial Services Authoritys investigation into Barclays and the attempted manipulation of the LIBOR market in the years running up to and during the crisis. The House has just heard from the PM and I would like to give more details of the steps we are taking.
This morning, I spoke to Marcus Agius, who confirmed that he was resigning as Chairman of Barclays because of the unacceptable standards of behavior within the bank.
The Treasury Select Committee is calling the Chief Executive of Barclays to account for himself and for his bank on Wednesday. I look forward to hearing his answers. As I also said last week, every avenue of possible criminal investigations for individuals involved in attempted manipulation of LIBOR is being explored. However, in the view of its Chairman, Lord Turner, the powers that were given to the Authority do not allow it to pursue criminal sanctions. People in the country ask why they didnt have the necessary powers.
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[Political content removed]

And people ask whether these gaping holes in the existing law mean that no action at all is possible. After all, fraud is a crime in ordinary business; why shouldnt it be so in banking? I agree with that sentiment, and I welcome the Serious Fraud Offices confirmation they are actively and urgently considering the evidence to see whether criminal charges can be brought - particularly in relation to the current Fraud Act and in relation to false accounting. They expect to come to a conclusion by the end of this month. We would encourage them to use every legal option available to them. I d like to address three further issues today. First, what happens to the money we get from the fines. Second, what urgent changes are needed to the regulation of LIBOR and other markets to prevent such abuse occurring again, and to ensure the UK authorities have the powers they need to hold those responsible to account. Third, the wider issue of what went so badly wrong in the culture of our banking system and the way it was regulated, which allowed such fundamental failures of basic standards of conduct to go unchecked and unchallenged. Last week, I said that we wanted to ensure that fines paid by the financial services industry in future go to the Exchequer. Today, I can confirm we will propose amendments to the Financial Services Bill in the autumn to make this happen. This will remove a long-standing anomaly and bring the regulator into line with regulators in other sectors of the economy. The new arrangement will apply to fines received from 1April 2012 so that it includes the Barclays penalty.
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From now on, the multi-million pound fines paid by banks and others who break the rules will go to the benefit of the public not to other banks.
Mr Speaker, that brings me to the second question of the urgent changes we need to make to the regulation of LIBOR to prevent this ever happening again, and to ensure that in future authorities have the appropriate powers to prosecute those who engage in market abuse and manipulation. I have today asked Martin Wheatley, the Chief Executive designate of the Financial Conduct Authority to review what reforms are required to the current framework for setting and governing LIBOR. This will include looking at: -Whether participation in the setting of LIBOR should become a regulated activity; - The feasibility of using of actual trade data to set the benchmark; and -The transparency of the processes surrounding the setting and governance of LIBOR. The review will also look at the adequacy of the UKs current civil and criminal sanctioning powers with respect to financial misconduct, and market abuse with regards to LIBOR. And it will assess whether these considerations apply to other price-setting mechanisms in financial markets - to ensure that these kinds of abuses cannot occur elsewhere in our financial system. We need to get on with this not spend years on navel gazing when we know what has gone wrong. I am pleased to tell the House that Mr Wheatley has agreed to report this summer so that the Financial Services Bill currently before Parliament or the future legislation on Banking Reform can be amended to give our regulators the powers they clearly need. Mr Speaker, the review is essential to ensuring we mend the broken regulatory system introduced by the last Government, which allowed these abuses to happen.
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But the manipulation of the most used benchmark interest rate reveals that there is a broader issue of the professional standards and culture in some parts of the financial services industry that was allowed to grow up in the years before the crisis and which may still need change.
I dont think a long costly public inquiry is the right answer. It would take months to set up and years to report. We know what went wrong. We cant wait until 2015 or 2016 to fix it. In just six months time we will be bringing forward the Banking Reform Bill th at will imp lemen t t he recomm end at ion s of Si r John Vickers Independent Commission on Banking. This will bring far reaching lasting change to the structure of British banks ring fencing retail banks from their investment banking arms. Lets see if we can use this Banking Bill to make any further changes needed to the standards of the banking industry, and the criminal and civil powers needed to regulate it and hold people to account for their behaviour. As the PM said, we propose that Parliament establish an inquiry into professional standards in the banking industry. The Government will in the coming days lay before both H ouses a Motion to establish a Joint Committee, drawn from the Commons and the Lords. It should be chaired by the Chair of the Treasury Select Committee, the Honourable Member for Chichester. He and his Committee have already been quick off the mark in investigating the issue, and we certainly want their hearings this week to proceed. I propose that the Terms of Reference should be this: building on the Treasury Select Committees work and drawing on the conclusions of UK and international regulatory and competition investigations into the
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LIBOR rate-setting process, consider what lessons are to be learnt from them in relation to transparency, conflicts of interest, culture and the professional standards of the banking industry.
I propose that it should be able to call witnesses under oath, including current Members of Parliament and Lords. And I can confirm that we will provide the Committee with the resources it needs to do the job. I would suggest to the House that we ask the Joint Committee to report by the end of this year, 2012. That is enough time to do the job and do it well but not so long that this issue drags on for years. And it means, in very practical terms, that we can amend our Banking Bill to take on board its recommendations. I hope all Parties will support the Motion we put forward. The failure to regulate the banks in the boom years cost this country billions.
The behaviour of some in the financial services has damaged the reputation of an industry that employs hundreds of thousands of people and is vital to the economic prosperity of the country.
Were changing the failed regulation; reforming the banks; now its time to deal with the culture that flourished in the age of irresponsibility and hold those who allowed it to do so to account. I commend this statement to the House.
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The US Dodd-Frank Wall Street Reform and Consumer Protection Act is the most significant piece of legislation concerning the financial services industry in about 80 years. What does it mean for risk and compliance management professionals?It means new challenges, new jobs, new careers, and new opportunities. The bill establishes new risk management and corporate governance principles, sets up an early warning system to protect the economy from future threats, and brings more transparency and accountability. It also amends important sections of the Sarbanes Oxley Act. For example, it significantly expands whistleblower protections under the Sarbanes Oxley Act and creates additional anti-retaliation requirements. You will find more information at: www.risk-compliance-association.com/ Distance_Learning_and_Certific ation.htm
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Risk Management Presentation July 9 2012

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Page |1

International Association of Risk and Compliance Professionals (IARCP)

Stephanie Martin, Associate General Counsel Mobile payments

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Check against delivery

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Basel I I I CRD 4: I mpact and stakes

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Anand Sinha: I T and governance in banks some thoughts

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IT and I ndian banking

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IT and financial inclusion

Technology and information security

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Regulatory reporting and MIS

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Regulatory compliance and single view of information

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Role of board and independent directors

I wish the program great success. Thank you.

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Communications with the Public

- Consumer Financial Protection

The Evolution of Payments

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Regulation of Mobile Payment Services Offered by Banks

Regulation of Mobile Payment Services Offered by N onbanks

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Monitoring indicators for intraday liquidity management consultative document

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- Proposed stress scenarios;

C. Definition and constituent elements of intraday liquidity

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Intraday Liquidity Sources

Intraday Liquidity N eeds

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- Payments to be made to ancillary systems;

I I . The intraday liquidity monitoring indicators

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A. The set of monitoring indicators

(i) Daily maximum liquidity requirement

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(ii) Available intraday liquidity

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(iii) Total payments

(iv) Time-specific and other critical obligations

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(v) Value of customer payments made on behalf of financial institution customers

(vi) I ntraday credit lines extended to financial institution customers

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I nternational Association of Risk and Compliance Professionals (I ARCP) www.risk-compliance-association.com

I nternational Association of Risk and Compliance Professionals (I ARCP) www.risk-compliance-association.com

I nternational Association of Risk and Compliance Professionals (I ARCP) www.risk-compliance-association.com

I nternational Association of Risk and Compliance Professionals (I ARCP) www.risk-compliance-association.com

I nternational Association of Risk and Compliance Professionals (I ARCP) www.risk-compliance-association.com

With regard to this question, there are two diverging views.