Monday April 2 2012 - Top 10 risk and compliance management related news stories and world events
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Monday April 2 2012 - Top 10 risk and compliance management related news stories and world events

Monday April 2 2012 - Top 10 risk and compliance management related news stories and world events

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    Monday April 2 2012 - Top 10 risk and compliance management related news stories and world events Monday April 2 2012 - Top 10 risk and compliance management related news stories and world events Document Transcript

    • Page |1 International Association of Risk and Compliance Professionals (IARCP) 1200 G Street NW Suite 800 Washington, DC 20005-6705 USA Tel: 202-449-9750 www.risk-compliance-association.com Monday, April 2, 2012 - Top 10 risk and compliance management related news stories and world events that (forbetter or for worse) shaped the weeks agenda, and what is next George Lekatis President of the IARCPDear Members,I want to thank you very much. We have received some emails with sopolite words! I am really moved.We have also received some suggestions, how to make this weeklynewsletter better. Some of you asked for page numbers (how in the worldcould we forget it?) and a table of contents (how in the world could weforget it too?). Fixed!This week we have made this newsletterbetter, because of yourrecommendations.Thank you very much.Have you downloaded the 120Developments in Risk Management andCompliance (in January, February,March 2012 - 691 pages)?It is a great reference e-book. Downloadit now:http://www.risk-compliance-association.com/120_Developments_Risk_Management_Compliance_January_to_March_2012.html _____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • Page |2Welcome to the Top 10 list.Number 1 (Page 4)Surprise, surprise… The Cayman Islands MonetaryAuthority (CIMA) and the United States Securitiesand Exchange Commission (SEC) have entered intoa memorandum of understanding (MOU)Number 2 (Page 7)Very interesting speeches by Mario Draghi, President ofthe European Central Bank, Charles I Plosser, Presidentand Chief Executive Officer of the Federal Reserve Bankof Philadelphia and Christian Noyer, Governor of theBank of France and Chairman of the Board of Directorsof the BISNumber 3 (Page 35)More Solvency II and Occupational Retirement Provisionheadaches – we will understand better where we are, in theinterview with Gabriel Bernardino, Chairman of EIOPAconducted by Anke Dembowski, Institutional Money(Germany)Number 4 (Page 45)We have such interesting risks… like bribery and corruptionrisk … (is the risk of the firm or anyone acting on the firm’sbehalf, engaging in bribery and corruption).FSA review into anti-bribery and corruption systems and controls ininvestment banks and proposed new guidance for all firmsNumber 5 (Page 51)Financial risk management - Opening remarks by Ewart SWilliams, Governor of the Central Bank of Trinidad andTobago, at the Caribbean Centre for Money and FinanceConference, Port-of-Spain._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • Page |3Number 6 (Page 58)The Dodd-Frank Act requires the CFPB to shareconsumer complaint information with the Federal Trade Commission(“FTC”) and other state and federal agencies. Consumer response nowsharing complaints with FTC Consumer Sentinel.Number 7 (Page 60)What about short selling in Europe? You mustread Regulation (EU) No 236/2012 of theEuropean Parliament and of the Council on shortselling and certain aspects of credit default swapsNumber 8 (Page 74)Atomic clocks are the most accuratefrequency standard and timing devices inthe world. Their range of uses includebeing the international standard fortimekeeping, managing broadcasts andsatellite positioning, navigation andtiming (PNT).DARPA Chip-Scale Atomic Clocks Aboard InternationalSpace StationNumber 9 (Page 77)Unlike in banking, there is no common global capitalstandard for insurance companies.Address by Mr Lee Boon Ngiap, Assistant Managing Director, MonetaryAuthority of SingaporeNumber 10 (Page 85)Oil and Gas… it is quite a challenge toregulate the sector. Remarks by the USPresident on Oil and Gas Subsidies_____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • Page |4NUMBER 1The Cayman Islands Monetary Authority (CIMA) and theUnited States Securities and Exchange Commission (SEC) haveentered into a memorandum of understanding (MOU)The agreement concerns consultation, cooperation and informationexchange related to the supervision and oversight of regulated entitiesthat operate on a cross-border basis in the USA and the Cayman Islands.The MOU supplements the International Organisation of SecuritiesCommissions (IOSCO) multilateral MOU on cooperation in securitiesregulation, to which both the SEC and CIMA are signatories and whichfocuses more on cooperation on enforcement matters between the parties.The Cayman Islands Premier and Minister responsible for Finance, theHon. McKeeva Bush, OBE, JP, congratulated CIMA on the agreement.He commented:“Through this MOU, CIMA has demonstrated its commitment tocontinuing to work with the SEC to fulfill their respective regulatorymandates._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • Page |5It shows, too, the commitment of the Cayman Islands to providing thehighest quality domicile for financial services.The signing of this MOU adds to the growing list of internationalregulatory and supervisory bodies with which the Cayman Islands hasentered agreements and is a key endorsement of our financial servicesregime.We are convinced that this is not only good for ensuring stability andintegrity of the global financial system, but is good for business for thisjurisdiction.”Mrs. Scotland explained that the process of negotiating the latestagreement was enhanced by the solid ties that the two authorities haveestablished over time:“CIMA and the SEC have had a strong working relationship for manyyears. This has enabled us to collaborate on several levels.For example, we have been able to obtain information from, and provideinformation to, the SEC that has been valuable in both regulators’ routinesupervisory activities as well as, on occasion, in criminal investigationsthat have resulted in convictions.We have conducted joint on-site inspections of Cayman-regulated fundsand securities entities, and have worked together to provide training forCayman and regional regulators. ”The CIMA-SEC MOU is the 23rd cooperation and information exchangeagreement that CIMA has effected with overseas regulatory authoritiessince 1998.CIMA’s Chairman, Mr. George McCarthy, OBE, JP, said: “the MonetaryAuthority is committed to collaboration and cooperation with financialservices authorities in all the jurisdictions with which Cayman-regulatedentities do business.In addition to the agreements that CIMA already has in place, we actively_____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • Page |6seek to formalise cooperation with other regulators. This MOU with theSEC is particularly important as Cayman is a major domicile for hedgefunds and securities in which US institutions and persons of high networth invest. It will enable more effective supervision on both sides.”The MOU details the scope of consultation, cooperation and informationexchange between CIMA and the SEC; the procedures for carrying outon-site inspections and for the execution of requests for assistance; thepermissible uses of information provided; the confidentiality ofinformation, and the process for onward sharing of information in certaincircumstances._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • Page |7NUMBER 2Mario Draghi:Remarks at the Annual Reception of theAssociation of German BanksSpeech by Mr Mario Draghi, President of theEuropean Central Bank, at the AnnualReception of the Association of German Banks,Berlin, 26 March 2012Ladies and Gentlemen,I would like to take this opportunity to provide you with my assessment ofthe current situation in the euro area and shed light on recent signs ofimprovements in the overall outlook.I would particularly like to draw your attention to the effectiveness of thepolicy measures implemented by the Eurosystem, the EU institutionsand national authorities.And to remind you of the measures that we all must continue to pursueover the coming months and years with great diligence in order tocontinue on this path of stabilisation.The current economic situationAs this audience knows very well, in November last year, the prospects forthe euro area financial sector were very bleak.Banks were experiencing a period of heightened stress.The inter-bank market was closed except to the strongest institutions inthe safest countries, and funding markets were impaired.Unable to raise funds beyond short maturities, many banks were reducingmedium term lending to the real economy._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • Page |8At the same time came the requirement to increase capital ratios to 9%.This increased the risks of substantial deleveraging, including the risk ofbanks cutting back on loans, notably those to small and medium-sizedenterprises.We could see the intensity of the deleveraging pressures in bank lendingsurveys and other data.In the fourth quarter of 2011, there was a significant tightening of creditstandards on loans to both companies and households.There was no doubt that the euro area was on the brink of a major creditcrunch, with potentially adverse consequences for the economy andemployment.At that time, many observers had little confidence in the capacity of theeuro area to reverse the situation.Yet today, only four months on, the picture looks different.There are signs of stabilisation in both financial markets and overalleconomic activity – albeit still at low levels.Conditions in bank funding markets have improved.For example, euro area banks have already issued about 70 billion euro insenior unsecured debt so far this year, which is well above the amountthey issued in the whole second half of 2011.Banks are meeting their new capital requirements. The capital planssubmitted to the European Banking Authority (EBA) indicate anintention to exceed the benchmarks by more than 20%.EBA has also confirmed that there will be no stress test this year.Bank lending is also stabilising. Banks are starting to assess theirfinancial situation more positively and in many cases their willingness tomake loans is increasing. _____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • Page |9How has the picture changed so clearly in only four months? There aretwo parts to the answer.First, the doomsday predictions were always exaggerated. Not becausethe situation last November was not very serious.But because the willingness of euro area authorities to take the measuresnecessary to restore stability was greater than many commentatorsrealised.Second, euro area authorities have proved their commitment tosafeguarding financial stability through a number of important policymeasures.The Eurosystem, the EU institutions and national authorities have allplayed a role in constructing a comprehensive and coherent response tothe economic, financial and fiscal challenges that we face.Let me now explain the key elements of this response in more detail.The policy response of the EurosystemThe primary explanation for the improvement in sentiment over the lastfew months has been the measures taken by the Eurosystem – that is, weat the European Central Bank (ECB) and our colleagues at the nationalcentral banks of the 17 countries that share the euro.As you know, since December last year the Eurosystem has launched twolong-term refinancing operations – LTROs – with a maturity of threeyears.While the total liquidity requested by banks in these operations amountedto around 1 trillion euro, the net liquidity injection by the Eurosystem hasbeen around half a trillion euro because the other half has been shiftedover from other operations.Let me be clear about why we implemented the three-year LTROs. It wasnot to support sovereign debt markets._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 10It was also not to bolster bank profits.The LTROs were specifically designed to prevent a credit crunch thatcould compromise the maintenance of price stability in the euro area.With funding markets closed, banks needed liquidity assurance over themedium term to avoid pre-emptive deleveraging and to continue lending.To understand why these operations were necessary requires a euro areawide perspective.It would be misleading to judge the urgency for action – or the necessaryresponses – based on the situation in any one country or groups ofcountries.The Eurosystem acts in the interests of the euro area as a whole with 330million citizens. This is the perspective that always informs our decisions.Some observers have raised questions about these operations.The questions tend to fall into three categories and since they touch onfundamental issues, I would like to spend a moment responding to them.First, some wonder whether there is really any transmission from theLTROs to the real economy.The argument goes that banks are simply taking cheap liquidity andsetting up carry trades or putting the liquidity back into our depositfacility.The facts show that this is an incomplete view.Over 800 banks participated in the February LTRO, compared witharound 500 in December. This number included 460 banks fromGermany, most of them – literally hundreds – being smaller banks.I cannot tell you names of the towns and villages in which these banks arelocated because often they are the only bank in town and could be easily _____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 11identified. But I can tell you this: that the money is now closer to smalland medium-sized enterprises than it was before.We cannot say that this money will necessarily go to these smallerenterprises but it is certainly very close to them.We have this in mind because nearly three quarters of corporateemployment in the euro area is in the small and medium-sized businesssector.The banks I am talking about are ones whose main business is lending tothe Mittelstand and thereby supporting the real economy.It is also not accurate to claim that banks are returning the liquiditystraight back to the Eurosystem.We know that banks using the deposit facility are not identical to thoseborrowing from the Eurosystem.This implies that even though the bulk of the liquidity is returnedeventually, it is being directed within the banking system as intended.The second category of question involves concerns that some haveexpressed that the Eurosystem is exposing itself to excessive risks.Critics point in particular to the differentiated collateral frameworkadopted by some national central banks to allow banks to participate inthe three-year LTROs.Let me underscore that high haircuts are applied to the additional creditclaims so as to ensure risk equivalence between this collateral and theregular framework.Moreover, the main elements of the risk management framework appliedare common: the eligibility criteria and risk control measures wereapproved by the Governing Council, and the Council will monitor theeffectiveness of the risk control framework on an ongoing basis. Hence,there is only limited national discretion. _____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 12I should also emphasise that the Eurosystem has a long experience in theacceptance of credit claims in its collateral framework.Moreover, the Eurosystem is being very careful to manage any risks thatmay ensue from our current operations.We employ a conservative risk management framework.On the additional collateral presented so far, the average haircut is 53%.This means that on a nominal value of 100 euro we provide 47 euro ofliquidity.This shows you how prudently such collateral is accepted.If over time the market value or quality of the collateral posted were todecline, counterparties would have to provide additional collateral orreturn part of the liquidity.This too serves to protect the financial soundness of the Eurosystem as awhole.The third kind of question comes from some observers who worry that theliquidity created by the LTRO will lead to inflation or asset pricedistortions.Here it is important to distinguish between different concepts of liquidity.We would expect an impact on inflation and asset prices only following asustained and strong increase in money and credit – not following anincrease in central bank liquidity per se.The tentative signs we are seeing of a stabilisation in money and creditgrowth do not signal increasing inflationary pressures over the mediumterm.For example, growth in monetary aggregates remains at low levels, withM3 increasing by 2.5% in January 2012, well below the average growthrate of M3 in monetary union so far, which was 5.9%. _____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 13The same is true of the counterparts of M3 – loans to the euro area privatesector increased by only 1.5% in January, compared with an average of6.8% since the start of the euro.Market indicators of inflation expectations overall show no signs ofinflation above our medium-term objective.Investors overall assume a break-even inflation rate in five years of around1.7%.Looking further out at the inflation expectations between five years andten years also shows that, adjusted for the usual risk premia, marketexpectations of long-term inflation are fully consistent with our definitionof medium-term price stability.Moreover, the Eurosystem has a range of tools at its disposal to absorbexcess liquidity if that is deemed necessary in the future.Available tools include increases in reserve requirements and the conductof liquidity absorbing operations including not only short-term but alsolonger-term deposits.Hence, there are tools and the Governing Council can use them asneeded.Moreover, our balance sheet has grown and shrunk in the past withoutcreating inflation – for example, this was evident over the course of both2009 and 2010.In other words, we are constantly alert to threats to medium-term pricestability.Euro area citizens can be certain that our objective is delivering pricestability over the medium term – and that we have all the necessary toolsto achieve it.The consistent strong anchoring of inflation expectations confirms thatour commitment is credible._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 14Let me address one final issue, and this concerns the debate in thiscountry about Target2 balances.It is important that this debate is framed correctly – in particular, bydistinguishing between symptoms and causes.Target2 is a payment system that reflects the flow of funds within the euroarea.Imbalances within Target2 are a symptom of real and financialimbalances between euro area countries.Restoring normality within Target2 requires not that we address thesymptom – the payment system – but that we address the cause: theunderlying imbalances.This is not the task of monetary policy. It is the task of the nationalauthorities and EU institutions that are responsible for fiscal, economicand financial policies.Important progress has been made in recent months to strengthen thecredibility of these policies – and this has been recognised by financialmarkets.This is the second explanation for the overall stabilisation we havewitnessed since November – and it is something to which I will now turnbriefly.Policy responses at the national and EU levelThe signature at the last European Council of the International Treaty,including the fiscal compact, is an important signal of commitment toreducing deficit and debt levels.Enshrining balanced budget rules in national legislation creates a new“first line of defence” against fiscal imbalances._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 15Like the Schuldenbremse in this country, this legislation shifts the onusfor enforcement away from Brussels and onto national institutions.Prevention is better than cure – and that is the spirit of the compact.Member States have also taken important steps to strengthen euro areaand global firewalls.The entry into force of the European Stability Mechanism has beenadvanced and the paying-in of capital will be accelerated to reach fulllending capacity sooner than originally planned.On top of this, euro area countries have committed to providing anadditional 150 billion euro to the IMF.Seen together, these measures represent a coherent strategy to strengtheneuro area economic governance.The focus is not, as some commentators claim, skewed towards fiscalconsolidation.Stronger fiscal rules are one – albeit essential – element in a largerpackage that addresses real and financial imbalances and provides asafety net for countries in financial difficulties.But stronger governance cannot be effective without individual MemberStates also fulfilling their responsibilities.Here too we have witnessed a number of positive developments in recentmonths.The new governments in Spain and Italy have shown determination toaddress their twin challenges of fiscal and macroeconomic imbalances.The government of Spain remains committed to bringing its deficit below3% by 2013 and taking the necessary measures to ensure a rapid andsecure transition to this target from the high deficit in 2011._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 16The latest review missions confirm that the Irish and Portugueseprogrammes are on track – with authorities in both countries stronglycommitted to meeting their targets and with a solid track record.It is important that observers recognise that these reforms at the nationallevel will take time.They are addressing deep-rooted obstacles to competitiveness andgrowth, and the positive effects may not be visible immediately.But once realised, they will put employment and growth on a new andmore sustainable track.The example of Germany shows the need for patience. The structuralreforms passed many years ago did not immediately feed through intohigher growth and employment.But now they have, and Germany is reaping the benefits and leading theway in Europe.With a new governance framework in place and strong commitmentsfrom national governments, there are solid grounds for trusting thatreforms will be implemented across the euro area as a whole.ConclusionLet me conclude. The turnaround we have witnessed since November isthe result of every institution of the euro area fulfilling its responsibilities.No single institution can carry the burden of addressing a set ofchallenges that are simultaneously economic, financial and fiscal.Everyone has played their part.But let me emphasise that the current stabilisation should not make uspause in our responses to these challenges.Indeed, this is a time for continued action._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 17The present situation provides a window of opportunity for governmentsto accelerate efforts to consolidate budgets, to boost employment and toenhance competitiveness – and to do so with confidence.It also creates a benign environment for banks to strengthen theirresilience further – including by retaining earnings and cutting dividendsand bonuses.Decisive policy measures brought about the stabilisation since lastNovember.Now, further decisive policy measures are required to strengthen fiscalpositions and competitiveness.These measures will lay the foundations for future sustainable andbalanced growth in the euro area.Thank you._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 18Charles I Plosser: Restoringcentral banks after the crisisSpeech by Mr Charles I Plosser,President and Chief Executive Officerof the Federal Reserve Bank ofPhiladelphia, at the conference of theGlobal Interdependence Center /Bank of France, Paris, 26 March 2012.***The views expressed today are myown and not necessarily those of theFederal Reserve System or theFOMC.IntroductionI am delighted to be here today in this beautiful city and to have the honorto serve on such a distinguished panel with friends and colleagues.David Kotok has been the guiding force behind the GIC conferences overthe past several years. He and his team at the GIC never fail to gather aninteresting and knowledgeable group of people to discuss importanttopics on truly global issues. So, I want to thank him and the GIC for theirefforts and contributions. I also want to thank our hosts, Christian Noyerand the Banque de France.I am going to take a little different tack on the subject matter of thisgathering.Rather than focus on what new orthodoxy we should take away from thefinancial crisis, I want to argue that we need to restore some of the oldorthodoxy.David did suggest that he wanted to have a conversation on importantissues, so I intend to be somewhat provocative in an effort to stimulatesuch conversation. _____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 19As usual, I want to stress that my views are my own and not necessarilythose of my colleagues in the Federal Reserve System.I will focus my remarks on two related topics that have emerged as aconsequence of the crisis.The first is the relation between monetary policy and fiscal policy.The second topic involves the role of a central bank’s balance sheet as apolicy tool.These are issues that I believe are of fundamental importance to the roleof central banks in our economies.The relationship between monetary and fiscal policiesLet me begin by sharing some thoughts on the appropriate relationshipbetween monetary and fiscal policies.In the wake of the financial crisis and the ensuing recession, manycountries around the world responded with a significant increase ingovernment spending.Some of this increase came about through what economists callautomatic stabilizers.But there has also been a dramatic expansion in budget deficitsattributable to deliberate efforts to apply fiscal stimulus to improveeconomic outcomes.This expansion in government spending has been very significant in theU.S., but it has also occurred in other countries.So what does this have to do with monetary policy?Well, it turns out, a great deal._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 20It is widely understood that governments can finance expendituresthrough taxation, debt – that is, future taxes – or printing money.In this sense, monetary policy and fiscal policy are intertwined throughthe government budget constraint.For good reasons, though, societies have converged toward arrangementsthat provide a fair degree of separation between the functions of centralbanks and those of their fiscal authorities.For example, in a world of fiat currency, central banks are generallyassigned the responsibility for establishing and maintaining the value orpurchasing power of the nation’s unit of account.Yet, that task can be undermined, or completely subverted, if fiscalauthorities set their budgets in a manner that ultimately requires thecentral bank to finance government expenditures with significantamounts of seigniorage in lieu of current or future tax revenue.The ability of a central bank to maintain price stability can also beundermined when the central bank itself ventures into the realm of fiscalpolicy.History teaches us that unless governments are constrainedinstitutionally or constitutionally, they often resort to the printing press totry to escape what appear to be intractable budget problems.And the budget problems faced by many governments today are, indeed,challenging.But history also teaches us that resorting to the printing press in lieu ofmaking tough fiscal choices is a recipe for creating substantial inflationand, in some cases, hyperinflation.Awareness of these long-term consequences of excessive money creationis the reason that over the past 60 years, country after country has movedto establish and maintain independent central banks – that is, central_____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 21banks that have the ability to make monetary policy decisions free fromshort-run political interference.Without the protections afforded by independence, the temptation ofgovernments to exploit the printing press to avoid fiscal discipline is oftenjust too great.Thus, it is simply good governance and wise economic policy to maintaina healthy separation between those responsible for tax and spendingpolicy and those responsible for money creation.It is equally important for central banks that have been grantedindependence to be constrained from using their own authority to engagein activities that more appropriately belong to the fiscal authorities or theprivate sector.In other words, with independence comes responsibility andaccountability.Central banks that breach their boundaries risk their legitimacy,credibility, and ultimately, their independence.Given the benefits of central bank independence, that could prove costlyto society in the long run.There are a number of approaches to placing limits on independentcentral banks so that the boundaries between monetary policy and fiscalpolicy remain clear.First, the central bank can be given a narrow mandate, such as pricestability. In fact, this has been a prominent trend during the last 25 years.Many major central banks now have price stability as their sole or primarymandate.Second, the central bank can be restricted as to the type of assets it canhold on its balance sheet._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 22This limits its ability to engage in credit policies or resource allocationsthat rightfully belong under the purview of the fiscal authorities or theprivate marketplace.And third, the central bank can conduct monetary policy in a systematicor rule-like manner, which limits the scope of discretionary actions thatmight cross the boundaries between monetary and fiscal policies.Milton Friedman’s famous k-percent money growth rule is one example,as are Taylor-type rules for the setting of the interest rate instrument.Unfortunately, over the past few years, the combination of a financialcrisis and sustained fiscal imbalances has led to a breakdown in theinstitutional framework and the previously accepted barriers betweenmonetary and fiscal policies.The pressure has come from both sides. Governments are pushing centralbanks to exceed their monetary boundaries, and central banks arestepping into areas not previously viewed as appropriate for anindependent central bank.Let me offer a couple of examples to illustrate these pressures.First, despite the well-known benefits of price stability, there are calls inmany countries to abandon this commitment and create higher inflationto devalue outstanding nominal government and private debt.That is, some suggest that we should attempt to use inflation to solve thedebt overhang problem.Such policies are intended to redistribute losses on nominal debt from theborrowers to the lenders.Using inflation as a backdoor to such fiscal choices is bad policy, in myview.Pressure on central banks is also showing up through other channels. Insome circles, it has become fashionable to invoke lender-of-last-resort_____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 23arguments as a rationale for central banks to lend to “insolvent”organizations, either failing businesses or, in some cases, failinggovernments.Such arguments go beyond the well-accepted principles established byWalter Bagehot, who wrote in his 1873 classic Lombard Street that centralbankers could limit systemic risk in a banking crisis by “lending freely ata penalty rate against good collateral”.Central bankers have abandoned this basic Bagehot principle in the lastfew years but have not replaced it with a clear alternative.Indeed, actions were often confusing and unpredictable and lacked acoherent framework.I believe that central banks need to think hard about how and when theyexercise this important role.We need to have a well-articulated and systematic approach to suchactions.Otherwise, our actions will exacerbate moral hazard and encourageexcessive risk-taking, thus sowing the seeds for the next crisis.Unfortunately, neither financial reform nor central banks have adequatelyaddressed this dilemma.Breaching the boundaries is not confined to the fiscal authorities askingcentral banks to do their heavy lifting.The Fed and other central banks have undertaken other actions that haveblurred the distinction between monetary policy and fiscal policy, such asadopting credit policies that favor some industries or asset classes relativeto others.Such steps were taken with the sincere belief that they were absolutelynecessary to address the challenges posed by the financial crisis._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 24The clearest examples can be seen when the Federal Reserve establishedcredit facilities to support markets for commercial paper andasset-backed securities.Most notable has been the effort by the Fed to support the housingmarket through its purchases of mortgage backed securities.These credit allocations have not only breached the traditionalboundaries between fiscal and monetary policy, they have generatedpointed public criticisms of the Fed.Once a central bank ventures into fiscal policy, it is likely to find itselfunder increasing pressure from the private sector, financial markets, orthe government to use its balance sheet to substitute for other fiscaldecisions.Such actions by a central bank can create their own form of moral hazard,as markets and governments come to see central banks as instruments offiscal policy, thus undermining incentives for fiscal discipline.This pressure can threaten the central bank’s independence inconducting monetary policy and thereby undermine monetary policy’seffectiveness in achieving its mandate.In my view, this blurring of the boundaries between monetary and fiscalpolicies is fraught with risks.As I said, these boundaries arose for good reason, and we ignore theirbreach at our peril. I believe we must seek ways to restore the boundaries.The central bank’s balance-sheet policyAnother related issue facing central banks arises from the degree to whichcentral banks have expanded their balance sheets.There are two dimensions to this issue._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 25One is the composition of the balance sheet.In the U.S., for example, the balance sheet of the Federal Reserve haschanged from one made up almost entirely of short-term U.S. Treasurysecurities to one that is mostly long-term Treasuries, plus significantquantities of long-term mortgage-backed securities.This concentration of housing-related securities is problematic because itis a form of credit allocation and thus violates the monetary/fiscal policyboundaries I just mentioned.The second aspect is the overall size of the balance sheet.Many central banks expanded their balance sheets in an effort to easemonetary policy after their usual policy instrument – an interest rate – hadreached the zero lower bound.Do central bankers anticipate that their balance sheets will shrink to morenormal levels as they move away from the zero lower bound?Is it desirable to do so? Or should monetary policy now be seen as havinganother tool, even in normal times?Some have suggested that central banks adopt a regime in which themonetary policy rate is the interest rate on reserves rather than a marketinterest rate, such as the federal funds rate.This would then permit the central bank to manage its balance sheetseparately from its monetary instrument, freeing it to respond to liquiditydemands of the financial system without altering the stance of monetarypolicy.In principle, this would take pressure off central banks to shrink theirbalance sheets from the current high levels and simply rely on raising theinterest rate on reserves to tighten monetary policy._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 26The alternative is to return to a more traditional operating regime inwhich the central bank sets a target for a market interest rate, such as thefederal funds rate in the U.S., above the interest rate on reserves.Implementing this regime would require a smaller balance sheet.I am very skeptical of an operating regime that gives central banks a newtool without boundaries or constraints.Without an understanding, or even a theory, as to how the balance sheetshould or can be manipulated, we open the door to giving vast newdiscretionary abilities to our central banks.This violates the principle of drawing clear boundaries between monetarypolicy and fiscal policy.When markets or governments come to believe that a central bank canfreely expand its balance sheet without directly impacting the stance ofmonetary policy, I believe that various political and private interests willcome forward with a long list of good causes, or rescues, for which suchfunds could or should be used.Economic theory and practice teach us that monetary policy works bestwhen it is clear about its objectives and systematic in its approach toachieving those objectives.Granting vast amounts of discretion to our central banks in theexpectation that they can cure our economic ills or substitute for our lackof fiscal discipline is a dangerous road to follow.In June, the Federal Reserve’s Open Market Committee outlined someprinciples that would guide its exit from this period of extraordinarymonetary accommodation.In my view, those principles represented an important first step in theFOMC’s attempt to restore the boundaries between monetary and fiscalpolicies._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 27In particular, the FOMC clearly stated its desire to return to an operatingenvironment in which the federal funds rate is the primary instrument ofmonetary policy.To achieve that objective, the Fed will have to shrink its balance sheet to amore normal level.I interpret this as saying that our balance sheet should not be viewed as anew independent instrument of monetary policy in normal times.The exit principles also indicated the Committee’s desire to return theFed’s balance sheet to an all-Treasuries portfolio.This re-establishes the idea that the Fed should not use its balance sheetto actively engage in credit allocations.In other speeches, I have outlined a framework that I have termed a “newaccord” between the Federal Reserve and the Treasury.It would enable the central bank to act in emergencies when requested bythe Treasury or the fiscal authorities, but it would be clear up front thatany non-Treasury assets that accrued on the central bank’s balance sheetwould be swapped for government securities within a specified period oftime.This would ensure that fiscal policy decisions remain under the purviewof the fiscal authorities, not the central bank.SummaryTo summarize, it is important for governments to maintain independentcentral banks so that they are better able to achieve their mandates.It is also sound policy to limit the discretionary ability of central banks toengage in policies that fundamentally belong to fiscal authorities orprivate markets._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 28Establishing and maintaining clear boundaries between monetary andfiscal policies protects the independence of the central bank and its abilityto carry out its core mandate – maintaining price stability.Clear boundaries and resisting the use of the balance sheet as a newpolicy tool would also improve fiscal discipline by making it moredifficult for the fiscal authorities to resort to the printing press as asolution to unsustainable budget policies._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 29Christian Noyer: Re-examiningcentral bank orthodoxy forun-orthodox timesSpeech by Mr Christian Noyer, Governorof the Bank of France and Chairman ofthe Board of Directors of the Bank for International Settlements, at theconference of the Global Interdependence Center/Bank of France, Paris,26 March 2012.The unconventional policies implemented during the crisis havetransformed the face of central banking.But will these changes prove permanent and will “the unconventionalbecome the new normal?”There is not yet definitive answer to this question.We may not, as easily as we would like, be able to revert exactly to thestatus quo ante.However, I strongly believe we must make sure that the gains from thepre-crisis period, in terms of monetary and price stability, are notcompromised in the process.Prior to the crisis, a description of central banks would have centred onfour characteristics:- They were focused with price stability being their primary or key objective, and no responsibility was sought or given for financial stability;- They were of limited size with very small balance sheets and interest rates as their only policy instrument;_____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 30- They were independent, a condition recognised as necessary to anchor inflation expectations, and embodied in very strong institutional frameworks;- And they were successful: the “Great moderation”, a period of exceptional low volatility in output and inflation, was widely seen as a product of efficient and wise monetary policies.There was a happy feeling that, at last, a perennial monetary regime hadbeen found, well-tailored to the characteristics of a modern marketeconomy.Financial markets were efficient and the zero lower bound and liquiditytrap appeared to be no more than historical curiosities.With hindsight, of course, we can see now that this “ideal” economy maynever have existed.The Great Moderation was as much a product of “good luck” (brought bydisinflationary effects of globalisation) than good policy.Monetary stability is a necessary but not a sufficient condition of financialstability, because capital markets are not always and necessarily efficient.And downward financial spirals may quickly bring our economies to thepoint where interest rates can no longer be used as effective tools.Therefore, as the crisis unfolded, central banks responded by takingunprecedented measures and, in the process, underwent three majorchangesA diversification of their interventions.In order to both:- Unclog financial markets (both private and public). This involved exceptional liquidity provision to banks as well as temporary purchases of assets, both private and public._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 31- Circumvent the zero lower bound and bring down real long-term interest rates through purchases of government bonds, and/ or interest rate guidance.As a consequence, central banks’ balance sheets expanded by a factor ofthree, dramatically increasing their role in financial intermediation andsometimes raising concerns, at least in some quarters, about the possibleinflationary impactTogether, this diversification and the increase in size have created morecomplex interactions with fiscal policies.Specifically, asset purchases are sometimes seen as “quasi fiscal policies”both on the asset side (due to the potential risks attached) and the liabilityside (when they contribute significantly to meeting the funding needs ofthe sovereigns).At the time they were decided, those exceptional interventions wereabsolutely necessary.Although it had been forgotten, central banks were initially created toprotect the economy from excessive financial disturbances.This was, historically, their “raison d’être”.As ultimate and unique providers of liquidity, they cannot escape thisresponsibility and let the financial system and the economy collapse.At the same time, by doing so, central banks have exposed themselves toa number of risksFirst, there are risks linked to balance sheet expansion. They cannot beignored, although all central banks have been extremely careful in valuingthe assets purchased or taken as collateral.Second, they run the risk of blurring the lines between fiscal andmonetary responsibilities. A dynamic use of their balance sheets by_____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 32central banks has effects on the allocation and distribution of resources inthe economy.They may favour or penalise some types of collateral or certain borrowers.If central banks take on additional responsibilities in the area of financialstability, they will have to do so in close cooperation with fiscalauthorities, thus exposing themselves to possible interferences withmonetary policy.The major risk, however, is the risk of confusion. A multiplicity ofinterventions could be interpreted as a relative dilution of objectives.There is a tendency by market participants and some policymakers toconsider central banks to be “universal problem solvers” whose balancesheets can be used, without cost, for all purposes.There is also a doubt, at least an ambiguity, in the minds of someanalysts, about the true purpose of government bond purchases.Central banks’ activism may create doubts as to their ability to stick totheir core mandate – price stability – in the face of increasing pressuresand constraints.Overall, the euro area is well protected against all of these risks thanks tothe robustness of its institutional frameworkPrice stability is unambiguously the priority objective of monetary policyMonetary financing of governments is strictly prohibitedThe Eurosystem (the ECB and National Central Banks) is extremely wellcapitalised, which protects its independence.This has allowed the Eurosystem to implement nonstandard measures ona large scale without endangering its credibility._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 33Of course, we do not control fiscal policy. We will never accept a situationwhere fiscalimbalances could constrain monetary policy.It is very important, therefore, that credible fiscal consolidation takesplace across the euro area.This will make it easier for the Eurosystem to be active in protectingfinancial stability.On the contrary, doubts over governments’ resolve to ensure thesustainability of public finances would make us powerless to fightinstability and expose the euro area to great dangers.Now for the more normative aspects. We may have to live withnonstandard measures for a long time.Indeed, some central banks have adopted interest rate guidanceannouncements covering the next two years.It is likely that monetary policy will, for some time, make use of a diversityof instruments.Macro-prudential measures will interact with monetary policies in acomplex way.In that context, it is therefore all the more important to keep clarity ofpurpose and stick to two crucial features inherited from the pre-crisisconsensus: the focus on price stability and, its corollary, central bankindependence.There should be no ambiguity about what central banks are trying toachieve.The more non-conventional their actions, the less obscurity there shouldbe as to their ultimate purpose._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 34Non-conventional measures, like any others, can only achieve theirobjectives if inflation expectations are solidly and clearly anchored.From that point of view, calls by some economists and marketparticipants for a temporary relaxation of price stability objectives are, inmy view, totally misguided.I find it significant, on the contrary, that two major central banks haverecently decided to quantify their price stability objectives and enhancetheir communication accordingly._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 35NUMBER 3March 29Interview with Gabriel Bernardino,Chairman of EIOPAconducted by Anke Dembowski,Institutional Money (Germany)1. Insurance companies vs.Occupational Retirement Provision(IORPs)EIOPA has submitted its advice for theOccupational RetirementProvision (IORP)directive on 15th ofFebruary 2012.What is EIOPAs standpoint in thisadvice?The intention is not to have a copy - pasteexercise between Solvency II and thepensions directive.The intention is to find out the elements that in terms of risk are similarbetween those two.If risks are similar, you should treat them in a consistent way.And if risks are different, you should treat them in a different way. That’swhat we advocate in this advice.Which are the main differences between pensions and the insurancesystem?One of the differences is the type of involvement the sponsor company,i.e. the employer has in the pension fund._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 36If there is a need for more capital within an insurance company, theshareholders are often subject to a limited liability regime.This is different in the pension fund area.Here, you dont have a transfer of the risk to the pension fund.The fund is only a vehicle to finance the responsibilities of the employer.Consequently, if there is a need for capital, the employer may be requiredby social and labour law to put the money in.You want to introduce a holistic balance sheet. How does that look like?At the regulation level, we need to take these differences into account.Thats why we are trying to develop the concept of a holistic balancesheet, where we integrate not only the market value of the assets, but alsothe economic value of the liabilities.In addition, we are integrating other elements that take account of thespecificities of the pension area.And there are different elements in each country.For example, the Dutch system, where you have the possibility to cutback the pension benefits retroactively.Or take the systems where you can reduce the indexations of the pensionsfor the future, et cetera.These specifications have an effect on the value of the liabilities, and youneed to take it into account for the holistic balance sheet.And which similarities do you see between pensions and insurancecompanies?For example, all the elements about governance, risk management andtransparency._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 37We firmly believe that the sound principles of Solvency II can also beapplied in a context of pension funds - provided of course, that you takeinto account the necessary proportionality.We are aware that there are many pension schemes that are quite smalland that we cannot fully apply in a mechanistic way all the goodprinciples of governance, risk management and control to them.What is the timeframe for the Solvency II and the pension directive?Solvency II has already been discussed for many years and we are now inthe last phases of implementing measures.We intend to have the Solvency II framework implemented in 2014.On the IORP side, the process is still at an early stage.As you have mentioned in the beginning, the European Commission hasasked us a long list of questions in a call for advice and we have answeredthem, on 15th of February.We believe that several tests need to be made, especially on thecalculation of the technical provisions and of the solvency requirements.So we want to run the first quantitative impact study (QIS) on the pensionside soon.Will those QISstudies be similar to the ones that you have done on theinsurance side?Again, there are some elements that are common, but some differentelements will be coming from the holistic balance sheet approach.And also the process in itself is going to be different.In the insurance QIS we tried to capture most of the insurance market inEurope._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 38But it is not the case for pensions, because the pensions market is sodiverse across the 27 EU member countries.Therefore, we are going to conduct the first QIS study only in those sevencountries where defined benefit plans are more relevant: Germany, UK,Ireland, the Netherlands, Portugal, Sweden, and Belgium.We are working on the common technical specifications to be applied inthe test and will discuss the timeline with the European Commission.The Commission intends to have a first schedule for proposal on therevised IORP Directive by the end of this year.And what qualitative measures are necessary for pension funds?Also pension funds need to have a liquidity assessment and amanagement of their liquidity needs.This is part of the qualitative pillar II requirements.But making an analysis of ones liquidity needs is part of common goodmanagement rules anyway.Of course, a pension fund needs to know the pensions it has to pay in theyears to come and what its revenues from the assets will be.Only then the fund can try to match those two and try to avoid surprises.2. Investment issues for insurance companiesInsurance companies have been refinancing banks in the past, and wecannot see banks isolated from insurance companies. Basel III regulationis now forcing banks to hold higher equity ratios. Will insurancecompanies under Solvency II be able to refinance banks as they used to inthe past?Well, it is not the purpose of insurance companies to finance banks._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 39The purpose of insurance companies is to have good products for theircustomers and to provide long term security for their customers.Solvency II will not force insurance companies to only buy one type ofassets.But it is clear: The more stability you have in the banking sector, thebetter it will be from the risk perspective to invest into banks.It is normal that when banks are in a stress situation, or when there aredoubts about their capital capacity, investors - not only insurancecompanies - refrain from investing long term into banks.With the elements that have been introduced about recapitalizing thebanking sector, I believe that in the future, insurers will come back tofinance banks.So EIOPAs intention is not to disconnect the insurance and the bankingsector in order to reduce cyclical ties?No, with Solvency II or any kind of regulatory regime we are not trying tointervene in that sense.But what we want to do is to introduce a risk based system.We say that the more risk an insurance company has, the bettercapitalized it must be.We do not say dont invest into risky assets or only invest into sovereignbonds - that is not up to the supervisors.We only say that the capital has to commensurate with the risk.An insurance company can have a bigger risk appetite, but then on theother side, it needs to provide more capital.That is a fundamental element in the whole financial system._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 40Will Solvency II have an effect on the products that insurance companieswill offer?I believe that with Solvency II consumers will continue to have choicebetween different products, with different types of guarantees andliquidity characteristics.If an insurance company creates liabilities which attract more risk - forexample if it wants to offer products with a guaranteed interest rate for 20,30 or 40 years, it can do that, because consumers value those products.But the risk involved needs to be priced correctly.We must not bring risk into the system without pricing it well. I think thatthis is the lesson we clearly learned from the financial crisis.What exactly was the lesson the insurance sector learned from thefinancial crisis?In the banking sector we have seen that there was poor underwriting onthe subprime business, where risks were brought into the system withoutbeing priced correctly.We have also seen that if you bring risk into the system, it will neverdisappear, no matter how much packaging and re-selling you do with it.The risk remains there and you need to manage it.If it is not well priced, someone will pay in the end, either the companies,the consumers or the taxpayer.Does the regulation intend to reduce the risk to a minimum?No!When the financial system is risk averse, the economy will not work._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 41Look what the insurers are doing for us as individuals: We transfer ourrisks to them.Insurers by definition cannot be risk averse, because dealing with riskand managing is their core business.As regulators, our duty for the society is to have a good balance betweensecurity and growth.If you want to have a system with 100 Percent security, it will beunaffordable.So I am not advocating that we have capital requirements that arebulletproof.In Solvency II, we are building a system based on a with a 99.5 percentconfidence level.But in an extreme situation, an insurance company can become insolvent.What we want to assure is that insurers will have excellent riskmanagement systems that will help them to manage prudently their risks.Looking at the low interest environment: Do you think that life insurancecompanies will need to change their business models, for example toavoid the long guarantees that stretch over the lifetime of a man?Yes, we will probably see some changes in the products.But it is not because we are applying Solvency II, that long lastingguarantees are problematic - the products exist already.What Solvency II brings, is more market consistent pricing of risk, so thatwe can see clearer where the difficulties could lie when going forward.Some of the risks of long lasting guarantees need to be better assessed,and probably some of these products will cost a bit more in the future._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 42What happens if an insurance company falls below the solvency capitalrequirement?Then the supervisor and the insurance company will need to maintain aclose dialogue, and together they analyze the reasons behind it.The company will have to present a plan how it intends to recover itscapital or reduce its risk.So this approach is anti-cyclical.The company does not immediately need to reinforce capital, as thiswould have a procyclical effect on the market.However, if things continue to go wrong and the capital falls below theminimum capital requirement, the supervisor has the duty to close thebusiness and in drastic situations even to close the company, becausethen the policy holders rights are at stake.The system is designed in a way that it is not a safe heaven, it’s not a zerofailure system, but it has different levels of protection.How does transparency help investors?From the investors perspective, Solvency II is a system that gives farbetter information to decide on an investment.That is the biggest added value a regulatory regime can have.The worst thing would be to give an incentive to hide the risk.In the current system, the solvency figures in the insurance sector arecompletely stable, as they are not based on the market value of the assets.But we all know that markets are volatile, so investors feel that somethingis wrong. Under Solvency II, the solvency capital requirements will bemore volatile._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 43You can have a situation where in one quarter you have 160 percent ofyour capital requirements, and in the next quarter only 120 percent.Is more transparency always better?Under the Solvency II regime, insurance companies will be disclosingmore information, and the information given will be much more linked tothe reality of the risks and the markets.At first sight, it will seem that figures are more volatile, but this is due tothe higher transparency we will have, not because the insurance companyhas intrinsically a more volatile business.We as supervisors know this, and we hope that analysts and investors willunderstand this as well and will not penalize insurance companies byhigher cost of capital.Under the current Solvency II regime, government bonds from OECDcountries do not have any capital requirements at all.This seems a bit odd, considering the problems that some Europeancountries are currently facing.What is the reason why capital requirements for government bonds arenot pegged to their rating, like it is the case for corporate bonds? And arethere plans that this policy will be changed in the future or is that a verypolitical issue?Before the euro area debt crisis government bonds were widelyconsidered as risk free instruments that is why there was no need to pegcapital requirements for government bonds to their rating.Naturally in this area as in others the perception of risk is constantlyevolving and so I believe that in the future we need to explore ways to dealmore properly with the risks of sovereign exposures and find a suitableway to integrate them in the overall risk-based framework._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 44Should the insurance supervision be directive or preemptive?We want to have a supervisory system where we capture things inadvance.We do not want to be like firemen that arrive when there is already a fire.We want to see things in advance and to avoid the fires. This is preventivesupervision.What gives you sleepless nights at the moment?I think that the overall market situation certainly worries all of us becauseit definitely has an impact on the whole financial system.Insurers basically need two things: Stability of the markets and a wellfunctioning economy.This also includes a certain level of interest rates, so that insurancecompanies can fulfil their role of providing long term guarantees.Having the low interest rates we are seeing now, is of course a difficultsituation for insurance companies.But … I am still sleeping well._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 45NUMBER 4FSA review into anti-bribery and corruption systems andcontrols in investment banks and proposed new guidance for allfirms29 Mar 2012The Financial Services Authority (FSA) published the findings of itsthematic review into anti-bribery and corruption (ABC) systems andcontrols in investment banks.In response to those findings, the FSA will consult on proposedamendments to the FSA’s regulatory guidance, ‘Financial crime: a guidefor firms’.This proposed new guidance applies to all firms within scope of ourfinancial crime rules, not just investment banks.From August 2011, the FSA visited 15 firms, including eight major globalinvestment banks and a number of smaller operations, to examine howfirms mitigate bribery and corruption risk.Bribery and corruption risk is the risk of the firm, or anyone acting on thefirm’s behalf, engaging in bribery and corruption.The FSA found that, despite a long-standing regulatory requirement tomitigate financial crime risk, the majority of firms in our sample had morework to do to implement effective anti-bribery and corruption systemsand controls.In particular, we found the following common weaknesses:- Most firms had not properly taken account of our rules covering bribery and corruption, either before the implementation of the Bribery Act 2010 or after;_____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 46- Nearly half the firms in our sample did not have an adequate ABC risk assessment;- Management information on ABC was poor, making it difficult for us to see how firms’ senior management could provide effective oversight;- Only two firms had either started or carried out specific ABC internal audits;- There were significant issues in firms’ dealings with third parties used to win or retain business;- Though many firms had recently tightened up their gifts, hospitality and expenses policies, few had processes to ensure gifts and expenses in relation to particular clients/projects were reasonable on a cumulative basis.Although firms in our sample had been slow and reactive in managingbribery and corruption risk, our visits and the introduction of the BriberyAct had acted as a trigger for firms to focus on ABC issues.The FSA is considering whether further regulatory action is required inrelation to certain firms in its review.Tracey McDermott, acting director of enforcement and financial crime,said:“It is imperative that firms have adequate arrangements to control therisks of financial crime.We have seen examples of good practice and some examples of poorpractice.Overall, despite the high profile of the issue, the investment bankingsector has been too slow and too reactive in managing bribery andcorruption risks.“Firms across all sectors must have appropriate controls to manage theirfinancial crime risks, whether related to bribery and corruption orotherwise._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 47The FSA and, from next year, the Financial Conduct Authority willcontinue to focus on financial crime risks in this sector and beyond toensure firms are meeting their legal and regulatory obligations.”Notes for editorsThe FSA requires firms to establish and maintain effective systems andcontrols to mitigate financial crime risk.Financial crime risk includes the risk of bribery and corruption.In addition to these regulatory requirements, bribery, whether committedin the UK or abroad, is a criminal offence under the Bribery Act 2010,which has consolidated and replaced previous anti-bribery and corruptionlegislation in the UK.The FSA does not enforce, or give guidance on, the Bribery Act.FSA Principles require FSMA authorised firms to conduct their businesswith integrity and with due skill, care and diligence; and to takereasonable care to organise and control their affairs responsibly andeffectively with adequate risk management systems.The FSA regulates the financial services industry and has four objectivesunder the Financial Services and Markets Act 2000:1. Maintaining market confidence;2. Securing the appropriate degree of protection for consumers;3. Fighting financial crime; and4. Contributing to the protection and enhancement of the stability of theUK financial system._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 48SEC Charges Medical Device Company Biometwith Foreign BriberyWashington, D.C., March 26, 2012 — The Securitiesand Exchange Commission today charged Warsaw,Ind.-based medical device company Biomet Inc. withviolating the Foreign Corrupt Practices Act (FCPA) when its subsidiariesand agents bribed public doctors in Argentina, Brazil, and China fornearly a decade to win business.Biomet, which primarily sells products used by orthopedic surgeons,agreed to pay more than $22 million to settle the SEC’s charges as well asparallel criminal charges announced by the U.S. Department of Justicetoday.The charges arise from the SEC and DOJ’s ongoing proactive globalinvestigation into medical device companies bribing publicly-employedphysicians.The SEC alleges that Biomet and its four subsidiaries paid bribes from2000 to August 2008, and employees and managers at all levels of theparent company and the subsidiaries were involved along with thedistributors who sold Biomet’s products.Biomet’s compliance and internal audit functions failed to stop thepayments to doctors even after learning about the illegal practices.“Biomet’s misconduct came to light because of the government’sproactive investigation of bribery within the medical device industry,”said Kara Novaco Brockmeyer, Chief of the Enforcement Division’sForeign Corrupt Practices Act Unit. “A company’s compliance andinternal audit should be the first line of defense against corruption, notpart of the problem.”According to the SEC’s complaint filed in federal court in WashingtonD.C., employees of Biomet Argentina SA paid kickbacks as high as 15 to20 percent of each sale to publicly-employed doctors in Argentina._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 49Phony invoices were used to justify the payments, and the bribes werefalsely recorded as “consulting fees” or “commissions” in Biomet’s booksand records.Executives and internal auditors at Biomet’s Indiana headquarters wereaware of the payments as early as 2000, but failed to stop it.The SEC alleges that Biomet’s U.S. subsidiary Biomet International useda distributor to bribe publicly-employed doctors in Brazil by paying themas much as 10 to 20 percent of the value of their medical device purchases.Payments were openly discussed in communications between thedistributor, Biomet International employees, and Biomet’s executivesand internal auditors in the U.S. For example, a February 2002 internalBiomet memorandum about a limited audit of the distributor’s booksstated:Brazilian Distributor makes payments to surgeons that may beconsidered as a kickback.These payments are made in cash that allows the surgeon to receiveincome tax free. …The accounting entry is to increase a prepaid expenseaccount.In the consolidated financials sent to Biomet, these payments werereclassified to expense in the income statement.According to the SEC’s complaint, two additional subsidiaries – BiometChina and Scandimed AB – sold medical devices through a distributor inChina who provided publicly-employed doctors with money and travel inexchange for their purchases of Biomet products.Beginning as early as 2001, the distributor exchanged e-mails withBiomet employees that explicitly described the bribes he was arrangingon the company’s behalf.For example, one e-mail stated:[Doctor] is the department head of [public hospital]. [Doctor] uses about10 hips and knees a month and it’s on an uptrend, as he told us overdinner a week ago. …Many key surgeons in Shanghai are buddies of his._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 50A kind word on Biomet from him goes a long way for us. Dinner has beenset for the evening of the 24th. It will be nice. But dinner aside, I’ve got tosend him to Switzerland to visit his daughter.The SEC alleges that some e-mails described the way that vendors woulddeliver cash to surgeons upon completion of surgery, and othersdiscussed the amount of payments.The distributor explained in one e-mail that 25 percent in cash would bedelivered to a surgeon upon completion of surgery.Biomet sponsored travel for 20 Chinese surgeons in 2007 to Spain, where asubstantial part of the trip was devoted to sightseeing and otherentertainment.Biomet consented to the entry of a court order requiring payment of$4,432,998 in disgorgement and $1,142,733 in prejudgment interest.Biomet also is ordered to retain an independent compliance consultantfor 18 months to review its FCPA compliance program, and ispermanently enjoined from future violations of Sections 30A, 13(b)(2)(A),and 13(b)(2)(B) of the Securities Exchange Act of 1934.Biomet agreed to pay a $17.28 million fine to settle the criminal charges.The SEC’s investigation was conducted by Brent S. Mitchell with TracyL. Price of the Enforcement Division’s FCPA Unit and Reid A. Muoio.The SEC acknowledges the assistance of the U.S. Department of Justice’sFraud Section and the Federal Bureau of Investigation. The investigationinto bribery in the medical device industry is continuing._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 51NUMBER 5Financial risk managementOpening remarks by Mr Ewart S Williams, Governor of the Central Bankof Trinidad and Tobago, at the Caribbean Centre for Money and FinanceConference, Port-of-Spain, 26 March 2012.Good Morning Ladies and GentlemenLet me add my own words of welcome to all our participants of this verytimely seminar on Financial Risk Management.As you know, the seminar forms part of a wider project involvingthecentral banks in the Caribbean/CARICOM region.The project is being funded mainly by the Inter-American DevelopmentBank (IDB) that has partnered with the University of the West Indies(UWI) and Caribbean Centre for Money and Finance (CCMF) to makethis initiative possible.I would like to say a special word of welcome to former President of theCaribbean Development Bank and now acting Executive Director of theCCMF, Dr. Compton Bourne and Mrs. Michelle Cross-Fenty, CountryRepresentative of the IADB, which is a major sponsor of this Project.Welcome also to all our distinguished participants from our regionalCentral Banks and regulatory bodies and from the international andregional financial institutions._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 52I also thank the media for their presence.It is no secret, ladies and gentlemen, that our financial systems have beenseverely tested in the last few years by the outbreak of the global financialcrisis whose powerful shock waves have not only rattled financial marketsthe world over, but also triggered a deep recession with which manycountries are still grappling.For the most part, regional financial systems displayed remarkableresilience to the global financial crisis, even though our economies werebuffeted by the global recession that ensued.Regional financial systems, however, faced their own challenges arisingfrom the collapse of the Stanford Bank and more notably, from the demiseof the largest regional conglomerate, CL Financial.The stresses faced by CL’s financial subsidiaries (Clico Insurance, ClicoInvestment Bank (CIB), British American and BAICO) tested thefoundations of the regional financial system, which even so, proved to beresilient.Two aspects of what has become to be known as the “Clico crisis” areworth mentioning.The first is its regional reach: it entrapped in its net, not only Trinidadand Tobago, but also Barbados, Guyana and Suriname (that had Clicosubsidiaries) as well as the OECS and the Bahamas, which housedBAICO insurance companies, all CLF subsidiaries.The second aspect that stands out is its tremendous cost.The bill is still accumulating but for the region as a whole, the cost couldbe somewhere in the vicinity of 10–15 per cent of regional GDP.For all its negatives, the Clico crisis served as an important wake-up callto the region._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 53Coming on the heels of the global financial turmoil, it was a clearreminder of the need to strengthen our financial and regulatory systems,so that they could withstand exogenous shocks and it underscored theidea that a co-ordinated regional approach was needed.It was against this background that the CARICOM Heads’ ofGovernment, at their July 2009 meeting requested regional central banksand other stakeholders to put in place a framework for regional financialstability to increase our resilience both to exogenous shocks and tointra-regional stresses.It is worth noting, ladies and gentlemen, that the objective characteristicsof our region make a strong case for the regional approach to financialstability.We are small economies, with extensive economic links, with highvulnerability indices, compared with other regional groups (like, forexample, the EU).Moreover our islands are dominated by a short list of over-lappingfinancial institutions.On the downside, however, we currently have no regional regulatoryinstitutions.Specifically, we have nothing like the European Systemic Risk Boardwhich has some regulatory authority.The closest we come to a regional regulatory authority is the ECCB,which covers only the OECS.What’s more, given the current state of the regional movement, I am notsure of the chances for a pan-caribbean regulatory authority.Putting aside this issue for the time being, I would like to address thequestion, “What should be the main elements of a new regional financialstability infra-structure for the Caribbean region?”_____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 54And, I would like to propose the following:- First – the region needs strengthened financial sector legislation, in the first round covering the banking system, the insurance and the credit union sectors;- Second – we need to substantially upgrade financial sector supervision;- Third – all countries should have deposit insurance;- Fourth – all countries should have national crisis management plans; and- Fifth – building on these national plans, we need to formulate a regional crisis management plan.Permit me to say a few words about each of these elements.In many countries in the region, including my own, financial sectorlegislation is grossly deficient when compared to what obtains inadvanced or emerging market countries.We, in Trinidad and Tobago, recently introduced a modern FinancialInstitutions Act to cover the banking system and new insurancelegislation is currently in Parliament.Some countries in the region have been upgrading their bankinglegislation but the situation is not as promising with regard to insurancelegislation, which remains woefully outdated in the entire region.This must be seen against the background that both the Jamaicanfinancial crisis of the late 1990s and the Clico/BAICO regional crisisoriginated in the insurance sector.In principle, strengthened, harmonized legislation would be the ideal toforestall regulatory arbitrage. However, the obstacles faced by theCARICOM Model Financial Institutions Bill clearly demonstrated the _____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 55potential challenges likely to face any kind of harmonized financiallegislation.Countries in the region also need to upgrade financial sector supervision,including the introduction of consolidated supervision.I am told that a first attempt is currently underway to conduct asupervisory exercise on a systemically important institution, withcross-border operations, involving supervisory teams from differentjurisdictions.This is an important initiative and I hope that over time these kinds ofexercises could become routine examples of regional regulatorycooperation.More and more countries are adding stress-testing and the use offinancial stability reports to their supervisory tool kit.Properly used, these could provide early warning signals and improve theassessment of threats to the financial system.I know that the preparation of financial stability reports is an importantcomponent of the IDB-financed project, and I would like to return to thistopic later.Deposit insurance schemes could contribute significantly to themaintenance of regional financial stability, as they protect lower-incomedepositors and prevent bank-runs.A harmonized regional deposit insurance scheme would be ideal but theobstacles would be formidable.National schemes should still be regarded as an important part of theregional stability infrastructure.Because financial instability can sometimes arise without adequatewarning, all countries should have a national crisis management plan, to_____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 56be able to move quickly and to contain the potential cost of a nationalfinancial crisis.Such a plan invariably requires close coordination between the variousnational regulatory bodies, the Government and other stakeholders, andshould constitute a kind of road map to the process of crisis-resolution.The element of certainty that such plans bring, bolsters consumerconfidence and facilitates quick crisis resolution.A regional crisis management plan is another indispensable part of aregional financial stability, but it is the element that is likely to present thegreatest challenges.The critical pre-requisites to such regional plan are:(i) Agreement on what constitutes a systemic threat to the regionalfinancial system;(ii) The existence of information sharing protocols among regionaljurisdictions;(iii) Agreement on the strategies to be considered in the resolutionprocess and on the guiding principles for cost-sharing in the event thatpublic intervention is deemed necessary.A crisis management plan for our region is likely to face severalchallenges, among which are differences in legislation or supervisoryapproaches across the region; competing national priorities or differencesin resource availability among the regional governments.The implementation of a regional crisis management plan requires a highlevel regional council with the authority to make binding decisions as tothe use of resources.This could be another challenge in our current circumstances._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 57I would like to make a few comments on one of the critical components ofthe IDB-financed project – the preparation of comparable regionalFinancial Stability Reports (FSR).We need to remember that these reports are designed to serve as earlywarning signals by pointing out to policy makers the key risks andvulnerabilities faced by policy makers.Most financial stability reports do this by reporting the latest level of keyfinancial soundness ratios.There is a new body of research that suggests the assessment value ofthese reports could be enhanced by including at least a qualitativediscussion of the near term outlook for these ratios based on variouspolicy assumptions.I fully recognize, of course, that the preparation of these FSRs is resourceintensive and particularly challenging for smaller central banks.Thus, conferences and seminars, like this one, where we bring our ideasand experiences together, are an invaluable learning opportunity. Weneed to leverage off each other if we are to do this exercise successfully.As all of you know all too well, the range of dis-aggregated commercialbank information that central banks in developed countries take forgranted is sometimes difficult to collect in our region where the culture ofdisclosure is not deeply rooted.This makes our effort to develop FSRs all the more challenging but at thesame time all the more necessary. Let me end by wishing you all two daysof very stimulating discussions._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 58NUMBER 6Consumer response now sharing complaints with FTCConsumer Sentinel - By Sartaj AlagThe Dodd-Frank Act requires the CFPB to share consumer complaintinformation with the Federal Trade Commission (“FTC”) and other stateand federal agencies.Last August, the Bureau took the first step towards fulfilling this mandateby signing an agreement with the FTC that allows the CFPB to accessconsumer complaints in the FTC’s Consumer Sentinel system.Consumer Sentinel is an online database of consumer complaintsmaintained by the FTC that helps law enforcement track and respond toconsumer complaints.Recently, the Bureau started sharing its complaints with ConsumerSentinel.The database is accessible only to law enforcement, and adding theCFPB’s complaint data to the database will increase its effectiveness as alaw enforcement tool.Many entities, both government and non-government, already sharecomplaints with Consumer Sentinel.Among the government entities are several state Attorneys General(including Idaho, Michigan, Mississippi, North Carolina, Ohio, Oregon,Tennessee, and Washington State), the U.S. Postal Inspection Service,and the FBI’s Internet Crime Complaint Center._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 59Our goal in sharing complaints with the FTC is to remove artificialbarriers that stand in the way of efficient, transparent, and effectivegovernance.By removing these barriers, we are encouraging agencies to worktogether to better protect American consumers.We are excited about our collaboration with the FTC, and we lookforward to maintaining a close and fruitful partnership._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 60NUMBER 730/03/2012Regulation (EU) No 236/2012 of the European Parliament andof the Council of 14 March on short selling and certain aspects ofcredit default swaps (the Regulation)requires ESMA to develop draft regulatory (RTS) and implementingtechnical standards (ITS) in relation to several provisions contained inArticles 9, 11, 12 and 16 of the Regulation.The draft RTS and ITS published today will be submitted to theEuropean Commission by 31 March 2012. The Commission has threemonths to decide whether to endorse ESMAs draft technical standards.A further regulatory technical standard, on the method of calculation ofthe fall in value of a financial instrument required under Article 24(8) ofthe Regulation will be submitted together with the technical advice in thecourse of April 2012.Final reportDraft technical standards on the Regulation (EU) No 236/2012 of theEuropean Parliament and of the Council on short selling and certainaspects of credit default swaps._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 61I. Executive SummaryReasons for publicationRegulation (EU) No 236/2012 of the European Parliament and of theCouncil of 14 March on short selling and certain aspects of credit defaultswaps (the Regulation) requires ESMA to develop draft regulatory(RTS) and implementing technical standards (ITS) in relation to severalprovisions contained in Articles 9, 11, 12 and 16 of the Regulation.ESMA has consulted market participants on the proposed draft RTS andITS through a public consultation launched on 24 January 2012(Consultation Paper; ESMA/2012/30).The Securities and Markets Stakeholder Group (SMSG) established underthe Regulation (EU) No 1095/2010 establishing the EuropeanSupervisory Authority (ESMA Regulation) was also requested to providean opinion in accordance with Articles 10 and 15 of that regulation.ContentsESMA has considered the feedback it received to the consultation indrafting these RTS and ITS in accordance with Articles 10 and 15 of theESMA Regulation.This document sets out a summary of the responses received by ESMAand describes any material changes to the proposed technical standards.It also includes in the Annex II a cost-benefit analysis on which ESMAwas not able to consult as explained in the consultation paper(ESMA/2012/30).Finally, it contains the final draft RTS and ITS to be submitted to theEuropean Commission.Next stepsThe draft RTS and ITS will be submitted to the European Commission by31 March 2012._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 62The Commission has three months to decide whether to endorse ESMAsdraft technical standards.A further regulatory technical standard, on the method of calculation ofthe fall in value of a financial instrument required under Article 24(8) ofthe Regulation will be submitted together with the technical advice in thecourse of April 2012.II. Background1. According to the Regulation, ESMA has to submit its technicalstandards to the Commission by 31 March 2012.Further to this, ESMA received a letter from the Commission on 24November 2011 requesting to also provide an advice on all the delegatedacts contained in the Regulation by the same deadline – 31 March 2012.2. Taking into account the amount of work, complexity of the issues andthe very tight deadlines, the process of preparing technical standards anddrafting the advice on all delegated acts has been significantlycompressed compared to normal ESMA practices.The most important differences compared to normal practices were theabsence of a previous call for evidence (used normally to gather earlyviews to help shape the legal proposals), the length of the consultationperiod (reduced to 3 weeks) and the absence of a cost-benefit analysisincorporated in the consultation paper on the draft technical standards.Nevertheless, it was possible to organise a roundtable with European andinternational associations representing the various stakeholders at thebeginning of December in order to collect views on the approach to betaken in the main technical standards and delegated acts foreseen in theRegulation.Although the formal consultation period had closed, there was also asubsequent opportunity for interested parties to make comments on_____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 63ESMA’s proposals for draft technical standards at an open hearing heldon 29 February.3. The Regulation (EU) No 1095/2010 establishing the EuropeanSupervisory Authority (ESMA Regulation) empowered ESMA to developdraft regulatory and implementing technical standards where theEuropean Parliament and the Council delegate power to the Commissionto adopt regulatory standards by means of delegated acts under Article290 TFEU or implementing acts under Article 291 TFEU.4. Articles 10(1) and 15(1) of the ESMA Regulation state that beforesubmitting draft technical standards to the Commission, ESMA shallconduct open public consultations on draft regulatory technical standardsand analyse the potential related costs and benefits, unless suchconsultations and analyses are disproportionate in relation to the scopeand impact of the draft technical standards concerned or in relation to theparticular urgency of the matter.5. The legislative mandate for ESMA to develop draft regulatory andimplementing technical standards is provided in Annex I.6. This document does not include the draft RTS on the method ofcalculation of the fall in value of a financial instrument required underArticle 24(8) of the Regulation.Considering the interdependence with the provisions of a futureCommission’s delegated act on the definition of what is a significant fallin value of financial instruments other than liquid shares, these draft RTSwill be delivered upon finalisation of the ESMA technical advice ondelegated acts.7. The following sections describe the changes made to the final draftRTS and ITS after considering comments received from the differentinterested parties.The final version of the draft technical standards is set out in Annexes IIIand IV._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 64III. Feedback from market participants and changes to the drafttechnical standards8. Having considered the responses to the public consultation, ESMAclarifies below certain common issues raised by market participants.In this section ESMA also provides reasons for the changes made to theproposed draft technical standards after considering the comments andproposals and explains why certain market participants’ suggestions werenot followed.9. ESMA wishes to clarify that the scope of the legislative mandate fordrafting technical standards does not encompass the provisions relatingto Buy-in procedures (Article 15 of the Regulation).10. In addition, some comments or requests for changes received couldnot have been dealt with by ESMA in these technical standards as theyrelate directly to the scope of or the wording used in provisions of theRegulation itself.This is notably the case in relation to the scope of application of thereasonable expectation test for sovereign debt under Article 13 of theRegulation.On the agreements, arrangements and measures that adequatelyensure that the share or the sovereign debt will be available forsettlement.11. Many respondents to the consultation questioned ESMA’s approach ofseeking to draw up exhaustive lists of these types of agreements,arrangements and measures.However, given that the technical standards to be drafted in relation tothe restrictions on uncovered short sales in shares or in sovereign debt(Articles 12 and 13 of the Regulation) are implementing (not regulatory)technical standards , ESMA has little flexibility as to the approach toadopt for specifying the types of agreements to borrow or other _____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 65enforceable claims and the type of arrangements and measures thatensure that settlement can be effected when it is due as well as the thirdparties to these arrangements.Nevertheless, even though the exhaustive list approach is followed withthe objective to specify an appropriate and stable framework through theITS, ESMA has tried to provide sufficient flexibility to allow forinnovation and the development of future arrangements provided thatthey meet specified conditions or to preclude entities from acting as thirdparties unless they fulfil specific criteria. This is the purpose of the revisedarticles 5(1)(f) and 8(1)(f) and (g) of the draft ITS.In addition, it should be noted that ESMA can keep the situation underreview and, when needed, propose amendments to the technicalstandards.12. There were also comments that securities lending and primebrokerage agreements had been missed out from the list.In fact, ESMA considers that these agreements are certainlycontemplated to fall under the permissible borrowing agreementsprovided they meet the conditions set out in the draft technical standards,notably under letter f) of Article 5 of the draft ITS, which is designed insuch a way to be future proof.In any case, it has to be highlighted, for the sake of maximum clarity, thata master lending agreement, typically covering the standard conditionsapplicable for a long timeframe and a wide range of possible securities,will hardly meet by itself the conditions of Article 5 letter f) unless it iscomplemented for each short sale with a specific confirmation or termsheet under that master agreement containing a specific number of aspecific security and a specific execution or delivery date, meeting theconditions required by Article 5 letter f).13. ESMA has amended the drafting of Article 6 of the ITS onarrangements and measures in relation to shares so as to clearly andunambiguously indicate the two-step nature of the process._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 66In all cases here a locate confirmation is required before a short sale ofshares can be undertaken.For liquid shares and for intra-day short selling, provided that anadditional confirmation is obtained that a share is easy to borrow or topurchase; the shares need not be put on hold before the short sale.However, where this confirmation cannot be provided and for all caseswhere the short sale concerns an illiquid share and the short selling willbe for longer than an intra-day period, the shares must at least be put onhold.14. With respect to the “Liquid Shares Locate Arrangements andMeasures”, ESMA remains mindful to provide clarity and certainty acrossEurope on the scope of the shares concerned, without creating additionalcomplexity for investors through a new definition of liquid shares basedon each individual third party assessment.Nevertheless, ESMA takes note that the MiFID definition of liquid sharesmight be too limited and therefore widens the scope to other shares undercertain conditions to be fulfilled (constituent of a main national index andunderlying of a derivative contract admitted to trading on a tradingvenue).15. As regards the arrangements with third parties to be taken in relationto sovereign debt, various respondents to the consultation questionedwhether the correct interpretation of Article 13. 1 (c) of the Regulation wasthat such an arrangement was necessary in order to provide a reasonableexpectation that settlement can be effected when it is due.They considered that the reasonable expectation needed to be on the partof the short seller. However, this is another issue related to theinterpretation of the Level 1 text rather than the drafting of the ITSthemselves and as such not a matter for ESMA.Nevertheless, ESMA considers that the list of measures which wouldprovide a reasonable expectation of timely settlement provided for in_____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 67Article 7 of the draft ITS could be usefully complemented with additionalsituations brought to its attention by some responses to the consultation.16. Some respondents proposed that the list of third parties provided inArticle 8 of the draft ITS should explicitly refer to other types of entities.ESMA considers it is legitimate to refer specifically to investment firms,including retail services providers where relevant, as a specific type ofthird party with whom arrangements can be made given the activitiesthey carry out.ESMA considers that it is not necessary to make specific references toother entities such as insurances companies, credit institutions orpension funds since their activities are not necessarily primarily related tosecurities business.However, ESMA emphasises that, even though not mentioned by name,such entities would fall under the category of third party defined underArticle 8(1)(f) of the ITS provided they fulfil the criteria specified in thatarticle. In relation to central securities depositories (CSDs) andInternational CSDs, ESMA confirms that it considers that both types ofentities are within the scope of Article 8(1)(c) of the ITS as they arecovered by the Settlement Finality Directive for their European activities17. In relation to entities from third countries, ESMA has amended thedraft ITS to clarify the conditions which they need to fulfil to fall under aneligible type of third party listed in the ITS.18. Finally, many respondents expressed concerns about the fact thatthird party should be a distinct legal entity from the entity entering intothe short sale.They argued that this would run counter to current practices, causingpractical problems and entailing additional costs notably for theinvestors, and even increase the potential risks of settlement fails.However, while ESMA notes these comments, it considers that this issueis a matter of legal interpretation of the provision enshrined in theRegulation itself rather than one which can be resolved through the ITS. _____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 68On the details of the information on net short positions and themeans for disclosure19. ESMA notes that the transparency regime for net short positions setout in the Regulation foresees a notification requirement to the relevantcompetent authority both in relation to issuers of shares and sovereignissuers when the relevant thresholds are reached or exceeded or arecrossed downward.The initial and incremental thresholds in relation to the issued sharecapital are defined in the Regulation whereas the initial and incrementalthresholds for sovereign issuers will be defined in a delegated act to beadopted by the Commission and shall be expressed in Euro nominalamounts.20. The disclosure to the public however applies only to net shortpositions relating to an issuer of shares.These disclosure thresholds are already defined in the Regulation.The drafting of Article 2 of the ITS has been amended in order to avoidmisinterpretation of the net short positions on an issuer posted on thecentral website operated or supervised by the relevant competentauthority that is available when accessing that website.Thus, ESMA has clarified that the information displayed should cover notonly net short positions exceeding the publication thresholds but alsothose that reach them.In addition, ESMA believes it is not necessary to prescribe a specific fileformat for this information; the machine readable requirement set out inArticle 2(d) of the ITS is sufficiently generic to cater for the use of existingand new technologies.21. Some of the comments raised in the responses relate to topics that areof relevance for the technical advice on delegated acts ESMA shouldsubmit to the Commission rather than to these draft technical standards._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 69The treatment of index ETFs with synthetic replication and the issue ofcurrency conversion or whether notifications of net short position insovereign debt issuers would be required when thresholds are crossed dueto movements in exchanges rates are topics to be dealt in the advice onthe method of calculation of net short positions.The concerns raised on who shall report and what positions are expectedin relation to fund management and investment managers relate to thedelegated act regarding specification of the method of calculatingpositions when different entities in a group have long or short positions orfor fund management activities related to separate funds.22. In relation to the details of the information to be provided in the netshort position notification forms, some respondents questioned the needto include the field “date of previous notification”.ESMA considers that this field, that actually refers to the date of the lastvalid position reported (not a cancelled position), is necessary as it will beof assistance for supervisory purposes as well as for traceability of thereporting.In addition, ESMA considers that under the Regulation the duty to notifyor disclose the net short position lies on the position holder.Therefore, all the information required for the notification should beprovided by the position holder to the reporting entity when the positionholder is not reporting directly to the competent authority.23. For the information required on the identity of the position holderand, if relevant, of the reporting entity, ESMA recalls that they are notmeant for authentication purposes.According to the Regulation, authentication is a matter for nationalcompetent authorities which may have their own specific requirements inthat respect.The technical standards mandate prescribes only the details of theinformation to be provided in the notifications. _____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 70The level of details set out in the draft RTS, including the contact details,notably the fax number, is considered necessary by ESMA for thecompetent authorities to be able to manage the errors in particularnotifications or questions arising for supervisory purposes.When competent authorities have in place secure identification systems(that can be, among others, dedicated IT systems to submit regulatedinformation in a secure manner to the competent authority) that allowthese competent authorities to identify precisely the sender of anotification and the full identity and contact details of the position holder,ESMA considers that it is not necessary to repeat all the information onthe identity of the position holder, its contact details and the reportingperson in each notification, provided this information can be obtained infull from the authentication systems in place.24. For the sake of proper transparency to both the competent authoritiesand the public and in line with the disclosure of major shareholdingsunder the Transparency Directive, ESMA confirms that it is appropriateto use a 2 decimal points format for expressing the size of a net shortposition as a percentage of the issued share capital.25. The use of the ISIN code for identifying in the notification form theissuer in relation to which the relevant position is held was widelysupported.However, most respondents expressed a preference for the ISIN code ofthe main class of shares (usually ordinary shares) rather than for the oneof the share class first admitted to trading which was argued to bepotentially misleading and difficult and onerous to keep track of.ESMA has therefore modified the technical standard accordingly.26. In relation to the identification of the issuers, responses frequentlyincluded a request to ESMA to publish and update regularly, if not daily,the full list of the issuers covered by the short selling regime, includingthe amount of the issued share capital or the outstanding debt ofsovereign issuers and the relevant competent authority for notificationpurposes. _____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 71ESMA would like to recall that the Regulation only requires ESMA topublish the list of exempted shares.In addition, the list of sovereign issuers will be made available to thepublic further to the requirement for ESMA to publish on its website therelevant notification threshold for each sovereign issuer according toArticle 7(2) of the Regulation.For shares admitted to trading on a Regulated Market, ESMA notes thatthe information on the relevant competent authority for the purposes ofthe Regulation is already available in the MiFID database published onits website as, according to Article 2(1)(j)(v) of the Regulation, thedefinition of such an authority coincides with the definition of therelevant competent authority for a share under MiFID.Finally, under Article 15 of the Transparency Directive, issuers of sharesare required to monthly update the information they disclose on theirissued share capital.ESMA would expect that given the increased importance of the disclosureof the issued share capital, particular for the Regulation, nationalcompetent authorities will enhance their monitoring of the compliancewith the issuers’ disclosure requirements.27. Finally, without questioning the proposed approach to use commonformats for notification and cancellation of reported net short positionsthat has been widely supported by the respondents, the structure of theformats specified in Annex II and III of the RTS have been reorganised tofacilitate their usability.On the determination of the principal trading venue for theexemption pursuant to Article 16 of the Regulation28. ESMA would like to recall that the turnover calculation for thedetermination of the principal venue applies on a per trading venue basisfor a specific share and not on the overall turnover for that shareirrespective of where it is traded._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 7229. ESMA welcomes the willingness expressed by operators of regulatedmarkets to assist in the performance of the calculations for thedetermination of the principal venue.However, defining whether an agreement on compensation should beestablished to cover for the costs of performing such calculations is amatter for individual competent authorities and is not in the scope ofthese technical standards.30. Some respondents to the consultation commented that the occurrenceof a merger or acquisition could be added as a situation warranting anupdate of the list of exempted shares within the 2-year period.However, ESMA believes that there is no need to explicitly mention thissituation as such scenarios are already covered in points a) and b) ofArticle 13(1) of the draft ITS.On the information to be provided to ESMA by competentauthorities31. Further to some comments, the wording of Article 4(2) has beenaligned with the one of Article 3(2) of the ITS, as ESMA intends toestablish a system that would allow for exchanging the information to beprovided by competent authorities both periodically and upon request.32. Finally, to ensure alignment with the content of Article 4 of the RTS onthe details of the information to be provided on a quarterly basis – asspecified in the Regulation – to ESMA by competent authorities, AnnexII of the ITS describing their format has been amended and now includesthe “End of quarter aggregated net short position on other shares”.To read more:http://www.esma.europa.eu/system/files/2012-228_0.pdf_____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 73AcronymsBIC Bank Identifier CodeCSD Central securities depositoryISIN International securities identification numberITS Implementing technical standardsLEI Legal entity identifierRTS Regulatory technical standardsESMA European Securities and Markets AuthorityMiFID Directive on markets in financial instruments (Directive2004/39/EC of the EuropeanParliament and of the Council of April 2004)SMSG Securities and Markets Stakeholder Group_____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 74NUMBER 8DARPA Chip-Scale Atomic Clocks Aboard International SpaceStationMarch 27, 2012Atomic clocks are the most accurate frequency standard and timingdevices in the world.Their range of uses include being the international standard fortimekeeping, managing broadcasts and satellite positioning, navigationand timing (PNT).Traditional atomic clocks are too large to be placed on board smallsatellites so a downlink with Earth is needed for the accurate PNTrequired for space operations.Chip-scale atomic clocks (CSAC) were first developed by DARPA and theNational Institute of Standards and Technology (NIST) in 2004._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 75These devices are smaller than traditional atomic clocks by a factor of 100(down to about the size of a computer chip) and are more power-efficientby a factor of 10.Although CSACs are now commercially available, they have not yet beenapplied to space technologies.On October 27, 2011, Progress 40 launched from Baikonur Cosmodromecarrying two DARPA CSACs, the first ever into space.The CSACs will soon be tested on board the International Space Station(ISS) in support of DARPA’s Micro-PNT program.The chips will be inserted into bowling-ball sized satellites on the ISScalled Synchronized Position, Hold, Engage and Reorient ExperimentalSatellites (SPHERES).Once the chips have been validated as operational, the SPHERES willperform a synchronized maneuver through the ISS cabin.After the experiment, the chips containing the CSACs will be removedand tested against the atomic clock onboard the ISS.“DARPA hopes that testing confirms that chip-scale atomic clocks canoperate in orbit with the level of accuracy for which they were designed,”explained Andrei Shkel, DARPA program manager.“A successful test after transportation, launching and space operationswill mean that CSACs are one step closer to being integrated into futurespace platforms. Such integration should allow various space platformsmore autonomy in positioning, navigation and timing.”Note:The Defense Advanced Research Projects Agency (DARPA) wasestablished in 1958 to prevent strategic surprise from negativelyimpacting U.S. national security and create strategic surprise for U.S._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 76adversaries by maintaining the technological superiority of the U.S.military.To fulfill its mission, the Agency relies on diverse performers to applymulti-disciplinary approaches to both advance knowledge through basicresearch and create innovative technologies that address current practicalproblems through applied research.DARPA’s scientific investigations span the gamut from laboratory effortsto the creation of full-scale technology demonstrations in the fields ofbiology, medicine, computer science, chemistry, physics, engineering,mathematics, material sciences, social sciences, neurosciences and more.As the DoD’s primary innovation engine, DARPA undertakes projectsthat are finite in duration but that create lasting revolutionary change._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 77NUMBER 9Address by Mr Lee Boon Ngiap, Assistant Managing Director,Monetary Authority of Singapore,General Insurance Association of Singapore Annual General MeetingLuncheon, 27 March 2012, Intercontinental Hotel, SingaporeGIA President, Mr Derek Teo, Distinguished Guests, Ladies andGentlemen, 1 Thank you for inviting me to your Annual General MeetingLuncheon. May I congratulate Mr Derek Teo on your re-election asPresident of GIA, as well as the other newly-elected managementcommittee members.I would also like to thank them for agreeing to take up the challenge ofleading the industry over the next year.2 This afternoon, I will start off by recapping some of the majorachievements of GIA, before outlining some of the immediate challengesfacing the general insurance industry.GIA’s Contributions3 Under the leadership of its management committee, GIA hasaccomplished much in the past few years._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 784 I would like to commend GIA for its pro-active approach instrengthening the self-regulatory framework for general insurance agents.GIA’s Agents’ Registration Board has put in much efforts to improve thestandards of general insurance agents through initiatives such as theTrade Specific Agent Schemes.An industry working group formed by the GIA is now finalising aTelemarketing Code of Practice for general insurers.These initiatives will continue to raise the competency and professionalstandards of the general insurance industry, and provide consumers withbetter quality advice and higher service standards.These augur well for the development of the industry.5 Over the past year, GIA has been active in educating consumers ongeneral insurance products.One example is the travel insurance seminar jointly organized by GIAwith the National Association of Travel Agents Singapore and theConsumers Association of Singapore.The seminar provided a useful platform for the industry to share insightsand knowledge on how consumers can purchase the right type of travelinsurance for their needs.GIA was also involved in the revamp of the Moneysense website, and hadmade contributions to the publications on the website.I am glad to note that GIA will continue such efforts to educateconsumers on the specific risks and considerations when buying generalinsurance products.6 GIA has also made active contributions to an industry-led workinggroup that is looking to enhance reinsurance contract certainty practicesin Singapore._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 79Together with the Singapore Reinsurance Association, ReinsuranceBrokers Association, Lloyd’s and Insurance Law Association ofSingapore, the working group is finalising guidelines and best practicesto secure contract certainty.The guidelines will highlight the need for reinsurers and brokers toprovide cedants with their signed copy of the contract.It will also require both parties to ensure that there is no ambiguity in theterms and conditions of the contract prior to risk inception.This will minimise potential disputes over claims and coverage.MAS views this as a very important initiative and will work with theindustry on a smooth implementation of these new guidelines and bestpractices.7 On the talent development front, GIA, with the RegionalDevelopment Committee, have contributed significantly through itsGlobal Internship Program (GIP).According to Lloyd’s Risk Index 2011, “talent and skills shortage” wasidentified as one of the top three risks facing the insurance industry in theAsia Pacific region. GIA’s efforts in helping to build the talent pipeline iscrucial.I would like to encourage GIA to continue to explore talent initiatives tosupport the industry’s needs in more specialised risk areas as well asactuarial and leadership development.MAS will continue to work with GIA to explore the possibility ofexpanding the depth and breadth of the GIP to better cater to the growingneeds of the industry._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 80Challenges Ahead8 GIA should be proud of these achievements, which has contributedmuch to the development of the general insurance industry in Singapore.There is much more work in the years ahead as the industry facesimportant challenges in a riskier and more difficult market. Allow me toshare my thoughts on two of these immediate challenges.9 First, let me congratulate the industry for reporting underwritingprofits in all lines of domestic business last year.In particular, the motor business registered its first underwriting profit insix years.The last time the industry managed to turn a profit in the highlycompetitive motor business was in 2004 and 2005, after more than adecade of losses.But stiff competition set in immediately and many insurers startedcompromising on underwriting and pricing discipline in pursuit ofmarket share.Problems with fraudulent and inflated claims also started to plague themotor insurance business.This resulted in the industry reporting record underwriting losses of $168million in 2008, with losses in each subsequent year until last year.10 GIA, through its introduction of the Motor Claims Framework in2008, and active participation in the Motor Insurance Task Force, hascontributed to measures to minimise fraudulent and inflated claims.These efforts are commendable and MAS is committed to workingtogether with GIA and other relevant stakeholders to combat thisproblem._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 81But such measures alone will not sustain the profitability of the motorbusiness if insurers do not exercise underwriting and pricing discipline.11 While competitive premium rates may benefit consumers, they arenot sustainable if they are achieved without regard to sound underwritingand pricing.Eventually, insurers will suffer losses which become too great to bear andsome will exit the business, leaving consumers with fewer choices.Those that remain will be forced to raise premium rates sharply, andcomplaints from unhappy motorists can be expected to follow.Ultimately, this is detrimental to consumers and the insurance industry.We have seen this episode played out before in the domestic motorinsurance market.The challenge for the industry therefore is to take heed of the lessonslearnt and maintain your underwriting and pricing discipline this timeround.It is in the interest of both consumers and insurers that all of you onlypursue business strategies that are sustainable and not sacrifice prudencefor potential short-term gains.12 The second challenge for the industry that I would like to touch onis the need to keep pace with global regulatory reforms.Much has been said and written about the weaknesses in regulations andbusiness practices that caused the global financial crisis.The insurance business model enabled the majority of insurers towithstand the financial crisis better than other financial institutions.Nevertheless, there are corporate governance, capital adequacy and riskmanagement lessons from the crisis that are applicable to the insurance_____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 82industry. Let me share the regulatory initiatives in these areas that MASis focusing on this year.13 First, one lesson from the crisis is that good corporate governancematters.The failure by Boards to exercise effective risk management oversighthad damaging consequences for many institutions.To raise the corporate governance standards of the insurance industry,MAS recently issued a consultation paper proposing to extend theInsurance Corporate Governance Regulations to all locally-incorporatedinsurers.We intend to make it mandatory for all locally-incorporated generalinsurers to meet minimum corporate governance requirements, whichwill be calibrated to take into account the significance of an insurer’soperations.Insurers’ compliance with the Corporate Governance Regulations will beassessed as part of MAS’ ongoing supervisory programme.14 Second, MAS will shortly issue a consultation paper to proposeenhancements to our capital framework for insurance companies.Singapore was among the first in Asia to introduce a risk-based capital(RBC) framework for insurance companies back in 2005.Our proposed enhancement aims to improve the comprehensiveness ofrisk-coverage and the risk-sensitivity of the framework, while ensuringthat the proposals are practical and takes into account market realities.Unlike in banking, there is no common global capital standard forinsurance companies.So a review of our RBC framework is a major undertaking requiring botha fundamental analysis of the appropriateness of our existing frameworkas well as a comparative study of the insurance capital frameworks inother jurisdictions._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 83I look forward to receiving feedback from GIA and its members when ourconsultation paper is issued.15 Third, MAS’ efforts to improve risk management standards in theindustry will continue apace.MAS issued a set of guidelines on risk management practices forinsurance companies in 2007.The guidelines spell out sound risk management practices for each coreactivity such as product development, pricing and underwriting.MAS will add to these guidelines with additional rules on enterprise riskmanagement (ERM).The ERM standards will go beyond addressing risks in each core activityto also cover MAS’ expectations on how insurers identify and manageinterdependencies between key risks, and how this is translated intostrategic management actions and capital planning.Conclusion16 In conclusion, let me once again thank GIA for its good work inraising the standards of general insurance agents, educating andempowering consumers, assisting MAS in our regulatory work, anddeveloping talent for the industry.But there is no room for complacency. The insurance environment hasbecome more volatile in recent years, and consumers are increasinglymore sophisticated and demanding.So the industry must enhance its ability to operate in a riskierenvironment, and service standards must continue to improve.MAS will continue to work closely with GIA to promote a sound anddynamic general insurance industry in Singapore._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 84We have enjoyed a very good working relationship over the years and welook forward to continuing this partnership in the years ahead.17 Thank you._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 85NUMBER 10March 29, 2012Remarks by the President on Oil and Gas SubsidiesToday, members of Congress have a simple choice to make: They canstand with the big oil companies, or they can stand with the Americanpeople.Right now, the biggest oil companies are raking in record profits –-profits that go up every time folks pull up into a gas station.But on top of these record profits, oil companies are also getting billions ayear -- billions a year in taxpayer subsidies -– a subsidy that they’veenjoyed year after year for the last century.Think about that. It’s like hitting the American people twice.You’re already paying a premium at the pump right now. And on top ofthat, Congress, up until this point, has thought it was a good idea to sendbillions of dollars more in tax dollars to the oil industry._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 86It’s not as if these companies can’t stand on their own.Last year, the three biggest U.S. oil companies took home more than $80billion in profits.Exxon pocketed nearly $4.7 million every hour.And when the price of oil goes up, prices at the pump go up, and so dothese companies’ profits.In fact, one analysis shows that every time gas goes up by a penny, thesecompanies usually pocket another $200 million in quarterly profits.Meanwhile, these companies pay a lower tax rate than most othercompanies on their investments, partly because we’re giving thembillions in tax giveaways every year.Now, I want to make clear, we all know that drilling for oil has to be a keypart of our overall energy strategy.We want U.S. oil companies to be doing well. We want them to succeed.That’s why under my administration, we’ve opened up millions of acres offederal lands and waters to oil and gas production.We’ve quadrupled the number of operating oil rigs to a record high.We’ve added enough oil and gas pipeline to circle the Earth and thensome.And just yesterday, we announced the next step for potential new oil andgas exploration in the Atlantic.So the fact is, we’re producing more oil right now than we have in eightyears, and we’re importing less of it as well.For two years in a row, America has bought less oil from other countriesthan we produce here at home -– for the first time in over a decade._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 87So American oil is booming. The oil industry is doing just fine. Withrecord profits and rising production, I’m not worried about the big oilcompanies.With high oil prices around the world, they’ve got more than enoughincentive to produce even more oil.That’s why I think it’s time they got by without more help from taxpayerswho are already having a tough enough time paying the bills and fillingup their gas tank.And I think it’s curious that some folks in Congress, who are the first tobelittle investments in new sources of energy, are the ones that arefighting the hardest to maintain these giveaways for the oil companies.Instead of taxpayer giveaways to an industry that’s never been moreprofitable, we should be using that money to double-down oninvestments in clean energy technologies that have never been morepromising -- investments in wind power and solar power and biofuels;investments in fuel-efficient cars and trucks, and energy-efficient homesand buildings.That’s the future. That’s the only way were going to break this cycle ofhigh gas prices that happen year after year after year.As the economy is growing, the only time you start seeing lower gasprices is when the economy is doing badly.That’s not the kind of pattern that we want to be in. We want theeconomy doing well, and people to be able to afford their energy costs.And keep in mind, we can’t just drill our way out of this problem. As I said, oil production here in the United States is doing very well, andits been doing well even as gas prices are going up.Well, the reason is because we use more than 20 percent of the world’s oilbut we only have 2 percent of the world’s known oil reserves._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 88And that means we could drill every drop of American oil tomorrow butwe’d still have to buy oil from other countries to make up the difference.We’d still have to depend on other countries to meet our energy needs.And because it’s a world market, the fact that we’re doing more here inthe United States doesn’t necessarily help us because even U.S. oilcompanies they’re selling that oil on a worldwide market.They’re not keeping it just for us. And that means that if there’s risingdemand around the world then the prices are going to up.That’s not the future that I want for America.I don’t want folks like these back here and the folks in front of me to haveto pay more at the pump every time that there’s some unrest in the MiddleEast and oil speculators get nervous about whether there’s going to beenough supply.I don’t want our kids to be held hostage to events on the other side of theworld.I want us to control our own destiny. I want us to forge our own future.And that’s why, as long as I’m President, America is going to pursue anall-of-the-above energy strategy, which means we will continuedeveloping our oil and gas resources in a robust and responsible way.But it also means that we’re going to keep developing more advancedhomegrown biofuels, the kinds that are already powering truck fleetsacross America.We’re going to keep investing in clean energy like the wind power andsolar power that’s already lighting thousands of homes and creatingthousands of jobs._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 89We’re going to keep manufacturing more cars and trucks to get moremiles to the gallon so that you can fill up once every two weeks instead ofevery week.We’re going to keep building more homes and businesses that waste lessenergy so that you’re in charge of your own energy bills.We’re going to do all of this by harnessing our most inexhaustibleresource: American ingenuity and American imagination.That’s what we need to keep going. That’s what’s at stake right now.That’s the choice that we face. And that’s the choice that’s facingCongress today.They can either vote to spend billions of dollars more in oil subsidies thatkeep us trapped in the past, or they can vote to end these taxpayersubsidies that aren’t needed to boost oil production so that we can investin the future. It’s that simple.And as long as I’m President, I’m betting on the future.And as the people I’ve talked to around the country, including the peoplewho are behind me here today, they put their faith in the future as well.That’s what we do as Americans. That’s who we are. We innovate. Wediscover.We seek new solutions to some of our biggest challenges.And, ultimately, because we stick with it, we succeed.And I believe that we’re going to do that again.Today, the American people are going to be watching Congress to see ifthey have that same faith._____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 90_____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 91Certified Risk and Compliance Management Professional(CRCMP) Distance learning and online certification program.Companies like IBM, Accenture etc.consider the CRCMP a preferredcertificate. You may find more if yousearch (CRCMP preferred certificate)using any search engine.The all-inclusive cost is $297.What is included in the price:A. The official presentations we use in our instructor-led classes(3285 slides)The 2309 slides are needed for the exam, as all the questions are based onthese slides. The remaining 976 slides are for reference.You can find the course synopsis at:www.risk-compliance-association.com/Certified_Risk_Compliance_Training.htmB. Up to 3 Online ExamsYou have to pass one exam.If you fail, you must study the official presentations and try again, but youdo not need to spend money. Up to 3 exams are included in the price.To learn more you may visit:www.risk-compliance-association.com/Questions_About_The_Certification_And_The_Exams_1.pdfwww.risk-compliance-association.com/CRCMP_Certification_Steps_1.pdf_____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 92C. Personalized Certificate printed in full color.Processing, printing, packing and posting to your office or home.D. The Dodd Frank Act and the newRisk Management Standards (976slides, included in the 3285 slides)The US Dodd-Frank Wall Street Reformand Consumer Protection Act is the mostsignificant piece of legislation concerningthe financial services industry in about 80years.What does it mean for risk andcompliance management professionals? Itmeans new challenges, new jobs, newcareers, and new opportunities.The bill establishes new risk management and corporategovernance principles, sets up an early warning system toprotect the economy from future threats, and brings moretransparency and accountability.It also amends important sections of the Sarbanes OxleyAct. For example, it significantly expands whistleblowerprotections under the Sarbanes Oxley Act and createsadditional anti-retaliation requirements.You will find more information at:www.risk-compliance-association.com/Distance_Learning_and_Certification.htm_____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 93Visit our Risk and Compliance Management Speakers BureauThe International Association of Risk and Compliance Professionals(IARCP) has established the Speakers Bureau for firms and organizationsthat want to access the expertise of Certified Risk and ComplianceManagement Professionals (CRCPMs) and Certified InformationSystems Risk and Compliance Professionals (CISRCPs).The IARCP will be the liaison between our certified professionals andthese organizations, at no cost. We strongly believe that this can be agreat opportunity for both, our certified professionals and the organizers.To learn more:www.risk-compliance-association.com/Risk_Management_Compliance_Speakers_Bureau.html_____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com
    • P a g e | 94_____________________________________________________________International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.com