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  • 1. Suitability Event Wednesday, 28 November 2013
  • 2. Agenda 08:00 Introduction Micha Bitterli, Partner, KPMG Regulatory requirements at the Point of Sale Micha Bitterli, Partner, KPMG Ertugrul Tuefekci, Director, KPMG Pascal Sprenger, Director, Head of Legal Financial Services, KPMG Michel Simantirakis, Senior Manager, KPMG Digitised Cross Border Manuals for Banking Michael Rombach, Engagement Manager, Appway The Avaloq Investment Suitability Framework Rafael Keller, Product Manager, Avaloq Evolutions AG 09:30 Wrap-up, Q&A 09:45 Breakfast © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 1
  • 3. Future Challenges Micha Bitterli, Partner, KPMG
  • 4. A constantly evolving environment Performance Growth Main reasons for these changes ■ Cooperation/ outsourcing Margin erosion Business model realignment Market place harmonization Cross border regulation AEI Transparency FATCA MiFID Differentiation ■ Increasing government deficits/debts Increased sense of injustice regarding tax evasion in the populace ■ General aversion against so-called tax havens ■ General public's loss of confidence in financial sector due to flighty business practices including aiding and abetting tax evasion ■ Broad support for (partially excessive) regulation of the banking industry in order to avoid future crises and for a sustainable adjustment in corporate cultures Basel III US Tax Dodd Frank Act AIFMD Asset repatriation High costs for tax payers as bank losses were "privatized" in the last crisis ■ Added-value services Increased frequency of financial crises with a global impact over the last decade ■ Investor inactivity Capital requirements FATF Corporate governance Data secrecy Suitability/ Distribution rules OECD Lists International Tax Agreements (UK/DE)  States are becoming increasingly coordinated in their global hunt for untaxed assets and in the persuasion of governments to regularize unreported assets. Tax Haven Black Lists Governance Regulation Suitability Interaction with Suitability © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 3
  • 5. How are banks affected?
  • 6. NATIONAL EU Global A selection of international regulatory initiatives. Can you keep up? FSB Shadow Banking BCBS trading book FSB review of GSIBs BCBS RWA G20 Finance Russia BCBS shadow banking update FSB GSIB list G20 Leaders Russia Basel 3 capital in force FSB GSIB surcharge in force FSB GSIBs fully in force Basel 3 liquidity in force EMIR reporting PRIPS / EC data EBA RRP in force IMD MEP protection EC EMIR RTS MiFID2 PRIPS / EMIR vote proposals level 2 Banking EMIR in EBA in force IMD level initial ESMA measures MEP force RRD Union Banking stress 2 margin in CSD ITS Shadow Banking RRD MEP trialogues DGS Union fully Solvency testing force Banking Union vote proposals EMIR in force 2 in force EC Shadow vote SSM in Audit clearing ESMA EC FTT EC Shadow Banking in force reform AIFMD MiFID2 obligation proposal Liikanen Banking PRIPs in MiFID2 force MAD/MA proposals national level 2 EBA EC UCITS EC LIBOR update force Council CRD4 implement R Banking CRD4 6 proposals agreement EBA trialogue Union Home / EC ESA Regulatio CRD4 IMD in n in force SRA in CRD4 / Host ITS review CRA RTS MEP vote force AIFMD place CRR ITS UCITS 5 MiFID2 final text EBA CRD4 consult MEP vote final MEP Mortgage ESMA Directive vote guidelines Short selling CFTC swap in force US DFA mandatory clearing France FTT Jan 2013 FR – Bank separation proposal Feb Mar DE – Bank separation proposal UK Vickers in force FCA/PRA CFTC swap in force Apr May Jun Jul Aug Sept. Oct Nov Dec 2014 2015 2016 2017 Systemic risk and capital buffers Source: KPMG EMA Center of Excellence 2014 2019 In force Governance and supervision 2018 Consultation Customers and markets © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 5
  • 7. How are banks affected - Transactions 2 3 4 5 6 1 2 7 Trade initiation 2 5 7 1 Exchange Bilateral Non-financial counterparty Other regulated trading platform 2 7 8 Settlement and clearing Trade execution Pre and post trade reporting Financial counterparty 1 2 3 4 5 6 7 8 Ongoing management CCP Margin and collateral Bilateral 8 Close out Trading strategy 7 Risk management Asset, servicing and custody Accounting Transactions reporting 1. European Market Infrastructure Regulation (EMIR) 4. Fundamental review of trading book 2. Markets in Financial Instruments Directive (MiFID 2) 5. Activities specific 7. Dodd-Frank 8. Financial Market Infrastructures (FMIs)/CSDs 6. Market Abuse Directive (MAD) 3. BASEL 2.5/3 © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 6
  • 8. Transformation process Asset Base Profitability 110 120 100 Asset Transformation Process 100 Product Transformation Process Transition Process 80 Transition Process Long-term viability 90 Service Transformation Process 80 70 60 50 Point of non-viability 40 Long-term viability 60 30 Yesterday Today Tomorrow Transforming FI Strategic state Non-transforming FI 40 AuM Margin Point of non-viability 20 Yesterday Today Tomorrow Strategic state 0 140 130 120 Transition Process 110 100 Transforming FI Non-transforming FI Long-term viability 90 80 Point of non-viability 70 60 Note: Profitability of Transforming FI indexed at 100 / Profitability of Non-transforming FI relative to Transforming FI Asset base of Transforming and Non-transforming FI indexed at 100 AuM Margin for Transforming and Non-transforming FI in bps Yesterday Today Transforming FI Tomorrow Strategic state Non-transforming FI  Initially, financial institutions will be affected by sinking AuM and margins due to their portfolio adjustments. However, if they do this correctly, institutions will eventually improve their margins and acquire new AuM by expanding their range of products and services. © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 7
  • 9. Suitability MiFID / FSA
  • 10. MiFID / Financial Services Act (FSA) Inducements (retrocessions) Best execution Suitability & appropriateness Customer classification MiFID Cross-border services Conflicts of interest Risk structures, organization Outsourcing Distribution report / in content, FSA is very similar to MiFID © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 9
  • 11. MiFID I - Background  The EU Markets in Financial Instruments Directive (MiFID I) was passed on 21 April 2004  It replaced the Investment Services Directive (ISD) of 1993  It is part of the Financial Services Action Plan (FSAP)   The most important rules were introduced with the Lamfalussy procedures/directive (contains the Prospectus Directive, Market Abuse Directive, Transparency Directive, etc.) MiFID was one of the most comprehensive reforms within the European Economic Area (EEA)  Important parts were implemented in local laws  Effective: 1 November 2007 © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 10
  • 12. MiFID I - Objectives   Strengthening the European financial markets – Robust and harmonized framework for regulating the European financial market – MiFID I contained the "passport principle" which was introduced with the Investment Services Directive The passport simplifies market entry in EEA countries Increases competition Improved customer protection – Conduct of Business Rules / Best Execution Rules – Client and product analysis – Requirements regarding information and disclosure © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 11
  • 13. Timeline MiFID II May 2011 December 2008 Commission reports that proposals will be presented before end of 2011 Madoff’s sons tell authorities that their father’s firm was a massive Ponzi scheme March 2012 1 January 2016 Markus Ferber suggests amending the EC’s proposal intended to further restrict high frequency trading today April 2010 CESR consultation papers on MiFID review 2010 September 2008 Bankruptcy of Lehman Brothers 2011 2012 2013 December 2010 European commission releases substantial public consultation on the review of MiFID (MiFID II) MiFID II locally implemented? End Q4 2014 Expected release date of MiFID II and MiFIR. While MiFIR will become effective immediately, there will be an implementation period for MiFID II 2014 2018 1 January 2017 October 2011 FSA Report up and running EC adopts formal proposals for a Directive repealing Directive 2004/39/EC (MiFID II) and for a Regulation on markets in financial instruments (MiFIR), which would amend the proposed European Market Infrastructure Regulation (EMIR) © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 12
  • 14. MiFID II - Introduction  Just like MiFID I, MiFID II is an important pillar for the European financial regulation  MiFID II cannot be looked at in isolation but needs to be seen in context of other regulations. For a comprehensive picture, the following regulations must also be looked at: − MiFIR (Markets in Financial Instruments Regulation) Objective: improve transparency of financial markets, centralized trading platforms, improves regulation and competition − EMIR (European Market Infrastructure Regulation) Objective: reduce counterparty risk, reduce operational risk by improving standardization, improved transparency, improved market integrity − UCITS (Undertakings for Collective Investment in Transferable Securities) Objective: harmonize and strengthen the European investment industry, EU passport − AIFMD (Alternative Investment Fund Managers Directive) Objective: regulate the licensing and distribution of AIFs; EU passport (limited to retail clients); prohibition to discriminate specific forms of AIF − MAR / MAD (Market Abuse Regulation / Market Abuse Directive) Objective: guarantee the integrity of European financial markets and improve investor confidence; create a level playing field for economic efficiency as a condition for combating market abuse − Prospectus Directive Objective: improve the quality of customer information; harmonize the rules on prospectus content − SLD (Securities Law Directive) Objective: harmonize legal framework for intermediated securities; improved investor protection − REMIT (Regulation on Energy Market Integrity and Transparency) Regulates: prohibits insider trading and market manipulation, communication of insider information © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 13
  • 15. MiFID II/MiFIR – What is it all about? Impacts are far-reaching affect the entire value chain 1 4 5 2 Market transparency Governance 3 4 5 5 Product introduction Organization of Sales efforts distribution Product conceptualization Execution of orders After sales Documentation Supervisory authorities Data Trading strategy Trading operations Execution of Settlement trade and confirmation Clearing © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMGMitgliedsfirmen, member of the KPMG network of independent firms affiliated with KPMG © 2013 KPMG Rechtsanwaltsgesellschaft mbH, Mitglied des KPMG-Netzwerks unabhängiger Europe LLP and a die KPMG International Cooperative ("KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. International"), einer juristischen Person schweizerischen Rechts, angeschlossen sind. All rights reserved. Der Name KPMG, das Logo und "cutting through Reporting Management Delivery or close-out 2 4 Distribution strategy Market infrastructure Trading and markets – typical trading cycle – 3 Advisory services Maturity/Product processes and sale by client 1 Investor protection Distribution of securities – typical distribution cycle – Objectives/Core topics 14 14
  • 16. MiFID II Overview of regulation MiFID Theme Topic Organized Trading Facilities MiFID II - New category of trading venue designed to capture organised trading outside of RMs, MTFs and Sis MiFID I Impacts - Three trading platforms: Multilateral Trading Facilities (MTFs), Regulated Markets (RMs) and Systematic Internalisers (SIs). Threshold test in order to register as a Systematic Internaliser - Impacts internal crossing systems operated by sell side brokers - Pre-trade requirements applied to OTC volumes - Ban on proprietary capital may impact the way in which sell side brokers achieve best execution - No specific requirements - Impacts execution strategies for sell side brokers - Significant impact to High Frequency trading (HFT) risk management Automated Trading - Continuous liquidity during the trading period - Annual description of trading strategies to competent authorities - New registration system and control requirements OTC Derivatives - Eligible OTC derivative contracts to be traded ‘on-exchange’ - Clearing obligation in EMIR - Commodity derivatives - Position reporting for all commodity positions - Position limits to be enforced by trading venues - Central Clearing - Non-discriminatory access to index and benchmark data - Non-discriminatory access to CCPs Data Consolidation - New regime for data consolidation and reporting, including Consolidated Tape, APAs and ARMs Market Structure - - Added costs arising from execution on trading platforms and central clearing No specific requirements - Potential reduction in flexibility when hedging positions - Added cost for trading venues and participants to enact - Restrictions in the positions that No specific requirements participants may take could inhibit firms executing, inter alia, client orders - Threat to those Exchanges operating vertical operating models Investment firms have the right of access to CCPs - Competition in clearing and derivatives should reduce costs, MTFs and RMs may enter into but potential for increased appropriate arrangements with complexity CCPs and Settlement Systems in other territories - Additional risk management challenges if dealing with multiple CCPs - No specific requirements © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. - Should improve data quality, consistency and granularity - but, greater complexity and risk of double reporting 15
  • 17. MiFID II Overview of regulation MiFID Theme Topic MiFID II MiFID I Investment Advice - NA Inducements Investor Protection - Advisers have to state whether their advice is independent or not. - Ban on independent advisers receiving/giving third party fees, commissions or other monetary benefits. - NA Execution Only Best execution Appropriateness - Meaning of ‘complex’ has been redefined to include all products with embedded derivatives, and some Structured UCITS - Firms to publish top five trading venues for executing orders More granular reporting requirements for clients - Trading venues to publish data relating to the quality of executions - Need to account for the type and complexity of financial instruments involved, and, in the case of advice, report how that advice meets the personal characteristics of the client - Execution only services can be offered for non-complex products traded on a Regulated Market or where they are UCITS compliant Impacts - Where advice is independent, firms will need to consider a wide range of products and offerings available, at a potential cost to its own products/ offerings - Firms will need to carefully evaluate their remuneration and commission policies. Some face significant changes to business models - This may reduce the liquidity of some financial instruments Firms will need to update their appropriateness tests - Firms required to achieve best execution for their clients - Greater costs for trading venues and investment firms in achieving best execution, and reporting against it - Firms to assess whether financial instruments are appropriate for clients based on information received from them on their financial situation and investment objectives - Impacts on policies and procedures © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 16
  • 18. MiFID II Overview of regulation MiFID Theme Topic Pre- and post-trade Transparency Transaction reporting Position reporting Organization Requirements MiFID II - Pre- and post-trade requirements extended to non-equity instruments, also applies to OTFs - Details of persons responsible for the execution, including executing algorithms, to be submitted - Details of end clients on whose behalf orders are executed - Reports can be made by the Investment Firm, the Trading Platform, or an ARM - See commodity derivatives above - More specific requirements for Investment Firms, RMs, SIs, Data Providers and Algorithmic Trading - All members of RMs and MTFs Governance Authorization/ Registration Managing bodies need to be authorized - Tightening of the exemptions regarding commodity traders - New requirements for Managing Bodies of Firms and Market Operators, including quantitative requirements for the number of positions that a Board member may hold MiFID I Impacts - Pre-trade requirements apply to shares traded on an SI, RM or MTF - Extending pre-trade requirements to volumes that are currently OTC, and to nonequity, will require firms to adjust their risk management systems, as quotes extended to a client could be filled by others - Relevant details of executions in financial instruments to be reported to the competent authority - Complexity in determining who reports the transactions - may require individual agreements if double reporting is to be avoided - Added costs of updating systems to comply with added data fields - No specific requirements - Overly prescriptive requirements that may run counter to Comply or Explain - General requirements for Investment Firm and Market Operators, ensuring that adequate policies and controls are in place to ensure compliance - Exemptions currently exist for non market-making proprietary traders who are not Sis, and also for those trading on own account in commodities or commodity derivatives - Greater systems and controls and record keeping requirements will add cost and complexity to Firms - A larger universe of market participants will be captured by MiFID, and will therefore need to ensure that they are authorized and compliant - No specific requirements © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 17
  • 19. MiFID II Overview of regulation MiFID Theme Topic MiFID II MiFID I Equivalence - The Commission will rule whether the regulatory regime of a third country is equivalent to the EU’s -This will be required before - No specific requirements Establishing a branch - Third-country firms wishing to provide investment services to retail clients will be required to establish an authorised branch in the member state Impacts - May impose high barriers of entry into the EU for third country firms - Underestimating the scale of achieving equivalence arrangements uncertainty remains on practical implementation - No specific requirements Third Country © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 18
  • 20. FINMA position paper "Distribution rules / General Direction of Possible Regulations" FINMA analysis of problems FINMA solutions Insufficient determination of suitability and adequacy of financial products Mandatory client segmentation (like MiFID) Standardized product documentation (prospectus / product description) Insufficient product documentation Insufficient codes of conduct Codes of conduct and organization rules (duty to disclose) Extension of the supervision (FINMA supervision for all asset managers) Financial service companies are not completely subject to regulatory supervision International developments Harmonization of international standards (MiFID/AIFMD) Financial Services Act Insufficient investor protection • The legislative process is still in its infancy • However, international conditions are restricting Switzerland's reach drastically (e.g. MiFID II) © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 19
  • 21. MiFID II vs. distribution report vs. hearing report MiFID Theme Market Structure Investor Protection Topic MiFID II Organized Trading Facitlites Automated Trading OTC Derivatives Commodity derivatives Central Clearing Data Consolidation Investment Advice Inducements Execution only Best execution Appropriateness Transparency Pre- and post-trade transparency Distribution report (FINMA) Hearing report (FDF) Not included. However, European counterparties will require Not included. However, European counterparties that trades are cleared/settled at an exchange. will require that trades are cleared/settled at an exchange. Key point 5: Information on services Decision of the Swiss Federal Supreme Court on retrocessions Key point 10: Execution only (only for non-complex products) Best-execution rules already exist Key point 1: Product information Key point 3: Prospectus requirements (upon request) Key point 4: Information on own business and status Key point 7: Product description Key point 8: Knowledge & experience Key point 9: Suitability test Not included Best-execution rules already exist General direction "documentation of product characteristics" General direction "conduct and organization" Key point 6: Transaction data (costs, risk, nature of offer) General direction "documentation of product characteristics" General direction "conduct and organization" Transaction reporting Governance Key point 2: Pre-trade information (product) General direction "conduct and organization" General direction "conduct and organization" Key point 11: Scope and object of the service Not included Position reporting Organisation Requirements Authorization/ registration Not included Regulated in various FINMA circulars Not included Regulated in various FINMA circulars Key point 12: external asset managers will be regulated Key point 13: investment advisors will be audited General direction "change of group of supervised institutions" General direction "training for client relationship © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG managers" 20 International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. Managing bodies Not included Not included Third Equivalence Key point 14: equivalence of customer protection General direction "cross-border activities"
  • 22. Holistic understanding of suitability Cross-Border Can the service/product be offered? Client Suitability Product Suitability local clients are not eligible  Yes local regulation on suitability is applicable Specific rules are applicable for each country Is the service/product suitable?  Information on clients No How can the service/product be offered?  Information provided to clients  Specific service/productrelated restrictions  Knowledge and experience  Adverse tax impact  Financial circumstances of the client  Requirements for prospectuses  Investment objective  Disclaimer  Risk awareness and risk appetite Client suitability depends on local regulations Services/products must satisfy the requirements of the local regulations and must be approved and suitable MiFID / FSA © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 21
  • 23. Suitability - Example Client from Germany at a Swiss bank MiFID CISA/FSA is interested in a fund from Luxembourg UCITS/AIFMD The client disposes of assets of CHF 2m Question: Is the client a "qualified investor"? © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 22
  • 24. Suitability Which law is applicable? Pascal Sprenger, Director, Head of Legal Financial Services KPMG
  • 25. Which law is applicable? 3 Funds Bank 4 1 2 Client CRM at the point of sale (POS): "What should I be on the look-out for?" This seemingly easy question does not have an easy answer! © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 24
  • 26. Services provided to clients from the MiFID area Cross-Border Can the service/product be offered? Client Suitability Product Suitability local clients are not eligible  Yes local regulation on suitability is applicable Specific rules are applicable for each country Is the service/product suitable?  Information on clients No How can the service/product be offered?  Information provided to clients  Specific service/productrelated restrictions  Knowledge and experience  Adverse tax impact  Financial circumstances of the client  Requirements for prospectuses  Investment objective  Disclaimer  Risk awareness and risk appetite Client suitability depends on local regulations Services/products must satisfy the requirements of the local regulations and must be approved and suitable  For the following examples it is assumed that the institution has the required licenses for each activity. © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 25
  • 27. Swiss bank - Swiss client Background Client  A (CH) banking client disposes of a (CH) bank account. 1 Bank Account 1  The contract stipulates that CH law is applicable and that the place of jurisdiction is the bank's domicile. Bank / account relationship Private law Regulatory provisions  Contract contains clauses on place of jurisdiction and applicable law, CH law is agreed upon  Adherence to code of conduct (e.g. banking secrecy, data protection)  Materially, the Swiss Code of Obligations (specifically contractual law) is applicable.  Professional and regulatory duties of due diligence, information and loyalty find their origin in contractual law.  Contractual due diligence, information and loyalty duties  No substantial rules of conduct (in comparison to MiFID) Pro memoria: CH procedural, penal, tax and antimoney laundering laws © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 26
  • 28. Cross-border activity - Legal areas affected (categories) Civil law Procedural law Supervisory law Penal law Tax law Anti-money laundering law Contractual obligations / duty to be diligent and loyal Norms relating to civil laws, conflict of laws and procedural laws (e.g. Lugano Treaty) Regulatory requirements (e.g. MiFID) Local penal codes Local tax codes Local AML provisions Undesired forums / applicable law Administrative penalties imposed by foreign authorities Criminal charges Unfavorable investments / participation in tax offense Violations of local AML provisions Delivery / liability As a rule, above-mentioned laws come into play for every jurisdiction (country) involved. © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 27
  • 29. Swiss bank - German client Background Client 2 1 Bank Account 1 2  A (D) banking client disposes of a (CH) bank account.  The contract stipulates that CH law is applicable and that the place of jurisdiction is the bank's domicile. Bank / account relationship Civil law / procedural law Regulatory provisions  Contract contains clauses on place of jurisdiction and applicable law, CH law is agreed upon, however client cannot waive jurisdiction on consumer contracts (art. 15 Lugano Treaty)  If active in Germany, German regulatory law also becomes applicable, apart from CH provisions (see above).  Swiss banks' clients are usually considered as consumers (even if investing large amounts)  The product/service must be compatible with German tax law requirements (risk: unfavorable investment from a tax perspective and possibly, aiding and abetting a tax offense)  Bank must have commercial/professional activities in the consumer's home country or have some connection to that country.  Being active in Germany requires an exemption / approval from BaFin. Tax law Pro memoria: Penal code and AML provisions (D + CH) © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 28
  • 30. Penalization if providing service without relevant license (e.g. German banking act, KWG, in Germany) § 54 Kreditwesengesetz - Verbotene Geschäfte, Handeln ohne Erlaubnis (1) Wer 1. Geschäfte betreibt, die nach § 3, auch in Verbindung mit § 53b Abs. 3 Satz 1 oder 2, verboten sind, oder 2. ohne Erlaubnis nach § 32 Abs. 1 Satz 1 Bankgeschäfte betreibt oder Finanzdienstleistungen erbringt, wird mit Freiheitsstrafe bis zu fünf Jahren oder mit Geldstrafe bestraft. (1a) Ebenso wird bestraft, wer ohne Zulassung nach Artikel 14 Absatz 1 der Verordnung (EU) Nr. 648/2012 des Europäischen Parlaments und des Rates vom 4. Juli 2012 über OTC-Derivate, zentrale Gegenparteien und Transaktionsregister (ABl. L 201 vom 27.7.2012, S. 1) eine Clearingdienstleistung erbringt. (2) Handelt der Täter fahrlässig, so ist die Strafe Freiheitsstrafe bis zu drei Jahren oder Geldstrafe. . © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 29
  • 31. Example: Fund Distribution (I) Background 3 Funds 4 Bank  (CH) bank recommends that a (D) client invest in a (LUX) fund 1 2 3 Banking client / fund distribution Fund distribution CH Client  The scope of CISA includes the distribution of collective investment schemes In Switzerland and from Switzerland (cf. art. 3 para. 1 in connection with art. 2 para. 1 lit. e CISA).  This means that Swiss distribution rules are being adhered to. Fund distribution (D)  As a rule, distribution activities in Germany are subject to the laws applicable in Germany (e.g. UCITS Directive, AIFMD, German Code on Collective Investment Schemes, etc.) Pro memoria: All other legal provisions mentioned earlier continue to be applicable. © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 30
  • 32. Example: Fund Distribution (II) Background 3 Funds 4  (CH) bank recommends that a (D) client invest in a (LUX) fund Bank 1 2 4 Product requirements Prospectus Client  Product-specific requirements must also be taken into consideration.  Individual requirements may apply for each subfund / unit classes, of which the PoS has to be aware of. Supervisory law of fund domicile  Other legal requirements may arise due to the applicability of (supervisory) laws applicable in the fund's domicile. © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 31
  • 33. Summary  Swiss civil law requirements form the base of the activity. 1 2 3 4 • Focus on Switzerland Focus on target country Distribution rules (funds) Product requirements  Up to now, the PoS needed to heed relatively few legal requirements (FSA?)  As a rule, the civil code and regulatory provisions (e.g. MiFID) of each target country should be observed.  Example MiFID: analyze whether a product/service is suitable and adequate for a client  In regards to collective investment schemes, there are also specific requirements which must be observed (high level of investor protection).  Foreign regulations must also be observed.  Product-specific provisions and requirements must be tested and adhered at the PoS. The various regulations cause increasing complexity at the PoS, which, in turn, could increase costs considerably.  Products and services must be regularly reviewed for their profitability. © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 32
  • 34. What can I do today? Micha Bitterli, Partner, KPMG
  • 35. How are the current challenges being addressed?  The presented transformation process is made up of different components: «Assets», «Product» and «Service».  The ongoing "transformation process" will continue to affect profitability.  The currently strong markets have a mitigative effect on individual banks but a downward trend would only worsen the situation even more.  A project's target is to deliver specific recommendations on how to shift the profitability curve back into the positive and increase its slope again once it has reached the low-point. Quelle: KPMG  Separately adjusting prices or costs usually just causes a parallel shift of the profitability curve as the economy of scales approach (which will cause a positive shift) can only be attained with high degree of standardization.  For individual institutions, the existing complexity may be difficult to identify. This is why such areas should be outsourced.  Wherever possible, the economy of scales approach should be preferred (similar to today's settlement of securities).. © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 34
  • 36. How can costs be minimized? Ertugrul Tuefekci, Director, KPMG
  • 37. Review of the existing client base Client base Data mining 1 Exit market (full service) Qualitatives Assessment: • Client behavior (active, etc.) • # of transactions • Product categories (EQ, FI, fund, alternative) • Client type (mandate, advisory, EAM, etc.) • AuM Quantitatives Assessment: 2 + = 3 Core market Market «to be analyzed» Cash only Optimization of income Compliance costs Strategy bgrsquared Scenarios KPMG Optimized services/products on offer Decision No business relationships Directives Limitation of PF Core market Services & products Exit market (full service) Cash only Avoid regulatory costs a) b) Avoid regulatory costs Limitation of PFs © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. Complete implementation of regulatory requirements 36
  • 38. Process on the example of suitability © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 37
  • 39. Sample analysis: current portfolio (e.g. Germany) Regulatory requirements Regulatory costs (in millions) Net income (in millions) Activities AuM: Income (in millions) Cash accounts 15 1 Shares 7 3 Bonds 13 1 Funds 25 10 EMIR, AIFMD 1.5 8 Structured products 2.5 0.5 non-standard / complex 1 -1 Non-optimized total 62.5 15.5 4.5 11 1 MiFID* 2* 2.5 0.5 *e.g. MiFID conversion 1/4 © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 38
  • 40. Sample analysis: optimized PF (e.g. Germany) Optimized activity AuM: Optimized income (in millions) Regulatory requirements Regulatory costs (in millions) Net income (in millions) Cash accounts 15 1 Shares 7 3.2 Bonds 13 1.1 Funds 25 10.5 EMIR, AIFMD 1.5 8.4 Structured products ---- ---- non-standard / complex --- --- Optimized total 60.5 15.8 3.3 12.5 Non-optimized total 62.5 15.5 4.5 11 Optimization effect 62.5 +0.3 -1.2 +1.5 1 MiFID* 1.8* 2.6 0.5 *e.g. MiFID conversion 1/3 © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 39
  • 41. Important aspects in the client analysis  As a rule, a bank should only be active in markets which either have a positive return or which are strategically relevant.  Costs will be kept down by achieving the necessary critical size in a particular market.  Therefore, it will be vital to the bank's success to implement the regulations which only bear low marginal costs in order to maintain the numerous off-shore markets also in the future.  In order to keep the costs of an additional country at a minimum, the requirements should be standardized.  Standardized requirements can then be automated.  As such, the compliance function should be industrialized in regard to suitability. © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 40
  • 42. How can adherence be ensured? Micha Bitterli, Partner, KPMG
  • 43. A graphic presentation of new regulatory requirements A graphic presentation of regulatory requirements Workflows (I) Capturing orders Embedding the regulatory tests: 3. Safe custody Suitability / Tax 2. BP / Client Cross Border 1. Service 1. Service 2. BP / Client Cross-border test 3. Safe custody 4. Asset 4. Asset Regulatory Compliance Module Product suitability test Client suitability test © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 42
  • 44. A graphic presentation of new regulatory requirements A graphic presentation of regulatory requirements Workflows (II) Order (example 3): Order (example 2): Order (example 1): Advice on the phone Advice on the phone Advice on the phone Hans Muster, client domiciled in Switzerland Hans Muster, client domiciled in Germany Hans Muster, client domiciled in Switzerland Cross-Border Test: PASSED Cross-Border Test: FAILED Cross-Border Test: PASSED Active Advisory Container with risk profile "Dynamic“ Active Advisory Container with risk profile "Defensive“ Buy recommendation UBS (N): Suitable Product Buy recommendation UBS (N) Client Suitability Test: PASSED Suitability Test: FAILED © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 43
  • 45. A graphic presentation of new regulatory requirements Product Suitability – Tax view in detail © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 44
  • 46. A graphic presentation of new regulatory requirements Cross Border Service Example: graphic presentation of cross-border requirements Service (z.B. advisory services) Type of contact … BP / Person … Client's domicile Client type Regulatory Compliance Module … … Documentation of cross-border test © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 45
  • 47. Digitised Cross Border Manuals for Banking Michael Rombach, Engagement Manager, Appway
  • 48. KPMG/Appway Digitised Cross Border Manuals for Banking KPMG Suitability Event November 2013
  • 49. 2003 - 2010 2013 2011 20 12 180% 4/5 110k+ 6 Locations GROWTH WORLD LEADER USERS GLOBAL PRESENCE Double the speed of the industry average over the past 3 years. 4 out of the top 5 Wealth Managers in the world choose Appway Appway delivers unbeatable process experiences to people all over the world. Zurich HQ Geneva Hong Kong 10 Years of Growth and Success Onboarding the digital future of the biggest brands in finance 48 Lugano New York Singapore
  • 50. Relationship Manager Client Can the service be delivered Log activity Cross Border Rules Compliance Cross Border Compliance PD F Save to DB Print out Appway Cross Border Solution Digitised Cross Border Manuals 49 Safe as PDF Send an Email
  • 51. Solution Demo
  • 52. The Avaloq Investment Suitability Framework Rafael Keller, Product Manager Internationalisation & Regulations, Avaloq Evolutions AG
  • 53. The Avaloq Investment Suitability Framework KPMG Suitability Event, November 2013 Rafael Keller , Product Manager Internationalisation & Regulations Avaloq Evolution AG | Allmendstrasse 140 | 8027 Zurich | Switzerland T +41 58 316 10 10 | F +41 58 316 10 19 | www.avaloq.com
  • 54. Agenda  The Avaloq Investment Suitability Framework  System Demonstration 54
  • 55. Agenda  The Avaloq Investment Suitability Framework  System Demonstration 55
  • 56. Necessary Checks in a Suitability Framework Area Service Check Country information Cross-border Service to be offered to the client Is the bank allowed to offer a crossborder service? Integrated country manuals Area Client information Product suitability Domicile of the client Is the asset suitable for a client of a specific domicile?  Sales restrictions  Inappropriate tax charges  Additional risk information Knowledge & Experience (K&E) Knowledge and experience of the client per product class and per risk aspect Has the client the K&E for the product? Product ratings based on product classes and risk aspects Bearing of financial risks Client product risk classification based on the client risk profile (e.g. 1-5) Is the client able to bear the financial risks associated with the product? Product risk classifications (e.g. 1-5) Investment goals  Investment goals of the client  Loss capacity of the client   Expected return  Loss capacity (CVaR, stress scenarios) Product/portfolio  Is the portfolio risk (after trade) adequate for the client? Is the portfolio in line with the client’s financial goals? 56
  • 57. The Avaloq Suitability Framework Area Check Avaloq solution Cross-border Is the bank allowed to offer a crossborder service?  Integration of country manual (KPMG)  GUI browser, process integration Product suitability Is the asset suitable for a client of a specific domicile?  Integration of product suitability manual (KPMG)  GUI browser, process integration  Standard interface towards SIX/cleversoft Knowledge & Experience (K&E) Has the client the K&E for the product?  Facilitated rules management and Avaloq integration by the regulatory framework Bearing of Is the client able to bear the financial risks associated with the product?  Facilitated rules management and Avaloq integration by the regulatory framework  Standard adapter to Credit Suisse   Integration of Risk Engine for the calculation of stress scenarios and CVaR, VaR into module financial risks Investment goals  Is the portfolio risk (after trade) adequate for the client? Is the portfolio in line with the client’s financial goals? 57
  • 58. Application of the Avaloq Investment Suitability Framework 4 3 1 1 2 3 1 Product Suitability 2 K&E 3 Bearing of financial risks 4 Investment goals 58
  • 59. Implementation and Management of Rules is Crucial for TCO Industrialisation of Compliance Rules  Business abstraction layer allows delivering generic rules for completely different parameterisations.  Customer only maps the standard business glossary to his specific Object Model and is completely compliant.  Customisation would still be possible but, even in such a case, a bank had a huge jump start for the implementation. Community External Consultant Avaloq Rule Engine Description Business Rule Logic – Defined by Bank Business Rules Business Layer Business Rule Glossary Technical Layer Rule Loader Table Model External provider Rule Glossary Implementation Mapping on bank’s Object Model Avaloq 59
  • 60. Comparison of Solution Approaches Challenge Documentation  Integrated and fully reproducible audit trail for whole advisory process  Integration in advisory protocols Automated pre-deal checks  S&A testing  Stress scenarios  Product suitability  Cross-border checks Avaloq Third-party tool Effort Effort Effort Effort Risk simulation  State-of-the-art simulations (stress scenarios, volatilities, VaR, CVaR…)  Drill-down possibilities  Mathematical documentation  Consulting Compliance rules  Single point of truth for all compliance rules  Central place for rule management  Possibility to “purchase” standard rule tables Integration  Full Avaloq portal and multi-channel integration 60
  • 61. Thank you for your attention. Questions? rafael.keller@avaloq.com 61
  • 62. Why industrialize? Micha Bitterli, Partner, KPMG
  • 63. Why industrialize? This allows the solution of a seemingly unsolvable problem! 1st line of defense 2nd line of defense 3rd line of defense preventive (not at arm's length) detective (at arm's length) detective (at arm's length) manual preventive (at arm's length) detective (at arm's length) detective (at arm's length) automated Exception Report By introducing an independent preventive control at the front, it is possible to save significantly. © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 63
  • 64. Why industrialize?  The targeted solution also harbors economies of scale as added costs for additional countries are reasonable and therefore the "fixed costs" can be allocated to more clients.  Non-compliant activities can be avoided.  The solutions specifically target the front office and are meant to support client relationship managers.  This then considers the idea that compliance should be an enabler not a "hindrance".  High-margin products can once more be distributed (expansion of positive lists).  Should it come to a legal suit, the proof is standardized evidence that all requirements have been adhered to.  Information on individual transactions are standardized which marginalizes the legal risk. © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 64
  • 65. Why industrialize? For the client, there is a true added value to a well-founded and comprehensive supervision of a client portfolio, and can therefore be developed into a new paid service. A subscribing client could for instance be informed of the following:  that a DTT has been terminated which could bring about tax consequences,  that a DTT has been amended so that there will be a negative after-tax effect,  that the client is holding a risk concentration (i.e. by changing values)  that the portfolio's risk no longer reflects the client's risk appetite,  that an amendment in a national law of the issuing state may have negative consequences for the holder (e.g. FTT),  etc. © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 65
  • 66. Q&A