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Yvonne I. Pytlik Coping With The Increased Strain Of Regulatory Demands July 14, 2011 Dreman Value Management Practical Solutions Integrated Grc Frameworkl

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NYC TSAM Conference July 14-15 New York City

NYC TSAM Conference July 14-15 New York City

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  • 1. Coping with the increasing strain of regulatory demands www.GlobalRMC.com 2011 Integrated Framework - Governance, Risk and Compliance Yvonne I. Pytlik Chief Compliance Officer Dreman Value Management, L.L.C. [email_address] ; Tel: 781-835-8360 Dodd Frank Act & Financial Regulatory Reform
  • 2. www.GlobalRMC.com
      • Coping with the increasing strain of regulatory demands
      • The Dodd-Frank Act and the Road Ahead for Financial Regulatory Reform
      • What It Does, What It Means, and What Happens Next
      • New Investment Adviser Requirements
      • Elaboration and Domestic Implementation of the Framework for Basel III
        • Reforming Minimum Capital Requirements
        • Dividend Policy
      • Practical Solutions – Integrated Governance, Risk and Compliance Framework
      • 2011 Regulatory and Industry Trends - Compliance Risk as a Critical Business Risk for Asset Managers
    2011 Integrated Framework - Governance, Risk and Compliance Agenda
  • 3. www.GlobalRMC.com
      • Establish a centralized PMO to allow for unified and efficient strategy and process that are critical for meeting compliance deadlines. Major regulatory requirements:
      • Derivatives regulations for over the counter swaps (CFTC): registering swap entities, swap counterparties and regulatory monitoring, swap transactions.
      • Systemic Risk - macro prudential regulations of financial institutions
      • Bank regulatory and supervisory framework – Thrifts/ holding companies
      • Bank Holding Company supervisory initiatives and capital requirements
      • The Volker Rule
      • Insurance regulations and insurers under Dodd Frank
      • Investor protection – new oversight structure over previously unregulated firms
      • Securitization and credit rating agencies
      • New Registration requirements for Hedge Funds and Private funds
      • Disclosures – Risk factors and liquidity disclosures in the 10-K and 10-Q
      • Deposit Insurance / FDIC
      • Consumer Protection
      • Implementation of the Framework for Basel III
    2011 Integrated Framework - Governance, Risk and Compliance The Dodd Frank Act & Financial Regulatory Reform Executive Summary
  • 4. www.GlobalRMC.com
      • March 21, 2011– Governance, Enterprise Risk Management and Internal Controls
      • “ The financial crisis revealed just how dramatically risk management failures can harm investors, jeopardize market integrity and hinder capital formation. It also revealed the need for better oversight of risk at the board and senior management levels, and the need for stronger independence, standing and authority among a firm’s internal risk management, control and compliance functions”.
      • As a result, the SEC is focusing its exams on the risk management as it pertains to the corporate governance and enterprise risk management framework of a firm so the SEC can assess the firm’s system of checks and balances.
    2011 Integrated Framework - Governance, Risk and Compliance Carlo V. di Florio, Director of Compliance Inspections and Examinations U.S. Securities and Exchange Commission
  • 5.
      • The SEC key provisions of the Dodd-Frank Act for investment advisers
      • and what the Commission staff is doing to respond to these changes:
      • Shifting Responsibilities for Advisers
      • Section 410 of the Dodd-Frank Act raises the asset threshold for SEC registration from $25 million in assets under management to $100 million.
      • Regulation of Private Funds
      • Concerns how private equity firms and their advisers manage conflicts of interest.
      • Regulation of Securities-Based Swaps and Market Participants
      • Title VII of the Dodd-Frank Act creates a new regulatory regime for key participants in swaps markets.
      • Regulation of Municipal Advisors
      • The Dodd-Frank Act also establishes a new registration regime for municipal advisors.
      • 913 and 914 Studies
      • The Commission recently released several staff studies mandated by Dodd-Frank related to improving the investment adviser and broker-dealer regulatory frameworks.
      • Whistleblowers
      • Section 922 of the Dodd-Frank Act requires the SEC to pay awards to individuals who voluntarily provide the Commission with original information that leads to the successful enforcement .
    2011 Integrated Framework - Governance, Risk and Compliance The Dodd Frank for Advisers and the SEC National Exam Program
  • 6.
      • The SEC key provisions of the Dodd-Frank Act for investment advisers
      • and what the Commission staff is doing to respond to these changes:
      • Improved Disclosure and Corporate Governance Rules. The Dodd Frank Act directs the Commission to take action on a number of corporate governance and executive compensation topics, including:
      • “ Say-on-Pay” and “Golden Parachute.” In January 2011, the Commission adopted rules to implement the provisions of the Dodd-Frank Act that require public companies subject to the federal proxy rules to provide their shareholders with an advisory vote on executive compensation, as well as an advisory vote on compensation arrangements and understandings in connection with merger transactions.
      • Compensation Committees and Compensation Consultants. The Commission is required by Section 952 of the Dodd-Frank Act to mandate new listing standards relating to the independence of compensation committees and to establish new disclosure requirements and conflict of interest standards that boards must observe when retaining compensation consultants.
      • Recovery of Erroneously Awarded Compensation. Section 954 of the Dodd-Frank Act requires the Commission to adopt rules mandating new listing standards relating to specified executive compensation “clawback” policies.
      • Pay versus Performance and Pay Ratios. Under Section 953 of the Dodd-Frank Act, the Commission must adopt rules requiring new disclosures about the relationship between executive compensation and company performance, and the ratio between the median of the annual total compensation of an issuer’s employees and the annual total compensation of the issuer’s chief executive officer.
      • Employee and Director Hedging. Section 955 of the Dodd-Frank Act requires the Commission to adopt rules requiring disclosure by issuers of their policies relating to certain employee and director hedging activities.
    2011 Integrated Framework - Governance, Risk and Compliance The Dodd Frank for Advisers and the SEC National Exam Program
  • 7.
      • Regulatory Examinations Focus – Enterprise Risk Management
      • For investment advisers as a group what does this mean? This is a business that has seen a significant degree of growth and consolidation within the industry in recent years, and this gives rise to particular enterprise risk issues such as:
      • consolidating disparate technological platforms, systems and controls
      • familiarizing risk management, internal audit and compliance functions with new business units
      • revising business continuity planning
      • managing differences in firm cultures that may complicate merger of procedures, processes, controls, etc.
      • These are all issues that go beyond just chief compliance or risk officers, and require senior management attention in order to ensure that the appropriate resources, senior management and business unit attention are being invested.
    2011 Integrated Framework - Governance, Risk and Compliance 2011 U.S. Securities and Exchange Commission Focus
  • 8.
      • Regulatory Examinations Focus – Risk Governance
      • The SEC will look at risk management practices and ask the following questions about five levels of risk governance:
      • How do the business units of an entity ensure they are taking and managing risk effectively at the product and asset class level in accordance with the risk appetite and tolerances set by the board and senior management of the whole organization?
      • How are key risk management, control and compliance functions structured and resourced to ensure they are effectively embedded in the business process, while having the necessary independence, standing and authority to be effective in helping the organization identify, manage and mitigate risk?
      • How is senior management ensuring effective oversight of enterprise risk management and embedding risk management in key business processes, including strategic planning, capital allocation, performance management and compensation incentives?
      • How does the internal audit process independently verify and provide the board and senior management with assurance regarding the operating effectiveness of risk management , compliance and control functions?
      • How is the board of directors staffed and structured to ensure it can effectively set risk parameters, foster an effective risk management culture, oversee risk-based compensation systems and effectively oversee the risk profile of the firm?
    2011 Integrated Framework - Governance, Risk and Compliance 2011 U.S. Securities and Exchange Commission Focus
  • 9. www.GlobalRMC.com
      • Valuation : Advisers’ valuation practices are a top priority, particularly when the adviser manages difficult to value instruments, such as derivative-based investment products.
      • Conflicts of Interest : This entails a review of procedures in place that identify, disclose and manage conflicts, including: allocation, insider trading, side letters, best execution, directed brokerage, soft dollars and new pay-to-play rules.
      • Portfolio Management : Divergence of portfolio management from an advertised style is a risk indicator of additional control deficiencies and issues.
      • Performance and Advertising Issues : Examiners will review both performance calculation and the presentation of that performance in offering materials.
      • Asset Verification : The SEC continues to place emphasis on verifying customer assets and controls with respect to safeguarding of customer assets .
      • Business Continuity/ Disaster Recovery : Business continuity and disaster recovery planning has always been an important part of the SEC overall examination program.
      • Social Media – emerging risk.
    2011 Integrated Framework - Governance, Risk and Compliance 2011 Regulatory Hot Topics and High Risks – Investment Adviser
  • 10. DREMAN VALUE MANAGEMENT, L.L.C. 2011 DVM Chief Compliance Officer Governance, Risk & Compliance Program Yvonne I. Pytlik, MBA, CPA Chief Compliance Officer for Investment Adviser - Dreman Value Management, L.L.C. Chief Compliance Officer for Dreman Contrarian Mutual Funds Email: ypytlik@dreman.com ; Tel: (201) 793-2046; Mobile: (781) 835-8360 Industry Experience and Best Practices: KPMG, Deutsche Bank, Global Compliance Risk Mgt Corp, DVM, RMA NYC Practical Solutions – Integrated Governance, Risk and Compliance
  • 11.
      • Dreman Value Management, L.L.C. is undertaking a pro-active approach to continue building an effective Risk Governance and Compliance Program led by the Chief Compliance Officer with support from the Executive Committee to meet increasing regulatory requirements and industry best practices for asset managers.
      • Year 2011 will continue with regulatory and industry efforts to define the path forward to the future of Compliance Programs with an effective governance, risk and compliance mitigation strategies . The most recent financial crisis and major regulatory overhaul in the financial services industry are causing asset managers to challenge their governance, risk and compliance infrastructure, methodologies, standards, and processes to further improve their compliance and risk governance efforts.
      • Compliance is a critical element of an overall business and asset management strategy . Leading asset managers are taking proactive and comprehensive approach in identifying emerging risks, such as compliance and business risks. Compliance risk is expected to increase even further due to re-assessing post-crisis economic conditions and more stringent regulatory enforcement actions for compliance violations, combined with increasing complexity of regulatory landscape and higher compliance standards imposed by regulators, investors, shareholders and clients.
      • The challenge for most asset managers is to effectively manage enterprise and compliance risks, find efficiency in the way that governance, risk and compliance program protect and create the greatest value for asset managers, investors, shareholders and clients. The proactive approach is to achieve compliance with regulations while adequately balancing risk, cost and value across the enterprise.
    2011 GOVERNANCE, RISK & COMPLIANCE PROGRAM EXECUTIVE SUMMARY 1 FORWARD LOOKING AND PRO-ACTIVE APPROACH TO COMPLIANCE
  • 12. Enterprise Risk Management & Compliance Committee GOVERNANCE, RISK & COMPLIANCE PROGRAM OVERSIGHT DVM Chairman Executive Committee GOVERNANCE, RISK, COMPLIANCE COMMITTEE Co-Chairman YVONNE I. PYTLIK & E. CLIFTON HOOVER Chief Compliance Officer & Chief Investment Officer COE Committee & Conflicts of Interest Best Execution & Brokerage and Fair Valuation Committee FORWARD LOOKING AND PRO-ACTIVE APPROACH TO COMPLIANCE Dreman Contrarian MFs Board of Trustees Client Mutual Funds & Institutional Clients Boards, CCOs
  • 13. MANAGEMENT COMMITTEE OVERSIGHT INTEGRATING GOVERNANCE, RISK, COMPLIANCE WITH BUSINESS STRATEGY 1 FORWARD LOOKING AND PRO-ACTIVE APPROACH TO COMPLIANCE On-going Compliance and Business efforts in 2011 Management Committees Governance, Risk & Compliance Strategy
    • Written Policies and Procedures
    • Core Regulatory Compliance Monitoring Program
    • Investment Guidelines and Regulatory Monitoring Program
    • Trading Surveillance and Forensic Testing
    • On-going Compliance Program Assessment
    • Compliance Matters Reporting
    • ERM Risk Profile
    • Business Strategic Alignment with Enterprise Risk Management Program
    • Investment Risk (Market, Credit, Liquidity)
    • Regulatory & Compliance Risk
    • Operational & Financial Risk
    Compliance Program Enterprise Risk Management Program
    • Board and Client Reporting
    • Executive Committee
    • Governance, Risk & Compliance Committee
    • Committees Charter, Roles & Responsibilities
    • Compliance and Risk Executive Dashboard & Reporting
    • Annual Compliance Program Assessment
    • Risk Assessment Program, Methodologies and Standards
    • Risk Criteria and Key Risk Indicators (KRIs)
    • Risk- based Compliance Audit, Testing and Review Program
    • Emerging Risk Monitoring and Reporting
  • 14.
      • GOVERNANCE, RISK & COMPLIANCE COMMITTEE
      • The Governance, Risk & Compliance Committee (“GRCo”) is Co-chaired by E. Clifton Hoover, Chief Investment Officer and Yvonne I. Pytlik, Chief Compliance Officer at Dreman Value Management L.L.C. The GRCo is providing strategic leadership and tactical direction to the firm’s approach to managing enterprise risks, with compliance as a critical component of our overall business and asset management strategy. The GRCo is responsible for integrating the firm-wide governance, risk and compliance strategy, risk methodologies and standards, risk mitigation strategies, and executive dashboard reporting. Our committee structure, GRC methodologies and standards, and compliance program are an over-arching foundation across the firm to fulfill our fiduciary responsibilities to our clients and to ensure compliance with regulatory requirements at Dreman Value Management., L.L.C.
      • The GRCo is comprised of three Committees:
      • 1/Enterprise Risk Management (“ERM”) – focused on Strategic Business, Regulatory/Compliance, Investment, Operational Risks;
      • 2/COE and Conflicts of Interest; and
      • 3/Best Execution and Brokerage; and Fair Valuation.
      • Each committee, under oversight from GRCo, is undertaking a robust and comprehensive approach in identifying emerging risks.
    GRC Committee Oversight – Roles & Responsibilities 1 FORWARD LOOKING AND PRO-ACTIVE APPROACH TO COMPLIANCE
  • 15. DREMAN VALUE MANAGEMENT, L.L.C. 2011 Chief Compliance Officer Governance, Risk & Compliance Program Section II FORWARD LOOKING AND PRO-ACTIVE APPROACH TO COMPLIANCE Risk Assessment Methodology & High Risks and Mitigation Stragic Plan
  • 16.
      • The Governance, Risk & Compliance Committee and the CCO have adopted a Risk Assessment Methodology for evaluating the effectiveness of the Compliance Program and identifying key risk areas. The Risk Assessment Methodology encompasses the following three step process:
      • Inherent Risk Assessment is performed to identify compliance risks:
        • The inherent risk score is determined based on impact (High, Medium, Low).
        • The risk factors that are considered for the inherent risk assessment include: regulator identified factors, fiduciary responsibility, factors that could result in financial loss/ impact the operational objectives or performance of the business, potential legal andor disciplinary actions, issues that could result in reputational damage and business unit management identified factors.
        • The risk factors that are considered for the probability analysis include: frequency and volume of event, regulatory issues, deficiency letters/regulatory actions, compliance issues/violations, and high risk issues identified by external audit or 3 rd party reviews.
        • A Risk Assessment Heat Map is developed, identifying where inherent risks reside within each business area.
      • The Inherent Risk Assessment is utilized to determine the priority of the compliance review and testing schedule, to determine where to allocate compliance resources, and to determine where a more detailed analysis should be performed of high risk issues.
      • Control Environment Assessment – Each inherent risk is evaluated based on the following criteria:
        • Adequacy of the compliance policy.
        • Adequacy of the business procedure to ensure compliance.
        • Existence/evidence of supervision and business monitoring. Adequacy of training.
        • Issues identified from the CCO interviews, reviews and testing.
        • Action steps taken by the business to address the recommendations for improvement.
        • The control environment for each function/inherent risk is assigned a rating (Strong, Acceptable or Needs Improvement) based
        • on a subjective review of the above criteria.
      • Overall Compliance Risk Assessment – A compliance matrix is developed to determine the final Overall Compliance Risk Assessment Score (High, Medium, Low).
    RISK ASSESSMENT METHODOLOGIES AND STANDARDS 1 FORWARD LOOKING AND PRO-ACTIVE APPROACH TO COMPLIANCE
  • 17. 2011 HIGH RISKS AND MITIGATION STRATEGIC PLAN - Sample 1 FORWARD LOOKING AND PRO-ACTIVE APPROACH TO COMPLIANCE Yvonne I. Pytlik, CCO, COE Cmt. 2010-2011 Completed 5. Comprehensive review and testing of the COE Monitoring Program. Establishing the COE and Conflicts Committee. 5. Code of Ethics – Personal Trading Monitoring Yvonne I. Pytlik, CCO, ExCo March 31, 2011 Completed 3. Comprehensive Compliance Monitoring and Surveillance Program - Development and Enhancements. 3. Compliance Monitoring and Surveillance Program Yvonne I. Pytlik, CCO GRC Committee 2010 Completed
    • 4. Firm-wide Compliance Program – Internal Controls:
    • Firm-wide Compliance Training Development and Roll Out across all business divisions.
    4. Firm-wide Compliance Program – Internal Controls Yvonne I. Pytlik, CCO Executive Committee GRC Committee 2010 Completed
    • 2. Risk Governance and Compliance Program Enhancements:
    • Roles and Responsibilities in Compliance
    • Risk Assessment Methodologies and Standards
    • Annual Risk-based Review & Testing Program.
    2.The Chief Compliance Officer will assess and enhance the current Risk Governance and Compliance Program Yvonne I. Pytlik, CCO Executive Committee June 2011 Completed
    • Management Committees Oversight – Integrating Governance, Risk, Compliance to be aligned with the current regulatory and industry best practices
    1. The Executive Committee and the CCO will be enhancing the Management Committees Oversight structure Person Responsible Target Date Status Implementation Plan DVM Major Initiatives and Recommendations for Improvement
  • 18. DREMAN VALUE MANAGEMENT, L.L.C. 2011 Chief Compliance Officer Governance, Risk & Compliance Program Section III FORWARD LOOKING AND PRO-ACTIVE APPROACH TO COMPLIANCE Compliance Department Roles and Responsibilites
  • 19. 1 FORWARD LOOKING AND PRO-ACTIVE APPROACH TO COMPLIANCE Yvonne I. Pytlik is a senior executive and one of industry’s most highly regarded strategists in compliance risk management and corporate governance for financial institutions.  Prior to joining Dreman, she was the Deputy Head of Global Compliance, Risk Management, and Strategic Planning at Deutsche Bank AG. Ms. Pytlik was responsible for global compliance risk management across all business lines, including capital markets, investment banking, asset management, and private wealth management.  During her eight years at Deutsche Bank, she made significant contributions to the firm’s overall compliance organization, including the development and implementation of global compliance risk management functions in the Americas, Europe, and Asia-Pacific regions.  Ms. Pytlik developed and implemented the Chief Compliance Officer Program Oversight initiatives for the asset management division. Prior to joining Deutsche Bank, Ms. Pytlik was a Lead Senior Consultant in the Advisory and Information Risk Management Practice at KPMG, LLP.  She was managing and supervising strategic business/ information risk assessment and process reengineering engagements for KPMG clients. Her experience also includes over 10 years in Internal Audit at major financial institutions, with a focus on the asset management and investment management business.  Ms. Pytlik has MBA from Suffolk University and BS in Management from University of Massachusetts.  She is a Certified Public Accountant in MA and member of AICPA.  She is also a member of numerous professional risk and compliance organizations.  Ms. Pytlik currently serves on the Risk Governance Committee at the Risk Management Association in NYC, she is the Founder of the Global Compliance Risk Management Corp. where she currently serves on the Board of Directors. Her recent compliance expert opinions were published:  ”New technologies to stop insider trading”, “Insider Trading – can it be stopped?” in the Wall Street & Technology and “Compliance Risk: a critical business risk for asset managers” in the Journal of Securities Laws, Regulations & Compliance by Henry Stewart Publications in UK.  Yvonne I. Pytlik, CPA, MBA Chief Compliance Officer Yvonne I. Pytlik joined Dreman Value Management, L.L.C. in 2010 as the Chief Compliance Officer reporting to the Executive Committee and since June 2010 as the Chief Compliance Officer for Dreman Contrarian Mutual Funds reporting to the Board of Trustees.
  • 20.
      • CHIEF COMPLIANCE OFFICER
      • The Chief Compliance Officer leads and provides oversight over the review, testing and monitoring of the effectiveness and adequacy of the DVM Compliance Program on an annual and ongoing basis to ensure compliance with U.S. federal securities laws.
      • In early 2010, Dreman Value Management had appointed a new Chief Compliance Officer reporting to the Executive Committee leading our firm’s efforts toward implementing and maintaining a robust Governance, Risk and Compliance Program. The Chief Compliance Officer reports independently to the Board of Trustees for Contrarian Mutual Funds.
      • Our committee structure, GRC methodologies and standards, and compliance program are an over-arching foundation across the firm to fulfill DVM’s fiduciary responsibilities to our clients and to ensure compliance with regulatory requirements at Dreman Value Management., L.L.C. The CCO and GRC Committee Oversight at DVM support our Clients’ CCOs, their Mutual Fund Boards and Dreman Board of Trustees to fulfill their increased responsibilities over risk oversight and increased regulatory requirements.
      • 2010-2011 GOVERNANCE, RISK & COMPLIANCE COMMITTEE
      • The Governance, Risk & Compliance Committee (“GRCo”) is Co-chaired by E. Clifton Hoover, Chief Investment Officer and Yvonne I. Pytlik, Chief Compliance Officer at Dreman Value Management L.L.C. The GRCo is providing strategic leadership and tactical direction to the firm’s approach to managing enterprise risks, with compliance as a critical component of our overall business and asset management strategy. The GRCo is responsible for integrating the firm-wide governance, risk and compliance strategy, risk methodologies and standards, risk mitigation strategies, and executive dashboard reporting. The GRCo is comprised of three Committees:
      • 1/Enterprise Risk Management (“ERM”) Committee, led by Yvonne I. Pytlik, CCO and Mark Roach, Managing Director at DVM, is responsible for the ERM monitoring and mitigation strategies, internal controls assessment firm-wide: Strategic Business Risks, Regulatory/Compliance, Investment, and Operational Risks; 2/COE and Conflicts of Interest Committee; 3/Best Execution, Brokerage and Fair Valuation Committee.
      • Each committee, under an oversight from GRCo, is undertaking a robust and comprehensive approach in identifying emerging risks.
    GOVERNANCE, RISK AND COMPLIANCE PROGRAM OVERSIGHT 1 FORWARD LOOKING AND PRO-ACTIVE APPROACH TO COMPLIANCE
  • 21.
      • COMPLIANCE PROGRAM
      • The Compliance department and the Business groups within DVM support the effectiveness of the Compliance Program. Compliance Officers are responsible for advising the business on trading and portfolio management issues, monitoring investment guidelines and restrictions, reviewing and approving marketing materials, monitoring of the COE personal trading, AML program, proxy voting requirements, class actions processing, regulatory reporting and fillings, and overall monitoring of compliance with U.S. federal securities laws.
      • COMPLIANCE TEAM
      • The Compliance Team supports the Chief Compliance Officer, by conducting monitoring of compliance with U.S. federal securities laws and ensuring appropriate reporting to the clients, their CCOs and boards. The CCO conducts risk assessments on an annual and as-needed basis, performs an on-going compliance risk monitoring and periodic compliance policy reviews. The CCO has developed and implemented a robust compliance monitoring program covering major businesses within DVM, addressing a dynamic regulatory environment and increased board and client standards. The Compliance team also conducts special reviews and/or investigations.
      • BUSINESS RESPONSIBILITIES
      • The head of each business line, Portfolio Management, Trading, Operations, Marketing, Information Technology and each employee at DVM are responsible to comply with all regulatory requirements applicable to DVM as an Investment Adviser and Investment Company; and support the effectiveness of the Compliance Program on an on-going basis with adequate supervision within each business line. Each employee at DVM is responsible, as a matter of DVM Compliance Policy, to report and escalate any compliance violations , issues and compliance matters to the Chief Compliance Officer at Dreman Value Management, L.L.C.
      • ANNUAL AND ON-GOING COMPLIANCE RISK-BASED REVIEW AND TESTING PROGRAM
      • A risk-based annual compliance review and testing program has been developed, which includes interviews with the business, compliance audits and compliance monitoring. High risk issues identified by the risk assessment process are evaluated to determine, if they are mitigated by the business and/or compliance monitoring programs. Accordingly, the risk-based reviews were performed to assess the adequacy and effectiveness of the DVM Compliance Program and to ensure compliance with U.S. federal securities laws. This process validated the adequacy of our compliance policies and procedures and how effectively these policies and procedures were implemented across major business areas at DVM.
    COMPLIANCE PROGRAM 1 FORWARD LOOKING AND PRO-ACTIVE APPROACH TO COMPLIANCE
  • 22. COMPLIANCE DEPARTMENT – ROLES & RESPONSIBILITIES 1 CCO CCO Compliance Program Risk Management
    • Investment Management Compliance Monitoring:
    • CRD Monitoring
    • Manual Restriction Monitoring
    • Compliance Rules and test set up
    • Annual review of all client portfolios monitoring
    • Daily alerts and warnings review and resolution
    • Escalation - breaches, errors, compliance matters
    • Trading Surveillance and Forensic Testing Program
    • Automate and develop monitoring programs
    • Compliance Policies for IMC
    • Client Certifications.
    • Code of Ethics and Personal Trading Monitoring/ PTA
    • Gifts Monitoring
    • Client Files Maintenance
    • Company/Client Contracts
    • Conflicts of Interest
    • Security Valuation
    • Proxy Voting
    • Privacy Protection
    • Client Complaints
    • Marketing Materials Review
    • Safeguarding of Client Assets/ Reconciliations/ OPS
    • Recordkeeping
    • BCP
    • All Regulatory Filings
    • Client Disclosures
    • Emails Review
    Investment Management Monitoring Core Compliance Monitoring
    • Strategic alliance business, governance, risk, compliance
    • ERM / Compliance Program Strategy
    • Management Committees Membership, Co-Chairing GRC Committee, Board Reporting
    • Executive Dashboard & Reporting
    • Client Reporting/ Due Diligence
    • Compliance Department Oversight & Supervision
    • Compliance Program Oversight
    • Compliance & Risk Advisory
    • Annual Assessment, Reporting to Clients and Boards.
    • Annual & On-going Compliance Program Assessment
    • Written Policies and Procedures
    • Risk Assessment & Management, Methodology, Standards, KRIs
    • Annual / Quarterly Risk Assessment
    • Risk Monitoring (KRI) and Reporting
    • Risk- based Compliance Review Plan
    • Compliance Audit, Review and Testing
    • Remediation Action Plans Monitoring, Reporting and Implementing.
    FORWARD LOOKING AND PRO-ACTIVE APPROACH TO COMPLIANCE Yvonne I. Pytlik Chief Compliance Officer
  • 23.
    • Investment Advisers Act of 1940 (Rule 206(4)-7) – Investment Advisers
      • Portfolio Management Process, Trading Practices
      • Proprietary Trading / Code of Ethics
      • Accuracy of Disclosures to Investors, Clients, Regulators
      • Safeguarding of Client Assets, Accuracy of Creation of Required Records
      • Advertising and Marketing
      • Valuation/ Fees
      • Affiliated Transactions and Conflicts of Interests
      • Privacy Protection
      • Business Continuity Plans
      • Anti-Money Laundering Program
      • Investment Company Act of 1940 (Rule 38a-1) – Mutual Funds
      • Fund Governance
      • Service Providers
      • Pricing of Portfolio Securities
      • Processing of Fund Shares
      • Identification of Affiliates and Conflicts of Interests
      • Protection of Non-public Information
      • Fund Governance
      • Market Timing, Late Trading, AML/KYC
      • FINRA Broker Dealer Regulatory Requirements (Rule 3012, 3013) - Supervision (WSPs), Registrations, Sales and Marketing Practices, Client Complaints, Books and Records, Gifts& Entertainment
    Chief Compliance Officer (“CCO”) Rules and Regulations 9
  • 24.
    • Governance, Risk & Compliance / CCO Program (*) (A)
    • Investment Management Monitoring and Trading Surveillance Program & Forensic Testing
      • Compliance Department Monitoring Programs Review (***) (A)
      • Investment Guidelines and Restrictions Monitoring – CRD (*) (A)
      • Manual Guidelines (**), (***) (A)
      • Trading Surveillance and Forensic Program (***) (A)
      • Trading with Affiliates - CRD (*)
        • Approved Broker Dealer List on CRD Monitoring - CRD (*)
        • Affiliated B/D and Affiliated Security - Prohibited by Client - CRD (*)
        • DVM Restricted Securities - CRD (*)
      • Breaches / Error Trading Errors Monitoring (Cancels and Corrects) (*) OPS (**) Compliance
      • Cross-Trade Activity Monitoring (*) (**)
      • Trade Allocation/ Portfolio Bunching – CRD (*) (A)
      • Soft Dollars (Prohibition/ Monitoring) - CRD (*) (***) BE Cmt
      • Best Execution and Directed Brokerage (*) (**) (***) BE Cmt
      • Window Dressing, Portfolio Pumping (***)
    • Code of Ethics and Personal Trading Monitoring/ Gifts / Pay – to – Play PTA (*) (***) COE Committee
    • Company & Client Contracts and Files Maintenance (*) (A)
    • Conflicts of Interest (*)
    • Securities Valuation (*) OPS (***) Fair Valuation Cmt
    • Proxy Voting (*) (A)
    • Privacy Protection (*) (A)
    • Client Complaints (*) (***)
    • Marketing Materials Review and Client Disclosures (*)
    • Safeguarding of Client Assets/ Reconciliations (*) OPS (**) Compliance
    • Recordkeeping Requirements (*) (A)
    • Business Continuity Planning (BCP) (*) (A)
    • Communication with Clients/Certifications and Reporting (*) (**) (***) (A) CCO Report
    • Regulatory Reporting (13G, 13F) (***), ADV (*) (A)
    • Email Reviews (***)
    2011 COMPLIANCE MONITORING AND SURVEILLANCE PROGRAM 1 FORWARD LOOKING AND PRO-ACTIVE APPROACH TO COMPLIANCE Monitoring frequency – (*) Daily, (**) Monthly, (***) Quarterly, (A) Annually. Risk-based monitoring program may be changed by the CCO.
  • 25. DREMAN VALUE MANAGEMENT, L.L.C. 2011 Chief Compliance Officer Governance, Risk & Compliance Program Section IV FORWARD LOOKING AND PRO-ACTIVE APPROACH TO COMPLIANCE 2011 Regulatory Trends & Industry Best Practices
  • 26.
    • FORWARD LOOKING AND PRO-ACTIVE APPROACH TO GOVERNANCE, RISK AND COMPLIANCE BECOMES A LEADING TREND FOR ASSET MANAGERS:
      • Regulatory and business environment is forcing a fundamental change in regulatory landscape, organizational culture, risk governance, compliance and a holistic view on enterprise risk management. The choice facing asset managers is not whether to implement these changes but what approach to take in implementing them. As the business and regulatory environment continues to evolve, asset managers that succeed will be those who can demonstrate ability to drive business performance and achieve regulatory compliance, strategically aligning compliance risk management and business strategies.
      • Asset managers aspire to reassess their compliance program and risk governance as a prudent business practice that will benefit their firms, investors and shareholders.  Looking forward, “single view across the organization toward future state of governance, risk and compliance program” becomes a necessary response to the evolution of risk management.
      • Compliance program and integrated risk governance approach allows asset managers to analyze current, evolving and emerging risks across the enterprise. Compliance and regulatory risk management is a vital component to prevent compliance violations thus to mitigate significant business risk to asset managers.
    MAJOR REGULATORY TRENDS & INDUSTRY BEST PRACTICES FORWARD LOOKING AND PRO-ACTIVE APPROACH TO COMPLIANCE
  • 27.
      • FIDUCIARY RESPONSIBILITIES
      • The SEC further is focusing on asset managers’ fiduciary standard of conduct and heightened regulatory regime when providing services to their clients:
        • Regulation should be rationalized for investment advisers, particularly with respect to the services they provide to retail investors;
        • Investment advisers are fiduciaries to their clients with fundamental obligation to act in the best interests of clients and to provide investment advice in clients’ best interests;
        • They have duty of undivided loyalty and utmost good faith and not engage in any activity in conflict with the interest of any client; and
        • Fiduciary obligations mandate to employ reasonable care to avoid misleading clients and provide full and fair disclosure of all material facts to clients and prospective clients, including conflicts of interests. Generally, facts are “material” if a reasonable investor would consider them to be important.
      • COMPLIANCE RISK: A CRITICAL BUSINESS RISK FOR ASSET MANAGERS
      • As an integral part of Governance, Risk & Compliance Program, asset managers are assessing their own environments and understanding how compliance violations can be prevented, monitored and resolved in a timely manner. Having a strong governance, escalation process and remediation strategy is critical in mitigating compliance and business risks.
    MAJOR REGULATORY TRENDS & INDUSTRY BEST PRACTICES 1 FORWARD LOOKING AND PRO-ACTIVE APPROACH TO COMPLIANCE
  • 28. Committees Oversight Integrated Governance, Risk & Compliance Regulatory Requirements Compliance Policies Business Procedures Supervision Compliance Audit, Review and Testing Program Reporting Monitoring Program Measuring Risk Assessment Key Risk Indicators Gap Analysis Risk Mitigation Key Elements of An Effective Governance, Risk & Compliance Program: AN EFFECTIVE GRC PROGRAM – OUR APPROACH
    • Prudent Business Principles and Standards. Focus on leading regulatory and industry practices.
    • Governance, Culture of Compliance “tone at the top” and Risk Awareness
    • Integrated Governance, Risk and Compliance
    • Comprehensive Risk Assessment Methodologies and Mitigation Strategies
    • Effective Compliance Risk Monitoring, Review and Testing Program; and Reporting
    Material and Systemic Risks Identification Aligning High Risks With Mitigation Strategies Manage Reputation Risk, Create Value, Grow Business FORWARD LOOKING AND PRO-ACTIVE APPROACH TO COMPLIANCE
  • 29. DREMAN VALUE MANAGEMENT, L.L.C. 2011 Chief Compliance Officer Governance, Risk & Compliance Program Section V FORWARD LOOKING AND PRO-ACTIVE APPROACH TO COMPLIANCE 2011 Regulatory and Industry Trends – Compliance Risk as a Critical Business Risk for Asset Managers
  • 30.
    • Compliance risk: A critical business risk for asset managers by Yvonne I. Pytlik and Jennifer S. Myers, Global
    • Compliance Risk Management Corporation, www.GlobalRMC.com
    • Journal of Securities Law, Regulation & Compliance
    • ISSN: 1758-0013 (Paper) 1758-0021 Volume 3, Number 2 Date:  April 2010 Pages: 180 - 189 URL:  http://henrystewart.metapress.com/openurl.asp?genre=article&eissn=1758-0021&volume=3&issue=2&spage=180
    Industry Expert Opinions and Publications – Additional References 1 FORWARD LOOKING AND PRO-ACTIVE APPROACH TO COMPLIANCE Abstract: 2010 presents a historical moment to define the path forward to the ‘future of enterprise risk management and mitigation strategies’ of increasing compliance risk for asset managers. The recent financial crises and cases of material compliance violations, Ponzi schemes, fraudulent activities, misappropriation of investors’ assets and collapse of major financial firms have had significant, harmful impact on investors and shareholders. Serious compliance violations, such as insider trading, have proven to be self-destructive to asset managers. No one is immune to these trends. ‘Enterprise Risk Management — 2010 and Beyond Forward Looking Approach by Asset Managers’ is a series of papers dedicated to regulatory developments and industry best practices in the enterprise risk management with a focus on ‘compliance risk: a critical business risk for asset managers’. New Technologies To Stop Insider Trading – Yvonne I. Pytlik With the biggest insider trading trial in history currently under way, Wall Street firms are ramping up their technology to try to prevent market abuses before it's too late. "Firms recognize that insider trading and other serious compliance violations may significantly impact their business strategy or even pose a threat to their existence," says Yvonne Pytlik, chief compliance officer at Dreman Value Management, an asset management firm in Jersey City, N.J., for institutional clients that has $5 billion in assets under management. “ Firms are adopting a more enterprise-wide view of risk, governance and compliance, which helps detect market abuses such as insider trading, Dreman Value Management's Pytlik says. Companies are trying to integrate one single view across the organization. It's much more effective in identifying the highest risk in the organization rather than looking at a siloed environment." http://www.wallstreetandtech.com/articles/229301340?pgno=2
  • 31. Industry Expert Opinions and Publications – Additional References 1 FORWARD LOOKING AND PRO-ACTIVE APPROACH TO COMPLIANCE New Technologies To Stop Insider Trading – Yvonne I. Pytlik With the biggest insider trading trial in history currently under way, Wall Street firms are ramping up their technology to try to prevent market abuses before it's too late. "Firms recognize that insider trading and other serious compliance violations may significantly impact their business strategy or even pose a threat to their existence," says Yvonne Pytlik, chief compliance officer at Dreman Value Management, an asset management firm in Jersey City, N.J., for institutional clients that has $5 billion in assets under management.

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