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Financial Regulatory
Compliance:
Global Leading Practices and
Reputational Risk
Vladimir Berezansky
EY FIDS Moscow
26 Octo...
Page 2
KYC & On-Boarding: Enhanced Risks
Financial
regulators in all
jurisdictions are
demanding
enhanced levels of
compli...
Page 3
KYC: Financial Regulators Tighten the
Screws
EU Fourth AML Directive
Reflects and enforces the trend
of increasingl...
Page 4
Pillars of Robust Financial Regulatory
Compliance
Corporate
Governance
Global Control
Room/Information
Barriers
Thr...
Page 5
Full-Service Bank: Corporate Governance
Third-Party Due
Diligence (Vendor &
Supplier Vetting)
Training
Systems
Moni...
Page 6
Full-Service Bank: Segregated Front Office Activities
Board
CEO
Retail Leasing
Investment
Banking
Wealth
Management...
Page 7
International
► Financial Action Task Force – FATF
Recommendations
► Wolfsberg Group AML Principles &
Questionnaire...
Page 8
Global Leading Practices: Sources of
Authority & Guidance (2)
National/Domestic
• Regulatory Authorities –
e.g., SE...
Page 9
► Bank Secrecy Act (1970)
► Foreign Corrupt Practices Act
(1977)
► Patriot Act (2001)
► Sarbanes-Oxley Act (SOX)
(2...
Page 10
Highly Influential Foreign Regulatory
Regime: UK
► Terrorism Act (2000)
► Proceeds of Crime Act (2002)
► Money Lau...
Page 11
Russia’s Financial Regulatory Regime (1)
№ of
document
Type of
regulation Full name Date
86-FZ Federal Law On the ...
Page 12
Russia’s Financial Regulatory Regime (2)
№
Type of
regulation Full name Date
№262 Russian Central
Bank Regulation
...
Page 13
► USD 25 billion — Five banks 2012, for alleged foreclosure
processing abuses
► USD 13 billion — JPMorgan Chase 20...
Page 14
► GBP37.7 mln. Barclay’s Sep 2014, for insufficiently proper segregation of client funds
► GBP28 mln. Lloyd’s Dec ...
Page 15
Conclusion
To create an operational environment that anticipates
and identifies likely regulatory enhancements;
To...
► Leader, Compliance Practice, Assurance, Fraud
Investigation & Dispute Services (FIDS) Group
► Joined EY in 2013, based i...
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BEREZANSKY VLADIMIR 26 10 2015 Financial Regulatory Compliance

  1. 1. Financial Regulatory Compliance: Global Leading Practices and Reputational Risk Vladimir Berezansky EY FIDS Moscow 26 October 2015
  2. 2. Page 2 KYC & On-Boarding: Enhanced Risks Financial regulators in all jurisdictions are demanding enhanced levels of compliance, transparency and responsiveness Tendency for thresholds and metrics defining minimally acceptable Compliance to ratchet upward continuously Complexity and redundancy of KYC, on-boarding procedures escalate operational costs, time and energy Responding to these pressures, some banks take a maximalist approach toward requiring supporting documentation – i.e., padding the KYC files New measures and requirements imposed by financial regulators that were designed to reduce KYC / on- boarding risks for licensed entities have had the opposite effect: Exposure to regulatory / reputational risk has never been higher. Proprietary information – Not for circulation beyond EY CIS FIDS
  3. 3. Page 3 KYC: Financial Regulators Tighten the Screws EU Fourth AML Directive Reflects and enforces the trend of increasingly invasive regulatory oversight and control: • Requires more detailed corporate identification documentation; • Applies to all EU legal entities (including companies) – meaning, NO GRANDFATHERING FinCEN Is proposing changes to BSA «to clarify and strengthen customer due diligence requirements» for FIs, including: • Explicit DD requirements – i.e., not only «What?» but «How?» • New regulatory requirement to identify the beneficial owner of corporate (legal entity) customers Proprietary information – Not for circulation beyond EY CIS FIDS
  4. 4. Page 4 Pillars of Robust Financial Regulatory Compliance Corporate Governance Global Control Room/Information Barriers Three Layers of Defence Training: Induction, Required, Periodic Surveillance and Monitoring Culture of Compliance/ Tone from the Top Anti- Bribery/Anti- Corruption Controls Proprietary information – Not for circulation beyond EY CIS FIDS
  5. 5. Page 5 Full-Service Bank: Corporate Governance Third-Party Due Diligence (Vendor & Supplier Vetting) Training Systems Monitoring & Surveillance Compensation Committee Internal Audit BOARD OF DIRECTORS Corporate Secretariat Conflict Clearance Committee CEO CRO HR CFO COO General Counsel CCO CIO Risk Management HR LegalOperationsFinance Compliance IT Board- Level ‘C-level’ Executive Board Cross (Interdepartmental) functions Operations ‘Back Office’ Investor Relations Marketing & Communications Proprietary information – Not for circulation beyond EY CIS FIDS
  6. 6. Page 6 Full-Service Bank: Segregated Front Office Activities Board CEO Retail Leasing Investment Banking Wealth ManagementCorporate Private Banking Trade Finance Custody/ Depositary Asset Management Equities Sales & Trade FICC Sales & Trade Proprietary Trading Desk Corporate Finance Structured Products Capital Markets: Debt & Equity Bank 2 Bank Research Credit Risk/Research ‘Public’ Side: no PMSI ‘Private’ Side: PMSI Proprietary information – Not for circulation beyond EY CIS FIDS
  7. 7. Page 7 International ► Financial Action Task Force – FATF Recommendations ► Wolfsberg Group AML Principles & Questionnaire ► United Nations Convention against Corruption (UNCAC) Regional ► EC – Fourth Anti-money Laundering Directive ► Markets in Financial Instruments Directive – MiFID ► European Securities and Markets Authority – ESMA ► European Market Infrastructure Regulation – EMIR Global Leading Practices: Sources of Authority & Guidance (1) Proprietary information – Not for circulation beyond EY CIS FIDS
  8. 8. Page 8 Global Leading Practices: Sources of Authority & Guidance (2) National/Domestic • Regulatory Authorities – e.g., SEC, FCA, PRA, FINMA, (former FSFM) and central banks (Fed, BoE, ECB, RCB) • Self-Regulatory Organisations – e.g., ABA, BBA SBA, ARB, NAUFOR • «Self-Accrediting» Collegial Bodies – ACAMS, ICA, ECA Leading Practices Various sources of authority/ voluntarily adopted & implemented May be implemented as a tool (point of reference) to mitigate risk May be adopted as a distinguishing factor / hallmark Proprietary information – Not for circulation beyond EY CIS FIDS
  9. 9. Page 9 ► Bank Secrecy Act (1970) ► Foreign Corrupt Practices Act (1977) ► Patriot Act (2001) ► Sarbanes-Oxley Act (SOX) (2002) ► Foreign Account Tax Compliance Act (FATCA) (2010) ► Dodd-Frank Act (2010) Highly Influential Foreign Regulatory Regime: USA Proprietary information – Not for circulation beyond EY CIS FIDS
  10. 10. Page 10 Highly Influential Foreign Regulatory Regime: UK ► Terrorism Act (2000) ► Proceeds of Crime Act (2002) ► Money Laundering Regulations (2007) ► Bribery Act (2010) ► FCA Handbook, PRA Handbook, PRA Rulebook (2013) ► Counter-Terrorism and Security Act (CTSA) (2015) ► AML Guidance issued by the Joint Money Laundering Steering Group (JMLSG) Proprietary information – Not for circulation beyond EY CIS FIDS
  11. 11. Page 11 Russia’s Financial Regulatory Regime (1) № of document Type of regulation Full name Date 86-FZ Federal Law On the Central Bank of the Russian Federation (Bank of Russia) 10 July 2002 395-1 Federal Law On Banks and Banking Activity 02 December 1990 39-FZ Federal Law On the Securities Market 22 April 1996 181-F Federal Law On Using State-issued Securities of the Russian Federation for Increasing Bank Capitalization 18 July 2009 115-FZ Federal Law On Counteracting the Legalisation (Laundering) of Income Generated from Criminal Activity and the Financing of Terrorism 07 August 2001 273-FZ Federal Law On Counteracting Corruption 25 December 2008 224-FZ Federal Law On Counteracting the Improper Use of Inside Information and Market Manipulation 27 July 2010 Proprietary information – Not for circulation beyond EY CIS FIDS
  12. 12. Page 12 Russia’s Financial Regulatory Regime (2) № Type of regulation Full name Date №262 Russian Central Bank Regulation On Identifying Clients and Beneficiaries of Credit-issuing Organizations in order to Counteract the Legalization (Laundering) of Income Generated from Criminal Activity and the Financing of Terrorism 19 August 2004 №242 Russian Central Bank Regulation On Organizing the Internal Control Function at Credit-issuing Organizations and in Banking Groups 16 December 2003 №375-P Russian Central Bank Regulation On Requirements of the Rules for the Internal Control Function at Credit-issuing Organizations in order to Counteract the Legalization (Laundering) of Income Generated from Criminal Activity and the Financing of Terrorism 02 March 2012 №375-P Appendix to Regulation of the Bank of Russia Indicators (Red Flags) of Suspicious Transactions 02 March 2012. №321-P Russian Central Bank Regulation • On Procedures for Credit-issuing Organizations to Use in Reporting to Regulatory Authorities on Information Designated in the Federal Law • On Counteracting the Legalization (Laundering) of Income Generated from Criminal Activity and the Financing of Terrorism 29 August 2008 Proprietary information – Not for circulation beyond EY CIS FIDS
  13. 13. Page 13 ► USD 25 billion — Five banks 2012, for alleged foreclosure processing abuses ► USD 13 billion — JPMorgan Chase 2013, for claims over residential-backed mortgage securities ► USD 9.3 billion — Thirteen banks 2013, for alleged foreclosure abuses ► USD 9 billion – BNP Paribas 2014, sanctioned countries list violations US Banking Regulatory Fines ► [USD 8.5 billion — Bank of America – June 2011, settlement reached with group of mortgage bond holders] ► USD 2.6 billion — Credit Suisse AG – May 2014, for conspiracy to aid tax evasion ► USD 1.9 billion — HSBC 2012, for deficiencies in anti-money laundering controls (largest BSA fine ever) ► USD 1.5 billion — UBS 2012, for manipulating interbank lending rates including LIBOR ► USD 1.4 billion — 10 Wall Street firms 2003, for conflicts of interest between Research and IB functions Proprietary information – Not for circulation beyond EY CIS FIDS
  14. 14. Page 14 ► GBP37.7 mln. Barclay’s Sep 2014, for insufficiently proper segregation of client funds ► GBP28 mln. Lloyd’s Dec 2013, for ‘serious failings’ in systems & controls governing financial incentives to sales staff ► GBP205 mln. Rabobank Oct 2013, for misconduct relating to LIBOR UK Banking Regulatory Fines Proprietary information – Not for circulation beyond EY CIS FIDS
  15. 15. Page 15 Conclusion To create an operational environment that anticipates and identifies likely regulatory enhancements; To position itself to respond rapidly and cost-efficiently in order to implement change driven by the regulator and/or the market; To reap the tangible benefits of developing and maintaining a reputation among regulators and in the market for robust compliance. 1 2 3 In a rapidly changing financial regulatory environment, global leading practices position a bank have: Proprietary information – Not for circulation beyond EY CIS FIDS
  16. 16. ► Leader, Compliance Practice, Assurance, Fraud Investigation & Dispute Services (FIDS) Group ► Joined EY in 2013, based in EY CIS Moscow office ► Education/Background – Bachelor’s (Linguistics), Columbia University (New York); Juris Doctorate (JD), international private law, Washington College of Law, The American University (Washington, D.C.), ► Federal District (Washington, D.C.) Bar (license) ► Russian broker-dealer license (1,0 Certification) ► Regular speaker at conferences, graduate (business & law) schools; meetings with financial regulators ► Languages spoken – English, Russian, French & German ► Nearly twenty years work experience in Russia / CIS and Baltic Republics, Cyprus, Switzerland and London financial markets ► Compliance practice includes: ► review & analysis of Russian/CIS banking, financial and corporate Compliance infrastructures; ► due diligence on Russian/CIS cross-border holding structures; ► gap analysis and similar (e.g., dashboard) assessments of internal policies & protocols as measured by global best practices, US / UK regulatory standards, and local regulatory requirements; ► review adequacy & effectiveness of corporate governance mechanisms (Board structure, Board committees and Director / Officer authorisations, internal policies & protocols, etc.) ► prepare Russian/CIS entities for scrutiny by capital markets (ratings agencies, potential counterparties, investment and/or acquisition targets) and/or private investment entities (funds, family offices) ► Prepare banking & financial clients for relevant Anglo- American & EU regulatory regime compliance, including UK Bribery Act, FCPA, Dodd-Frank / EMIR and FATCA ► Extensive network of contacts & working relationships with regulators, SROs, banks and regulated securities market entities in Russia / CIS, Baltic Republics, Switzerland, Cyprus, London, New York and Washington, D.C. Place image here. Refer to guidelines Vladimir Berezansky Leader, Compliance Practice Assurance | FIDS Tel.: +7 495 287 6537 Cel: +7 985 773 4176 Email: vladimir.berezansky@ru.ey.com CV - Vladimir Berezansky Background Professional experience Skills ► Develop and implement Western-quality Compliance programs primarily for Russian / CIS banks, investment firms and affiliated group / holding structures ► Comprehensive due diligence – AML / KYC, regulatory and reputational risk – and corporate governance analysis, including restructuring recommendations ► Develop confidential dossiers on key Russian / CIS officers and directors, including PEPs and senior managers of state-owned enterprises

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