Recent Regulatory Developments in EU and the Roles and Responsibilities of Compliance Officers‘ Presentation at the Banks Association of Turkey TBB - TÜRKİYE BANKALAR BİRLİĞİ Andrew Procter 13 June 2006

Andrew Procter · 13 June 2006 · page 2 Hot Topics Market Abuse Reputational Risk Conflicts of Interest MiFID –The role of Compliance –Conflicts –Best execution The Role of Compliance

Andrew Procter · 13 June 2006 · page 3 The Market Abuse Directive Single set of rules for market conduct but… Some inconsistency in application eg block trades – 2006 program New CESR Surveillance & Intelligence WG CESR “Urgent Issues” Group to co-ordinate investigations

Andrew Procter · 13 June 2006 · page 4 MiFID Preparing for implementation on 1 Nov 2007 Business led implementation Many challenges but many opportunities Likely to see some major changes in the market landscape Major implications for relationships with clients and for trading

Andrew Procter · 13 June 2006 · page 5 MiFID – Clients Relations Client classification & documentation Suitability Client money & custody Conflicts

Andrew Procter · 13 June 2006 · page 6 MiFID – trading requirements Pre-trade transparency Post trade transparency Transaction reporting Order handling Best execution

Andrew Procter · 13 June 2006 · page 7 MiFID – Operational Matters Compliance function Outsourcing Record keeping

Andrew Procter · 13 June 2006 · page 8 Regulatory Preoccupations Conflicts –Mapping of conflicts –Development of mitigation strategies Non-standard transactions –Reputational Risk

Andrew Procter · 13 June 2006 · page 9 The Role of Compliance Need to demonstrate that you are worth the money! Need to meet MiFID requirements. Need to ensure that there is adequate protection for the Bank/Firm Three key roles: –Prevention –Detection –Advice

Andrew Procter · 13 June 2006 · page 10 Prevention – The Cost of Failure Loss of clients/business – Reputational Risk Financial penalties, prosecutions, litigation Restrictions on business activity Personal liability of executives

Andrew Procter · 13 June 2006 · page 11 A Culture of Compliance Reputational risk and other key messages – from the top! “Tone at the Top” and Reputational Risk training Training for supervisors and managers Taking action when things go wrong

Andrew Procter · 13 June 2006 · page 12 Preventative Measures: Knowledge, Processes & Systems “Heat Maps” and business “self-assessments” drive priorities Policies and procedures – reviewed every 2 years –NCA & NPA –Reputational Risk – secretariat Comprehensive training program The Control Room –PA dealing, wall crossing, conflict clearance and advice, research clearance, Restricted & Watch Lists

Andrew Procter · 13 June 2006 · page 13 Detection - Focus Focus on risk areas identified by heat maps and self-assessments

Andrew Procter · 13 June 2006 · page 14 Detection – What do we do? Electronic transaction & portfolio monitoring – market abuse, embargo breaches, restricted list breaches, money laundering, mandate breaches Desk reviews (compare Internal Audit) Monitoring – Restricted List, Watch List Compliance “on the floor” – identifying problems in real time Compliance led month end look back

Andrew Procter · 13 June 2006 · page 15 Excellence as Advisors Practical application of law and regulation On the floor, in the (NCA/NPA) process Support for business initiatives – new products, new markets, growth – due diligence, advice on regulation, advice of necessary compliance support

Andrew Procter · 13 June 2006 · page 16 Advocate to Regulators & Industry Compliance the relationship manager for principal regulators – more than 200 globally Requires: –Pro-active engagement –Management of supervisory visits, ad hoc inquiries and investigations –Co-ordination of responses to consultations –Introduction of business to regulators –Membership of industry consultative groups