Monday May 14 2012 - Top 10 risk and compliance management related news stories and world events

P a g e | 1

_____________________________________________________________ International Association of Risk and Compliance Professionals (IARCP)

www.risk-compliance-association.com

International Association of Risk and Compliance Professionals (IARCP)

1200 G Street NW Suite 800 Washington, DC 20005-6705 USA Tel: 202-449-9750 www.risk-compliance-association.com

Top 10 risk and compliance management related news stories and world events that (for better or for worse) shaped the week's

agenda, and what is next

George Lekatis President of the IARCP

Dear Member, Are regulations holding back growth? This is a really interesting question. Read the answer at No 8 of our list!

http://www.risk-compliance-association.com/

P a g e | 2



Welcome to the Top 10 list.

PCAOB

Keynote Address: Driving Change to Achieve Independent and High Quality Audits

Jeanette M. Franzel, Board Member

Chairman Ben S. Bernanke At the 48th Annual Conference on Bank Structure and Competition, Chicago, Illinois (via satellite) - May 10, 2012 Banks and Bank Lending: The State of Play

Speech Gabriel Bernardino, Chairman of EIOPA EIOPA, Solvency II and the Loss Adjusting Profession General Assembly of the European Federation of Loss Adjusting Experts, Porto, 11 May 2012

P a g e | 3



“Shaping the future of Europe’s financial markets” Verena Ross, Executive Director of ESMA, Centre Forum, London, 11 May 2012

Formation of the Enhanced Disclosure Task Force The importance to market confidence of useful disclosure by financial institutions of their risk exposures and risk management practices has been underscored in recent years.

FSA publishes Recovery and Resolution Plan (RRP) update The Financial Services Authority (FSA) has published a feedback statement setting out the approach being taken by the FSA to ensure firms develop appropriate recovery plans and resolution packs.

Speech by SEC Staff: Address at the Private Equity International Private Fund Compliance Forum By Carlo V. di Florio, Director, Office of Compliance Inspections and Examinations, U.S. Securities and Exchange Commission New York, NY, May 2, 2012

P a g e | 4



Recent U.S. Economic Growth in Charts May 2012

Opening Remarks by Ms Jacqueline Loh, Assistant Managing Director, Monetary Authority of Singapore at the EDHEC-RISK Days Asia 2012 Conference at Marina Bay Sands Conference Centre on 9 May 2012

Statistical release: OTC derivatives statistics at end-December 2011 Monetary and Economic Department May 2012 Bank for International Settlements A summary of the latest statistics on over-the-counter (OTC) derivatives markets.

P a g e | 5



Keynote Address: Driving Change to Achieve Independent and High Quality Audits

DATE: May 3, 2012 SPEAKER(S): Jeanette M. Franzel, Board Member EVENT: Baruch College Financial Reporting Conference LOCATION: New York, NY Good Afternoon, I am honored to be here today at this important conference. I thank all of you for your interest in advancing and improving financial reporting and auditing, as evidenced by your participation in this conference today. I am the newest Board Member, appointed in February of this year, and I've been on the job for almost 9 weeks now (not that I am counting). In January 2011, three new members were appointed to the Board, Lew Ferguson, Jay Hanson, and our Chairman, Jim Doty. With 4 of the 5 Board members being relatively new, we are often referred to as the "new Board." Of course, Steve Harris continues as our senior statesman, having been on the Board since 2008. Today, I will provide my impressions and observations from my first nine weeks on the job, as well as an update on the current activities of this very busy, "new Board."

P a g e | 6



Before I go further, however, I must tell you that the views I express today are my personal views and do not necessarily reflect the views of the Board, any other Board member, or the staff of the PCAOB.

Reliability, Role, and Relevance of the Audit

Auditors have been given an important role in the capital markets — to provide assurance to investors, owners, lenders and others that the audited company's financial statements and related disclosures fairly present the institution's financial results in conformity with applicable accounting and disclosure standards and rules. Clearly, reliable financial statements play a key role in the financial markets, which are integral to the success and well-being of American households and businesses, the U.S. economy, and participants and stakeholders from around the world. The securities markets provide a reliable funding mechanism for American — and, increasingly, foreign — businesses. More than half of American households invest their savings in securities to provide for retirement, education, and other goals. Our economy is resilient, even in the face of the recent financial crisis, in part because millions of savers continue to be willing to invest in business enterprises to fuel growth, growth that results in more workers, more savings and more investment. This cycle promotes economic wealth, but it relies on the system of accurate financial disclosures by public companies to the investors who entrust capital to them. As we approach the 10th anniversary of the Sarbanes-Oxley Act and 9 years of PCAOB operations, we seem to be, once again, in a period of re-examination of the role, relevance, and reliability of financial audits in protecting investors and the public interest.

P a g e | 7



Many of the topics currently being debated have been debated over the decades—auditor independence, the role of audit committees, professional skepticism and objectivity, audit quality, and the auditor's report, among others. One possible line of response to reevaluating these issues is "we decided decades ago on this," or "this has worked fine for the last 70 years." Even if these are some of the "same old topics" that have been debated for decades, we can also look to the many corporate failures and financial crises that have occurred over the decades and recognize the importance of ongoing re-examination and adjustments in the auditing model. First of all, auditing is very difficult and filled with competing tensions, and we can and should continue to learn from years of experience. Secondly, rapid changes in the financial markets, globalization, technology, and how business is conducted continue to drastically impact financial reporting and auditing. Often, we are inspired to re-examine financial reporting and auditing in reaction to a crisis. In a way, we may be reacting to the financial crisis and serious economic situation over the past several years. But the current efforts are occurring in a measured and forward-looking manner, in addition to looking back to examine the impact of the Sarbanes-Oxley Act and PCAOB's accomplishments to date. Also, the profession and its oversight bodies have new information, including a large body of PCAOB inspection results and recent academic research that shed light on auditor processes, behavior, and judgments.

Role of the PCAOB

As you know, the Sarbanes-Oxley Act of 2002 established the PCAOB to oversee the audits of the financial statements of public companies.

P a g e | 8



In July 2010, the Dodd-Frank Act amended the Sarbanes-Oxley Act and, among other things, vested the PCAOB with the authority to oversee audits of broker-dealers. The statutory mission of the PCAOB is to oversee the audits of public companies in order to protect the interests of investors and further the public interest in the preparation of informative, accurate, and independent audit reports. The PCAOB is also charged with overseeing the audits of broker-dealer compliance reports under federal securities laws to promote investor protection. The PCAOB has four main responsibilities under the Act: - register public accounting firms that audit public companies or

broker-dealers;

- establish auditing and other professional standards;

- conduct and report on regular inspections of registered public accounting firms that audit public companies or broker-dealers; and

- conduct investigations and disciplinary proceedings in cases where auditors may have violated certain provisions of the Sarbanes-Oxley Act of 2002, the rules of the PCAOB and the Securities and Exchange Commission, and other laws, rules, and professional standards governing the audits of public companies, brokers, and dealers.

Currently, approximately 2,400 firms are registered with the Board. Of those, approximately 516 are firms that reported auditing broker-dealers but no issuers. In addition, the 2,400 total registered firms include approximately 815 firms that reported issuing no audit reports for issuers or broker-dealers, but have nonetheless chosen to register with the PCAOB.

P a g e | 9



PCAOB annually inspects firms that audit over 100 issuers, while firms that issue 100 or fewer audit reports each year are subject to inspection every three years. PCAOB does not inspect firms that do not perform audit work for issuers. In addition, PCAOB is currently conducting an interim inspection program for auditors of broker-dealers, and will use information from this interim program to guide its decisions about a permanent program, including whether to differentiate among classes of brokers and dealers in terms of inspection schedules, and possible exemptions from inspections. During 2011, PCAOB inspected 10 firms that audited more than 100 issuers. As part of those inspections, PCAOB inspectors examined portions of more than 340 audits. Also during 2011, PCAOB inspected 203 firms in the 3-year category, examining portions of more than 485 audits by those firms. Finally, in the interim inspection program for broker-dealer auditors, PCAOB inspected 8 audit firms in 2011, covering portions of 19 audits of broker-dealers. Since it began its inspections operations, the PCAOB has conducted over 1800 inspections and reviewed over 7800 audits. PCAOB inspection reports issued to the firms after their inspections identify deficiencies in the firms' audit work as well as weaknesses or deficiencies in the firms' quality control policies and procedures. Certain portions of the inspection reports — those dealing with particularly significant audit deficiencies identified by inspectors — are made publicly available. With respect to any problems found by the Board in the firm's quality control systems, firms are given twelve months to remediate those issues

P a g e | 10



or face publication of the portion of the inspection report describing those issues. Remediation is a very important part of the process. It is through these actions that firms propose to correct their quality control deficiencies in order to drive improvements in auditing. We have seen most firms take their responsibilities for remedial efforts and improvements seriously. In addition to our activities in connection with registering and inspecting firms, the Board is responsible for setting auditing standards for the audits of public companies and brokers and dealers. I will talk in a few minutes about some of our priorities in this area. Finally, the PCAOB also has an active Division of Enforcement and Investigations. To date, the PCAOB has taken 49 disciplinary proceedings against 39 registered accounting firms and 52 persons associated with registered firms. The sanctions have included censures, fines, suspensions or bars from being associated with a registered firm, and revocations of firm registrations. To date, the Board has revoked the registration of 25 firms, barred 41 individuals, and suspended 5 individuals and 1 firm's registration. In my short time with the Board, I have put the registration, inspection, standards, and enforcement roles that I have just described into a "bucket" that I think of as the Board's "ordinary business operations." The workload associated with carrying out the Board's "ordinary business" is heavy and varied, and is integral to fulfilling the Board's mission and statutory responsibilities.

P a g e | 11



The information and knowledge we gain from our operations also provides input for the Board's priorities and consideration of longer-term initiatives in order to promote independent and high quality audits that protect investors and further the public interest.

PCAOB Priorities and Initiatives

PCAOB is in a unique position given the knowledge and information gained through the inspection program to identify trends and risks in the auditing profession. PCAOB staff and the Board also work one-on-one with firm personnel and firm leadership in discussing issues impacting audits, including effective audit practices and responses and ways to enhance audit quality in light of current pressures and risks. The Board also issues practice alerts, summary reports, research notes, interpretative releases and other communications in order to also communicate these issues broadly. Finally, PCAOB uses input from its inspections, task forces, the Academic community, and other stakeholders in developing its standards setting agenda. I mentioned earlier the category of the PCAOB workload that I think of as "ordinary business operations." I think of our other work as being in the category of "leadership in protecting investors and the public interest" by being a driving force for change when needed, to ensure independent and high quality audits. In this category, we have several layers: - Drive change in the profession to correct gaps in auditing practice

under the current audit model in order to achieve needed improvements in the near term.

P a g e | 12



- Determine what types of changes are needed in the audit model—including auditing standards, as well as the business model used by the firms in implementing those standards—in order to help ensure reliable audits and investor protection in the future.

- Determine through ongoing monitoring whether, at any time, immediate actions are needed to mitigate unusual, emerging risks to financial audits from a variety of factors, including rapid changes and increasing complexity in business operations and financial markets, evolving technology, the global business environment, and other factors.

Improvements Needed in Current Audit Practices

Regarding the current gaps in practice, PCAOB inspections continue to find serious audit deficiencies on a regular basis. In fact, our inspection reports issued during 2011 related to the 2010 inspection cycle, including reports on inspections of some of the largest firms, show a significant and concerning increase in inspection findings. Such deficiencies include cases where auditors issue clean opinions even though: - the audit work is incomplete or not properly conducted;

- financial statement information is contradicted by other available

evidence; and/or

- audit conclusions on material issues are based on management's views without independent verification.

Clearly improvements are needed in current audit process under current standards. In that regard, the PCAOB staff and Board Members devote considerable attention and time to working with firms to evaluate systemic root causes

P a g e | 13



within a firm's structure, operations, processes or other areas that detract from audit quality or cause deficiencies. When the Board issues inspection reports, the portion of the report containing findings about deficiencies in a firm's system of quality control, referred to as "part 2" of the report, are subject to statutory restriction on public disclosure. The firm has 12 months from the issuance of the inspection report to address the issues to the Board's satisfaction. The PCAOB staff and Board also spend considerable time evaluating firm's remediation plans and actions. If a firm does not satisfactorily address any of the quality control criticisms within 12 months, the portion of the report discussing the particular criticism(s) is made publicly available.

PCAOB Standards-Setting Activities

The Board uses information that it learns in its inspections and from other sources to evaluate the need for changes in auditing standards. In developing new standards, the PCAOB also seeks advice from a wide variety of interested stakeholders on ways to improve audits. The Board's standards activities are informed by meetings and dialogue with investors, auditors, representatives of public companies, members of the academic community, and through its Standing Advisory Group. The Board also holds roundtable discussions and other public meetings to deepen its dialogue with commenters and other interested parties. The Board works closely with the SEC on the development of standards and monitors the work of accounting standard setters, such as the Financial Accounting Standards Board, for developments that may affect auditing.

P a g e | 14



The Board currently has a full agenda for seeking views on ideas and specific proposals impacting auditing and related professional practice standards through concept releases, proposed standards, and potential future projects.

Concept Releases The Board is currently evaluating comments and feedback on two concept releases, one dealing with the auditor's reporting model and another with auditor independence and mandatory firm rotation. These concept releases did not propose new auditing standards. Rather, they sought the public's views on particular matters so that the Board can better evaluate the need for future standard-setting. - Auditor's Reporting Model — On June 21, 2011, the Board issued a

concept release to seek public comment on potential changes to the auditor's reporting model. Such potential changes could include a supplement to the auditor's report in which the auditor would be required to provide additional information about the audit and the auditor's view of the company's financial statements (an "Auditor's Discussion and Analysis"); required and expanded use of emphasis paragraphs in the auditor's report; auditor reporting on other information outside the financial statements; and clarification of certain language in the auditor's report. The concept release was preceded by several discussions with the PCAOB's advisory groups, and extensive outreach by PCAOB staff in 2010 and early 2011. In addition, the Board solicited further comment at a roundtable on Sept. 15, 2011. The deadline for comments on the concept release was Sept. 30, 2011.

P a g e | 15



Staff is currently preparing a proposed standard.

- Auditor Independence and Audit Firm Rotation — As a result of PCAOB inspections, the experience of other audit regulators and concerns expressed by investors, the Board issued a concept release Aug. 16, 2011, seeking public comment on a variety of possible approaches to improving auditor independence, objectivity and professional skepticism. As part of that concept release, the Board sought comment on whether a rotation requirement would risk significant cost and disruption and how mandatory rotation would serve the Board's goals of protecting investors and enhancing audit quality. The Board also sought comment on whether other measures could meaningfully enhance auditor independence. The deadline for comments was Dec. 14, 2011. The Board held a public meeting to obtain further comment on the concept release on March 21 and 22, for which the comment period was reopened. Future such public meetings are planned.

Proposed standards

The Board is currently evaluating comments on several proposed standards and seeking comment on one proposal. - Audits of SEC-Registered Brokers and Dealers — The Dodd-Frank

Act gave the PCAOB the authority to oversee auditors of SEC-registered brokers and dealers, including authority to set standards and rules for audits of brokers and dealers. On July 12, 2011, the Board proposed standards dealing with (1) examination engagements for compliance reports, (2) review engagements of exemption reports, and (3) auditing supplemental information.

P a g e | 16



The deadline for comments on the proposed PCAOB standards was Sept. 12, 2011. Further action on the Board's proposals is dependent on the SEC's adoption of the proposed amendments to its Exchange Act 17a-5 rule.

- Transparency — On Oct. 11, 2011, the Board proposed amendments to its standards that would improve the transparency of public company audits by requiring that audit reports disclose the name of the engagement partner as well as the names of other independent public accounting firms and other persons that took part in the audit. The amendments would also require registered public accounting firms to disclose the name of the engagement partner for each audit listed on the firms' annual reports filed with the PCAOB. The deadline for comments on the proposed amendments was Jan. 9, 2012.

- Communications with Audit Committees — On Dec. 20, 2011, the Board reproposed a new auditing standard, Communications with Audit Committees, and related amendments. The standard is intended to benefit investors by establishing requirements that enhance the relevance and quality of the communications between the auditor and the audit committee. The deadline for comments was Feb. 29, 2012.

- Auditing Related Party Transactions — On February 28, 2012, the Board proposed a new standard, Related Parties, as well as amendments to certain PCAOB auditing standards to assist auditors in detecting and addressing the audit risks associated with related parties and other unusual transactions. The comment period expires May 15, 2012.

P a g e | 17



Potential future projects

The Board is also considering possible revisions to standards in the following areas to strengthen and clarify requirements:

auditors' use of specialists,

part of the audit performed by other auditors,

assignment and documentation of firm supervisory responsibilities,

fair value measurements,

going concern,

confirmation,

quality control,

codification of PCAOB standards, and

subsequent events. As you can see, the Board is working on an ambitious agenda including numerous areas of audit practice aimed at strengthening auditing standards themselves, while improving audit practices and approaches.

Risk Monitoring, Assessment, and Research

Through the Office of Research and Analysis, the PCAOB also monitors information obtained from a variety of sources, including PCAOB inspections, public company financial reporting, price and volatility information from debt and equity markets, and corporate governance information in order to identify emerging risks to financial reporting and auditing. This information is then used by PCAOB's inspections, standards setting, and enforcement functions. In addition, information is provided to the public, as appropriate. On March 15, 2011, PCAOB issued its first public "Research Note" to provide new data on the growth of reverse merger transactions involving companies based in China, Hong Kong, and Taiwan.

P a g e | 18



A reverse merger typically occurs when an operating company merges with a U.S. shell company that had previously registered its securities on a U.S. exchange. The Research Note, along with Staff Audit Practice alerts issued in July 2010 and October 2011, represented an effort by PCAOB to provide more information to investors and other users of financial statements about the audit environment for companies from the China region. Additionally, the Office of Research and Analysis performs regular research and analysis to support the various efforts of the Board while also monitoring risks and identifying emerging issues.

Current Legislative Initiatives

Currently, legislation is pending (HR 3503 and S 1907) that would amend the Sarbanes-Oxley Act of 2002 to make PCAOB disciplinary proceedings open to the public. Under the Sarbanes-Oxley Act as it exists today, the PCAOB's disciplinary proceedings are nonpublic, unless the Board finds there is good cause for a hearing to be public and each party consents to public hearings. PCAOB disciplinary proceedings remain nonpublic even after a hearing has been completed and adverse findings made by a disinterested hearing officer, if the auditors and firms opt to appeal and do not consent to make the proceedings public. The auditors and audit firms charged with violating applicable laws, rules or standards have little incentive to consent to public disclosure of disciplinary proceedings against them, and in fact, none have ever done so. Continued litigation postpones — often for several years — public disclosure that the PCAOB has charged the auditor or firm, the nature of those charges, and the content of adverse findings.

P a g e | 19



In addition, unlike the authority the Securities Exchange Act of 1934 provides the SEC in its administrative proceedings, the PCAOB has no authority, while litigation is pending, to issue temporary cease-and-desist orders in appropriate cases, to prevent potential further harm to investors or the public interest. This situation results in a variety of unfortunate consequences for investor protection and the public interest. The public is denied access to important information regarding PCAOB cases and respondents' alleged misconduct — no matter how serious. As a result, investors are unaware that companies in which they may have invested are being audited by accountants who have been charged, even sanctioned, by the Board, and meanwhile, the audit firm and associated persons may continue to issue audit reports. If the SEC were to bring the same case as the PCAOB, alleging the same violations, against the same auditor, the SEC's charges would be disclosed at the time the Commission instituted its proceeding. Any administrative trial would be open to the public. If there were an appeal to the Commission and an oral argument, the public could attend. The ability — or inability — of the SEC's staff to prove its charges would be a matter of public record. The non-public nature of PCAOB's enforcement proceedings is not good for investors, for the auditing profession, or for the public at large. * * * The reliability, role, and relevance of financial audits, auditor independence, and audit quality are enduring themes that we must regularly monitor and evaluate in order to protect investors and the public interest in a dynamic, global business environment. This involves looking beyond the status quo and the current business

P a g e | 20



cycle. We also need to carefully consider and analyze the potential costs and benefits of various actions as well as the risks of unintended consequences. I am pleased to have the opportunity as a Board member to explore the broad range of issues impacting the auditing profession as we seek to make progress to strengthen the reliability and accuracy of audit reports.

P a g e | 21



Chairman Ben S. Bernanke

At the 48th Annual Conference on Bank Structure and Competition, Chicago, Illinois (via satellite) - May 10, 2012

Banks and Bank Lending: The State of Play

I am pleased to speak this morning at what has become, over nearly 50 years, perhaps the most prestigious conference for bankers, academics, and bank supervisors in the United States.

The first part of my remarks will highlight the significant progress that has been made over the past several years toward restoring the banking system to good health.

I will also talk about some of the challenges banks face as they adapt to the post-crisis economic and regulatory environment.

I will then review recent trends in credit conditions, noting that bank lending has generally been improving but remains restrained in some areas.

The State of the Banking System

P a g e | 22



Since the financial crisis, banks have made considerable progress in repairing their balance sheets and building capital.

Risk-based capital and leverage ratios for banks of all sizes have improved materially and are significantly above their previous highs.

Importantly, the 19 largest banking institutions that participated in the 2009 stress tests, as well as the two subsequent Comprehensive Capital Analysis and Review (CCAR) processes, have considerably more and better-quality capital than a few years ago.

Indeed, those firms have increased their Tier 1 common equity, the best buffer against future losses, by more than $300 billion since 2009, to nearly $760 billion.

The Tier 1 common ratio for these firms, which compares this high-quality capital to risk-weighted assets, stood at 10-1/2 percent at the end of last year.

The latest CCAR, conducted earlier this year, demonstrated that most of the 19 firms would likely have sufficient capital to withstand a period of intense economic and financial stress and still be able to lend to households and businesses.

The hypothetical supervisory stress scenario used in the CCAR was quite severe; it included a peak unemployment rate of 13 percent, a 50 percent drop in equity prices, and a 21 percent further decline in housing prices, as well as steep falls in prices of financial assets most exposed to conditions in Europe.

Under this highly adverse scenario, the 19 bank holding companies were projected to incur aggregate losses of more than $500 billion through the fourth quarter of 2013.

Nevertheless, their aggregate Tier 1 common ratio was projected to be 6.3 percent at the end of the scenario period, and 15 of the 19 bank holding companies were projected to maintain capital ratios above all four of the regulatory minimum levels--even after taking into account their proposals for capital actions such as dividends, share buybacks, and share issuance in the baseline scenario.

P a g e | 23



The banking sector overall also has substantially improved its liquidity position over the past few years.

Indeed, large banks in the aggregate have more than doubled their holdings of cash and securities since 2009.

Large banks have reduced their collective dependence on short-term wholesale funding, and many are flush with retail deposits, which tend to be a more stable funding source.

Challenges on the liquidity front remain, however: Some large firms still rely heavily on wholesale short-term funding; and the liquidity needs of the banking system as a whole may become somewhat higher for a while as some of the securities issued under the Federal Deposit Insurance Corporation's Temporary Liquidity Guarantee Program come due, and as the unlimited insurance on noninterest-bearing transaction accounts expires at the end of the year.

Nevertheless, over time, greater liquid asset positions and reduced dependence on wholesale short-term funding, together with more and better capital, will make the banking sector less susceptible to unexpected disruptions in short-term funding markets.

The credit quality of large banks' assets is looking better as well, although the improvements have been uneven across types of loans.

In the aggregate, delinquency rates on loan portfolios at large banks have declined substantially from their peaks.

However, while delinquencies on commercial and industrial (C&I) loans and consumer loans have fallen to the lower end of their historical ranges, delinquencies on loans backed by commercial or residential real estate have declined only moderately and remain elevated.

The profitability of large banks has been edging up as credit quality has firmed and banks have trimmed noninterest expenses.

Even so, large banks' profitability remains well below the levels that prevailed before the financial crisis began, and banks continue to struggle to expand their revenues.

P a g e | 24



Developments that can be traced back to the financial crisis--including a still-weak economy, changes in market conditions and practices, and tighter financial regulations--are clearly important reasons for these trends.

Community banks play important roles in local economies, and so it is notable that their condition has also improved.

Their regulatory capital ratios have increased significantly since 2009 and stand well above their recent norms.

As has been the case at large banks, delinquency and charge-off rates at community banks have declined across most major categories of loans, and fewer institutions failed in 2011 than in each of the previous two years. That said, clusters of small bank failures can affect credit availability in a community while bank-dependent borrowers work to establish new relationships with surviving institutions.

In addition, while standard measures of community banks' profitability, such as return on equity and assets, improved last year, as was also true at larger institutions, most of the gains were due to reductions in loan loss provisions rather than to more sustainable sources of profit such as expanded lending.

Financial-market indicators reflect the substantial improvements in banks' financial conditions since the crisis as well as the sizable challenges remaining.

Bank credit default swap (CDS) premiums are now well below their crisis peaks, and bank stock prices have retraced some of their earlier losses and have outperformed the broader market this year, boosted somewhat by the release of the CCAR results in March and first-quarter earnings that largely beat analysts' expectations.

However, CDS premiums remain elevated for some of the larger, more globally connected firms, and their stocks continue to trade at market-to-book ratios of less than 1.

P a g e | 25



A number of key systemic risk measures that evaluate the potential performance of firms during times of financial market stress have improved in recent months.

These indicators of systemic risk are now well below their levels in the crisis, and, overall, they present a picture of a banking system that has become healthier and more resilient.

Regulatory and Financial Challenges

Banks face a number of significant challenges as they adapt to the post-crisis economic environment and to new domestic and international regulatory requirements.

The most systemically important financial firms will face meaningfully higher capital and liquidity requirements and continue to undergo regular supervisory stress tests.

They will also be required to submit so-called living wills to facilitate their orderly resolution if necessary.

Additionally, banks must enhance their reporting systems and improve disclosure.

These new requirements are critical to safeguard the stability of the financial system and to help prevent another costly crisis.

At the same time, regulators appreciate that the new rules impose significant burdens on banks.

For that reason, and to minimize adverse effects on the supply of credit, many of the most significant rules are being phased in gradually and only after extended processes of consultation with industry and other stakeholders.

It is worth reiterating that most of these enhanced regulatory and supervisory measures focus on the largest, most interconnected financial institutions, and we are working to ensure that community banks are not subjected to rules designed primarily to constrain risks at larger institutions.

P a g e | 26



We have an ongoing dialogue with community banks through many channels, including, for example, our Community Depository Institutions Advisory Council.

The council, whose membership is drawn from smaller banks, credit unions, and savings associations in each of the 12 Federal Reserve Districts, meets with the Board in Washington twice a year to discuss supervisory and regulatory issues that affect their institutions.

We have also established a special supervisory subcommittee of the Board which focuses on community banking issues.

In addition to strengthened regulatory and supervisory requirements, banks face market demands that they operate with more resilient business models.

In many contexts, counterparties are demanding greater security in the form of more and better-quality collateral or higher margins.

In addition, lenders to banks may be requiring greater compensation for risk, thereby raising banks' funding costs.

Banks have also been navigating an economic recovery that has been halting at times.

Consequently, although the condition of the banking system is improving, demand for credit generally has remained sluggish, and the creditworthiness of some borrowers that would normally turn to banks for loans remains impaired.

These factors, together with tighter credit policies imposed by many lenders, have restrained somewhat the expansion of bank credit.

Credit Conditions and Bank Lending

Notwithstanding the various headwinds, credit conditions in the United States have improved significantly in a number of areas.

Many--though certainly not all--businesses and households are finding it easier to borrow than they did a few years ago, in part because of better conditions in financial markets more broadly.

P a g e | 27



Large businesses with access to capital markets have generally been able to raise funds at attractive terms, with both investment- and speculative-grade firms taking advantage of historically low interest rates to issue bonds at a robust rate.

Moreover, consumers with strong credit histories have ready access to credit cards and auto loans, supported by solid issuance of consumer-related asset-backed securities.

Banks also supply credit by purchasing securities, and their purchases have grown rapidly in recent months--in particular, those of agency-guaranteed mortgage-backed securities (MBS).

In this challenging time for housing markets, banks are attracted by the securities' government guarantee.

Additionally, some larger banks may be accumulating these securities in preparation for more-stringent liquidity regulations.

Signs of improvement notwithstanding, credit conditions in some sectors and for some types of borrowers remain tight.

Mortgage lending is an important example.

Since its peak, U.S. home mortgage credit outstanding has contracted about 13 percent in real terms.

Many factors suggest that this situation will be difficult to turn around quickly, including the slow recovery of the economy and housing market, continued uncertainty surrounding the future of the government - sponsored enterprises (GSEs), the lack of a healthy private-label securitization market, and cautious attitudes by lenders.

Financing conditions in the commercial real estate sector also remain strained as fundamentals, including high vacancy rates, depressed property prices, and the poor quality of existing loans, continue to be weak.

Moreover, the market for commercial MBS--a source of liquidity for some lenders in this sector--is still struggling to regain its footing.

P a g e | 28



The Federal Reserve's quarterly Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) offers a more-nuanced view of how lending terms are changing.

The SLOOS indicates that standards and terms in many loan categories have eased somewhat further in recent quarters from the very tight conditions that prevailed earlier in the recovery.

For example, the April SLOOS pointed to the first material net easing in lending standards for commercial real estate loans since 2005 and to a further easing of standards for most types of consumer loans.

In addition, SLOOS respondents suggested that stepped-up competition has induced a large number of domestic banks to reduce fees and spreads on C&I loans to firms of all sizes.

The SLOOS also indicates that demand for many types of loans has continued to increase, with demand for C&I loans having risen to relatively high levels.

Consistent with the results of the SLOOS, C&I lending has indeed been rising sharply lately.

Banks have focused on C&I lending because business borrowers' creditworthiness is improving and because the majority of C&I loans carry floating interest rates that reduce interest rate risk.

In addition, domestic banks reportedly are picking up customers as a result of a pullback by some European institutions.

Auto lending also has reportedly been solid, reflecting strong fundamentals in auto markets--such as robust demand for used cars and relatively low delinquency rates on existing auto loans.

The strong fundamentals for auto loans in turn also appear to have contributed to an easing of lending standards and terms.

But, as I mentioned earlier, residential mortgage lending has been particularly sluggish.

Tight lending standards and terms remain especially evident.

P a g e | 29



To be sure, a return to pre-crisis lending standards for residential mortgages wouldn't be appropriate; however, current standards may be limiting or preventing lending to many creditworthy borrowers.

For instance, in the April SLOOS, we asked banks a hypothetical question about their willingness to originate GSE-eligible mortgages relative to 2006 for borrowers with a range of credit scores and available down payments.

The SLOOS found that even when the loans were accompanied by a 20 percent down payment, many banks were less likely to originate loans to borrowers with given GSE-eligible credit scores, despite the originating bank's ability to sell the mortgage to the GSEs.

Most banks indicated that their reluctance to accept mortgage applications from borrowers with less-than-perfect records is related to "putback risk"--the risk that a bank might be forced to buy back a defaulted loan if the underwriting or documentation was judged deficient in some way.

Small businesses owners, who in the past might have tapped into the equity in their homes or used their homes as collateral for small business loans, also have found conditions challenging in recent years.

The stock of small loans to businesses on bank balance sheets at the end of last year was more than 15 percent below its peak in 2008.

These loans looked to have ticked up in the fourth quarter of 2011, consistent with the reported increase in demand for loans by small firms in the SLOOS.

Responses to the monthly National Federation of Independent Business survey also suggest some modest improvement in the small business sector: The share of respondents reporting a need for credit has moved up from lows of recent years, and the net share of respondents who say that credit is more difficult to obtain than it was three months ago is notably below its peak in 2009.

P a g e | 30



The Federal Reserve is keenly interested in understanding how shifts in loan supply, loan demand, and borrower quality may be affecting lending and, by extension, the broader economy.

Of course, sorting out the relative effect of changes in loan demand from the effect of changes in loan supply can be quite difficult because they can be influenced by the same factors.

For example, a shift in the economic outlook can affect both the willingness of banks to lend and the desire and ability of firms and households to borrow.

Recent research at the Federal Reserve examines cyclical changes in banks' lending standards as reported in the SLOOS--a commonly used indicator of loan supply.

It attempts to assess how much of those changes were a "typical" response to macroeconomic and bank-specific factors, and how much was "atypical" or unexplained.

This analysis suggests that the tightening of lending standards that occurred between 2007 and 2009 was much greater than a model based on historical experience would predict, contributing to the subdued pace of lending.

These results are consistent with other evidence that the crisis induced exceptionally high levels of risk aversion and uncertainty on the part of both lenders and borrowers, constraining the flow of credit.

As these factors have receded and the economy has improved, lending standards have become less stringent.

Some bankers and borrowers believe that enhanced supervision and regulation has made it more difficult for banks to expand their lending.

The Federal Reserve takes seriously its responsibility to ensure that supervisory actions to protect banks' safety and soundness do not unintentionally constrain lending to creditworthy borrowers, and we have taken a variety of steps to address these concerns.

P a g e | 31



For example, we have issued guidance to supervisors stressing the importance of taking a balanced approach to supervision and of promptly upgrading a bank's supervisory rating when warranted by a sustainable improvement in its condition and risk management.

Some analysis has indicated that, all else being equal, banks with lower supervisory ratings tend to lend less; prompt upgrades by supervisors when such upgrades are appropriate may thus ease an unnecessary constraint on lending.

Indeed, in the fourth quarter of 2011 and the first quarter of this year, the number of ratings upgrades for banks and bank holding companies supervised by the Federal Reserve exceeded the number of downgrades. The last time that upgrades exceeded downgrades was in 2005.

In addition, we have stepped up examiner training on relevant lending issues, and we have emphasized to examiners that an open dialogue with bank management is essential.

We have also looked into specific concerns raised about the examination process and its effect on banks' willingness to lend.

For example, during 2011, we reviewed commercial real estate loan classification practices to assess whether examiners were properly implementing the interagency policy statement on workouts of commercial real estate loans.

We analyzed documentation for more than 300 loans with identified weaknesses in six Federal Reserve Districts.

We found that Federal Reserve examiners were appropriately implementing the guidance and were consistently taking a balanced approach in determining loan classifications.

Moreover, the documentation we reviewed indicated that examiners were carefully considering the full range of information provided by bankers, including relevant mitigating factors, in determining the regulatory treatment for the loans.

P a g e | 32



Conclusion

To sum up, conditions in the banking system--and the financial sector more broadly--have improved significantly in the past few years.

Banks have strengthened their capital and liquidity positions.

The economic recovery has facilitated the rebuilding of capital and helped improve the quality of the loans and other assets on banks' balance sheets.

Nonetheless, banks still have more to do to restore their health and adapt to the post-crisis regulatory and economic environment. As the recovery gains greater traction, increasing both the demand for credit and the creditworthiness of potential borrowers, a financially stronger banking system will be well positioned to expand its lending.

Improving credit conditions will in turn help create a more robust economy.

P a g e | 33



Speech Gabriel Bernardino, Chairman of EIOPA

EIOPA, Solvency II and the Loss Adjusting Profession General Assembly of the European Federation of Loss Adjusting Experts Porto, 11 May 2012 Important parts I will touch on three main issues: I. What is EIOPA, the European Insurance and Occupational Pensions Authority for whom I have the privilege to serve as chairman; II. How Solvency II can contribute to the improvement of risk management; III. The loss adjusting profession, its relevance for the insurance market and the overall society.

What is EIOPA? EIOPA is the European supervisory authority for the insurance and occupational pensions sectors. We are a young organisation: in January, we completed our first year as a European agency, one of the three European Supervisory Authorities in the financial system. We are an independent Union body with legal personality, accountable to the European Parliament and the Council.

P a g e | 34



We clearly see our mission, tasks and responsibilities. We see EIOPA’s mission in protecting public interest by contributing to the short, medium and long term stability and effectiveness of the financial system, for the EU citizens and economy. This mission is pursued by promoting a sound regulatory framework and consistent supervisory practices in order to protect the rights of policyholders, pension scheme members and beneficiaries and contribute to the public confidence in the European Union’s insurance and occupational pensions sectors. This is a very important mission if we realize the relevance of insurance and occupational pensions in the daily life of citizens and on the development of the economy.

The objectives of the new European supervisory authorities, and particularly of EIOPA, are extremely relevant:

Contribute to a stable and effective financial system;

Promote sound regulation and supervision;

Enhance customer protection;

Ensure the transparent, efficient and orderly functioning of the markets;

Contribute to international supervisory co2ordination;

Avoid regulatory arbitrage;

Ensure equal conditions of competition; and

Implement appropriate regulation and supervision of risks. In order to fulfil these objectives, EIOPA has important powers. We develop technical standards that become binding for all insurance undertakings in the EU and issue guidelines and recommendations that national supervisors apply on a “comply or explain” basis. We settle disagreements between national supervisory authorities in cross border situations and have a coordinating role in crisis situations.

P a g e | 35



EIOPA monitors the correct application of the EU law in the different Member States, by using, if necessary, its powers of investigation in local markets. EIOPA and national supervisors are independent from one another, but closely cooperate with one another. EIOPA does not substitute local authorities. It has its own powers and responsibilities, but day to day supervision remains a task of the national authorities. The key decision organ of EIOPA is the Board of Supervisors, where the heads of the national supervisory authorities are represented. However, it is very important to mention that the EIOPA Regulation provides that members of the Board of Supervisors must act with independence and within the sole interest of the European Union. Most of our decisions are taken by simple majority, some by qualified majority. EIOPA wants to represent an added value to European consumers and to the European supervisory landscape. In order to fulfil its mandate, EIOPA is building up its own resources and exploiting the knowledge and experience of its Members.

This is a very important element. We want to create a truly European supervisory culture. A culture based on best and robust practices. In order to create this culture, I want to bring together all the national supervisory authorities. All of them have an important contribution to make.

EIOPA’s regulatory tasks

P a g e | 36



EIOPA has been working on Solvency II, advising the EU Commission on the Level 2 implementing measures. We have also been developing draft technical standards and guidelines on around 40 different areas of Solvency II. We are doing this in a transparent way by informally consulting with key stakeholders. We plan to publicly consult as soon as the legal framework will allow us to do that. In order to facilitate the preparatory work of insurance undertakings for Solvency II, we launched a number of important public consultations in areas such as the Own Risk and Solvency Assessment (ORSA) and Supervisory Reporting and Public Disclosure, including the Solvency II XBRL Taxonomy. We continued to work on the Solvency II specifications for example by issuing a joint report on calibration of non life risk factors in the standard formula. EIOPA also provided input into the Commission’s revision of the Insurance Mediation Directive (IMD) by carrying out an extensive survey of national laws providing for sanctions (both criminal and administrative) for violations of the provisions of the IMD. The Commission’s legislative proposal (IMD2) is expected soon and I am aware that the Commission intends to capture loss adjusters under the scope of IMD2. Also, on the regulatory side, we delivered our advice to the Commission on the revision of the IORP Directive. Stability and consumer protection were at the core of our advice. We advocate the use of a consistent and realistic measurement of all assets and liabilities and proposed the adoption of a Key Information

P a g e | 37



Document (KID), containing the fundamental elements about performance, costs, charges and risks of defined contribution schemes. I believe that this will help to increase the confidence of consumers in this type of plans.

Oversight At EIOPA, we are committed and motivated to contribute to the creation of a truly European supervisory culture: a culture that promotes stability, enhances transparency and fosters consumer protection. A culture based on intelligent and effective regulation which does not stifle innovation. That is why in the area of oversight we took as a priority our participation in the colleges of supervisors, contributing to a more consistent practice. In the course of 2011, colleges of supervisors with at least one physical meeting or teleconference were organized for 69 European insurance groups. Last year, we set an annual action plan for colleges of supervisors and were monitoring its actual implementation. In February 2012, EIOPA issued the report on the functioning of colleges in 2011 and the Action Plan 2012 for colleges of supervisors. In the Action Plan, we defined clear timelines within the colleges for the setting up of an appropriate work plan to deal with the group internal model validation process.

Consumer protection and financial innovation Consumer protection and financial innovation are priority areas for EIOPA.

P a g e | 38



We have prepared Guidelines and a Best Practices Report on Complaints Handling by Insurers. With these Guidelines, we intend to fill an existing regulatory gap at EU level and promote convergence of regulatory practice. They were the subject of a public consultation at the end of last year and are due to be finalised in the second quarter of 2012. At the end of last year, EIOPA published a Report on Financial Literacy and Education Initiatives by national competent authorities; it was a stock take of existing structures/processes in Member States. This was in line with a requirement under our empowering legislation to review and coordinate such initiatives. We collected data on consumer trends amongst our Members authorities. This helped us to prepare an Initial Overview, analysing and reporting on those trends. This Overview was published this year in February. The Overview identified three key trends: (i) Consumer protection issues around Payment Protection Insurance (PPI) (ii) Development of unit linked life insurance and (iii) Increased use of comparison websites by consumers. This is just the start of our ongoing monitoring of consumer trends. And finally, we focused on disclosure and selling practices of Variable Annuities.

P a g e | 39



This exercise was brought about by the fact that some variable annuities products may achieve outcomes that are not easy for consumers to understand. We consulted on a draft Report at the end of last year and its final version was published this year in April. Finally, last year, we organized our first EIOPA Consumer Strategy Day where we had the opportunity to discuss important consumer issues with different stakeholders.

Financial stability EIOPA was also active in the financial stability domain by assessing the resilience of the EU insurance sector to major shocks through the EU wide stress test exercise and by testing different scenarios on the low yield stress test which shows that the insurance industry would be negatively affected if a scenario were to materialize where yields remain low for a prolonged period of time. EIOPA also issues, on a biannual basis, Financial Stability Reports. One of the conclusions we made in our December publication is that “due to significant natural catastrophes during the examined period, reinsurers suffered above average losses. Furthermore, life insurers may be subject to the risk of having insufficient liquidity, which can be emphasised by banking related transactions, e.g. through “liquidity swaps” and similar products as well as due to increasing surrenders”. Furthermore, EIOPA is contributing to macroprudential discussions and risk analysis in the context of the European Systemic Risk Board, supported by the establishment of the EIOPA Risk Dashboard.

International relations

P a g e | 40



EIOPA is fully aware of the importance of international relations in a globalized world. In this area, we provided final advice to the European Commission on the assessment of the Solvency II equivalence of the Swiss, Bermudan and Japanese supervisory systems and we have started to contribute to the development of robust international standards by actively participating in the work of the International Association of Insurance Supervisors (IAIS). During 2011, EIOPA maintained its regulatory and supervisory dialogues with the US National Association of Insurance Commissioners (NAIC), the China Insurance Regulatory Commission, the Japanese Financial Services Authority and the Latin American Association of Insurance Supervisors. EIOPA also enhanced its regular exchanges with the US Federal Insurance Office (FIO) in the context of FIO’s responsibilities for insurance law harmonisation at US federal level and in the area of international relations.

EIOPA’s values I would like to say a couple of words about EIOPA’s values. In our daily activities and relations with our members and stakeholders, we are governed by the principles of Independence, Responsibility, Integrity, Transparency, Efficiency and Team Spirit. We aim to be a modern, competent and professional organization that is aware of the expectations of European citizens and wants to ensure that they all are taken on board in our strategies and actions. Our goal is to act independently in an effective and efficient way towards the creation of a common European supervisory culture – and this should not be just empty words.

P a g e | 41



We consider it our shared responsibility to build a sound framework for the future of insurance activities; a framework that takes into account the specificities of their business models. I would like to assure you that we are ambitious in fulfilling our obligations towards EU citizens and businesses and I am confident that together we will succeed.

Solvency II

As you know, Solvency II is the new regulatory regime for the EU insurance industry and will be implemented on 1 January 2014. Solvency II will bring a better alignment between risk and capital, promoting good risk management practices and fostering transparency. Regulatory regimes are always a result of a balancing act between different objectives. Solvency II will provide an appropriate basis for increased policyholder protection and will contribute to reinforce financial stability, allowing insurance companies to continue to play their natural countercyclical role in times of stressed markets. Gladly, the Solvency II regime is increasingly being perceived as more than a “check the box” regulatory exercise that determines capital requirements. It requires the European insurance industry to critically analyze its risks, and in the process, assess the true costs attached to them. Today, I would like to talk to you particularly about risk management, which I think is of particular relevance for your profession. Now, more than ever, insurers need to rely on strong risk management capabilities in order to deal with the different challenges posed by the economic slowdown, the financial market volatility, the stress on

P a g e | 42



sovereign debt, the demographic changes and the evolving pattern of natural catastrophes. During the last decade, not only risk management itself but also its practical application underwent a major transformation. Improvements in modelling methodology, significant development of new internal control instruments, increasing investors’ and analysts’ pressure as well as a new generation of risk managers with a more holistic view arriving in the company’s also triggered change. Companies which invested, early and continuously, in establishing an effective and well integrated risk management are now taking the benefits from that strategic decision. It should not come as a surprise that insurance and reinsurance undertakings are at the forefront of applying sound and robust practices of risk management. After all, insurance is in itself a risk management tool and thus the industry possess a wide range of specific know how and experience in this area. Nevertheless, from an historical perspective, risk management has not been viewed as a relevant element of the insurance regulatory regime. This has changed with Solvency II. I believe that appropriate risk management is a cornerstone of any modern risk based regulatory regime and consequently has its own role in the supervisory process. Solvency II is mostly known for its risk based capital requirement calculation. However, it is essential to recognize that one of the most important elements in this regime is the heavy reliance on robust risk management practices.

P a g e | 43



Under the Solvency II regime, insurance and reinsurance undertakings must have in place an effective risk management system comprising strategies, processes and reporting procedures necessary to identify, measure, monitor, manage and report, on a continuous basis the risks, at an individual and at an aggregated level, to which they are or could be exposed, and their interdependencies. Importantly, risk management cannot be seen as a point in time procedure. It is a continuous process that should be used in the implementation of the undertaking’s overall strategy and should allow an appropriate understanding of the nature and significance of the risks to which it is exposed, including its sensitivity to those risks and its ability to mitigate them. Taking into consideration some lessons learned from the financial crisis, Solvency II identifies a number of elements which are particularly relevant for a robust implementation of a risk management system: • First of all, it is paramount to recognize the ultimate responsibility of the management body in ensuring that the implemented risk management system is suitable, effective and proportionate to the nature, scale and complexity of the risks inherent in the business. • Secondly, the risk management system needs to be documented and communicated to the relevant management and staff, to ensure it is embedded within the business. • Thirdly, an effective risk management system should cover all material risks the undertaking might be exposed to. • Finally, and significantly, the risk management system must be integrated into the organizational structure of the undertaking and its decision making processes.

From a supervisory perspective, the insurance undertaking’s risk management system must be comprehensive, covering at least areas like

P a g e | 44



underwriting and reserving, asset–liability management, investment, liquidity and concentrations, operational risk and reinsurance and other risk mitigation techniques. In each of these areas, supervisors have been transparent in their expectations towards undertakings. Let me touch particularly on the area of underwriting and reserving. Underwriting risk is at the centre of the insurance business. The risk of loss or of adverse change in the value of insurance liabilities, due to inadequate pricing and reserving assumptions is clearly related to the quality of the information available and its management. Consequently, supervisors expect that suitable processes and procedures will be in place to ensure the reliability, sufficiency and adequacy of both the statistical and accounting data to be considered both in the underwriting and reserving processes. As part of the system of governance, insurance undertakings should be required to employ personnel with the skills, knowledge and expertise necessary to discharge the responsibilities allocated to them properly. Furthermore, insurance undertakings should ensure that effective systems are in place to prevent conflicts of interest and that potential sources of conflicts of interest are identified and procedures are established in order to ensure that those involved with the implementation of the undertaking’s strategies and policies understand where conflicts of interest could arise and how such conflicts are to be addressed. Furthermore, the undertaking should ensure that all policies and procedures established for underwriting are applied by all distribution channels of the undertaking insofar as they are relevant for them and that they have in place adequate claims management procedures which should cover the overall cycle of claims: receipt, assessment, processing

P a g e | 45



and settlement, complaints and dispute settlement and reinsurance recoverables. I believe that the practical implementation of these requirements is of fundamental relevance for the loss adjusting profession.

The Loss Adjusting profession The profession of loss adjuster is crucial for the insurance business and for the society. The services provided by loss adjusters to insurers and other customers should be based on professionalism, independence and impartial and accurate assessment of claims. These are indeed the key words of your federation. Your role is particularly sensitive in the relationship between insurers and their clients and claimants. You have a particularly relevant role when dealing with major catastrophes. I am aware that, during the years of its existence, FUEDI made a lot of efforts in maintaining high standards of professional conduct and competence, high educational standards as well as unified standards of customer services. I believe that these efforts represent a priceless contribution to the fully integrated and reliable insurance market of the European Union and to the overall reinforcement of consumer protection. I am sure that, in the near future, the loss adjusting profession will be further recognized at the EU level. In my opinion, it is fundamental to assure that all loss adjusters working in the EU follow strict rules of professional conduct including

P a g e | 46



maintaining qualities of integrity and impartiality and are bound by sound loss adjusting practices. It is also my belief that proper self regulation is an important tool in this area, but nevertheless, some basic principles should be incorporated in the EU regulatory framework. I am looking forward to work in close cooperation with your profession and with the insurance industry to ensure increased confidence for policyholders and beneficiaries in the insurance sector.

P a g e | 47



“Shaping the future of Europe’s financial markets” Verena Ross, Executive Director of ESMA, Centre Forum, London, 11 May 2012 Ladies and Gentlemen, I am very pleased to be with you today and I would like to thank you for inviting me to deliver the keynote speech this morning. I am keen to share with you my views on the future of Europe’s financial markets, and in particular on the role of ESMA in meeting the challenges of regulating these markets. I would like to begin by addressing some of the background behind the current system of regulation in the EU before moving on to speak about ESMA and our Work Programme. What kind of financial oversight system is now developing in Europe? In June 2009, the Heads of EU Member States and governments called for a move towards more harmonised regulation and integrated European supervision in order to ensure a true level playing field for all actors at the EU level. This call reflected not only the repercussions of the financial crisis, which has deeply affected, and continues to affect, Europe, but it also responded to failings in the areas of cooperation, coordination, consistent application of Union law and trust between national supervisors.

P a g e | 48



The response of the EU was the establishment of the European System of Financial Supervision and the creation of the European Supervisory Authorities for securities, banking and insurance in 2011, as well as the European Systemic Risk Board. This was a crucial political decisions on the part of the European Union to improve financial services regulation in Europe. The new system’s objective is not only to secure a more robust legal framework for financial markets and all its players, but also to provide benefits to investors and the wider economy. Moreover, the benefits of a single financial market are even more obvious when looking at the alternative: 27 separated and isolated financial systems functioning with their own rules. The 16 months, since our establishment on 1 January 2011, have been a busy time for ESMA, on the organisational, regulatory and supervisory fronts. We have set about building the new organisation at a time of ongoing turmoil in the EU financial markets and of significant legislative activity in the area of securities regulation. In terms of operational set-up, ESMA began life with about 35 staff from its predecessor body, the Committee of European Securities Regulators, at the beginning of 2011 but by year’s end had nearly doubled to about 70. This included the reorganisation to align the structure and the subsequent recruitment of the management tier to ensure that we had the required basis in place to support delivery of our responsibilities. We have succeeded in recruiting highly qualified candidates from varied backgrounds including government, regulatory bodies and the private sector. And we are not finished yet.

P a g e | 49



By the end of this year we intend to have 100 staff on board and I would like to take this opportunity to say that we are still keen on attracting experienced candidates from as broad a range of backgrounds as possible.

I/ ESMA’s Role in the new EU framework What is our role in the new EU regulation framework? ESMA has two key aspects to its mission as an organisation, which are: the building of a “single rulebook” for the regulation of the EU’s financial markets and ensuring its consistent application at national level. While this is an ambitious mission, presenting significant challenges, I feel that ESMA has already made some substantial progress in meeting the challenges in both these areas over its first 16 months of existence.

Development of a Single Rulebook In terms of the development of a single rulebook for Europe, ESMA took on its new role as EU securities markets standard setter with clear responsibilities for the development of technical standards and advice for new, or soon to be revised, pieces of legislation. Over the last year, we not only produced the first technical standards (for credit rating agencies (CRAs) and short-selling), but also conducted significant preparatory work for the enormous task of devising the standards for the OTC derivatives markets (under EMIR) this year. We provided advice to the Commission for secondary legislation in the areas of prospectuses and alternative investment funds under AIFMD. Furthermore, we used our powers to issue guidelines and recommendations to enhance the regulatory regime on "Systems and controls in an automated trading environment" as well as on "regulatory framework for ETFs and other UCITS" that will be published by ESMA in June.

P a g e | 50



Supervisory Convergence While the single rulebook will be the basis achieving supervisory convergence, purely having a single legal text does not actually achieve convergence in implementation and actual regulation on the ground. Supervisory convergence is still very much work in progress, but I want to point to a number of work streams through which ESMA has actively worked on achieving this common approach to regulation. ESMA has issued opinions on the treatment of sovereign debt under IFRS and on a number of pre-trade transparency waivers - basically agreeing on what the national regulatory treatment should be in these two important areas. During the difficult market period last August, ESMA co-ordinated - without formal legal powers - simultaneous bans on net short positions in Belgium, France, Italy and Spain, playing a role in aligning wherever possible the interpretation and implementation of the measures. Similarly, we coordinated monitoring of market developments and market infrastructure resilience through this difficult period. ESMA also conducts peer reviews of national authorities’ activities, which we publish. These reviews look at such elements as the degree of convergence reached in the application of EU law and in its enforcement. One area which ESMA has recently conducted a peer review on is market abuse and the use of sanctions in this area.

Direct supervision Going beyond supervisory convergence, ESMA has been given responsibility to directly supervise a number of cross-border market players.

P a g e | 51



In July 2011 we took on the responsibility for the registration and supervision of CRAs wishing to conduct business in the EU. Bringing CRAs under the umbrella of EU supervision is a milestone achievement which will contribute to a sounder rating process and thus more resilient markets and improved investor protection. In this context, we have undertaken our first on-site inspections before the end of the year, and will conduct further individual and thematic supervisory reviews, on-site inspections and off-site monitoring and risk analysis, this year. From 2013, ESMA will also take on direct supervisory responsibility for Trade Repositories (TRs) under the EMIR regulation - expanding the cross EU supervisory role.

Key priorities for 2012 The introduction of new and the overhaul of existing legislation will be a key challenge for ESMA this year. ESMA will work on establishing harmonised binding implementing measures in different areas such as: OTC derivatives (EMIR), investment funds (UCITS), alternative fund managers (AIFMD) and issuers (Prospectus directive). EMIR in particular will dominate our agenda for the next 6 months, with a consultation paper in June and final standards due to be delivered by end September. In addition, ESMA will provide advice and support on legislation being introduced and debated by Council and Parliament, including MiFID/MiFIR, MAD/MAR, CSD, Venture capital etc. We will need to start conducting some preparatory work in many of these areas, as the issues ESMA is likely to have to work on (once the Level 1

P a g e | 52



legislative process is completed) are not only numerous but often technically complex and difficult. ESMA will want to collect information and data, for example to support its future work in areas such as non-equity transparency under MiFID/MiFIR. On the supervision side, 2012 will be the first year in which ESMA will fully exercise its duties on CRAs and - as I already mentioned - needs to prepare itself to also take up supervisory responsibilities for Trade Repositories. ESMA will also need to prepare for the work on supervisory colleges which will be established in 2013 for the regulation of cross-border central counter parties under the OTC derivatives legislation. The reach and impact of these institutions operating in one country could dramatically affect investors and intermediaries of other countries. ESMA will play, in this framework, a co-ordination and a mediation role if needed.

II/ ESMA’s stakeholders - national regulators, market players and investors While ESMA has many new tasks and powers, the new framework is based on effective and extensive cooperation with and between national supervisory authorities. In this context I would like to mention the very active participation by the UK FSA in ESMA’s activities, at technical level and in ESMA’s Board of Supervisors. It is important for us to have this strong input especially into ESMA's rule making process. In addition, we continue to rely on the UK - as on any other national competent authority - to conduct the day to day supervision of their

P a g e | 53



authorised firms and market infrastructure players, many of which are active across the whole of the Union. ESMA's mandate is clear: building “one set of rules” for an “effective EU single market” – and I know that UK investors and financial institutions support this motto. It is in the interest of issuers, investors and intermediaries to have the same rules across Europe. It makes it easier for issuers to raise cheaper funding and for financial institutions to develop their business across the EU single market. It is also in the retail investor’s interest to have a larger choice of financial products and the same level of protection wherever a product is sold in Europe. To create this single set of rules and achieve an 'effective EU single market', ESMA needs input not only from national competent authorities, but also from the wider stakeholder community. This includes the key market players - buy side/sell-side, infrastructure, issuers, etc - but also retail investors, small and medium size companies as well as the European institutions. We are dependent on receiving thoughtful and informed views, but also data and information that allows us to evaluate different policy options impartially, in order to develop the high quality standards and advice that you expect from us on the wide range of topics that are under ESMA's remit. In this context, I would remind this audience that while it may be the national tendency to see rules and regulations emanating from Brussels as an attempt to stifle the UK's financial services sector, they should view this consultative process as an opportunity for them to contribute to the development of a regulatory system which takes into account the best attributes of Europe’s largest capital market while ensuring that these markets are allowed to flourish to the benefit of all.

P a g e | 54



III/ ESMA’s role in international cooperation On international cooperation ESMA will play a central role with the objective of fostering consistent application of European rules toward third country entities. In coordination with the European Commission, ESMA will also ensure that Europe speaks with one single voice when it has to deal with third county regulators and will strengthen Europe’s position. Global leaders have established common objectives at G20 levels and regulators have set up a number of international groups aiming at international consistency of the different regimes. At the end of the process we will need to rely on equivalence and co-operation among authorities. We will never be effective if a single regulator seeks to regulate global financial markets from one single location. ESMA is already and will continue to play its full role in the global dialogue, whether that is in relation to the OTC derivative agenda, the regulation of CRAs or alternative investment fund managers.

Concluding remarks I would like to conclude by saying that ESMA has a big contribution to make to the new European system and financial supervision. I have explained this morning what we have already done and what we are planning to do, to contribute to the objective of a stable financial market for Europe. In this endeavour we will be working closely with national supervisors, the European institutions and our wider stakeholders, while also keeping an eye on the international dimension of financial markets.

P a g e | 55



Formation of the Enhanced Disclosure Task Force The importance to market confidence of useful disclosure by financial institutions of their risk exposures and risk management practices has been underscored in recent years, and the FSB mentioned, in its press release on 20 March 2012, that it will facilitate the formation of a private-sector task force to develop principles for improved disclosures. The FSB is pleased to announce that the Enhanced Disclosure Task Force (EDTF) has been established. The co-chairs of the EDTF are: Hugo Bänziger, Chief Risk Officer and Member of the Management Board, Deutsche Bank; Russell Picot, Group General Manager and Group Chief Accounting Officer, HSBC Holdings plc; and Christian Stracke, Managing Director, Member of Investment Committee, and Global Head of Credit Research Group, PIMCO. In addition to the co-chairs, the EDTF initially has 25 senior officials and experts representing financial institutions, investors and analysts, credit rating agencies, and external auditors. Summary biographies of the co-chairs and a listing of the task force’s initial participants are shown in the annex to this press release. The primary objectives of the EDTF are (i) to develop principles for enhanced disclosures, based on current market conditions and risks, including ways to enhance the comparability of disclosures, and

P a g e | 56



(ii) to identify leading practice risk disclosures presented in annual reports for end-year 2011 based on broad risk areas such as those identified in the summary of the first FSB roundtable on risk disclosures held in December 2011. The EDTF will have dialogue with standard-setting bodies, such as the International Organization of Securities Commissions, the Basel Committee on Banking Supervision, the International Association of Insurance Supervisors, the International Accounting Standards Board, the US Financial Accounting Standards Board, and the International Auditing and Assurance Standards Board, at key stages as it develops its recommendations. The recommendations of the EDTF are expected to be reported to the FSB and published during October 2012. The FSB will consider holding another international roundtable by end-2012 to facilitate further discussion by investors, financial institutions, auditors, standard setters, regulators and supervisors on market conditions and risks at that time and the progress toward improving the transparency of risks and risk management through relevant disclosures. Mark Carney, Chairman, FSB, said “We welcome the formation of the Enhanced Disclosure Task Force”. He added “The FSB supports these efforts which, together with the activities of standard setters, are expected to result in improved risk disclosure practices by financial institutions that will provide timely and useful information to investors”.

Summary of key themes that arose during an FSB roundtable on risk disclosure The FSB held a roundtable on risk disclosure in Basel on 9 December 2011.

P a g e | 57



Eighty-two senior officials and other experts from around the world took part in the roundtable, representing investors and analysts, asset managers, credit rating agencies, banks, insurance companies, audit firms, audit regulators, accounting and auditing standard setters, as well as prudential and market authorities. It fostered a rich and lively dialogue about the current state of risks and related disclosures and how to improve their transparency. The key themes that arose during the course of the discussion are summarised below:

Risk disclosure foundations Participants generally preferred risk disclosure requirements in accounting standards and securities regulatory requirements that are principles-based rather than rules-based, but investors also called for measures to improve comparability, such as more consistent risk disclosure formats or templates. Principles-based approaches, such as those in the IASB’s IFRS 7 (on financial instrument disclosure) and the US Securities and Exchange Commission’s guidance on management’s discussion and analysis (MD&A), may be sufficient to underpin disclosure improvements of the type discussed at the roundtable without the issuance of new disclosure requirements, but greater attention needs to be paid to address user needs for information about emerging risks. A key theme raised was that while participation from the private sector is essential in driving forward leading practice risk disclosures, the public sector also plays a vital role in promoting financial stability and in encouraging improved disclosure practices.

Views of regulators and accounting standard setters.

The IASB and FASB discussed their initiatives in recent years to enhance risk disclosures.

P a g e | 58



These include IASB improvements in standards for disclosures about financial instrument risks and valuations, and about offbalance sheet exposures, and FASB enhancements in standards for disclosures about credit risk, valuations and off-balance sheet risks. The two Boards have issued converged standards for disclosures about the gross and net exposures associated with derivatives and certain other financial instruments. Regulators generally acknowledged some recent improvements in risk disclosure practices but they shared the view that further improvement would be useful to enhance transparency. Securities regulators noted the benefits of regulators and firms reaching out to key stakeholders about disclosure issues and the importance of monitoring information discussed during senior management calls with analysts and the related presentations, which could provide insights into ways to improve financial report disclosures. They noted, however, that this required significant resources. The Financial Policy Committee of the Bank of England has encouraged improvements in the quality of disclosures as indicated the Bank’s Financial Stability Reports in June and December 2011. Participants noted that banks and investors in emerging market economies may not have the capacity to produce and assess more granular disclosures of the types that some were recommending during the roundtable.

The role of auditors in risk disclosures

External auditors are currently required to consider the risk of material misstatement of the financial statements in planning and performing the audit.

P a g e | 59



Where the applicable accounting framework requires disclosure in the financial statements of information relating to risk, the auditor is required to audit that disclosure. The auditor’s responsibility for disclosures in documents accompanying the financial statements – such as those in MD&A or the financial review section of financial reports – is generally limited to considering whether it is materially inconsistent with the audited financial statements or a material misstatement of fact. Auditors’ roles are also limited with respect to disclosures in interim financial reports. Generally, other risk disclosures, such as those in presentations to investors and analysts or on a firm’s websites, are not subject to external auditor’s review. Audit regulators and standard setters summarised their recent guidance which included (i) alerts to auditors for assessing and responding to the risk of material financial statement misstatement in this difficult economic environment and (ii) consultative documents to explore possible improvements in auditor reporting and/or changes in the role of the external auditor for disclosures outside the financial statements (e.g., risk disclosures in MD&A). They are considering ways of expanding the scope of risk-related reporting responsibilities through consultative documents issued in 2011 and further work planned for 2012. Challenges remain in areas such as auditability of forward-looking statements, application of materiality concepts, and going concern assessments.

P a g e | 60



Improvements needed in financial institution risk disclosures Investors and analysts stressed that disclosure that enhances the transparency of risks and risk management practices helps to build confidence in the firm’s management, which can be particularly important to attract debt and equity investors. However, they argued that still many financial firms provide only minimal risk disclosures or obscure important information in voluminous disclosures that are not relevant or prioritised. Many participants encouraged that disclosure on past risks no longer of key importance should be allowed to be phased out, to ensure more relevant disclosure and avoid unnecessary reporting burden. Given the current financial market environment, participants expressed the view that enhanced qualitative and quantitative disclosure is particularly important in the following areas:

Information on governance and risk management strategies.

Investors requested better qualitative disclosures about governance, risk management oversight and related controls, and qualitative and quantitative disclosures about risk management practices, risk exposures and remuneration. Banking and insurance representatives noted the relevance of information about a financial institution’s risk appetite and that risk disclosures would be most relevant if they were consistent with information used internally for risk management purposes. Disclosure should be put in the context of the financial institution’s business model to facilitate market understanding of risk management practices.

P a g e | 61



Summary disclosure and benefits of achieving comparability

Participants agreed that risk disclosure should be timely, clear, prioritised, consistent and comparable, as highlighted by a recent survey of financial report users. Many analysts recommended more use of executive summaries of the key risk categories, which should include key metrics on entity-wide risk exposure and risk management effectiveness. Disclosures should better differentiate market risk components (e.g., interest rate, foreign currency and commodity risk as separate disclosure categories) and firms should avoid voluminous or boilerplate disclosures presented as a compliance exercise. Some supported the idea of standardised common disclosure templates to facilitate comparability across firms and jurisdictions and to aid aggregation and assessment of system-wide risks. Others pointed out that risk disclosure should be supported by qualitative information that provides management’s context for measurements and important firm-specific considerations.

Credit risk While acknowledging that some banks have enhanced their disclosures in recent interim reports, participants encouraged improved disclosure about exposures to sovereign debt and to other financial institutions. In addition to the areas for potential enhanced credit risk disclosure raised in the FSB Report, including the disclosure of renegotiated loans for troubled borrowers, participants discussed other areas where enhanced risk disclosure could be useful, such as: (i) expected credit losses for impaired financial assets, (ii) counterparty exposures,

P a g e | 62



(iii) derivatives, (iv) off-balance sheet and joint venture structures, and (v) risk concentrations.

Liquidity risk Participants noted the importance of transparency about liquidity and funding risks, including potentially additional disclosures about sensitivity analyses, sources and volume of liquidity buffers, and maturity tables including contingent lending commitments. Given the increasing role of collateral, participants shared the view that the degree of asset encumbrance should be disclosed at a reasonable interim frequency as well as annually. Some mentioned the importance of addressing the liquidity of collateral and the extent of its use and residual availability.

Capital adequacy and risk weighted assets (RWAs) Participants said that disclosures on capital planning (including the ability of firms to transfer capital across borders) were important. An issue of concern was the resilience of earnings since, for example, extended periods of low interest rates could erode banks’ profit margins and impose downward pressures on bank capital ratios. Further disclosure about RWAs and their calculation methods would be helpful. Investors noted as a positive development that some banks had started to disclose their regulatory leverage ratios voluntarily.

P a g e | 63



Pillar 3 disclosure Participants indicated that the usefulness of Pillar 3 disclosures was hampered by difficulties in reconciling the unaudited Pillar 3 information to the audited financial statements of firms. Participants generally supported more integrated presentation which would, for example, better link and allow navigation between the Pillar 3 and financial report (e.g., IFRS 7) risk disclosures, align the timing of their publication, and achieve more comparability across jurisdictions and banks. For example, there are several methods available under Pillar 3 for disclosures about certain risks and collateral. In addition, some noted as important that liquidity information was included in the Pillar 3 framework, as set forth in the Basel Committee’s current plans.

Scenario and sensitivity analyses Some participants expressed their desire that the results of stress tests should be disclosed in financial reports, possibly with an indication as to whether the results are reviewed by external auditors. Care should be taken to properly interpret stress test results and summarise information in a manner useful to investors (e.g., using the impacts on earnings and capital of a certain change in interest rates, providing relevant information about non-linearity).

Conclusions The roundtable showed the value of robust exchanges on shortcomings in disclosures among a wide range of private sector and public sector stakeholders.

P a g e | 64



The full range of participants – users and providers of disclosures, auditors, regulators and standard setters – agreed that it would be important for investors, financial institutions and auditors to develop principles and formats for better risk disclosures going forward, with input from standard setters and regulators, as recommended in the FSB Report. Participants noted that these principles and leading practice disclosures should be broad in scope to avoid disclosure arbitrage among various market participants. However, some felt that the private sector would not initially be able to carry forward this work on its own. Some called for more proactive involvement of the official sector under the current stressed situations where voluntary risk disclosure initiated by some in the private sector alone might not be sufficient to restore confidence quickly. Many expressed the view that the FSB should continue to help encourage and facilitate this work, perhaps by conducting another roundtable in 2012 and prompting a task force of investors, analysts, rating agencies, financial institutions, and auditors, with input from standard setters and regulators, to take forward this work. The FSB Plenary has considered the views expressed during the roundtable and by its members and has decided next steps to enhance risk disclosure practices, as described in its press release in March 2012.

P a g e | 65



FSA publishes Recovery and Resolution Plan (RRP) update The Financial Services Authority (FSA) has published a feedback statement setting out the approach being taken by the FSA to ensure firms develop appropriate recovery plans and resolution packs. The feedback statement provides firms with clarity regarding what they are expected to do while final rules are being adjusted to take into account developments in the international arena. A draft of the core rules has been published with today’s feedback statement, and final rules will be published in the autumn. The decision to delay the final rules is due to the various significant international developments which are relevant to RRP, notably the expected proposal by the EU Commission for a directive on recovery and resolution. Accordingly, the FSA is publishing today’s feedback statement, along with draft ‘core’ rules and an updated information pack. The development and submission of recovery plans and resolution packs will continue as planned and the delay in final rules will not result in a loss of momentum.

P a g e | 66



Large firms involved in the pilot exercise will submit recovery plans and resolution packs by the end of June, as agreed with their supervisors. Other large firms are expected to provide sufficient information to their supervisors to meet the timetable set by the Financial Stability Board (FSB). For all other firms, supervisors will agree the timing and content of their materials bi-laterally. The FSA is also publishing some frequently asked questions with more information on the implementation timetable. The 2008 banking crisis highlighted that firms failed to have effective plans in place to deal with financial stresses and potential failure. If firms had put plans in place prior to the advent of the crisis, they may well have been able to cope better with the stresses that developed and those failures might have been avoided. The feedback statement is relevant to all UK incorporated deposit-takers and significant UK investment firms with assets exceeding £15 billion. In addition, the FSA intends to consult at a later date, on applying RRP rules to the UK branches of non-EEA firms without UK subsidiaries. It sets out what will be expected of firms with regards to planning for a stressed situation which will require a firm to take action to recover or undertake resolution in an orderly manner without the need for public funded support. The announcement builds on work published by the FSB and the Special Resolution Regime (SRR) put in place under the Banking Act 2009. Firms will be required to put in place recovery plans and provide information for the authorities to develop resolution plans.

P a g e | 67



Recovery plans aim to reduce the likelihood of failure by requiring firms to identify options to achieve recovery, to be implemented when a crisis occurs. The plans must be developed and maintained by the firm, in coordination with the FSA, but they should all have the following features:

- sufficient number of material and credible options to cope with a

range of scenarios including both firm-specific and market wide

stresses;

- options which address capital shortfalls, liquidity pressures and

profitability issues and should aim to return the firm to a stable and

sustainable position;

- options that the firm would consider in more severe circumstances

such as: disposals of the whole business, parts of the businesses or

group entities; raising equity capital which has not been planned

for in the firm’s business plan; complete elimination of dividends

and variable remuneration; and debt exchanges and other liability

management actions;

Resolution packs will assist the authorities to wind-down a firm if it fails

for whatever reason.

The resolution data and analysis to be provided by firms is intended to

identify significant barriers to resolution, to facilitate the effective use of

the powers under the SRR and so reduce the risk that taxpayers' funds

will be required to support the resolution of the firm.

The information provided to the authorities will help to prepare a

resolution plan with the following aims:

- ensure that resolution can be carried out without public solvency

support exposing taxpayers to the risk of loss;

- seek to minimise the impact on financial stability;

- seek to minimise the effect on UK depositors and consumers;

P a g e | 68



- allow decisions and actions to be taken and executed in a short space

of time (or the 'resolution weekend');

- identify those economic functions which will need to be continued

because the availability of those functions is critical to the UK

economy or financial system, or would need to be wound up in an

orderly fashion so as to avoid financial instability (critical economic

functions);

- identify and consider ways of removing barriers which may prevent

critical economic functions being resolved successfully;

- isolate and identify critical economic functions from non-critical

activities which could be allowed to fail; and

- enhance cooperation and crisis management planning for global

systemically important financial institutions (G-SIFIs) with

international regulators.

Andrew Bailey, FSA director of banks and building societies, said:

“The financial crisis laid bare a complete failure in banks globally to think

seriously about how they could and would deal with the risk of major

instability and even failure.

The result has been that taxpayers around the world have had to foot the

bill in order to support our banking sectors.

“Major reforms have been taken forward both nationally and

internationally to increase the strength and resilience of our banking

sectors but we need to maintain the momentum. Recovery and

Resolution Plans require firms to think ahead and plan for the worst.

We will be building on what has been put in place since last year and

firms must continue to develop their plans.”

P a g e | 69



Speech by SEC Staff:

Address at the Private Equity International Private Fund Compliance Forum

By Carlo V. di Florio, Director, Office of Compliance Inspections and Examinations, U.S. Securities and Exchange Commission New York, NY, May 2, 2012

Q1. Thanks for being with us Carlo. As everyone here is aware, the deadline has now passed for advisers to large private equity firms to register with the SEC. Can you discuss what the agency is doing to prepare for the nearly 4000 private fund advisers that are registered with the Commission?

Let me begin by thanking you for inviting me to speak to you today on important topics of concern to private equity fund advisers, many of whom are newly registered with the Commission as required under the Dodd-Frank Act.

We in the National Examination Program (“NEP”) have shared objectives when it comes to protecting investors, market integrity and capital formation.

Many of you have been charged by your firms with bolstering their compliance functions to prepare for registration with the Commission.

I salute you for the important work that you are undertaking to promote good risk management, compliance and ethics in the private equity fund sector.

My door is always open and I welcome the dialogue and collaboration as we work together to prevent fraud, improve compliance, monitor risk and inform policy.

As you know, the views that I express here today are my own and do not necessarily reflect the views of the Commission or of my colleagues on the staff of the Commission.

P a g e | 70



The Data Profile of New Registrants.

This morning I can share with you some new data, as of March 30, 2012, about changes to the population of investment advisers registered with the Commission as a result of the recent deadline for new private fund registrants under Dodd-Frank:

There are now close to 4000 IAs that manage one or more private funds registered with the Commission, of which 34 per cent have registered since the effective date of the Dodd-Frank Act.

32 per cent of all advisers that register with us report that they adviser at least one private fund.

Of the roughly 4000 registered private fund advisers, 7 per cent are domiciled in a foreign country (the UK is the most significant).

Registered private fund advisers report that they advise nearly 31,000 private funds with total assets of $8 trillion (16% of total assets managed by all registered advisers).

Based on available information, of the 50 largest hedge fund advisers in the world, 48 are now registered with the Commission. Fourteen of these are new registrants.

Of the 50 largest private equity funds in the world, 37 are now registered with the Commission. 18 of these are new registrants.

Examination Strategy.

Regarding NEP staff preparations for new registrants, we are identifying the unique risks presented by private equity funds, as well as by hedge funds, based on a number of factors.

These include our past examination experience with these types of registrants and staff expertise that we have been developing through hiring and training in anticipation of our new responsibilities.

We are also developing information management systems to help us organize and evaluate the new information we will be collecting on private equity firms on new Form PF as well as on Form ADV, to help us

P a g e | 71



identify where and how best to allocate our examination resources across existing and new registrants.

We are also working to ensure the integrity of confidential information internally, while also developing processes to ensure that examiners are given access to information that will provide them with a better understanding of an entity and allow for better scoping of exams.

Based on these factors, we have a three-fold strategy.

First, we will have an initial phase of industry outreach and education, sharing our expectations and perceptions of the highest-risk areas.

This will be followed by coordinated examinations of a significant percentage of new registrants, focusing on highest risk areas of their business, and helping us to risk-rate the new registrants.

Finally, we intend to culminate in publication of a series of “after-action” reports on the broad issues, risks and themes identified.

All of this will be planned and executed in consideration of other responsibilities of the exam program, fulfilling the NEP mission to improve compliance, prevent fraud, inform policy and monitor industry-wide and firm-specific risks.

Regulatory Expectations.

An important part of NEP’s examination strategy for private equity advisers is to be clear and transparent about our expectations.

Registration with the SEC imposes important obligations on newly registered advisers.

Upon registration, advisers to hedge funds must comply with all of the applicable provisions of the Advisers Act and the rules that have been adopted by the SEC.

These provisions require, among other things, adopting and implementing written policies and procedures, designating a chief compliance officer, maintaining certain books and records, filing annual

P a g e | 72



updates of Form ADV, implementing a code of ethics and ensuring that advertising and performance reporting complies with regulatory rules.

In addition, once registered, advisers become subject to examinations by the SEC.

Some of the compliance obligations that I want to highlight for you include:

1. The “Compliance Rule” requires registered advisers, including hedge fund advisers, to

(a) adopt and implement written policies and procedures reasonably designed to prevent violation of the Advisers Act and rules that the Commission has adopted under the Advisers Act;

(b) conduct a review, no less than annually, of the adequacy of the policies and procedures; and,

(c) designate a chief compliance officer who is responsible for administering the policies and procedures.1

2. The “Books and Records Rule” requires registered advisers, including private equity advisers, to make and keep true, accurate and current certain books and records relating to the firm’s investment advisory business.

Generally, most books and records must be kept for five years from the end of the year created, in an easily accessible location.

3. Form ADV Updates—Rule 204-1 of the Advisers Act requires registered advisers to complete and file an annual update of Parts 1A and 2A of the Form ADV registration form through Investment Advisers Registration Depository (IARD).

Advisers must file an annual updating amendment to Form ADV within 90 days after the end of the firm’s fiscal year.

In addition to annual filings, amendments must promptly be filed whenever certain information contained in the Form ADV becomes inaccurate.

http://sec.gov/news/speech/2012/spch050212cvd.htm#_ftn1

P a g e | 73



4. The “Code of Ethics Rule” requires a registered adviser to adopt a code of ethics which sets forth the standards of business conduct expected of the adviser’s supervised persons and must address the personal trading of their securities.

5. The “Advertising Rule” prohibits advertisements by investment advisers that are false or misleading advertising or contain any untrue statements of material fact.

Advertising, like all statements made to clients or prospective clients, is subject to the general prohibition on fraud under section 206 of the Advisers Act as well as other anti-fraud provisions under the federal securities laws.

In addition to specific regulatory requirements, SEC staff has also indicated its view that, if you advertise performance data, the firm should disclose all material facts necessary to avoid any unwarranted inferences.

Another important dimension to your responsibilities is that investment advisers are “fiduciaries” to their advisory clients – the funds.

This means that advisers have a fundamental obligation to act in the best interests of their clients and to provide investment advice in their clients’ best interests.

Investment advisers owe their clients a duty of loyalty and good faith. Advisers to private equity funds should consider some of the following issues:

Fees/Expenses:

As a fiduciary, it is important that private equity advisers allocate their fees and expenses fairly.

A firm should clearly disclose to clients the fees that it is earning in connection with managing investments as well as expense allocations between a firm and its client fund.

Advisers should ensure the timeliness, accuracy and completeness of such reporting.

P a g e | 74



A firm’s disclosure policies and procedures should address the allocation of their fees and expenses.

In cases where two funds managed by the same investment adviser co-invest in the same investment vehicle, expenses should be allocated fairly across both funds.

Conflicts of Interest

Private equity fund advisers should identify any conflicts presented by the type and structure of investments their funds typically make, and ensure that such conflicts are properly mitigated and disclosed.

Advisers of pooled investment vehicles also have a duty to disclose material facts to investors and prospective investors and failure to do so may constitute fraud.

As I discussed in my presentation at this conference last year, it is useful to think about conflicts in the context of the lifecycle of a private equity fund: The Fund-Raising Stage, the Investment Stage, the Management Stage, and the Exit Stage.

Without replicating what I said there, there are a number of conflicts that arise at particular stages of that lifecycle.

For example, in the Fund-Raising Stage there are a number of potential conflicts around the use of third-party consultants such as placement agents, and potential conflicts between the private equity fund manager, the fund or its investors, around preferential terms in side-letters for example.

There could also be conflicts over how the fund is marketed, particularly where marketing materials make representations about returns on previous investments.

In the Investment Stage, among other potential conflicts, there are potential opportunities for insider trading.

For example, even if the portfolio company has been taken private, a fund manager serving on its board could learn material non public information about public companies that the portfolio company does business with.

P a g e | 75



There may also be opportunities for insider trading when a private equity firm makes an equity investment in a public company. Other examples of potential conflicts at the investment stage include allocation of investment opportunities, and allocation of fees.

In the Management Stage some of the same conflicts described in the investment stage can also arise.

There is also the potential for misleading reporting to current or prospective investors on PE fund performance by selectively highlighting only the most successful portfolio companies while ignoring or underweighting portfolio companies that underperform.

Finally, in the Exit Stage, which is typically set so that the fund has a 10-year lifespan, with scope to extend for up to three 1-year periods (subject to investor approval) there are several other potential conflicts. For example, the manager could claim to need more time to divest the fund of any remaining assets, but have an ulterior motive to accrue additional management fees.

Issues surrounding liquidity events also raise potential conflicts, and valuation of portfolio assets is again an area of potential concern.

Risk Management

The management of conflicts of interest is just one part of good risk management.

Private equity fund advisers should evaluate their risk management structures and processes by asking themselves the following types of questions.

1) Do the business units manage risks effectively at the fund levels in accordance with the tolerances and appetites set by the principals and by senior management of the organization?

2) Are the key control, compliance and risk management functions effectively integrated into the structure of the organization while still having the necessary independence, standing and authority to effectively identify, manage and mitigate risk?

P a g e | 76



3) Does the firm have an independent assurance process, whether through an internal audit department or a third party performing a comparable function by independently verifying the effectiveness of the firm’s compliance, control and risk management functions?

4) Do senior managers effectively exercise oversight of enterprise risk management?

5) Does the organization have the proper staffing and structure to adequately set its risk parameters, foster a culture of effective risk management, and oversee risk-based compensations systems and the risk profiles of the firm?

Q2 You have spoken extensively about the SEC’s new strategy with regard to other types of financial institutions of engaging senior management and corporate boards. Can you explain what that means in regard to private equity firms?

We at NEP have been seeking to strengthen channels of communications with senior management across the entire range of entities that we examine, including broker-dealers, fund complexes, clearing agencies, etc.

In the context of private equity firms, of course there often may not be the same level or complexity of organization that we might find at, for example, a major broker-dealer.

Instead of meeting with senior officers and a board of directors, we might instead meet with the principals, senior investment professionals or general partners of the organization.

In all instances, our expectations of who we would want to engage are tailored to the structure and nature of the particular entity.

But the purposes and goals of this dialog are largely the same regardless of the titles of the individuals.

This helps us to assess the corporate culture and tone being set at the top of organizations.

P a g e | 77



It also furthers our goal of improving compliance, by helping us to determine if the CCO has the full support and engagement of senior management and the principals (or board of directors, if applicable).

In addition, this enables us to understand the firm’s approach to enterprise-wide risk management – e.g., from the perspective of the board of directors (if one exists) or the principals of the firm, and then from senior management.

This engagement also gives us a strong overall context for any examination of the firm. Finally, these types of communications help us indentify risks across the industry or determine areas of focus not just at the firm but similar registrants, to help us better allocate and leverage our resources on the most significant risks.

I believe that this approach is good for us, good for CCOs, and good for the entities that we examine.

I hope that you will agree with me that good ethics and risk management is vital to business success, in private equity just as much as in any other are of financial services.

There is another reason why meeting with firms’ leadership is especially important in connection with private equity firms.

I have said in front of other audiences that an effective risk governance framework includes three critical lines of defense, which are in turn supported by senior management and the board of directors or the principal owners of the firm.

1. The business is the first line of defense responsible for taking, managing and supervising risk effectively and in accordance with laws, regulations and the risk appetite set by the board and senior management of the whole organization.

2. Key support functions, such as compliance and ethics or risk management, are the second line of defense.

They need to have adequate resources, independence, standing and authority to implement effective programs and objectively monitor and escalate risk issues.

P a g e | 78



3. Internal Audit is the third line of defense and is responsible for providing independent verification and assurance that controls are in place and operating effectively.

While I understand that some private equity firms have not traditionally had internal audit functions, I am encouraged to see such functions start to develop, and I hope to see further development of the internal audit function.

In the meantime, at firms that lack a robust internal audit function the NEP will place even greater weight on assurance that senior management and the firm’s principals are supporting each of the other two levels by reinforcing the tone at the top, driving a culture of compliance and ethics and ensuring effective implementation of risk management in key business processes, including strategic planning, capital allocation, performance management and compensation incentives.

Q3. You mentioned a National Exam Program that will take a more risk-based approach in how it exams registered advisers, can you elaborate on how that will look in practice?

Let me divide this question into two parts: identifying risks to inform which candidates to select for examination, and identifying the scope of individual examinations.

Regarding candidate selection, over the past two years, OCIE has undertaken a comprehensive set of improvement initiatives designed to improve the exam process, break down silos, and promote teamwork and collaboration across the SEC and with other regulatory partners.

In particular, OCIE has implemented a National Exam Program, based around a risk-focused exam strategy.

In 2011we created a centralized Risk Assessment and Surveillance (“RAS”) Unit to enhance the ability of the National Exam Program to perform more sophisticated data analytics to identify the firms and practices that present the greatest risks to investors, markets and capital formation.

P a g e | 79



This risk-based approach is partly a matter of wanting to use our resources as effectively as possible, and partly a matter of necessity, given that the exam program has only been able to cover a very small portion of the individuals and entities that register with the Commission, even before new registrants such as are represented in this audience came within our purview as a result of the new requirements of the Dodd-Frank Act.

It is not possible for me to discuss very specifically all of the risks we are currently monitoring, but I can give you an overview of how this process works.

Generally, we rely on four categories of inputs for risk identification.

The first is the National Exam Program itself, this includes the leadership in each program area (the National Associates) and the observations from our 900 examiners across the nation our tips, complaints and referral system, and our RAS Unit.

The second is other parts of the Commission, particularly the Division of Risk, Strategy and Financial Innovation, the Enforcement Division’s Asset Management Unit, the Office of Market Intelligence, and the Divisions of Trading and Markets and Investment Management.

Third are other regulators, such as sister federal financial regulators, SROs, state regulators, and foreign regulators. Fourth are external sources such as trade groups and news media reports.

This process of collecting and inventorying risks is a continual, real-time process, and feeds into an annual strategic plan for the National Exam Program, as well as mid-year assessments of that plan.

Based on the risks identified, we then make a top-down assessment of which firms appear to exhibit these risks.

We also make a bottom-up assessment, based on the data available for our registrants, as to which firms exhibit a higher risk profile given their business activities and regulatory history.

P a g e | 80



For example, leveraging data and information provided in filings and reports made with the Commission and the SROs, our staff can develop risk profiles of Registrants, their personnel and their business activities.

This risk-screening process is particularly challenging for us with regard to private equity funds due to the general lack of data in this area.

However, there are a number of risk characteristics that we are likely to consider, and we expect that as we gain more experience with this sector of the capital markets we will become more effective in identifying and assessing risks related to private equity.

Examples of some basic risk characteristics that we would track include any information from our TCR system, any material changes in business activities such as lines of business or investment strategies, changes in key personnel, outside business activities of the firm or its personnel, any regulatory history of the firm or its personnel, anomalies in key metrics such as fees, performance, disclosures when compared to peers or to previous periods, and possible financial stress or weaknesses.

Regarding the application of risk-based analysis to examination execution, we seek to conduct robust pre-exam work and due diligence, leveraging data from the examination selection process so that we can have focused document requests and interviews that hone in on higher risk areas.

The National Exam Program is also working with all areas of the Commission, particularly the Divisions of Investment Management, Enforcement, and Risk, Strategy and Financial Innovation – to use data and data analytics to target specific risk areas.

In general, the fundamental questions that we are seeking to answer in most examinations are these:

Is the firm’s process for identifying and assessing problems and conflicts of interest that may occur in its activities effective?

Is that process likely to identify new problems and conflicts that may occur as the future unfolds?

P a g e | 81



How effective and well-managed are the firm’s policies and procedures, as well as its process for creating and adapting those policies and procedures, in addressing potential problems and conflicts?

Some of the risk areas regarding private equity that might be considered during an examination include these:

1. What is the Fund strategy?

Does the Fund control portfolio companies or hold only minority positions?

Is the strategy to invest with other firms or alone?

Does strategy make general sense?

Are investments in easily understandable companies?

2. How clear are investor disclosures around ancillary fees (particularly those charged to portfolio companies), management fee offsets and allocation of expenses?

How robust are the processes to ensure compliance with those disclosures?

3. Does the firm have a complicated set of diverse products?

If so, how are inter-product conflicts managed?

These conflicts can arise, for instance, from two products investing in different parts of a deal’s capital structure or products competing for deal allocation.

4. What risks are posed by the life cycle of the funds?

For example, for funds approaching the end of their life fund raising may be necessary, in which case risks related to claims about the fund’s track record and valuation should be in focus.

Conversely, a “Zombie” adviser who is unlikely to raise additional capital may be motivated to extract value from its current holdings, in which case risks related to fees, expenses and liquidity would come into focus.

P a g e | 82



For a fund at the beginning of its life cycle, deal allocations between investment vehicles, or other types of favoritism might be a greater focus of concern.

5. How sophisticated and reliable are the processes used by the Fund?

Is the valuation process robust, fair and transparent?

Are there strong processes for compliance with the fund’s agreements and formation documents?

Are compliance and other key risk management and back office functions sufficiently staffed?

What is the quality of investor communications?

What is the quality of processes to ensure conflict resolution in disputes with or among investors?

6. What is the overall attitude of management towards the examination process, its compliance obligations, and towards risk management generally, compared to its peers?

Finally, in our experience with examinations of private funds in the past, we have found that private fund advisers were slightly more likely to have significant findings, be cited for a deficiency, or have findings referred to enforcement, than the non-private fund adviser population.

Perhaps this was attributable, at least in part, to the fact that many private fund advisers then, like many of your firms now, were new registrants, and might not have built the compliance systems and controls that other advisers with longer experience as regulated entities had put in place.

Q4. I suspect conflicts of interest is also part of that risk assessment. Coming back to your earlier comments on conflicts of interest, can you elaborate further on what conflicts the agency sees and what firms should do to address them?

Based on our experience with private equity firms to date, I would like to mention two factors that seem to be important sources of conflicts of interest for these firms.

P a g e | 83



First, many conflicts of interest can arise when fund professionals co-invest with their clients.

Second, fund professionals taking roles at portfolio companies also create a number of conflicts that we will want to look at.

Let me hasten to add that there is nothing inherently wrong with either of these activities. In particular, fund professionals being active in portfolio companies is a part of the PE business model.

My point is simply that these activities increase the risk of other conflicts that need to be managed.

From the examinations of private equity firms that we have conducted to date, there are a number of conflicts that we have identified that I can share with you.

These include:

a. The profitability of the management company is obviously an important concern for private equity general partners and this creates an incentive to maximize fees and minimize expenses.

We have seen instances where expenses that should have been paid by the management company were pushed to the funds and have also seen instances where questionable fees were charged to portfolio companies.

In addition, the same manager may be incentivized to be opaque with fee disclosures for fear that fund investors may not see extra fees as being in their best interest and to pursue larger deals which can absorb more fees.

While I have no opinion about the merits of a management company choosing to offer equity shares to the public, I would encourage such firms to consider, as part of their risk management process, whether the short term earnings focus of the public equity markets could exacerbate these conflicts.

b. The adviser negotiates more favorable discounts with vendors for itself than it does for the fund;

P a g e | 84



c. The adviser favors side-by-side funds and preferred separate accounts by shifting certain expenses to its less favored funds;

d. The adviser puts one or more of the funds that it manages into both equity and debt of a company, which traditionally have conflicting interests, especially during initial pricing and restructuring situations;

e. One or more of a private equity firm’s portfolio companies may hire a related party to the adviser to perform consulting or investment banking services.

This type of conflict may be remediated through strong disclosures, but we have seen instances where disclosures were not very robust;

f. Conflicts between different business lines, where there may be the potential for confidential information to be improperly shared.

The traditional means of remediating these types of conflicts is to maintain effective information barriers, but here too we have seen weaknesses in private funds’ practices.

For example, we have observed instances of weak or nonexistent controls where the public and private sides of the adviser’s business hold meetings or telephone conversations regarding an issuer about which the private side has confidential information, or poor physical security during business hours over the adviser’s office space such that employees of unrelated financial firms that have offices in the same building could gain access to the adviser’s offices.

Q5.I’m sure everyone here would love to be tested on their ability to address those conflicts of interest, but for those who don’t, how does a firm stay off your radar? Or if a firm is selected for an exam, how do they, for a lack of better words, end the exam as quickly as possible?

The best way to avoid attracting our attention would be to be very proactive and thoughtful about identifying conflicts, both the ones I have mentioned as well as others that you are aware of, and remediating those conflicts with strong policies, procedures and other risk controls, as well

P a g e | 85



as making sure that your firm has a strong ethical culture from top to bottom.

If your firm is selected for an examination, things are certain to go better if you are prepared, know how to readily access data that our examiners are likely to want to see, and have your policies and procedures ready to show us.

Having strong records to document your due diligence on transactions and on valuations will also help you greatly.

It will also be enormously helpful to you and to us if you can show us that you have documented ongoing monitoring and testing of the effectiveness of your policies and procedures.

Finally, it is important to be forthcoming about problems.

Nothing could be worse than for us to find a problem, through an examination or through a tip, referral or complaint, that personnel in your organization knew about but tried to conceal.

P a g e | 86



Recent U.S. Economic Growth in Charts May 2012

P a g e | 87



P a g e | 88



P a g e | 89



P a g e | 90



P a g e | 91



P a g e | 92



P a g e | 93



Opening Remarks by Ms Jacqueline Loh, Assistant Managing Director, Monetary Authority of Singapore at the EDHEC-RISK Days Asia 2012 Conference at Marina Bay Sands Conference Centre on 9 May 2012 Mr Olivier Oger Dean, EDHEC Business School Professor Noel Amenc Director, EDHEC-Risk Institute Distinguished guests, ladies and gentlemen

Introduction

1 Good morning. I am delighted to join you today at EDHEC Risk inaugural Days Asia Conference.

With the large turnout of speakers and participants from different backgrounds and domain expertise, I am confident that we can look forward to a fruitful conference.

Key observations from the crisis

2 The global financial crisis continues to cast a shadow on the global economy and financial markets.

Volatile conditions are expected to persist for some time as countries around the world take steps to address the various structural vulnerabilities exposed by the crisis.

This volatility stems from a combination of factors:

a. the level of commitment to challenging domestic reforms;

b. the extent to which emerging markets can remain the pillar of economic growth globally; and

P a g e | 94



c. the potential spillovers from unconventional policy responses to the crisis, the prolonged period of low interest rates, and the timing and method of exit from these measures.

3 Amidst this challenging macroeconomic climate, a range of regulatory reforms, undertaken by governments and regulatory authorities, are under way.

To name a few, Basel III reforms will strengthen banks’ capital requirements and introduce new liquidity and leverage requirements on banks.

In the OTC derivatives space, markets will be fundamentally reshaped, with clearing and reporting requirements.

Financial institutions will need to enhance their risk management practices and systems to keep pace with these changes.

4 Over the longer term, these wide ranging reforms will enhance financial stability, and allow financial institutions and markets to ride through shocks that may arise from time to time.

In the near term however, there are concerns over the cumulative impact of these reforms on several fronts, including the uncertainty to business models of financial institutions, the impact on pricing and availability of credit and the impact on economic growth and market liquidity.

Asian growth and opportunities

5 Against this backdrop of subdued global growth, a low yield environment and heightened risks, Asia continues to present good investment opportunities and a good environment for financial activities.

Buttressed by sound economic fundamentals, improvements in fiscal discipline and enhanced resilience of financial systems, the region has emerged from the crisis relatively unscathed.

6 Asia’s strong fundamentals make it an increasingly important and attractive investment destination.

P a g e | 95



Several surveys have shown that as investors search for returns in an environment of slow global growth, investment portfolios are likely to be increasingly structurally rebalanced towards this region.

At the same time, Asia is also growing as a source of wealth for financial intermediaries including banks, asset and wealth managers, and the demand for financial services and solutions is expected to increase.

These factors point to significant opportunities for the further development of capital markets in the region.

The role of financial research and EDHEC

7 As we know, investment in Asian markets is not without risks.

In order to navigate successfully in Asian markets and alternative asset classes, it is imperative that market participants build deep investment skills and risk management expertise, and continuously review and upgrade these capabilities.

A concurrent deepening of markets, growth in investment activities and deepening of risk know-how can help to entrench the positive feedback effects between financial sector development and financial system stability over time.

8 This is where financial research can play an important role through:

facilitating a deeper understanding of the drivers of and inherent risks in the emerging financial markets in Asia;

facilitating innovation and development of new products and solutions to address the unique needs of investors here in Asia; and

driving cutting edge approaches for managing the myriad of risks.

9 The EDHEC Risk Days Asia Conference has a highly relevant and interesting agenda ahead.

Key topics include a post-crisis framework for investment management, gaining exposures to emerging markets, deep dives into various aspects of equity investing, and the opportunities and risks in alternative investments such as hedge funds and infrastructure finance.

P a g e | 96



This will certainly add to the body of knowledge about Asia.

10 Many in academia engage in important blue-sky research with the purpose of exploring new theories and ideas.

While this is critically important, it is equally necessary to bridge the gap between theory and application, so as to impact market practices more directly.

The strength of the EDHEC-Risk Institute lies in its “Research for Business” philosophy, its focus on direct application and alignment with business needs.

11 Since the establishment of the EDHEC-Risk Institute Asia Centre in Singapore, EDHEC has contributed significantly to the Singapore financial research ecosystem.

Apart from publications in top journals, EDHEC has also introduced a new Executive PhD Programme in Finance, tailored to meet the myriad of industry practitioners needs for professional and leadership development.

The Institute also engages industry partners extensively.

It has undertaken numerous industry projects in the areas of asset allocation, asset liability management, and operational risk management to name a few. EDHEC has also been active in sharing its research findings through industry seminars and lectures.

All these have certainly promoted a deeper understanding of Asian markets, systems and risks.

Conclusion

12 In conclusion, as financial systems continue to evolve, there is increasing need to better understand how markets operate, and how investors and institutions respond to opportunities and risks.

I am confident that EDHEC will remain an important part of this journey.

P a g e | 97



13 With this, let me congratulate EDHEC on the first edition of the EDHEC Risk Days Asia Conference in Singapore.

I wish you all a fruitful two days.

P a g e | 98



March 29,

Statistical release: OTC derivatives statistics at end-December 2011 Monetary and Economic Department May 2012 Bank for International Settlements A summary of the latest statistics on over-the-counter (OTC) derivatives markets. Data at end-December 2011 are not fully comparable with previous periods because of an increase in the reporting population. Australia and Spain reported for the first time, expanding the reporting population to dealers headquartered in 13 countries. (The other reporting countries are Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom and the United States.) Total notional amounts outstanding of OTC derivatives amounted to $648 trillion at end-2011 (Graph 1, left-hand panel, and Table 1). Notwithstanding the increase in the reporting population, total notional amounts declined between end-June and end-December 2011. At the same time, gross market values, which measure the cost of replacing existing contracts, increased to $27.3 trillion, driven mainly by an increase in the market value of interest rate contracts.

P a g e | 99



Consequently, gross market values rose from 2.8% of notional amounts at end-June 2011 to 4.2% at end-December 2011. The rise in gross market values was the largest since the second half of 2008. Gross credit exposures, which take account of legally enforceable bilateral netting agreements, also increased, but not by as much as market values. Gross credit exposures rose to $3.9 trillion, their highest level since end-2008 (Graph 1, right-hand panel). At the same time, they declined from 15.2% of gross market values at end-June 2011 to 14.3% at end-2011 as dealers made greater use of netting to reduce their credit and settlement risk.

P a g e | 100



P a g e | 101



P a g e | 102



Certified Risk and Compliance Management Professional (CRCMP) Distance learning and online certification program. Companies like IBM, Accenture etc. consider the CRCMP a preferred certificate. You may find more if you search (CRCMP preferred certificate) using any search engine. The all-inclusive cost is $297. What is included in the price:

A. The official presentations we use in our instructor-led classes (3285 slides) The 2309 slides are needed for the exam, as all the questions are based on these slides. The remaining 976 slides are for reference. You can find the course synopsis at: www.risk-compliance-association.com/Certified_Risk_Compliance_Training.htm

B. Up to 3 Online Exams You have to pass one exam. If you fail, you must study the official presentations and try again, but you do not need to spend money. Up to 3 exams are included in the price. To learn more you may visit: www.risk-compliance-association.com/Questions_About_The_Certification_And_The_Exams_1.pdf www.risk-compliance-association.com/CRCMP_Certification_Steps_1.pdf

http://www.risk-compliance-association.com/Certified_Risk_Compliance_Training.htm

http://www.risk-compliance-association.com/Certified_Risk_Compliance_Training.htm

http://www.risk-compliance-association.com/Questions_About_The_Certification_And_The_Exams_1.pdf

http://www.risk-compliance-association.com/Questions_About_The_Certification_And_The_Exams_1.pdf

http://www.risk-compliance-association.com/CRCMP_Certification_Steps_1.pdf

http://www.risk-compliance-association.com/CRCMP_Certification_Steps_1.pdf

P a g e | 103



C. Personalized Certificate printed in full color. Processing, printing, packing and posting to your office or home.

D. The Dodd Frank Act and the new Risk Management Standards (976 slides, included in the 3285 slides) The US Dodd-Frank Wall Street Reform and Consumer Protection Act is the most significant piece of legislation concerning the financial services industry in about 80 years. What does it mean for risk and compliance management professionals? It means new challenges, new jobs, new careers, and new opportunities. The bill establishes new risk management and corporate governance principles, sets up an early warning system to protect the economy from future threats, and brings more transparency and accountability. It also amends important sections of the Sarbanes Oxley Act. For example, it significantly expands whistleblower protections under the Sarbanes Oxley Act and creates additional anti-retaliation requirements.

You will find more information at:

www.risk-compliance-association.com/Distance_Learning_and_Certification.htm

http://www.risk-compliance-association.com/Distance_Learning_and_Certification.htm

http://www.risk-compliance-association.com/Distance_Learning_and_Certification.htm

P a g e | 104



Visit our Risk and Compliance Management Speakers Bureau The International Association of Risk and Compliance Professionals (IARCP) has established the Speakers Bureau for firms and organizations that want to access the expertise of Certified Risk and Compliance Management Professionals (CRCPMs) and Certified Information Systems Risk and Compliance Professionals (CISRCPs). The IARCP will be the liaison between our certified professionals and these organizations, at no cost. We strongly believe that this can be a great opportunity for both, our certified professionals and the organizers. To learn more: www.risk-compliance-association.com/Risk_Management_Compliance_Speakers_Bureau.html

www.risk-compliance-association.com/Risk_Management_Compliance_Speakers_Bureau.html

www.risk-compliance-association.com/Risk_Management_Compliance_Speakers_Bureau.html

http://www.risk-compliance-association.com/

P a g e | 105



http://www.risk-compliance-association.com/New_Member_Orientation_Newsletters.html

Monday May 14 2012 - Top 10 risk and compliance management related news stories and world events

Education

Transcript of Monday May 14 2012 - Top 10 risk and compliance management related news stories and world events