Monday November 26 2012 Top 10 Risk Compliance News Events

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_____________________________________________________________ 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

Dear Member, “Finance is an industry that sells nothing physical, nothing that you can kick: it sells promises: promises to pay, promises you are asking your customers to trust.

But the perception in the minds of many members of the public –

including many of your potential and current clients – is that the financial

industry lacks integrity, and this view is not aided by some of the more

torrid stories from this summer – headlines about rate-rigging, Mexican

drug lords, and Iranian weapons proliferators will not have helped rebuild

trust in the financial sector collectively.”

Who said that?

Tracey McDermott, director of the Enforcement and Financial Crime Division (FSA UK) Read more at Number 7 of our list. Also: “On August 21, 2012, a whistleblower who had helped the Commission stop an ongoing multi-million dollar fraud received an award of 30 percent -- the maximum percentage payout allowed by law -- of the amount collected in the Commission’s enforcement action against the perpetrators of the scheme.

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

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The award recipient in this matter submitted a tip concerning the fraud and then provided documents and other significant information that allowed the Commission’s investigation to move at an accelerated pace and ultimately led to the filing of an emergency action in federal court to prevent the defendants from ensnaring additional victims and further dissipating investor funds. The whistleblower’s assistance led to the court ordering more than $1 million in sanctions, of which approximately $150,000 had been collected by the end of the fiscal year. In accordance with the 30 percent award determination, on August 21, 2012, the whistleblower was paid nearly $50,000.” Who said that? We can read it at the Annual Report on the Dodd-Frank Whistleblower Program, from the staff of the U.S. Securities and Exchange Commission Read more at Number 1. Also, at Number 8 you can read a really interesting speech from Jaseem Ahmed, Secretary General, Islamic Financial Services Board (IFSB). Although I confess I did not fully understand his first sentence “Assalamu’alaikum warahmatullahi wabarakatuh and a very good morning to all of you”, I found the content very interesting. For example: “Islamic finance offers a major opportunity for diversifying the investor base, and raising investor interest in Africa.” Also, “following the pioneering efforts of countries such as Sudan, Bahrain and Malaysia, governments are integrating Islamic finance instruments into their public finance and expenditure frameworks through sovereign Sukūk issuance programmes” Welcome to the Top 10 list.

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U.S. Securities and Exchange Commission

Annual Report on the Dodd-Frank Whistleblower Program, Fiscal Year 2012

This is a Report of the Staff of the U.S. Securities and Exchange Commission. The Commission has expressed no view regarding the analysis, findings, or conclusions contained herein.

Current focus of the Basel Committee: Raising the bar

Remarks by Mr Stefan Ingves, Governor of Sveriges Riksbank and Chairman of the Basel Committee on Banking Supervision

(At the 7th High-Level Meeting jointly organised by the Association of Supervisors of Banks of the Americas, the Basel Committee on Banking Supervision and the Financial Stability Institute, Panama City, Panama)

Challenges in housing and mortgage markets Speech by Mr Ben S Bernanke, Chairman of the Board of Governors of the Federal Reserve System, at the Operation HOPE Global Financial Dignity Summit, Atlanta, Georgia.

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Gerri Walsh Statement for the Record for Senate Special Committee on Aging Hearing

Guidelines on Complaints-Handling by Insurance Undertakings EIOPA Guidelines on Complaints - Handling by Insurance Undertakings translated into all the official EU languages

International monetary policy interactions: challenges and prospects Speech by Jaime Caruana General Manager, Bank for International Settlements To the CEMLA-SEACEN conference on “The role of central banks in macroeconomic and financial stability: the challenges in an uncertain and volatile world” Punta del Este, Uruguay

Combating Financial Crime: Key themes and Priorities for 2013 Speech by Tracey McDermott, director of the Enforcement and Financial Crime Division at the APCIMS Conference

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Islamic Finance Prospects in Africa: Speech Islamic Banking Summit Africa | Republic of Djibouti Speaker : Jaseem Ahmed, Secretary General, IFSB

Kiyohiko G Nishimura: Ageing, finance and regulations Keynote address by Mr Kiyohiko G Nishimura, Deputy Governor of the Bank of Japan, at the Joint Forum Meeting, Tokyo

William C Dudley: Solving the too big to fail problem Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York and President of the Committee on the Global Financial System (CGFS), at the Clearing House’s Second Annual Business Meeting and Conference, New York City

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U.S. Securities and Exchange Commission Annual Report on the Dodd-Frank Whistleblower Program Fiscal Year 2012

This is a Report of the Staff of the U.S. Securities and Exchange Commission. The Commission has expressed no view regarding the analysis, findings, or conclusions contained herein.

Introduction

Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), amended the Securities Exchange Act of 1934 (the “Exchange Act”) by, among other things, adding Section 21F, entitled “Securities Whistleblower Incentives and Protection.” Section 21F directs the Commission to make monetary awards to eligible individuals who voluntarily provide original information that leads to successful Commission enforcement actions resulting in the imposition of monetary sanctions over $1,000,000, and certain successful related actions. Awards are required to be made in the amount of 10% to 30% of the monetary sanctions collected. Awards will be paid from the Commission’s Investor Protection Fund (the “Fund”). In addition, § 924(d) of the Dodd-Frank Act directs the Commission to establish a separate office within the Commission to administer and to effectuate the whistleblower program.

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Section 924(d) of the Dodd-Frank Act requires the Commission’s Office of the Whistleblower (the “Office” or “OWB”) to report annually to Congress on OWB’s activities, whistleblower complaints, and the response of the Commission to such complaints. In addition, Exchange Act § 21F(g)(5) requires the Commission to submit an annual report to Congress that addresses the following subjects: • The whistleblower award program, including a description of the number of awards granted and the types of cases in which awards were granted during the preceding fiscal year; • The balance of the Fund at the beginning of the preceding fiscal year; • The amounts deposited into or credited to the Fund during the preceding fiscal year; • The amount of earnings on investments made under Section 21F(g)(4) during the preceding fiscal year; • The amount paid from the Fund during the preceding fiscal year to whistleblowers pursuant to Section 21F(b); • The balance of the Fund at the end of the preceding fiscal year; and • A complete set of audited financial statements, including a balance sheet, income statement and cash flow analysis. This report has been prepared by OWB to satisfy the reporting obligations of Dodd-Frank Act § 924(d) and Exchange Act § 21F(g)(5).

Activities of The Office of The Whistleblower Section 924(d) of the Dodd-Frank Act directs the Commission to establish a separate office within the Commission to administer and to enforce the provisions of Exchange Act § 21F.

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On February 18, 2011, the Commission announced the appointment of Sean X. McKessy to head OWB in the Division of Enforcement (“Enforcement”). On January 17, 2012, the Commission named Jane A. Norberg as the Office’s Deputy Chief. In addition to Mr. McKessy and Ms. Norberg, the Office is currently staffed by eight attorneys, three paralegals, and one program support specialist. Since its establishment, OWB has focused primarily on establishing the office and implementing the whistleblower program. During Fiscal Year 2012, the Office’s activities included the following: • Communicating with whistleblowers who have sent tips, additional information, claims for awards, and other correspondence to OWB. OWB also meets with whistleblowers, potential whistleblowers and their counsel, and consults with the staff in Enforcement to provide guidance to whistleblowers and their counsel concerning expectations and follow up; • Reviewing and processing applications for awards; • Working with staff in Enforcement to identify and track all enforcement cases potentially involving a whistleblower to assist in the documentation of the whistleblower’s information and cooperation in anticipation of an eventual claim for award; • Maintaining and updating the OWB website to better inform the public about the whistleblower program (www.sec.gov/whistleblower). The website includes two videos by Mr. McKessy providing an overview of the program and information about how tips, complaints and referrals are handled.

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The website also contains detailed information about the program, copies of the forms required to submit a tip or claim an award, notices of covered actions, links to helpful resources, and answers to frequently asked questions; • Supporting the initiative of the Residential Mortgage Backed Securities (RMBS) Fraud Working Group, a working group of the Financial Fraud Enforcement Task Force established by President Obama in November 2009, by establishing an online link to the OWB website from the member agencies of the RMBS Fraud Working Group for the public to submit tips and complaints about possible illegal activity in the offering and sale of residential mortgage-backed securities. The OWB website was also updated in connection with this initiative to include a page providing an overview of the RMBS Fraud Working Group and a direct link to report RMBS fraud. OWB further supported the initiative by helping to implement procedures, consistent with the confidentiality requirements of Exchange Act § 21F(h)(2), to permit the Enforcement staff to share whistleblower tips with the member agencies of the RMBS Fraud Working Group; • Providing extensive training on the Dodd-Frank Act and the Commission’s implementing rules (the “Final Rules”) to the Commission’s staff. This included in-person training and educational sessions in seven of the eleven Regional Offices, video-linked training to the entire Enforcement staff, as well as training in the Home Office; • Establishing and implementing internal policies, procedures, and protocols; • Manning a publicly-available whistleblower hotline for members of the public to call with questions about the program. OWB attorneys return all calls within 24 business hours.

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During the 2012 fiscal year, the Office returned over 3,050 phone calls from members of the public; • Reviewing and entering whistleblower tips received by mail and fax into the Commission’s Tips, Complaints, and Referrals System (the “TCR System”); • Conferring with regulators from other agencies’ whistleblower offices, including the Internal Revenue Service, Commodity Futures Trading Commission, Department of Justice, and Department of Labor (OSHA), to discuss best practices and experiences; • Publicizing the program actively through participation in webinars, media interviews, presentations, press releases, and other public communications; and • Providing ongoing guidance to Commission staff regarding various aspects of the program, including the development of internal policies for the handling of confidential whistleblower identifying information.

Whistleblower Tips Received During Fiscal Year 2012 The Final Rules specify that individuals who would like to be considered for a whistleblower award must submit their tip to OWB on Form-TCR either via facsimile or mail or via the Commission’s online TCR questionnaire portal. All whistleblower tips received by the Commission are entered into the TCR System, the Commission’s centralized database for the prioritization, assignment, and tracking of TCRs received from the public. In Fiscal Year 2012, 3,001 whistleblower TCRs were received. The most common complaint categories reported by whistleblowers were Corporate Disclosures and Financials (18.2%), Offering Fraud (15.5%), and Manipulation (15.2%).

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The Commission received whistleblower submissions from individuals in all 50 states, the District of Columbia and the U.S. territory of Puerto Rico, as well as 49 countries outside the United States.

Processing of Whistleblower Tips During Fiscal Year 2012 OWB currently leverages the resources and expertise of the Commission’s Office of Market Intelligence (“OMI”) to evaluate incoming whistleblower TCRs and to assign specific, timely, and credible TCRs to members of the Enforcement staff for further investigation. During the evaluation process, both staff and supervisors in OMI examine each tip to identify those that are sufficiently specific, timely, and credible to warrant the further allocation of Commission resources. Tips that relate to an existing investigation are generally forwarded to the staff working the existing matter. Tips that could benefit from the specific expertise of another Division or Office within the Commission are generally forwarded to staff in that Division or Office for further analysis. When appropriate, tips that fall within the jurisdiction of another federal or state agency are forwarded to the Commission contact at that agency, provided this can be done consistent with the confidentiality requirements of Exchange Act § 21F(h)(2). Tips that relate to the financial affairs of an individual investor or a discrete investor group, and that are determined not to be strong candidates for further expenditure of the Commission’s investigative resources, are usually forwarded to the Office of Investor Education and Advocacy (“OIEA”). Comments or questions about agency practice or the federal securities laws are also forwarded to OIEA. OWB supports the tip allocation and investigative processes in several ways.

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When whistleblowers submit tips on Form TCR in hard copy via mail or fax, OWB enters this information into the TCR System so it can be evaluated. During the evaluation process, OWB may assist by contacting the whistleblower to obtain additional information, or may participate in the qualitative assessment of the best course of action to take in response to a whistleblower tip. During an investigation, OWB is available as needed to serve as a liaison between the whistleblower (and his or her counsel) and investigative staff. On occasion, OWB arranges meetings between whistleblowers and subject matter experts on the Enforcement staff to assist in better understanding the whistleblowers’ submissions and developing the facts of specific cases. OWB staff also communicates frequently with Enforcement staff with respect to the timely documentation of information regarding the staff’s interactions with whistleblowers, the value of the information provided by whistleblowers, and the assistance provided by whistleblowers as the potential securities law violation is being investigated.

Whistleblower Incentive Awards Made During Fiscal Year 2012 OWB posts a Notice of Covered Action for each Commission enforcement action where a final judgment or order, by itself or together with other prior judgments or orders in the same action issued after July 21, 2010, results in monetary sanctions exceeding $1 million. Once a Notice of Covered Action is posted, individuals have 90 calendar days to apply for an award by submitting a completed Form WB-APP to OWB by the claim due date listed for that action. Timely submitted applications are reviewed by the staff designated by the Director of Enforcement (“Claims Review Staff”) in accordance with the criteria set forth in the Dodd-Frank Act and Final Rules.

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The Claims Review Staff is currently comprised of four senior officers in Enforcement and a senior attorney in the Office of the General Counsel. To assist the Claims Review Staff in its review, OWB prepares a binder of relevant documents and a recommendation concerning the appropriate disposition of the award claim. The Claims Review Staff then makes a Preliminary Determination setting forth its assessment as to whether the claim should be allowed or denied and, if allowed, setting forth the proposed award percentage amount. If a claim is denied and the applicant does not object, then the Preliminary Determination of the Claims Review Staff becomes the Final Order of the Commission. However, an applicant can ask for reconsideration of the Preliminary Determination, in which event the Claims Review Staff considers the issues and grounds advanced in the applicant’s response, along with any supporting documentation provided. After this additional review, the Claims Review Staff issues a Proposed Final Determination, and the matter is forwarded to the Commission for its decision. In addition, all Preliminary Determinations of the Claims Review Staff that involve an award of money are forwarded to the Commission as Proposed Final Determinations irrespective of whether the applicant objected to the Preliminary Determination. These procedures ensure that all claims for which a monetary award is recommended and all preliminary denials of claims to which the applicant objects are put before the Commission for final decision. Within 30 days of receiving notice of the Proposed Final Determination, any Commissioner may request that the Proposed Final Determination be reviewed by the full Commission.

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If no Commissioner requests such a review within the 30-day period, then the Proposed Final Determination will become the Final Order of the Commission. In the event a Commissioner requests a review, the Commission reviews the record that the Claims Review Staff relied upon in making its determinations and issues its Final Order. During Fiscal Year 2012, the Commission made its first award under the whistleblower program. On August 21, 2012, a whistleblower who had helped the Commission stop an ongoing multi-million dollar fraud received an award of 30 percent -- the maximum percentage payout allowed by law -- of the amount collected in the Commission’s enforcement action against the perpetrators of the scheme. The award recipient in this matter submitted a tip concerning the fraud and then provided documents and other significant information that allowed the Commission’s investigation to move at an accelerated pace and ultimately led to the filing of an emergency action in federal court to prevent the defendants from ensnaring additional victims and further dissipating investor funds. The whistleblower’s assistance led to the court ordering more than $1 million in sanctions, of which approximately $150,000 had been collected by the end of the fiscal year. In accordance with the 30 percent award determination, on August 21, 2012, the whistleblower was paid nearly $50,000. Motions for additional judgments are currently pending before the court and any additional collections or increase in the sanctions ordered and collected will increase the amount paid to the whistleblower. As noted below, whistleblowers receive their awards from the Securities and Exchange Commission Investor Protection Fund (“Fund”) established pursuant to Section 922 of the Dodd-Frank Act.

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During the 2012 fiscal year, OWB posted 143 Notices of Covered Action for enforcement judgments and orders issued during the applicable period that included the imposition of sanctions exceeding the statutory threshold of $1 million. OWB is continuing to review and process applications for awards received during the 2012 fiscal year.

Securities and Exchange Commission Investor Protection Fund Section 922 of the Dodd-Frank Act established the Fund to provide funding for the Commission's whistleblower award program, including the payment of awards in related actions. In addition, the Fund is used to finance the operations of the SEC Office of the Inspector General’s suggestion program. The suggestion program is intended for the receipt of suggestions from Commission employees for improvements in the work efficiency, effectiveness, and productivity, and use of resources at the Commission, as well as allegations by Commission employees of waste, abuse, misconduct, or mismanagement within the Commission. The following table provides certain of the information required by Exchange Act § 21F(g)(5) for the 2012 fiscal year (October 1, 2011 through September 30, 2012). As of September 30, 2012, the Fund was fully funded, with an ending balance of $453,429,825.58.

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The audited financial statements for the Fund, including a balance sheet, income statement, and cash flow analysis are included in the Commission’s Agency Financial Report, separately submitted to Congress and accessible at http://www.sec.gov/about/secafr2012.shtml.

http://www.sec.gov/about/secafr2012.shtml

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Current focus of the Basel Committee: Raising the bar

Remarks by Mr Stefan Ingves, Governor of Sveriges Riksbank and Chairman of the Basel Committee on Banking Supervision

(At the 7th High-Level Meeting jointly organised by the Association of Supervisors of Banks of the Americas, the Basel Committee on Banking Supervision and the Financial Stability Institute, Panama City, Panama)

I am very pleased to be here for this year's High-Level Meeting, organised by ASBA, the Basel Committee and the FSI.

At its meeting in March of this year, the Basel Committee discussed a number of strategies for enhancing its relationship and communications with non-Basel Committee member countries.

One proposal that was readily endorsed by Committee members was to establish even closer collaboration with the FSI with regard to its High-Level Meetings.

Many of our members are familiar with these well-established annual conferences, which draw together senior central bankers and supervisory officials from various regions of the world.

In addition to last year's ASBA-FSI event, I have participated in several other high level meetings this year.

The feedback that I and my Basel Committee colleagues have gained from these events has been both illuminating and insightful.

When we met last year in San Francisco, I called for action on two items: first, guarding against supervisory complacency, and second, putting into practice the regulatory reforms that were developed to raise the resilience of banks and banking systems to future shocks.

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These two themes - putting policies into practice, and recognising supervision as an essential complement to regulation - continue to pervade the Basel Committee's work.

I am going to repeat these themes today, although in doing so I am not suggesting we have failed in our efforts in the past.

On the contrary, we have made good progress in both areas.

But more needs to be done.

I will share with you today some of the Committee's efforts to further these objectives.

I will also say a few words about our ongoing policy work since there is also more to be done to fully reflect lessons learnt from the crisis.

Supervision matters

I will start with supervision.

I have been quite vocal in warning that the Basel III Framework is not sufficient - by itself - to set banks and banking systems on a clear path to becoming stronger and more resilient.

It must be matched in practice by good supervision.

Good regulation empowers firm supervision, and firm supervision enforces good regulation.

They are mutually reinforcing, and it is unrealistic to think that one can be successful without the other.

Basel III provides a better rulebook by which to judge the safety and soundness of banks, but the crisis taught us that we also need better supervision.

And better supervision begins with the basic building blocks, which is the Core Principles for Effective Banking Supervision.

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Core Principles for Effective Banking Supervision

Every financial crisis is an opportunity to reflect on what went wrong, what worked well and what improvements can be made.

This is true for bankers and risk managers, for policy makers, and, of course, for bank supervisors.

For the Basel Committee, the supervisory lessons learnt from the financial crisis prompted our review of the Core Principles.

While Basel III has attracted most of the attention, its effectiveness will only be realised if it rests on a solid bedrock of supervision and implementation.

The Core Principles provide such a foundation.

The revised Core Principles were published in September, with the endorsement of supervisors and central bankers representing more than 100 countries that were gathered in Istanbul for the 17th International Conference of Banking Supervisors.

The latest revision was conducted jointly with the Basel Consultative Group, which comprises banking supervisors from both member and non-member countries of the Basel Committee, as well as regional groups of banking supervisors, the IMF, the World Bank and the Islamic Financial Services Board.

The review took account of post-crisis lessons and other significant supervisory developments.

At the same time, we have remained mindful of the fact that the Core Principles are applied on a global basis and that we need to maintain continuity and comparability.

We have not sought to reinvent the wheel: many of the revisions are designed to reinforce the fundamentals of banking supervision by emphasising effective risk-based analysis, a more forward-looking perspective and early intervention.

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Given the importance of these basic principles as the foundation for any supervisory regime, it is imperative that they be implemented with determination and rigour around the globe.

As many of you would already know, the revised Principles have been reorganised to highlight the difference between what supervisors do and what they expect banks to do.

The principles covering supervisory expectations of banks emphasise the importance of good corporate governance and risk management, as well as compliance with supervisory standards.

In addition, the review took account of several key trends and developments that emerged during the last few years of market turmoil, in particular the need for greater intensity and resources to deal effectively with systemically important banks.

Our agenda for this High-Level Meeting includes an in-depth review and discussion of the revised Core Principles, so I will not go into any more detail now.

Let me simply make one very important point.

In discussing the revisions to the Core Principles, the Committee was clear in its objective: we wanted to raise the bar.

Just as we needed to lift regulatory requirements that were too low, the status quo for supervision was not going to be acceptable either.

An enhancement of supervisory capabilities is necessary if we want to keep pace with the increasingly complex, diverse and interconnected financial system.

We cannot stand still.

More importantly, and as I have stressed previously, we cannot allow ourselves to think that just because the problems in the banking system did not occur in our backyard this time will mean that they will not occur there in the future.

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Systemically important banks

The financial crisis that began in 2007 not only reminded us of the critical role of intensive supervision, it also reminded us of the importance of systemically important banks.

During the crisis, the failure or impairment of a number of large, global financial institutions sent shocks through the financial system which, in turn, harmed the real economy.

The shocks were exacerbated when it became apparent that supervisors and other relevant authorities had limited options to deal with these banks, and therefore to prevent the problems from spreading through the financial system.

As a consequence, public sector intervention to restore financial stability during the crisis was not only necessary, but had to be conducted on a massive scale.

In response, the Committee adopted a series of reforms that, once implemented, will raise the resilience of banks and banking systems.

These reforms will have a particular impact on global systemically important banks (G-SIBs) since their business models have generally placed greater emphasis on trading and capital markets related activities, which are most affected by the enhanced risk coverage of the capital framework.

But Basel III is a minimum standard, and is not enough to address the unique risks posed by G-SIBs, the moral hazard associated with the perception that these firms are too big to fail, nor the cross-border repercussions that problems in a G-SIB would create.

To alleviate these problems, the Committee sought to raise the bar further for these largest banks.

We developed an assessment methodology for determining global systemic importance, and prescribed additional loss absorbency requirements for banks deemed systemically important.

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The G20 Leaders endorsed these rules at their summit last year.

At that time, they asked the Basel Committee and the Financial Stability Board to work on extending the framework to domestic systemically important banks (D-SIBs).

There are many banks that are not significant from an international perspective, but nevertheless could have an important impact on their domestic financial system and economy compared to non-systemic institutions.

The Committee has recently published its framework for dealing with D-SIBs, which is a topic of discussion for this High-Level Meeting.

Our goal was to develop a D-SIB regime which was complementary to the G-SIB regime, while at the same time recognising that different jurisdictions will wish to deal with domestic priorities in different ways.

The D-SIB framework therefore identifies a set of common actions that all jurisdictions are expected to undertake, but leaves the detailed nature of those actions and the specific policy responses to national discretion.

My main message for today is that critical to the success of this approach and the interaction with the G-SIB framework is the need for strong and cooperative dialogue between home and host supervisors where a bank from one country is designated a D-SIB in foreign jurisdiction.

Implementation

Supervision is a top priority for the Basel Committee, and implementation of Basel III is another.

We have seen signs of progress on implementation in some countries, but much more is needed.

Rules and regulations have to be consistently formulated and effectively applied. The implementation process is, therefore, a continuing one.

At its September 2011 meeting, the Basel Committee agreed to initiate a programme to review members' implementation of the Basel regulatory framework (which includes Basel II, Basel 2.5 and Basel III).

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This is a comprehensive programme which seeks to spur full implementation of the Basel standards within the agreed timelines - this is something that the Committee has not previously done.

The Committee has no doubt that with proper implementation, the regulatory reforms - both those already announced and those still in the pipeline - will help make banking systems more resilient.

That is why the G20 Leaders have also asked us to keep focus on implementation issues and finish the job.

In Mexico recently, the G20 Finance Ministers and Central Bank Governors said:

"We remain committed to the full, timely and consistent implementation of the financial regulation agenda - We agree to take the measures needed to ensure full, timely and effective implementation of Basel II, 2.5 and III and its consistency with the internationally agreed standards."

Three baseline assessments (the European Union, Japan and the United States) covering 11 Committee member jurisdictions have been completed and the reports have been published.

Preparatory work relating to the next round of country assessments is under way and includes Australia, Brazil, Canada, China, Singapore and Switzerland.

A system of follow-up for those assessments already completed is being designed and will be part of the regular implementation process going forward.

The Basel Committee's systematic review of implementation is helping to identify the regulatory fault lines early on by providing Committee members a detailed and a point-of-time review of the progress made and the materiality of the shortcomings.

As intended, the assessments are developing as a means to an end rather than an end in themselves.

The expectation is that our assessments will help create a dependable global regulatory environment that will also help strengthen supervisory efficacy.

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The assessments we have thus far conducted demonstrate the strong cooperative nature of the programme.

It involves senior-level experts from different jurisdictions, technical counterparts and select industry participants from the assessed jurisdiction, and the Committee's Secretariat.

The expert nature of the country assessments is central to its legitimacy.

Apart from assessing the regulatory consistency and materiality of the gaps, the Basel III implementation process has drilled down to the level of individual bank portfolios, and I expect the work will help us to identify the key drivers of variations in risk-weighted assets across banks, across jurisdictions and across time.

As other Basel standards and policies are completed - such as those relating to liquidity, G-SIBs and large exposures - the focus on implementation is expected to rise.

The implementation work is also helping inform the Committee's ongoing policy initiatives.

This is an important feedback loop for the Basel Committee as our premise is that tougher capital and liquidity rules under the Basel III Framework are entirely appropriate for reducing the likelihood of failure for systemically important banks.

Assessing implementation and the application of the Basel framework among Committee members also becomes important for many non-member countries where banks from BCBS jurisdictions operate and become systemically relevant.

Their failure may not even be seen as a viable option since these banks play a critical economic role in credit intermediation and maturity and risk transformation.

Proper implementation of Basel III will enable internationally active banks in emerging and developing markets to perform their role in a safer, prudent and economically constructive fashion.

When globally active banks manage their capital and liquidity prudently, they act as a source of financial stability in the relevant jurisdiction.

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But an important pre-condition is that such banks must play by the international norms.

Collectively, the regulatory requirements and the supervisory standards should push these banks along the path of the intended post-crisis reform agenda so that even during times of stress the banking system operates without material disruption to the financing of economic activities.

Further regulatory reforms are needed

The reforms to the capital adequacy rules have been substantial, and the Basel Committee's efforts to ensure they are put into practice properly and in a timely way have been considerable.

But we cannot say that our work to further improve the regulatory framework is complete.

Liquidity

Basel III's liquidity rules are the most obvious element of the regulatory framework that we are working to finalise.

Forging agreement on minimum liquidity rules for international banks has been a longstanding but elusive goal for supervisors and central bankers.

Indeed, Sir George Blunden, the Basel Committee's first chairman, opened the Committee's very first meeting in 1975 by noting that its mandate was "to help ensure bank solvency and liquidity".

While the Committee's reputation has been founded on the first part of the task, it has taken 35 years - until Basel III was agreed in 2010 - to find success on the second.

Liquidity is an extraordinarily difficult and multifaceted topic.

There are a wide range of views on how to define liquidity, as well as on how best to supervise, regulate and manage its risk.

For example, in 1984 some of the questions relating to liquidity discussed by the Committee included:

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What constitutes liquidity for an international bank, and how can it be measured?

- What should be the role of particular asset classes within an overall approach to liquidity in an international context?

- How does the degree of maturity transformation undertaken affect a bank's liquidity?

- To what extent can lending in the interbank market constitute liquidity? Does the ability of banks to draw funds from the interbank market affect the extent to which they need liquid assets?

- What are the basic supervisory approaches to liquidity used by the different countries represented on the Committee?

- What relationship do these approaches bear to the monetary policies applied by the central banks?

These questions remain highly relevant, and they are just as difficult as they were then, but I am pleased to say that the Committee has now come to grips with them.

What has changed?

While the persistently increasing globalisation and interconnectedness of our financial systems were known to be creating potential vulnerabilities, there was no consensus on how (or how urgently) to deal with it.

Unfortunately, it took a global financial crisis to provide the necessary impetus for agreeing on the Basel III liquidity rules.

So the storm clouds of the crisis at least had a silver lining in that respect.

As you know, the liquidity rules are comprised of a short-term Liquidity Coverage Ratio (LCR) and a longer-term, structural Net Stable Funding Ratio (NSFR).

Since these represent the first time we have had global standards, the Committee agreed that we would review and, if necessary, refine them before they came into force.

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And the question everyone therefore wants to know is where do we currently stand with respect to finalising them, particularly the LCR which is due to come into force in 2015?

The Committee is aiming to reach agreement by its December meeting on a few outstanding issues.

As any bank supervisor, central banker or risk manager can attest, this is very difficult work given the wide range of issues we must consider.

It has far-reaching implications, for example, for banking, financial markets and monetary policy, and for this reason our work has been undertaken with considerable care and caution.

It is important to note that several countries have already adopted the liquidity framework in their jurisdictions, including Sweden, and I am pleased to say the Swedish experience with liquidity regulation has been very positive.

For more than a year now Swedish banks have been reporting their liquidity coverage ratios to Sveriges Riksbank and the Swedish FSA, and the large banking groups also disclose their LCR publicly.

Furthermore, from January 2013 minimum standards for the LCR will be introduced for the largest banking groups, both on an aggregated basis and separately in euro and US dollars.

The results so far are reassuring and there are no signs that monetary policy operations or the functioning of the interbank market have been affected by the implementation of the LCR.

Given the implications and potential costs - not the least of which are the social costs - of not raising the bar for liquidity requirements and liquidity risk management in banks, we would be failing in our responsibilities if we did not push on to finalise these proposals in the near future.

Trading book and securitisation

Let me now turn to the work we are doing with respect to some of the capital rules.

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Following on from the changes introduced in Basel 2.5, the Committee is now undertaking a more fundamental review of the trading book and the securitisation rules.

With respect to the former, we want to achieve a regulatory framework that promotes more comparable levels of capital across banks with similar trading book portfolios.

We also aim to provide more transparency, and limit arbitrage between the banking and trading books.

Regarding securitisation, the complexity of the products, lack of transparency and poor underlying incentives led to massive losses.

The Committee's objective is to address these weaknesses by making capital requirements for securitisation products simpler, better reflective of risk, less reliant on credit ratings and without significant cliff effects.

Standardised approaches

Also on the agenda in 2013 is to improve the standardised approaches for credit and operational risk.

Our aim is to ensure these approaches continue to be suitable for assessing the capital adequacy of internationally-active banks - as well as other banks - that are not using the advanced approaches for risk measurement.

While it would be premature to say what the result of our deliberations will be, one issue to be considered will be the extent to which the revised standardised approaches could also serve as a backstop or benchmark to the models-based approaches (eg banks, when publishing their risk-weighted assets, could be required to reference the calculations based on the standardised approaches).

Linking the standardised approach with the models-based approach is already being considered in the fundamental review of the trading book.

Using the standardised approaches as a backstop or benchmark could help increase the comparability of risk-weighted asset calculations among banks and jurisdictions.

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Large exposures

Another important regulatory policy that is under review by the Committee is the large exposures regime.

The Committee's original guidance - Measuring and controlling large credit exposures - was published in January 1991.

It was successful in promoting broad convergence in the supervision of large exposures, while recognising the scope for variation according to local conditions.

However, it is fair to say that the regulation of large exposures has become increasingly inconsistent.

While there is considerable apparent homogeneity in the general approaches being adopted, there are significant differences in the specifics.

Another lesson from the crisis has been that we did not pay sufficient attention to risk concentrations.

This makes a strong case for a more consistent and effective framework for large exposures.

Such an internationally consistent framework would ensure a level playing field, reinforce consistency in underlying capital requirements (since the capital framework does not directly capture concentrations) and avoid loopholes or exemptions where risks can build up undetected.

The Committee is therefore examining the merits of a more consistent approach to large exposures, and will publish its proposals for comment during the course of 2013.

Other areas for review

Let me quickly touch upon two other areas on the Committee's agenda: one a broad theme, and the other a specific initiative that is supervisory in nature.

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Simplicity and comparability

I am the first to acknowledge that a number of areas of the regulatory framework have become increasingly complex over the years.

As a result, the Committee has this year been evaluating ways in which it can be simplified, without materially altering its underlying objective or strength.

There is a fine balance that must be achieved.

The use of a regulatory measure that is too simple and blunt can provide strong, perverse incentives for banks.

On the other hand, there is a limit to how much faith we should put into the complexity and sophistication of models.

A specific example of the Committee's current thinking is our recent announcement on the regulatory treatment of debit valuation adjustments (DVAs).

This is a complex issue relating to the impact of a bank's own credit risk on the valuation of derivative transactions.

To precisely measure this impact, which we wished to remove from the capital base, would have been extremely complex and difficult.

The maths and analysis necessary would be beyond the capabilities of the average bank supervisor - let alone a central bank Governor!

The Committee therefore decided on a more simplistic, but conservative, treatment.

This was criticised for not being precise enough and therefore potentially overstating the risk.

But the Committee decided that there was a trade-off to be made, and that the additional precision involved in refining the approach was not worth the cost involved.

The message here is not that the Committee is dismissive of the benefits or desirability of risk sensitivity, but rather that it needs to be traded off against other objectives.

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At some point it is inevitable that the never-ending pursuit of greater precision in risk measurement is not worth the effort - indeed, it can lead to a dangerous false sense of precision, which is best avoided.

Capital planning

Given that we have raised minimum capital requirements, capital planning will necessarily become more important - both for banks and their supervisors.

Recognising this, we have established a task force to examine current industry practices and develop guidance on good capital planning processes.

This work is looking at issues such as:

- processes for establishing targets for the level and composition of capital;

- monitoring and decision making with respect to capital;

- linkages to strategic plans and other business planning considerations; and

- coordination with the assessment of firms' risk profile and appetite.

The objective of this work is not a new policy that will impose specific requirements on banks such that every bank does its capital planning in the same way.

Rather, it will be sound guidance that banks and supervisors can use to help judge whether an individual bank has a robust capital planning process, given its size, shape and complexity.

This will be particularly important in a Basel III world, with a number of capital constraints (CET1, Tier 1 and total risk-based ratios, and the leverage ratio) and buffers (capital conservation, countercyclical and SIB surcharges) to which banks will need to manage.

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Conclusion

I would like to bring my remarks to a close by emphasising as I did at the outset that regulatory reform has two essential complements: supervision and implementation.

Even strong international regulations will be ineffective if they are not implemented fully or if the associated supervisory regime is weak.

Hence, the Committee is raising the bar in all three areas.

First, it is obvious that we have been working to strengthen the regulatory framework.

This is not just in the form of Basel III, but also the work we have completed on SIBs, and the work still in train on the trading book, securitisation and large exposures.

Second, we have been much more proactive in making sure that the international agreements are implemented in full, on time and in a consistent manner.

And, finally, we have used the revisions to the Core Principlesto also raise the bar for supervision. Doing one is not enough; neither is doing two.

We need to raise the bar in all three areas if we are to achieve a robust and resilient financial system for the future.

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Ben S Bernanke: Challenges in housing and mortgage marketsSpeech by Mr Ben S Bernanke, Chairman of the Board of Governors of the Federal Reserve System, at the Operation HOPE Global Financial Dignity Summit, Atlanta, Georgia,

Good afternoon. I’d like to thank John Bryant and Operation HOPE for inviting me to speak today. I’d also like to congratulate Operation HOPE and the Ebenezer Baptist Church on the grand opening of the HOPE Financial Dignity Center, which holds the promise of becoming a tremendous resource for the people of Atlanta and sits next to Martin Luther King’s home church. Dr King’s legacy to our society is strong and enduring, and the new center is very much in the spirit of his work. The past few years have been difficult for many Americans and their communities. At the Federal Reserve, we understand the depth of the problem and the need for action, and we will continue to use the policy tools that we have to help support economic recovery. We also know that the burdens of a weak economy and the benefits of economic growth often are not equally shared, and that, to be truly effective, policymakers must take into account how their decisions affect the least advantaged, not just the economy as a whole. My remarks today will focus on an important part of our economy, the housing sector. Housing and housing finance played a central role in touching off the financial crisis and the associated recession, and the ensuing wave of foreclosures wreaked great damage on communities across the country.

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As I will discuss, for the first time in a number of years, the housing sector is improving, adding to growth and jobs. But the housing revival still faces significant obstacles, and the benefits of that revival remain quite uneven. Strengthening and broadening the housing recovery remain a critical challenge for policymakers, lenders, and community leaders. The degree to which that challenge is met will help determine the strength and sustainability of the economic recovery and the extent to which its benefits are broadly felt.

Developments in housing and housing finance The multiyear boom and bust in housing prices of the past decade, together with the sharp increase in mortgage delinquencies and defaults that followed, were among the principal causes of the financial crisis and the ensuing deep recession – a recession that cost some 8 million jobs. And continued weakness in housing – reflected in falling prices, low rates of new construction, and historic levels of foreclosure – has proved a powerful headwind to recovery. It is encouraging, therefore, that we are seeing signs of improvement in the housing market in most parts of the country. House prices nationally have increased for nine consecutive months, residential investment has risen about 15 percent from its low point, and sales of both new and existing homes have edged up. Homebuilder sentiment has improved considerably over the past year, and real estate agents report a substantial rise in homebuyer traffic. The growing demand for homes has been underpinned by record levels of affordability, the result of historically low mortgage rates and house prices that are 30 percent or more below their peaks in many areas. To be sure, the housing sector is far from being out of the woods.

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Construction activity, sales, and prices remain much lower than they were before the crisis. About 20 percent of mortgage borrowers remain underwater – that is, they owe more than their homes are worth. Despite marked improvements in overall credit quality, 7 percent of mortgages are either more than 90 days overdue or in the process of foreclosure. And, although the number of homes in foreclosure has edged down since cresting in 2010, that number remains in excess of 2 million, three times the historical norm. Meanwhile, the national homeownership rate has slipped nearly 4 percentage points from its 2004 high of 69 percent, and it now stands at a 15-year low. So, although there are good reasons to be encouraged by the recent direction of the housing market, we should not be satisfied with the progress we have seen so far. Lower-income and minority communities are often disproportionately affected by problems in the national economy, and the effects of the housing bust have followed that unfortunate pattern. Indeed, as a result of the crisis, most or all of the hard-won gains in homeownership made by low-income and minority communities in the past 15 years or so have been reversed. For example, among all income groups, between 2007 and 2010, homeownership rates fell the most for households with income of $20,000 or less, according to the Federal Reserve’s Survey of Consumer Finances. Data from the Census Bureau show that, over the period from 2004 to 2012, the homeownership rate fell about 5 percentage points for African Americans, compared with about 2 percentage points for other groups.

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Homeownership rates fall when existing homeowners lose or leave their properties, when barriers to homeownership increase, or both. In recent years, both factors have been important. As I mentioned, home loss through foreclosure, though down from its peaks, remains an important problem, with lower-income and minority homeowners often being the hardest hit. Importantly, foreclosures can inflict economic damage beyond the personal suffering and dislocation that accompany them. Foreclosed properties that sit vacant for months (or years) often deteriorate from neglect, adversely affecting not only the value of the individual property but the values of nearby homes as well. Concentrations of foreclosures have been shown to do serious damage to neighborhoods and communities, reducing tax bases and leading to increased vandalism and crime. Thus, the overall effect of the foreclosure wave, especially when concentrated in lower-income and minority areas, is broader than its effects on individual homeowners. A strengthening housing market will help to gradually undo that damage, but the process has only begun. Homeownership rates have also declined because fewer households have chosen, or have been able, to become new homeowners in recent years. Buying a home usually means obtaining a mortgage, and the data show that the pace of mortgage lending has fallen considerably on a national basis; the extension of first-lien mortgages to purchase homes fell by more than half from 2006 to 2011 and now stands at the lowest level since 1995. Again the contraction in mortgage originations has been particularly severe for minority groups and those with lower incomes: Since the peak

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in mortgage lending in 2006, the number of home-purchase loans extended to African Americans and Hispanics has fallen more than 65 percent, whereas lending to non-Hispanic whites has fallen less than 50 percent. Home purchase originations in lower-income neighborhoods have fallen about 75 percent, compared with around 50 percent for middle- and upper-income neighborhoods. To be clear, the reduction in mortgage originations and home purchases for all groups relative to the pre-crisis period partly reflects weakness in the effective demand for housing rather than the unavailability of mortgage credit. Unemployment, income loss, and income insecurity prevent many households from purchasing homes, and concerns about the future direction of the labor market, housing prices, and the economy more generally keep other potential buyers on the sidelines. In addition, the fall in home prices means that many current homeowners cannot rely as much as they could in the past on tapping their existing home equity to trade up to larger or better homes, while underwater homeowners may be financially unable to move from their current homes. Although the decline in the number of willing and qualified potential homebuyers explains some of the contraction in mortgage lending of the past few years, I believe that tight credit nevertheless remains an important factor as well. The Federal Reserve’s Senior Loan Officer Opinion Survey on Bank Lending Practices indicates that lenders began tightening mortgage credit standards in 2007 and have not significantly eased standards since. Terms and standards have tightened most for borrowers with lower credit scores and with less money available for a down payment.

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For example, in April nearly 60 percent of lenders reported that they would be much less likely, relative to 2006, to originate a conforming home-purchase mortgage to a borrower with a 10 percent down payment and a credit score of 620 – a traditional marker for those with weaker credit histories. As a result, the share of home-purchase borrowers with credit scores below 620 has fallen from about 17 percent of borrowers at the end of 2006 to about 5 percent more recently. Lenders also appear to have pulled back on offering these borrowers loans insured by the Federal Housing Administration (FHA). When lenders were asked why they have originated fewer mortgages, they cited a variety of concerns, starting with worries about the economy, the outlook for house prices, and their existing real estate loan exposures. They also mention increases in servicing costs and the risk of being required by government-sponsored enterprises (GSEs) to repurchase delinquent loans (so-called putback risk). Other concerns include the reduced availability of private mortgage insurance for conventional loans and some program-specific issues for FHA loans as reasons for tighter standards. Also, some evidence suggests that mortgage originations for new purchases may be constrained because of processing capacity, as high levels of refinancing have drawn on the same personnel who would otherwise be available for handling loans for purchase. Importantly, however, restrictive mortgage lending conditions do not seem to be linked to any insufficiency of bank capital or to a general unwillingness to lend. Certainly, some tightening of credit standards was an appropriate response to the lax lending conditions that prevailed in the years leading up to the peak in house prices.

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Mortgage loans that were poorly underwritten or inappropriate for the borrower’s circumstances ultimately had devastating consequences for many families and communities, as well as for the financial institutions themselves and the broader economy. However, it seems likely at this point that the pendulum has swung too far the other way, and that overly tight lending standards may now be preventing creditworthy borrowers from buying homes, thereby slowing the revival in housing and impeding the economic recovery.

Policy responses The factors contributing to reduced mortgage lending and lower rates of homeownership are varied and complex; no simple solutions exist that can, on their own, restore the housing market to health. Since the extent of the crisis became apparent, a range of initiatives has been undertaken. For example, a number of public and private efforts have been made to help avoid unnecessary foreclosures and to enable underwater and other borrowers to refinance at lower interest rates. Alternatives to foreclosure, including short sales and deed-in-lieu arrangements, have become more common. The recent settlement with a group of large servicers includes provisions to improve the process for working with delinquent borrowers and to compensate foreclosed-upon homeowners who were unfairly treated in the past. As I have noted, vacant foreclosed homes lose value and create problems for neighborhoods. The overhang of empty homes also slows the recovery of the housing market by keeping prices low and limiting the need for new construction.

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To explore ways to address the number of foreclosed homes standing empty, the Federal Housing Finance Agency, which supervises the GSEs, undertook a pilot initiative that made it easier for qualified investors to purchase pools of foreclosed properties from Fannie Mae; the acquired properties would then be rented for a specified number of years. For our part, the Federal Reserve is encouraging the institutions we supervise to manage their inventories of foreclosed homes in ways that do not exacerbate problems in local neighborhoods, including renting them out, where appropriate, rather than leaving the properties vacant. Policymakers have also taken steps to remove barriers to the flow of mortgage credit. The Federal Housing Finance Agency recently announced new rules that will provide mortgage lenders greater clarity about the conditions under which they will be required to buy back defaulted mortgages from Fannie Mae and Freddie Mac or otherwise address origination problems. This greater clarity may result in reduced concern about putback risk, which in turn should increase the willingness of lenders to make new loans. In its rulemakings and supervision, the Federal Reserve, along with other bank supervisors, has worked with lenders to try to achieve an appropriate balance between reasonable prudence and ensuring that qualified borrowers are not denied access to credit. Although regulatory policy will be important for restoring a fully functioning housing and mortgage market, the strength of the overall economic recovery is crucial as well. Obviously, loss of employment or income makes it more difficult for families to pay their mortgages, maintain good credit histories, refinance their mortgages at lower rates, and avoid foreclosure. People who are worried about their jobs are understandably more reluctant to purchase homes, and households who have suffered hits to

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their incomes face difficulty qualifying for a mortgage and saving for a down payment. Concerns about the financial strength of households and about the economic recovery also make lenders more cautious. At the Federal Reserve, we have sought to support the economic recovery and maintain price stability – the two goals given to us by the Congress – by keeping both short term and longer-term interest rates historically low. Low interest rates reduce the cost to households of buying homes, cars, and other consumer durables while increasing the attractiveness of new capital investments by firms. Increased demand in turn leads to faster economic growth and more jobs. My colleagues and I have been and remain quite concerned about the stubbornly high level of unemployment – particularly long-term unemployment. We have taken strong actions throughout the financial crisis and recovery to help stabilize the economy. In September, we took the added step of stating that we will continue actions to put downward pressure on longer-term interest rates until the outlook for the job market improves substantially in a context of price stability. Our hope is that our statement provides individuals, families, businesses, and financial markets greater confidence about the Federal Reserve’s commitment to promoting a sustainable recovery with price stability and that, as a result, they will become more willing to invest, hire and spend. In addition, of course, the historically low mortgage rates that have resulted from the Federal Reserve’s policies are directly supporting the housing market by putting homeownership within the reach of more people.

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While the economic recovery and regulatory policy affect access to credit for all households, some potential borrowers may face the added burden of discrimination. In our role as a banking regulator, the Federal Reserve strives to ensure that the banks we supervise obey laws that prohibit illegal discrimination in lending. I am reminded here that fair treatment in housing was a significant focus of Dr King’s, and the Fair Housing Act of 1968 – still one of the nation’s cornerstone laws to prohibit discrimination – was passed only a week after his assassination and stands among his legacies. Two types of discrimination continue to have particular significance to mortgage markets: One is redlining, in which mortgage lenders discriminate against minority neighborhoods, and the other is pricing discrimination, in which lenders charge minorities higher loan prices than they would to comparable nonminority borrowers. The Federal Reserve has been vigilant in identifying and stopping such abuses, and we remain committed to vigorous enforcement of the nation’s fair lending laws. We currently co-chair, with the Department of Justice, an interagency task force to promote robust fair lending supervision and enforcement. Government policies, both microeconomic and macroeconomic, have an important role to play in restoring the health of the housing sector. However, government can only be part of the solution; in the remainder of my remarks I will discuss what others can do, including potential homeowners themselves.

Financial preparedness and homeownership One lesson of the past few years is that the desire to own a home is not enough.

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Although many foreclosures resulted from job loss or other economic hardships, others occurred because people bought more of a house than they could afford, took out a loan that was not appropriate to their circumstances, or did not manage their resources well. Future homeownership must be built on a more solid foundation. And while much of the responsibility for building that foundation must lie with lenders and with regulators, consumers must do their part as well by acquiring the information and financial knowledge they need to make sound decisions. Operation HOPE has made this point frequently and forcefully. Effective financial education – aimed at both youths and adults – can provide people with the knowledge they need. Some of the skills that prospective homeowners need are relatively basic – for example, knowing how to shop for the lowest interest rate and fees, understanding the difference between a fixed-rate and an adjustable-rate mortgage, and, very importantly, knowing how to find trustworthy information and advice. More generally, the decision to buy a home must be consistent with a family’s longer-term objectives, needs, and resources. Good financial planning – including effective budgeting, adequate saving, and sensible investing – can help families maintain homeownership while also pursuing other important objectives, such as preparing for retirement or financial emergencies. And financially informed households will have a better chance to build wealth, reducing – in the case of minority households – the large wealth gap that exists between minorities and other groups. At the Federal Reserve, we appreciate the benefits to families of acquiring basic information and skills about managing their money.

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But we see another important advantage of financial education, which is that an economy with financially knowledgeable households is likely to be stronger, more equal, and more stable. As such, we all gain from efforts to increase financial literacy. Although basic knowledge about money management and decision making is extremely useful, it is not practical, of course, for everyone to be a financial expert. Sometimes a professional can help, and people should not be afraid to seek advice at appropriate times. For example, an individual may be involved in buying a home – a complex and intimidating experience for many people – only once or twice in a lifetime. That’s why advice from a housing counselor at the right point in the process can make all the difference. Nonprofit organizations can help prospective homeowners assess their readiness to purchase. And, by providing useful information about how to search for a home, apply for financing, handle home maintenance, and prevent delinquency, these nonprofits can help aspiring homebuyers find the right home and maintain their mortgage payments. We have also seen that counseling can help consumers who are facing delinquency or default. Borrowers in trouble who receive foreclosure counseling are relatively more likely to subsequently become current on their mortgage, receive a loan modification, and, ultimately, keep their home. Financial preparedness is important not only for prospective homebuyers.

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It ought to be a lifelong undertaking, starting with children and teenagers. Organizations around the country – including Operation HOPE – help people across a range of ages develop their skills. Despite, or perhaps because of, the broader economic challenges we face, it now seems to be a time of creativity and innovation in this field. We are seeing experimentation, knowledge sharing, public-private collaborations, “bottom up” community-driven approaches, and stateand local-government efforts to promote family financial security and opportunity. More generally, community organizations like Operation HOPE have played an important role in helping low-income and minority communities weather the storm of the past few years. Besides promoting financial literacy and providing counseling (and sometimes credit) for homebuyers, community organizations have helped build small businesses through investment and technical assistance. Organizations such as NeighborWorks America (and as an aside, Federal Reserve Governor Sarah Bloom Raskin currently chairs its board) have been leaders in fighting the blight in neighborhoods with high rates of foreclosure. Unfortunately, just as families have been hurt by the financial crisis and recession, so have many community-based organizations. These groups face the daunting task of finding new sources of capital and investment in a constrained financial environment. Some organizations have begun to retool their operations and develop new markets, products, and strategies to better serve the financial needs of consumers and communities.

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Among other goals, they are developing strategies to foster responsible homeownership, which they see as an important building block for stronger communities. To return to where I began, after a long and difficult period, we are seeing welcome signs of improvement in the housing market. An improving housing market will in turn aid the economic recovery while strengthening neighborhoods and increasing the financial well-being of families. Our recovery must be broadly felt to be complete, and families and communities that were already struggling before the crisis must be included in that recovery. As Dr King is widely quoted to have said, “We may have all come on different ships, but we’re in the same boat now.” The Federal Reserve will continue to do what we can to support the housing recovery, both through our monetary policy and our regulatory and supervisory actions. But, as I have discussed, not all of the responsibility lies with the government; households, the financial services industry, and those in the nonprofit sector must play their part as well. In that spirit, I would like to close by expressing my appreciation and admiration for the work that so many of you are doing to restore our neighborhoods and to help individuals and families regain a solid financial footing. Thank you.

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Gerri Walsh Statement for the Record for Senate Special Committee on Aging Hearing

Chairman Kohl, Ranking Member Corker and Members of the Committee: The Financial Industry Regulatory Authority (FINRA) appreciates the opportunity to submit this statement for the record of the Committee's hearing to examine fraud among senior investors. Our comments focus on the outreach and educational initiatives FINRA has underway to protect all investors—including seniors—from falling victim to financial fraud.

FINRA and the FINRA Investor Education Foundation

FINRA is the largest non-governmental regulator for all securities firms doing business with the public in the United States. FINRA oversees nearly 4,345 brokerage firms and about 162,410 branch offices, and more than 635,140 registered securities representatives. We touch virtually every aspect of the securities business—from registering and educating industry participants to examining securities firms; writing rules; enforcing those rules and the federal securities laws; informing and educating the investing public; providing trade reporting and other industry utilities; and administering the largest dispute resolution forum for investors and registered firms. FINRA believes that investor education is a critical component of investor protection—and that we are uniquely positioned to provide valuable educational information and tools to retail investors. Over the last decade, we have worked hard to develop a strong investor education outreach program.

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We produce alerts, interactive tools and educational content to help investors make wise financial decisions. Our BrokerCheck tool, for example, provides investors with a quick way to check a broker's disciplinary and professional background. Encouraging people to take this simple step before doing business—or continuing to do business—with a broker is part of our greater commitment to protecting investors. In 2003, FINRA created the FINRA Investor Education Foundation, currently the largest foundation in the United States dedicated to investor education. The FINRA Foundation seeks to provide underserved Americans with the knowledge, skills and tools necessary for financial success throughout life. To date, the FINRA Foundation has approved approximately $73 million in financial education and investor protection initiatives through a combination of educational and research grants, as well as targeted projects managed directly by the FINRA Foundation.

How FINRA Protects Older Investors

At FINRA, we serve every U.S. investor, from newlyweds planning to buy a home to parents saving for a child's college education to seniors depending on a secure retirement. Over the past five years, we have been keenly focused on issues impacting older investors, especially those at or approaching retirement. For example, in September 2007, FINRA issuedRegulatory Notice 07-43, which highlighted certain issues common to many older investors —including suitability, senior- or retirement-specific credentials or professional designations, high-pressure sales seminars and diminished capacity.

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The Notice reminded broker-dealers of their obligations in this area and provided examples of industry best practices. That same year, FINRA's Member Education and Training Department launched the first in a series of webcasts to help registered representatives and other frontline brokerage firm employees learn about their compliance obligations when working with senior customers. Topics in this free educational series include Senior Investor Issues: Diminished Decisional Capacity, Senior Investor Suitability Considerations and Supervisory Considerations for Working with Seniors—and are available atwww.finra.org/Industry/Issues/Seniors. In 2008 and 2010, FINRA joined with other regulators to issue findings and guidance on firms' practices relative to senior investors. More recently, at the beginning of 2011, FINRA issued its Annual Regulatory and Examination Priorities Letter, which reiterated that the protection of vulnerable customers, including senior investors, continues to be a high regulatory priority—and that one area of particular focus is the use of certifications and designations that imply expertise, certification, training or specialty in advising senior investors. And in November 2011, FINRA published Regulatory Notice 11-52: FINRA Reminds Firms of Their Obligations Regarding the Supervision of Registered Persons Using Senior Designations to remind firms of their supervisory obligations regarding the use of certifications and designations that imply expertise, certification, training or specialty in advising senior investors. In addition to educational outreach to regulated firms and registered personnel, FINRA has also increased our efforts to fight fraud and, to that end, established several programs to help root out bad actors and help consumers protect themselves. In early 2009, we created the Office of the Whistleblower, and later that year, also established the Office of Fraud Detection and Market Intelligence (OFDMI).

http://www.finra.org/Industry/Issues/Seniors/

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Through this office, staff with expertise in fraud detection and investigation can provide a heightened review of potentially serious frauds. OFDMI's mission is to ensure that allegations of serious fraud received by FINRA in the form of complaints, regulatory filings and other sources are subjected to a heightened review. OFDMI serves as a centralized point of contact on fraud issues, within FINRA and externally with other regulators and the public. The creation of OFDMI has expedited fraud detection and investigation, by pursuing matters as far as possible and by referring cases that fall outside of FINRA's scope to the appropriate authorities.

Investor Protection Campaign

One of the major initiatives of the FINRA Foundation aims to reduce investor susceptibility to fraud. Launched in 2008, the Investor Protection Campaign (IPC) is an innovative, research-based, multi-faceted effort intended to help investors understand how they might be susceptible to investment fraud and to replace risky investment behaviors with fraud detection and prevention behaviors. Armed with research around investment fraud victims and fraudster tactics, as well as the field-tested Outsmarting Investment Fraud curriculum and related resources, the program has achieved the following results to date:

- public television distribution of the award-winning documentary, Trick$ of the Trade: Outsmarting Investment Fraud, with 760 airings on 172 public television stations in 76 television markets across 31 states since September 2010, reaching an estimated 51 million households of consumers age 50 and older;

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- in-person and direct-mail distribution of more than 100,000 DVD copies of the documentary and over 300,000 Fighting Fraud 101 brochures;

- delivery of more than 640 presentations in conjunction with national,

state and local partners that have reached more than 33,000 investors nationwide;

- training of 40 percent of Better Business Bureau affiliates to deliver

the curriculum in local communities;

- "live" fraud prevention counseling to almost 28,000 investors through outbound calls from a network of Fraud Fighter Call Centers; and

- creation of a Financial Fraud Research Center and release of a white

paper that comprehensively examines what is currently known about retail financial fraud.

The campaign builds upon FINRA Foundation-funded research unveiled in July 2006 that shattered the stereotypes of senior investment fraud victims, revealing a fraud victim profile that was counterintuitive in many respects. Instead of being isolated, frail and gullible, fraud victims tended to be married, college-educated males with above-average incomes and above-average levels of financial literacy. The research further identified the sophisticated and highly effective influence tactics that fraudsters use to carry out investment scams. These findings forced regulators and senior citizen advocates alike to rethink how best to approach the challenge of equipping older investors with the tools and information they need to thwart fraudsters touting investment scams. In 2007, the Foundation conducted extensive due diligence to develop a program to meet these challenges, coordinating closely with one of the

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lead social scientists on the 2006 study, Doug Shadel, director of AARP's Washington State office. Adopting best practices recommended by the Organization for Economic Co-operation and Development (see OECD,Examining Consumer Policy: A Report on Consumer Information Campaigns Concerning Scams (December 20, 2005)), we structured the Investor Protection Campaign to focus less on shortterm, information-led "warning" strategies and more on a longer term, skills-based "educating" strategy backed by significant research and resources. In 2008, the FINRA Foundation launched the Investor Protection Campaign, seeking to protect all investors, especially those over the age of 55, from investment fraud by helping them to recognize their vulnerability to financial fraud, to identify persuasion tactics and to take simple steps to reduce risky behaviors. The centerpiece of the campaign is a field-tested persuasion resistance curriculum, Outsmarting Investment Fraud, which we developed in consultation with an array of experts in psychology, marketing and fraud. Designed to be flexible (with half-hour and hour-long versions available), the curriculum typically features a moderated presentation with video clips and hands-on learning activities that covers some of the most common tactics employed by fraudsters:

- Phantom Riches—dangling the prospect of wealth or enticing investors with something they want but can't have. "These oil wells are guaranteed to produce $6,800 a month in income."

- Source Credibility or Authority—building credibility and trust by

claiming to be an expert. "I've been in the business for 20 years, hold the 'XYZ' credential and wouldn't offer an investment that doesn't make money for my clients."

- Social Consensus—leading the target to believe that other savvy

investors have already invested. "This is how 'Famous Person' got his

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or her start. I know it's a lot of money, but I'm in—and so is my mom and half her church. Everyone agrees it's worth every dime."

- Reciprocity—manipulating human tendencies to return one favor

with another, often used to prospect clients at free meal seminars and build a relationship. "I'll give you a break on my commission if you buy now—half off" or "You came to my seminar last week, let me come to your home to discuss more opportunities."

- Scarcity—creating a false sense of urgency by claiming an offer is limited, either by time, quantity or audience. "There are only two units left, so I'd sign today if I were you" or "Only a select group of investors will be able to get in on this deal."

The steps investors can take to avoid fraud and to separate fraudulent offers from legitimate opportunities boil down to two words: ask and check. We arm investors with questions to ask about both any investment they're considering and the individuals who tout it—and we show them where to turn to independently verify the answers they get. Our curriculum has been field-tested twice using treatment and control groups—first to determine the extent to which our workshops reduced susceptibility to fraudulent sales pitches, and then to assess both impact and persistence over time. In each instance, investors who had participated in one of our persuasion resistance workshops prior to being pitched on a new investment opportunity were half as likely to agree to receive materials about the deal compared with a control group (who had not yet been exposed to the campaign's messaging). In 2009, we produced an hour-long documentary, Trick$ of the Trade: Outsmarting Investment Fraud, modeled specifically after the Outsmarting Investment Fraud curriculum.

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American Public Television began distributing the documentary in September 2010 through public television stations nationwide and remains available for station airings through September of 2013. The show has received two Telly Awards (which honor the best local, regional and cable television commercials and programs, the finest video and film productions, and exemplary work created for the Web)—one for social issues and one under the how-to/instructional category. In 2010, Trick$ of the Trade was also recognized by Kiplinger's Personal Financemagazine as a "Best of Everything 2010: Best Personal-Finance Resources." Since launching the campaign, we have endeavored to de-stigmatize victimhood and to engage multiple partners and the media to help spread key messages. National partners include the Securities and Exchange Commission, the AARP Foundation, the Council of Better Business Bureaus and the National White Collar Crime Center, among others. Partners at the local level include state securities regulators, state AARP offices and various other government, non-profit and grassroots organizations, including crime prevention networks. The ongoing project comprises three primary elements:

1. Research Facilitation: adding to and beginning to organize the body of knowledge around investment fraud in order to better equip fraud detection and prevention professionals with evidence-based information and resources;

2. Educational Resources & Programs: developing and testing interventions and resources that help investors avoid fraud; and

3. Outreach Partnerships & Public Awareness: leveraging partnerships to expand the reach of the project and refining outreach strategies to maximize the number of investors positively reached with the field-tested curriculum and research-based messages.

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With respect to the research element of the campaign, the FINRA Foundation partnered with the Stanford Center on Longevity to launch the Financial Fraud Research Center in August 2011. The Center's focus is individual consumer financial fraud—particularly fraud achieved using deception, including phony lottery awards, investment scams and online phishing schemes. The Center seeks to facilitate understanding, prevention and detection of financial fraud by compiling and making available information about research across a range of disciplines (from psychology to criminology to marketing and more), connecting research to practical policy and fraud-fighting initiatives and facilitating research by providing seed funding and connecting funding opportunities to interested researchers. More information is available at the Center's website atfraudresearchcenter.org.

Understanding Professional Designations Database

As explained more fully in Regulatory Notice 11-52, FINRA rules require brokerage firms to have, at a minimum, supervisory procedures in place that are reasonably designed to prevent their registered representatives from using a senior designation in a manner that is unethical or misleading. Firms and registered representatives are also prohibited from making false, exaggerated, unwarranted or misleading statements or claims in communications with the public—and this prohibition includes referencing nonexistent or self-conferred degrees or designations or referencing legitimate degrees or designations in a misleading manner. To help investors make sense of the dozens of credentials securities industry professional might use, FINRA created aProfessional Designations Tool, which currently provides objective data on more than 140 designations and credentials.

http://www.finra.org/designations/


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The tool allows investors to better understand what education and experience requirements are necessary for a designation—and to determine whether the granting organization mandates continuing education, offers a public disciplinary process, provides a means to check a professional's status and otherwise ensures that a professional designation is more than just a string of letters. The tool is available on FINRA's website at www.finra.org/designations.

Conclusion

We appreciate the opportunity to submit this statement for the record of the Committee's hearing on preventing elder financial abuse. FINRA and the FINRA Investor Education Foundation are committed to expanding the knowledge and confidence of all Americans wishing to build a more secure financial future through saving and investing, and we share your interest in protecting those savings and investments.


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Guidelines on Complaints-Handling by Insurance Undertakings

EIOPA Guidelines on Complaints-Handling by Insurance Undertakings translated into all the official EU languages EIOPA has published the translation of Guidelines on Complaints - Handling by Insurance Undertakings into all official languages of the European Union. The Guidelines, which are addressed to national competent authorities (NCAs), aim to provide guidance on appropriate internal systems and control for complaints-handling by insurers (such as having a complaints management policy and complaints management function in place), render them more effective and provide guidance on the provision of information and procedures for responding to complaints, thereby ensuring the adequate protection of policyholders and beneficiaries. By having translated the Guidelines into all the official languages of the EU, today’s publication triggers a transitional period of two months until 15 January 2013, within which national supervisors have to declare whether they intend to comply with the Guidelines or otherwise explain the reasons for non-compliance, which may be made public by EIOPA on a case-by-case basis. According to Article 16(3) of the Regulation establishing EIOPA, national supervisors have to make every effort to comply with the Guidelines.

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1. Guidelines Introduction 1. According to Article 16 of the EIOPA Regulation and taking into account Recital 16 and Articles 41, 46, 183 and 185 of Directive 2009/138/EC of the European Parliament and the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (“Solvency II”), which provide for the following:

- “The main objective of insurance and reinsurance regulation and supervision is the adequate protection of policyholders and beneficiaries…..”.

- “Member States shall require all insurance and reinsurance undertakings to have in place an effective system of governance which provides for sound and prudent management of the business”.

- “Insurance and reinsurance undertakings shall have in place an

effective internal control system.

That system shall at least include administrative and accounting procedures, an internal control framework, appropriate reporting arrangements at all levels of the undertaking and a compliance function”.

- In the case of non-life insurance, a duty for the insurance undertaking

to “inform the policyholder of the arrangements for handling complaints of policyholders concerning contracts including, where appropriate, the existence of a complaints body, without prejudice to the right of the policy holder to take legal proceedings”.

- In the case of life insurance, the duty for the insurance undertaking to

communicate to the policyholder, in relation to the commitment, “the arrangements for handling complaints concerning contracts by policyholders, lives assured or beneficiaries under contracts including, where appropriate, the existence of a complaints body, without prejudice to the right to take legal proceedings”.

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2. To ensure the adequate protection of policyholders, the arrangements of insurance undertakings for handling all complaints that they receive should be subject to a minimum level of supervisory convergence.

3. These Guidelines shall apply from their final date of publication.

4. These Guidelines are issued by EIOPA under the powers set out in Article 16 of the EIOPA Regulation.

5. These Guidelines apply to authorities competent for supervising complaints-handling by insurance undertakings in their jurisdiction.

This includes circumstances where the competent authority supervises complaints-handling under EU and national law, by insurance undertakings doing business in their jurisdiction under freedom of services or freedom of establishment.

6. Competent authorities must make every effort to comply with these Guidelines in accordance with Article 16(3) in relation to the arrangements of insurance undertakings for handling all complaints that they receive.

7. For the purpose of the Guidelines below, the following indicative definitions, which do not override equivalent definitions in national law, have been developed:

Complaint means:

A statement of dissatisfaction addressed to an insurance undertaking by a person relating to the insurance contract or service he/she has been provided with.

Complaints-handling should be differentiated from claims-handling as well as from simple requests for execution of the contract, information or clarification.

Complainant means:

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A person who is presumed to be eligible to have a complaint considered by an insurance undertaking and has already lodged a complaint e.g. a policyholder, insured person, beneficiary and in some jurisdictions, injured third party.

8. Furthermore, where an insurance undertaking receives a complaint about:

(i) Activities other than those regulated by the “competent authorities” pursuant to Article 4(2), EIOPA Regulation; or

(ii) The activities of another financial institution for which that insurance undertaking has no legal or regulatory responsibility (and where those activities form the substance of the complaint), these Guidelines do not apply.

However, that insurance undertaking should respond, where possible, explaining the insurance undertaking's position on the complaint and/or, where appropriate, giving details of the insurance undertaking or other financial institution responsible for handling the complaint.

9. Please note that more detailed provisions on insurance undertakings’ internal controls when handling complaints are contained in the “Best Practices Report on Complaints-Handling by Insurance Undertakings” (EIOPA-BoS-12/070).

Guideline 1 - Complaints management policy 10. Competent authorities should ensure that: a) A “complaints management policy” is put in place by insurance undertakings. This policy should be defined and endorsed by the insurance undertaking’s senior management, who should also be responsible for its implementation and for monitoring compliance with it. b) This “complaints management policy” is set out in a (written)

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document e.g. as part of a “general (fair) treatment policy” (applicable to actual or potential policyholders, insured persons, injured third parties and beneficiaries etc.). c) The “complaints management policy” is made available to all relevant staff of the insurance undertaking through an adequate internal channel. Guideline 2 - Complaints management function 11. Competent authorities should ensure that insurance undertakings have a complaints management function which enables complaints to be investigated fairly and possible conflicts of interest to be identified and mitigated.

Guideline 3 – Registration 12. Competent authorities should ensure that insurance undertakings register, internally, complaints in accordance with national timing requirements in an appropriate manner (for example, through a secure electronic register).

Guideline 4 - Reporting 13. Competent authorities should ensure that insurance undertakings provide information on complaints and complaints-handling to the competent national authorities or ombudsman. This data should cover the number of complaints received, differentiated according to their national criteria or own criteria, where relevant. 2. Compliance and Reporting Rules 17. This document contains Guidelines issued under Article 16, EIOPA Regulation. In accordance with Article 16(3) of the EIOPA Regulation, Competent Authorities and financial institutions must make every effort to comply

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with guidelines and recommendations. 18. Competent authorities that comply or intend to comply with these Guidelines should incorporate them into their regulatory or supervisory framework in an appropriate manner. 19. Competent authorities shall confirm to EIOPA whether they comply or intend to comply with these Guidelines, with reasons for non-compliance, by 15.01.2013. 20. In the absence of a response by this deadline, competent authorities will be considered as non-compliant with the reporting and reported as such.

3. Final Provision on Review 21. These Guidelines shall be subject to a review by EIOPA.

Guideline 5 - Internal follow-up of complaints-handling 14. Competent authorities should ensure that insurance undertakings analyse, on an on-going basis, complaints-handling data, to ensure that they identify and address any recurring or systemic problems, and potential legal and operational risks, for example, by: (i) Analysing the causes of individual complaints so as to identify root causes common to types of complaint; (ii) Considering whether such root causes may also affect other processes or products, including those not directly complained of; and (iii) Correcting, where reasonable to do so, such root causes.

Guideline 6 – Provision of information 15. Competent authorities should ensure that insurance undertakings: a) On request or when acknowledging receipt of a complaint, provide written information regarding their complaints-handling process.

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b) Publish details of their complaints-handling process in an easily accessible manner, for example, in brochures, pamphlets, contractual documents or via the insurance undertaking’s website. c) Provide clear, accurate and up-to-date information about the complaints-handling process, which includes: (i) Details of how to complain (e.g. the type of information to be provided by the complainant, the identity and contact details of the person or department to whom the complaint should be directed); (ii) The process that will be followed when handling a complaint (e.g. when the complaint will be acknowledged, indicative handling timelines, the availability of a competent authority, an ombudsman or alternative dispute resolution (ADR) mechanism, etc.). d) Keep the complainant informed about further handling of the complaint.

Guideline 7 - Procedures for responding to complaints 16. Competent authorities should ensure that insurance undertakings: a) Seek to gather and investigate all relevant evidence and information regarding the complaint. b) Communicate in plain language, which is clearly understood. c) Provide a response without any unnecessary delay or at least within the time limits set at national level. When an answer cannot be provided within the expected time limits, the insurance undertaking should inform the complainant about the causes of the delay and indicate when the insurance undertaking’s investigation is likely to be completed. d) When providing a final decision that does not fully satisfy the complainant’s demand (or any final decision, where national rules require it), include a thorough explanation of the insurance undertaking’s position

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on the complaint and set out the complainant’s option to maintain the complaint e.g. the availability of an ombudsman, ADR mechanism, national competent authorities, etc. Such decision should be provided in writing where national rules require it.

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International monetary policy interactions: challenges and prospects Speech by Jaime Caruana General Manager, Bank for International Settlements To the CEMLA-SEACEN conference on “The role of central banks in macroeconomic and financial stability: the challenges in an uncertain and volatile world” Punta del Este, Uruguay Let me start by thanking both CEMLA and SEACEN for the opportunity to address you today. Such meetings are an excellent opportunity for central banks from the Americas and Asia to compare notes and learn from each other’s experience. After all, didn’t the so-called Tequila crisis of the mid-1990s prefigure the Asian financial crisis of a couple of years later? In Jackson Hole at the end of August, I asked why the cooperation that we take for granted in regulating banks generally seems to be regarded as unnecessary, or even uncalled for, when it comes to monetary policy. Today I should like to sharpen the focus and discuss international monetary interactions. No doubt this is a matter of some controversy. At the same time, with a number of emerging market central banks having shifted to easing policy in 2012, there may be a window of opportunity for less disagreement and more understanding on the subject.

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Let me state my message at the outset. I want to make the case for a better understanding of monetary policy interactions and for incorporating them more systematically in policy. I shall first set the context, then discuss policy interactions, and conclude by addressing the risks and challenges of the way forward.

1. The context Let’s step back and take a global perspective on monetary policy. It is hard to avoid a troubling observation. For the world as a whole, monetary policy has been unusually accommodative for a very long time. By this, I mean for 10 years or more. What evidence leads to this observation? Successive BIS Annual Reports have laid out two strands of evidence.

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An admittedly quite simple and common approach is to compare real policy interest rates with real growth rates. As can be seen from Graph 1, real policy rates have fallen short of real growth by some measure and with some frequency, for the world as a whole, for advanced economies and for emerging economies. Another, more constructed, approach is to examine the gap between actual policy rates and those that obey simple Taylor-type rules, which link policy rates in a mechanical way to inflation and the output gap. True, estimating their underlying parameters poses challenges. Both the steady-state real interest rate and potential output are exceedingly hard to measure. That said, for a variety of standard specifications, there is clear evidence of a tendency for policy rates to deviate from this simple standard by some margin, with some frequency and for quite some time, at both the global and regional level (Graph 2). This is all the more so if we take into consideration two additional factors. First, these benchmarks do not incorporate commitments to keep interest rates low for a prolonged period or the wide range of balance sheet measures that many central banks have taken, such as large-scale bond purchases and liquidity support. Second, they also ignore the fact that, especially during financial booms, real-time estimates of potential output are biased upwards, thereby underestimating the degree of policy easing. And we know that a number of economies, not just emerging market ones, have been experiencing such booms lately. Thus, whichever way the data are cut, it is hard to escape the conclusion that, globally, policy rates have been unusually low for an unusually long time.

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Now, why is this so?

Such low rates to some extent reflect an asymmetry in monetary policy frameworks. In particular, pre-crisis, it was thought that no monetary policy response was appropriate to evidence of tailwinds from rapid credit growth amid booming asset prices as long as near term inflation remained under control. At the same time, a very strong response was seen as the right way to address the headwinds of a financial crisis.

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Admittedly, post-crisis, the centre of gravity of the debate has been shifting towards a more preventive use of monetary policy to limit risks from the build-up of financial imbalances. Even so, there has been a strong revealed preference for relying almost exclusively on macroprudential tools. But well beyond policy frameworks, on a global level, low average policy rates also result from policy interactions. After all, global outcomes reflect decisions of groups of policymakers in individual economies who take the decisions of policymakers in other economies as inputs to their decisions. Thus, we can think of monetary policy as a dense web of interactions, with both global and important regional strands. But what are those interactions exactly? And why should they have led to looser monetary policy globally? Let me first trace the channels through which monetary policy in one country affects conditions in another and then discuss the induced policy responses. I will focus very much on financial channels, which I think are particularly powerful.

2. Policy interactions: transmission channels In discussing transmission channels, let me distinguish between the impact on the exchange rate and asset prices, on the one hand, and on quantities, notably capital flows, on the other. While the two are obviously related, it is analytically helpful to keep them distinct to avoid the temptation of overstating their link. This point is well known, but is easily forgotten in discussions of policy.

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In particular, prices can adjust substantially with no change in underlying quantities. Prices need only to respond strongly to incipient portfolio adjustments to ensure that agents are content with the positions they already hold. Moreover, what is true of transactions in general is also true in particular of transactions between residents and non-residents, ie capital flows. Exchange rates can adjust and asset prices move in sync quite closely without necessarily giving rise to capital flows. And to the extent that transactions are involved, these need not be between a resident and a non-resident. For example, the BIS triennial foreign exchange survey reveals that from a third to three quarters of all foreign exchange transactions of major emerging market currencies take place among non-residents. As another example, it has long been observed in Australia that most of the change in Australian dollar bond yields happens while Australia’s own markets are closed: the news that moves them most is not the employment report in Australia but that in the United States. Turning then to the asset price channels, the first and most obvious one is the exchange rate. A reduction in the policy rate or the announcement that it will be kept low for some time should, all else equal, put downward pressure on the exchange rate. While the strength of the impact is not easily predictable, this is precisely one of the usual ways monetary policy is expected to operate. In addition, balance sheet policies can have a similar effect, as when central banks engage in large-scale bond purchases to push longer-term bond yields lower.

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There is considerable evidence that such operations have been quite successful in reducing yields. How far this, in turn, has induced exchange rate depreciation is less clear, in part because of policy responses, to which I shall return. A second channel operates via government bond yields themselves, regardless of whether they fall as a result of expectations of lower future policy rates or of direct bond purchases. I have already noted the example of Australian bond yields, but the effect is much more general. It simply reflects the thorough integration of global bond markets. For instance, one study has found broad effects of the announcement of the Federal Reserve’s bond buying on Canadian, UK, German, Japanese and Australian government bonds. A follow-up study suggests that bond yields fell in these markets not because of lower expected policy interest rates, but because of a lower term premium. Yet another study has found similar effects in the bond markets of East Asia and Latin America. A third channel operates via other asset prices, and for much the same reasons. Here too, the degree of market integration is crucial. The effects are stronger for highly global markets, such as equities, and weaker for highly domestic ones, such as real estate. Consider now the channels that operate via quantities. A direct, if sometimes neglected, channel works through assets and liabilities denominated in foreign currency, notably in the major

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international currencies such as the US dollar and, to a lesser extent, the euro and the yen. In particular, as interest rates are reduced in any of these currencies, emerging market borrowers find it cheaper to borrow in them and those who have already borrowed enjoy lower financing costs. Thus, a substantial stock of foreign currency debt directly transmits the policy of the major central banks to other countries. The pre-crisis experience in central and Eastern Europe provides striking evidence of the relevance of this channel. Borrowers there found it attractive to fund themselves at lower euro or Swiss franc rates, notably in the form of mortgages. When local central banks raised rates, not only did they not raise the cost of existing foreign currency loans, but they also saw borrowers take on more of them. This channel, of course, is not confined to central and eastern Europe. There is something like $7 trillion in US dollar credit to borrowers who reside outside the United States. At times since the crisis, its growth rate has been as high as 20% year on year. We finally come to capital flows more generally – a much discussed channel. Easier monetary conditions in core economies tend to encourage capital flows to economies where interest rates are higher. Quite apart from being one of the mechanisms that puts upward pressure on exchange rates – think of carry trades between residents and non-residents – and on asset prices, such as through portfolio

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investments, gross capital flows have often helped to pump up credit booms. There is, for instance, considerable evidence that the cross-border component of credit tends to grow faster than domestic credit during such episodes. Moreover, in a cross section of emerging markets in 2003–08, the resulting rise in the share of cross-border credit is associated with a rise in the overall ratio of bank credit to GDP. Bank inflows bear watching when one is concerned about rapid credit growth. To be sure, the link between easier monetary conditions in core economies and capital flow surges is far from mechanical, and its strength varies greatly over time. Other factors can play a key role, including changes in risk attitudes and domestic conditions. We are all familiar, for instance, with market participants’ talk of “risk-on/risk-off”, which conditions capital flows. These factors are only partly influenced by those monetary conditions themselves. Moreover, as I shall explain in a minute, the link is shaped by the policy response in recipient economies. That said, it would be hard to deny the link. In particular, in the risk-on mode, wide interest rate differentials act as a magnet for debt capital flows.

3. Policy interactions: responses So much for the transmission channels; what about the policy responses?

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These depend on circumstances. In some cases, major central bank actions may amount to no more than background noise or may even strengthen the policy response by the local central bank to domestic conditions. In other circumstances, however, they may constrain domestic policy and give rise to difficult trade-offs. Such circumstances may explain the unusually accommodating monetary conditions we have seen pre- and post-crisis. Two different concerns may result in a central bank’s choosing a looser monetary policy in response to an accommodative monetary policy elsewhere. The authorities may seek to prevent a loss of trade competitiveness. Alternatively, or concomitantly, they may seek to prevent the financial stability and macroeconomic consequences of gross capital inflows, which can help finance a build-up of financial imbalances. In both cases, doubts about the self-equilibrating behaviour of the exchange rate play a key role. Let me take each in turn. Concern over loss of competitiveness is long-standing, especially for countries that rely on manufactured, rather than commodity, exports. And it can be exacerbated by strategic considerations, namely a first-mover disadvantage. The first country to allow an appreciation can lose competitiveness if its trading partners successfully resist it. Perhaps if all allowed appreciation at the same time, the concern over competitiveness would be much allayed.

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Focusing on bilateral exchange rates, such as vis-à-vis the US dollar, as opposed to the more relevant effective exchange rate, may add inertia and exacerbate the link with monetary conditions in a specific country, potentially adding to the risk of instability. Concern about the financial stability implications of cross-border flows, especially their impact on credit expansion and asset price booms, is more recent. Financial crises in both emerging markets and advanced economies have made it more salient. The potential for withdrawal of cross-border credit has led authorities to build up war chests of foreign exchange reserves. And since damage can be done not only by the reversal of such flows but also by their preceding surge, authorities avoid large interest rate differentials, for fear of attracting capital inflows. Regardless of whether the focus is on competitiveness or financial stability, the perceived risk of overshooting in the exchange rate adds to the worries. Such overshooting can do lasting damage to competitiveness, as lost markets and productive capacity are not easily regained. And it can add strength to the capital inflows and credit booms, by inducing expectations of further capital gains on investments and falling borrowing costs. The end result is predictable: a looser monetary policy stance and resistance to exchange rate appreciation. The monetary authorities may pre-emptively take interest rates lower than they would otherwise. Or they may intervene in foreign exchange markets and accumulate reserves in an effort to avoid reducing interest rates in response to loosening by major central banks.

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These responses, in turn, can condition policy in the major advanced economies. After authorities intervene by buying major currencies, they invest the proceeds in major government bonds. Bond buying by foreign exchange reserve managers can lower yields in major bond markets just as such buying by the domestic central bank. The combination of unconventional policy measures in major advanced economies and the investment of the proceeds of intervention on major bond markets can lead to quite high fractions of official investment in such bond markets. Foreign official holdings of US Treasuries at end-June 2011 were $3.5 trillion, and Federal Reserve holdings were $1.6 trillion. These official holdings of $5.1 trillion amounted to over half of the outstanding $9.5 trillion. Such large players can make for substantial interactions even in a very large market. Some express concerns that emerging market economies’ resistance to currency appreciation puts more upward pressure on freely floating currencies. In any case, it is the strategic setting of low policy rates and the diffusion of low bond yields that can lead to a global easing of monetary conditions. These mechanisms have been at work both before the crisis and since. Just recall the massive increase in foreign exchange reserves, although it has slowed to a crawl in emerging markets over the last year. And while it is tough to prove that interest rates have been kept lower than otherwise for the reasons suggested, the message of Taylor rules is strongly suggestive.

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Even more telling is the frequent complaint that it is exceedingly hard to set policy rates appropriately when they are so low in the larger economies. The strategic aspects of the overall situation are apparent. The more countries find themselves in this condition, the harder it is for any one of them to deviate. This is true regardless of the specific concern underlying the policy response. As a result, a very accommodating monetary policy can become entrenched globally.

4. Policy challenges, risks and a way forward Monetary policy conditions that are too easy for too long can lead to problems down the road. Macroeconomic problems can emerge in the form of an inflation surprise or, as they have more recently, serious financial distress, when financial booms turn into busts. To be sure, policymakers have recognised these risks and have acted to improve the tradeoffs they face. The corresponding measures have taken various shapes and sizes and, in practice, the delineation between them can be ambiguous. Their common denominator is an attempt to restrain the impact of foreign spillovers and of the induced policy response through interest rates and, possibly, foreign exchange intervention. The first set of measures comprises standard monetary policy administrative tools – although now they are sometimes re-dubbed “macroprudential” tools.

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The most common example is higher reserve requirements. They seek to tighten credit conditions without encouraging capital inflows, as an increase in interest rates might do, through in effect a tax on banks. The second set of measures comprises macroprudential tools. These target specifically systemic risk and are supported by specific governance arrangements to keep them properly focused. Prominent examples include higher bank capital requirements, stricter and less cyclically sensitive loan loss reserves, and lower loan-to-value or debt-to-income ratios. Other such tools include Korea’s taxes on banks’ non-deposit short-term foreign currency funding and limits on foreign exchange forward positions. Moreover, going forward, countries will be able to implement Basel III’s countercyclical capital buffer fully backed by reciprocity arrangements, which are designed to limit the possibility of cross-border regulatory arbitrage – to my mind an often underappreciated breakthrough in international regulatory coordination. The final set of measures comprises capital controls, which specifically target transactions between residents and non-residents. These include restrictions on foreign investors’ access to the home bond market or on domestic firms’ access to global bond markets. While, to varying degrees, these three types of policy can help, they have two limitations. They may fall short of their objective; and some of them may have considerable side effects. The risk of falling short of the goal should not be underestimated.

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Experience indicates that, over time, administrative controls tend to become porous and subject to circumvention. Reserve requirements, for instance, boost what might be called the shadow banking sector. Capital controls can become less effective or more expensive as domestic enterprises become more multinational, so that their treasury operations span the border. As for macroprudential frameworks, no doubt their implementation has been a major achievement that deserves to be pursued vigorously. That said, we should keep our expectations realistic. These frameworks can certainly improve the resilience of the financial system, by building up buffers when it is cheap and easy to do so. But their ability to restrain a financial boom sufficiently is limited and uncertain. They cannot be expected to bear the whole burden. Monetary policy has to play its part, duly supported by fiscal policy. Is the risk of falling short of the objective materialising? Inflation so far has remained relatively subdued. But in a number of cases, headline inflation has been exceeding targets and has proven surprisingly resilient given prevailing views about the excess capacity across countries. Moreover, while commodity prices have come off their peaks, they can quickly pose policy challenges again, especially in economies where food makes up a large part of the consumer basket. More pressingly perhaps, risks to financial stability merit close attention.

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For a number of years now, several economies have experienced very rapid credit growth, sometimes accompanied by buoyant asset prices. Some of these financial booms appear to have reached maturity and possibly even to be deflating. Experience shows that, unless addressed in timely fashion, such developments can put at risk years of economic advance. Turning to the side effects, capital controls may deflect capital from one receiving economy to another. Might those economies thought least likely to change the rules on capital inflows ironically face the challenge of still larger flows? This brings me to broader political economy considerations. We have reached a delicate global monetary policy configuration. If this analysis is correct, there is a real risk that frictions could multiply and intensify, especially if the economic environment were to deteriorate further. They could involve not just frictions over currencies, but also over investment decisions in foreign bond markets. A world in which officials hold large portions of the largest bond markets does not strike me as an ideal one. The ultimate risk is that of a discontinuity in the international regime. We are used to fearing trade protectionism, but there is also a risk of financial protectionism – financial protectionism not just through capital controls, but also through regulatory and supervisory action. In a world of multinational financial firms, uncoordinated efforts to preserve liquidity, to limit reliance on short-term funding and to avoid risks of policy shifts can further segment already fractured markets.

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And with very high levels of public and private sector debt, sooner or later such a world is likely to turn to inflation. The temptation to repress financial markets to inflate debts away may simply prove too strong. It would not be the first time. We are, of course, not facing such a scenario right now. And it is policymakers’ duty to prevent it from ever materialising. I believe that a keener recognition of monetary policy interactions would be an important step in the right direction. The BIS, through its committee structure and own analysis, intends to strengthen its efforts to support this process.

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Combating Financial Crime: Key themes and Priorities for 2013

Speech by Tracey McDermott, director of the Enforcement and Financial Crime Division at the APCIMS Conference Good morning ladies and gentlemen. And thank you for inviting me to speak today.

It has been a busy year; a year in which allegations

of money-laundering, fraud and sanctions breaches involving the

financial industry have been regularly been in the headlines.

These are matters of great public and political concern, as I know only too

well from my appearance, alongside FSA Chairman Lord Turner, before

the Home Affairs Committee of the House of Commons two weeks ago.

That appearance was in relation to their enquiry into drugs. And, of

course, although the scope is now much greater, the need to tackle drugs

trafficking was one of the reasons that money laundering laws originally

came into being.

So, as in our day jobs, we focus on adequacy of controls and procedures, it

is useful to remind ourselves why they exist.

The reason that we, and you, seek to tackle financial crime is because, in

the end, this is not just about money – it is about the impact that crime

has on the lives of ordinary people here or overseas.

The more we can do to ensure that crime does not pay and that funds

cannot be funnelled to those who seek to harm us the better it will be for

all of us.

It will not have gone unnoticed that this year’s activity has also been

going on against a backdrop of regulatory reform. I can say with some

confidence that the diary has been fairly full recently.

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So today I will talk about our progress towards the FCA, what you can

expect to see that is different – and what will be the same.

I will cover some of our ongoing work including our thematic review into

AML controls in asset management firms and I will talk about what we

want from you.

The Financial Conduct Authority

So where are we with regulatory reform?

Legal cutover is scheduled for April next year, when the FSA will be

formally split into two.

The Bill is still making its way through that process.

The fundamentals however are clear – separation of responsibility for

prudential and conduct regulation of deposit takers and insurers

(although the FCA will be prudential regulator for most, if not all,

APCIMS firms).

This will mean greater clarity about our prospective missions and, from

the FCA increased, and continuous, focus on conduct matters.

The PRA will take over prudential regulation, and the FCA will be the

conduct regulator.

My Division, Enforcement and Financial Crime, will operate entirely out

of the FCA.

So what can you expect from the FCA?

We recently published the “Journey to the FCA”, which explains what you

can expect in terms of the FCA’s regulatory approach, what this means for

the industry, and what it means for consumers.

It explains how we will go about meeting our three key operational

objectives which focus on protecting the integrity of the market,

consumer protection, and competition.

If you have not already, I would encourage you to read this and would be

grateful if you could let us know your views and comments. You can give

feedback easily on our website until 14 December.

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Indeed, one of the things you will notice about the document is not only

its different look and feel but also that it is designed to be much easier to

interact with and comment on it.

This higher level of engagement will, we intend, be one of the hallmarks

of the FCA.

We will be publishing a summary of feedback received early next year.

Some of you might have attended some of the FCA events we are hosting

all over the country.

We are taking somewhat a different approach to engagement than you

might have seen from the FSA in the past, being more proactive in

reaching out to both firms and consumers.

In addition to firm engagement events we are also speaking to

organisations as diverse as the Women’s Institute, Young Scot, and the

Citizens Advice Bureau.

Engagement across industry and consumers is a priority for us as a

conduct regulator.

We want to ensure we do not operate in a bubble isolated from an

understanding of how things are evolving in the market.

We have said, and I repeat now, that we recognise that you, on the

frontline in firms, are often best placed to assess what new risks are

coming over the horizon and we encourage you to raise these with us.

Similarly we want to hear from consumers about what they are

experiencing.

Bringing this sort of intelligence together to enable more rapid and,

where necessary, more robust intervention will be a key task of the FCA.

You will see more of this in the future.

What else will be different?

The FCA will be a conduct regulator focussed on improving behaviour

and raising standards to protect integrity of markets (both from a

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financial crime perspective and a market abuse perspective), and to

ensure consumers get a fair deal.

These are not new concepts. Competition, however, will be new to us and

this will be the third area of key focus for us as the conduct regulator.

This will mean that we will be identifying and addressing competition

issues as part of our regulatory approach.

We are developing our approach and our thinking on our competition

objective, but this will be a key element of the way we regulate in the

future.

Our approach will be more forward looking and judgement led.

This means we will be more proactive, more directive, and be more

prepared to intervene and intervene earlier.

This requires judgement, confidence and good analysis.

We will be prepared to take on more risks, although we recognise we

won’t always get it right.

And we recognise that will, at times, be uncomfortable for us and for you.

But history has simply made it clear that simply sitting back and waiting

to see how things evolve is not an option.

Enforcement - in its traditional sense – will remain a core part of what we

do.

Our credible deterrence strategy will remain, taking tough and

meaningful action against those firms and individuals who fall short of

our standards and break the rules.

The FCA will also take on all of the FSA’s financial crime responsibilities,

and we will be well placed, building on our recent work, to take a robust

stance.

Tackling financial crime will be a key task for the FCA, influencing who

we allow to own and run financial firms, what questions we ask them, and

our decisions to punish those who fall short.

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The Bill, currently at the House of Lords report stage, gives a clear

mandate to the FCA in relation to financial crime.

Its integrity objective explicitly tasks the FCA not to let the UK financial

system be used for the purposes of financial crime.

In contrast, the Prudential Regulation Authority, or PRA – the sister

agency charged with overseeing the safety and soundness of financial

institutions – has no such mandate.

Countering financial crime is not part of its remit.

This is deliberate: it gives a clear division of labour between the two

authorities.

Give a financial crime mandate to both authorities, and you might end up

with muddling overlap or, worse still, buck-passing.

Of course, this does not mean that the PRA can forget about financial

crime altogether.

From a prudential point of view, fraud against financial institutions can

be a significant source of operational and reputational risk – and so too is

non-compliance with the legal and regulatory requirements of overseas

jurisdictions.

The PRA will need to know financial institutions are on top of these risks,

and that their safety and soundness is not at risk.

The FCA’s focus will be different. Our focus will be on protecting

consumers from financial criminals, and stopping firms facilitating

crimes for which they can be a conduit, such as money laundering. Our

approach document sets this out more fully.

So what will it look like for you on the ground?

Thematic work such as our review into AML controls for high risk

customers or ABC controls in investment banks will be a key part of the

FCA’s approach in relation to financial crime as in other areas.

But it will not be all of it.

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A new feature of our AML supervisory strategy will be systematic,

recurrent, in-depth reviews of the biggest banks’ defences against money

launderers and sanctions breaches.

This ‘Systematic Anti-Money Laundering Programme’, piloted over the

past year, is a new venture for us; it will be applied to the largest banks

operating in the UK (and not just high street retail banks – several

investment banks too), with reviews of one institution or another taking

place on a permanent basis.

What about the financial crime risks in investment management?

I don’t think we currently have a complete picture of this, but we are

working to rectify this.

In the last two years we performed thematic reviews probing how banks

deal with high risk clients and situations, and how investment banks

contain the risks of bribery and corruption.

We are now moving on to asset managers, a sector my financial crime

teams have not probed in that depth before.

Our thematic review of the sector will begin very soon - we make our first

visits in the coming weeks. I will say more about this shortly.

Investment fraud

Of course there are some financial crime issues which although the

techniques evolve and adapt and change have been with us in one form or

another for many years.

One of these is investment fraud.

An important part of our work is to shut down illegal investment scams.

And we know this is of interest to you too.

The APCIMS website has good information about boiler rooms aimed at

investors.

You will be keen to hear how we are tackling these rogue operators,

operating illegally on the margins to defraud members of the public,

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free-riding on the reputation of legitimate investment managers and

stockbrokers.

Many go so far as to try to pass themselves off as well-known

FSA-authorised businesses, using identical or similar names and copycat

web addresses to those of long-established City firms.

Criminals, both here and abroad, defraud investors in Britain of hundreds

of millions of pounds a year through schemes such as share-sale (or

‘boiler room’) frauds, landbanking scams, rogue carbon-trading firms or

fraudulent collective investment schemes.

Investment fraud remains one of our top financial crime risks.

Those who invest their money in such schemes are not protected by the

Financial Services Compensation Scheme if they invest with businesses

that are unregulated, and all too frequently lose all their money.

We receive almost 5,000 calls each year from people who think they are

victims, although, of course, not all victims will contact us.

So we do not have hard data about the scale of the problem, but our best

estimate is that UK consumers pay out over £500 million every year to

these fraudsters. Some individual scams can pull in huge sums.

Earlier this month, Nicholas Levene was sentenced at Southwark Crown

Court to 13 years in custody for swindling investors out of £32m.

HHJ Beddoe remarked on Levene’s “rank dishonesty” in his

sentencing - [the fraud was] “well planned and professionally executed,

involving huge sums and huge profits with multiple victims whose trust

in you was grossly abused”.

Our conversations with victims illustrate how easily some customers can

be deceived - regular investors with professions that entrust them with

grave responsibilities: magistrates, surgeons, you name it - have fallen

victim to investment fraudsters, who are very canny and manipulative,

successfully exploiting investors' very human vulnerabilities to part them

from their money. Some of these victims will also be customers of yours.

They may not be quite as sophisticated as you thought…

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We recognise that tackling this activity requires us to attack it on several

different fronts.

We use our criminal and civil powers against those conducting regulated

activities without authorisation.

We are regularly in the civil courts seeking injunctions and freezing

orders and we have 3 people awaiting for trial for unauthorised business

offences.

We are assisting other law enforcement agencies on many many more

cases.

We also use the courts to help victims of investment scams to get some

compensation where we can and have some success in this.

Unfortunately, however, usually this is a small fraction of the amount lost.

Equally importantly we also seek to remove victims from the picture by

alerting the public to the dangers of investing in such schemes including

by, for instance, proactively writing to those we identify through

intelligence, as being on the target list of fraudsters.

The importance of this cannot be overstated.

However much resource we, and other law enforcement agencies, devote

to this there will always be an incentive for criminals to set up new

schemes, the technical aspects of the law mean that we are not always

able to take action and, as already highlighted it is almost inevitable that

by the time action is taken people have lost money.

This year we wrote to 76,000 people who we found were at risk of being

targeted by investment scams.

And we have provided consumer guidance to many millions through our

media work and by providing educational videos on the main types of

investment scams.

This is exactly the type of work the FCA will take forward – targeted,

intelligence-driven, cooperating with other agencies at home and abroad

– our work to disrupt investment fraudsters’ schemes is a model for this

approach.

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We encourage you, as APCIMS and as individual firms, to think about

what you can do to help us with this.

The primary objective of an investment scam is, of course, to make

money.

So, as always, targeting the cash flow is one of the most effective routes of

disruption. Most money which passes to a fraudster in these schemes

goes either from or to a UK account, or sometimes both.

Our recent thematic review of banks' defences against investment frauds

looked at the steps firms take

a) To protect their customers, and

b) To detect when they are providing banking services to people

perpetrating these scams.

There were some excellent examples of good practice often driven by the

initiatives of individual staff but a rather less good picture at the

systematic and strategic level.

We recently updated “Financial crime: a guide for firms” – our

one-stop-shop guide on everything to do with financial crime – with

examples of good and poor practice to help banks tackle investment

fraudsters – these examples stemmed from our review.

This time we have not reached for enforcement as our initial response.

Instead, we are hosting an investment fraud roundtable for the firms

involved in the project.

This is a chance for them to share their experiences and challenges they

face in improving their systems and controls.

But this is also a signal to firms (whether in the project or outside it) that

we have made clear our expectations in relation to investment fraud and

that we expect them to improve.

We will be checking that they have done so, and will take action if they

have not.

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I fear that we will never be in a position where we are not tackling

investment fraud but I want to stress our resolve, and that the new

Financial Conduct Authority will be equally committed to this task.

Asset management thematic review

As I mentioned earlier we are about to start a thematic review of how asset

managers handle the risks of money laundering, sanctions breaches and

bribery.

Let me now give you the details. Perhaps this review is overdue: the asset

management sector holds over £4 trillion in assets, with APCIMS

members alone collectively managing assets of half a trillion pounds for 6

million clients.

Clearly this is a huge industry, and the scope for damage should financial

crime risks be mishandled is enormous.

London is an attractive destination for the world’s wealthy and their

money – unfortunately including those whose wealth is illegitimate.

I expect you, as UK-based wealth management professionals, to be

developing your business by offering peerless service and unmatched

expertise: not by accepting money without properly gauging its

provenance.

We hope the findings of this review will be better than the disappointing

findings of our 2011 review into banks handling of high risk situations.

We were greatly concerned by the findings of that 2011 review, and

Enforcement actions followed.

Since publication we have fined three banks with more to go.

To remind you of our findings: too many of the banks we visited showed

basic weaknesses in identifying high risk customers – PEPs and the like,

undertaking proper due diligence and monitoring of their accounts.

Of course most of these customers will be entirely legitimate, but not all

of them are, and they are recognised as posing an increased risk which it

is the job of the industry to manage properly.

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We found over three quarters of the banks we visited failed to take

adequate measures to establish the legitimacy of the source of wealth and

sources of funds which would be used in the business relationship.

More than a third that we visited did not have effective measures to

identify customers as PEPs.

Over half the banks we visited failed to apply meaningful enhanced due

diligence measures in higher risk situations and therefore failed to

identify or record adverse information about the customer or the

customer’s beneficial owner.

Finally - and crucially, as it goes to the crux of what the financial crime

regime was set up to do in the first place - we found some banks appeared

unwilling to turn away, or exit, business relationships despite there

appearing to be an unacceptable risk of handling the proceeds of crime.

We published that review over a year ago and I hope you will have been

able to digest its findings and apply its lessons to your own businesses.

Our imminent thematic review of asset managers will look at your

systems and controls to counter money laundering, sanctions breaches,

and bribery and corruption

As well as building on the approach we used in our previous reviews, we

will also consider issues that are specific to the asset management

industry.

We have taken a sample of 22 firms from across the investment

management sector, aiming to capture the industry’s diversity.

We plan to publish in the third quarter of next year.

As with all our thematic reports, we will give examples of both good and

poor practice that will give you and us a picture of what is happening

across the sector, and help standards to be raised.

Market Abuse

How the wealth management sector works to prevent market abuse falls

outside the remit of this thematic review, but do not take that as a signal

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that our concerns about those who abuse inside information have

lessened.

Far from it.

Our current work to tackle insider dealing is a world away from where it

was five or six years ago.

Since 2009 we have seen 21 convictions, confiscation orders totalling more

than £ 2.2m, prison sentences of up to 40 months. On the civil side we

have imposed penalties of £24.5 million (£18.5 million of which was

imposed on individuals) and prohibited 17 people for market abuse.

This tough approach will continue.

You have an important role in this too, identifying and reporting

suspicious transactions.

We have fined two individuals, Mark Lockwood and Caspar Agnew, for

failures to file Suspicious Transaction Reports and we have emphasised

to the industry the importance of your role in helping use detect and

stamp out market abuse.

We of course expect you to comply with these formal obligations but

again would to encourage you to do more than that, we want to ensure

you share intelligence from within the industry with us to enable us to

spot emerging issues and trends more quickly. If in doubt, tell us.

Conclusion

The FSA – and soon the FCA - have an important role in the fight against

financial crime.

We take this very seriously, and it is clear to me we should expect to, and

strive to, achieve continuous improvement to how we do this.

We must engage ever more closely with law enforcement and other

agencies here and abroad to tackle complex financial crimes, like boiler

rooms and pension liberation frauds, that can only be pursued using a

multi-agency approach, an approach that depends on us fostering close

constructive relationships with other bodies: something on which I

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believe we have a good track-record, but something that can always be

done better.

In parallel to our investigatory work, we must also liaise with partners like

the police, trade bodies and market participants to help us understand

new financial crime threats and new ways of laundering money: threats

on which we can then, in turn, share intelligence with firms.

We must also think carefully on other ways we can support industry’s own

efforts, through our publication “Financial crime: a guide for firms” for

example, and through initiatives like round-table events and

presentations.

We must ensure our supervisors’ assessments of the risks posed by firms’

business models and strategies have financial crime considerations built

into their core.

I want us to experiment and be imaginative in discovering new ways to

get results: If you have ideas how we can do things better we are certainly

open to suggestions.

But we are just part of the picture.

At the risk of stating the obvious, you will all, as citizens, of course want

Britain to be a place where crooks are caught and brought to justice.

But, in addition, it is clear to me that the industry - from the mightiest

investment bank to the lowliest local stockbroker – has a clear economic

self-interest in tackling the dangers posed by financial criminals.

Finance is an industry that sells nothing physical, nothing that you can

kick: it sells promises: promises to pay, promises you are asking your

customers to trust.

But the perception in the minds of many members of the public –

including many of your potential and current clients – is that the financial

industry lacks integrity, and this view is not aided by some of the more

torrid stories from this summer – headlines about rate-rigging, Mexican

drug lords, and Iranian weapons proliferators will not have helped rebuild

trust in the financial sector collectively.

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Such perceptions are poisonous to the long-term interests of the industry

– they are bad for business and the future livelihoods of the people

working in all parts of finance.

And where financial crime risks, which may have been simmering away

without attracting much management attention for some time, do blow

up, they can pose almost existential threats to the businesses concerned.

Who, at the start of the year, would have predicted a big British bank

would have the future of its banking license in New York called into

question by the regulators there?

I hope the lessons from this summer are clear.

I certainly hope wealth managers are not taking an "it couldn’t happen

here" attitude to these dangers.

I am assuring you: it could.

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Islamic Finance Prospects in Africa: Speech Islamic Banking Summit Africa | Republic of Djibouti Speaker : Jaseem Ahmed, Secretary General, IFSB Assalamu’alaikum warahmatullahi wabarakatuh and a very good morning to all of you. It is indeed a great pleasure for me to speak at this inaugural “Islamic Banking Summit Africa”. My thanks and appreciation go to the organisers of the event for this opportunity. I would especially like to acknowledge the strong support that the Government and Central Bank of Djibouti have provided to the IFSB, where the central bank is an honoured member of the IFSB’s Council. I am going to begin with a few words about the global economy, before going on to address how Islamic finance can support Africa’s need for greater trade and investment. In my remarks today, I am going to suggest that Islamic finance offers a major opportunity for diversifying the investor base, and raising investor interest in Africa. At the same time, there are important prior actions that need to be taken in terms of strengthening risk management capabilities and the legal and regulatory framework for financial sector supervision. This will be essential to ensure that the growth of the real economy, which is the ultimate goal of policy, is sustainable. Excellencies, Ladies and Gentlemen,

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The recently retired President of the World Bank observed, just before leaving office that, and I paraphrase: emerging economies are today the engines of their own growth, and the stewards of their choices. He was referring to the fact that global economic growth is increasingly driven by the growth of emerging economies, and that emerging economies are demonstrating strengthened capabilities for policy development and implementation. Against this context, however, recent global economic projections are sobering in view of slow growth in the US and Europe. There is the likelihood of spill-over effects for emerging economies in terms of lower growth prospects, and in terms of heightened cross-border financial volatility. In its recent report, the IMF suggests that “there is now a 1 in 6 chance of global growth falling below 2%, which would be consistent with a recession in advanced economies and low growth in emerging market and developing economies”. The IMF projected the GDP of US and Euro area to reach 2.1% and 0.2%, respectively, in 2013. Even in the US, where the recovery continues, the Congressional Budget Office projects that GDP will recover to its pre-crisis peak only in 2018 – a full decade after the onset of the global crisis. These figures suggest that US and Europe are already well into what could become a lost decade – a period of economic stagnation, wasted human potential, heightened social turbulence and inequality, and lost opportunities in terms of growth and development. Lower growth in the US and Europe is likely to impact on emerging economies, including Africa, through reduced levels of FDI, tourism revenues, financing for infrastructure, and the provision of concessional aid flows from traditional sources. But there are also grounds for optimism.

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The challenge, and opportunity, in Africa is to diversify funding sources and the investor base, as markets look for new investment opportunities to maximise returns on capital. Islamic finance has a potentially major role to play in this context. Djibouti represents a promising example of the diversification I am talking about – through the innovative financing mechanisms it has drawn upon for its port and tourism infrastructure. Excellencies, Ladies and Gentlemen

Expansion of Islamic finance The global IFSI continues to experience double digit growth, with the Sharīàh-compliant assets now exceeding the USD1 trillion mark. The range of products and services offered has also widened from primarily retail banking products to more sophisticated capital market instruments, underpinned by the innovative and dynamic nature of the industry and the desire by Islamic financial institutions to meet the needs of customers’ and requirements for Sharīàh-compliant products and services. Indeed, there is an expanding interest in participating in Islamic finance, and recognition that it can contribute strongly to promoting financial inclusion, and economic growth and development. The strong growth of Islamic finance has been exemplified by the emergence of Sukūk as an attractive Sharīàh-compliant asset. In the first half of 2012, Sukūk issuances grew by 40.1% y-o-y to USD66.4 billion, with strong performances by sovereign and quasi-sovereign issuances in Malaysia and the GCC for the financing of infrastructure. This underscores the enormous prospects for Islamic finance to play a mainstream role in financing the development of economies in both emerging and developed markets.

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Let me take this point a little further by highlighting two related aspects. First, as I have already mentioned, there is the financing of public expenditures on physical and social infrastructure through Islamic finance solutions. In Asia and in the GCC we are seeing increasing recourse to Islamic finance for public expenditures on roads and communications, mass transit systems, as well as on energy projects and on health. Second, following the pioneering efforts of countries such as Sudan, Bahrain and Malaysia governments are integrating Islamic finance instruments into their public finance and expenditure frameworks through sovereign Sukūk issuance programmes. In the process, these countries are developing parallel capacities for the issuance of both long and short-term government Islamic securities that can sustain developmental and project financing, and meet the need for liquidity management instruments by IFSI. It is thus significant that both sovereign and quasi-sovereign entities are now planning for the future not through one-off Islamic financing solutions, but through medium term Sukūk issuance programmes. This suggests that these economies have made significant progress towards developing a capacity to establish and deepen Islamic capital, money and inter-bank markets. These markets represent the critical missing link towards a fuller development of capacities for liquidity risk management within Islamic financial institutions. At the same time, they enhance the capacity of the authorities to strengthen the stability of the Islamic financial system through the provision of instruments and markets for monetary control.

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This is of critical importance in those economies in which there are significant prospects for expansion of Islamic banks, and of the wider IFSI. In short, what we are seeing is the transformation of the Islamic finance industry through the implementation of phased public policies for market development, and the strengthening of institutional and human capabilities. From this perspective, the issuance of Turkey’s first sovereign Sukūk, for example, should lead us to recognize the deeper significance. Namely, that this issuance comes against the back of a significant process of legal, tax and other reforms – all of which have been guided by a public policy commitment, framed over the medium to longer term. I mention Turkey as the most recent example, but there are other sovereigns in Asia, Africa, and Europe, where such policy and institutional preparation is likely to lead to the growth and sustainable expansion of Islamic finance, despite the global economic headwinds that we all face together.

Opportunities for Islamic Finance in Africa Let me now turn to prospects for Islamic finance in Africa. Over the long term, economic and demographic projections indicate expanding prospects for Islamic finance in the continent Africa’s GDP grew by an annual average of 5.6% in 2002–2008, making it the second-fastest growing region in the world, just behind East Asia. Since then, growth continues to pick up well. Of the world’s 15 fastest-growing economies in 2010, 10 were African. With the exception of South Africa which has close financial and trading ties with Europe, Africa has so far been relatively unscathed by the euro zone crisis.

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The IMF projected Africa’s GDP to increase from a 5% growth rate in 2012 to 5.7% in 2013, underpinned mainly by increased receipts from commodity exports and rising demand for commodities, particularly from emerging markets in Asia. Besides the agricultural and services sectors which remain as the catalyst of growth for the continent, growth is also being supported by other services such as trade, transport, financial services and real estate. Given the uncertainty in the global economic outlook and Africa’s positive outlook, Africa is now in the spotlight as markets look for new investment opportunities. The continent’s trade ties with the GCC, which continues to strengthen in recent times serves as a promising foundation for sustained trade and investment flows into Africa. But Asia is also increasing in importance as a trade and investment partner. Opportunities for Islamic finance in the African countries stem from the need to fund long term growth strategies and infrastructure spending, as well as to spur private sector investment. Let us look at some of the other ways in which Islamic finance can contribute towards the growth and development of the African countries. First of all is the provision of financial solutions for cross-border trade and investment. Over the last 10 years, trade levels between Africa and the GCC increased by 170%. This presents an opportunity for greater collaboration in Africa between Islamic banks from the two regions. At the multi-lateral level, the Islamic Development Bank has recently pledged its commitment to growing trade finance and funding

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agricultural projects in Africa, in particular countries in the north and west of the continent. In terms of retail financing, the growing number of middle-class Africans, which tripled over the last 30 years to contribute more than 34% of the continent’s population, will boost the demand for housing, auto vehicles and insurance products, and herein lies an opportunity for broad based expansion of Islamic banking systems in Africa. Next, as recounted earlier, a country’s infrastructure requirements and project finance can also be met by the issuance of Islamic capital market instruments such as Sukūk and Islamic funds, tapping funds from Asia and Middle Eastern investors – taking advantage of the existing channels for the allocation of funds across borders and the diversification of risks. Egypt and Sudan and Gambia are already on the Sukūk map, and other countries such as South Africa and Morocco are expected to develop their capabilities in the near future. While the range of investment products is currently limited, South Africa, Egypt, Mauritania, Nigeria and Tunisia have already witnessed a number of Islamic funds launched over the years. Factors that would buoy the Islamic funds industry in Africa include the continent’s various commodities, namely agricultural products and vast natural resources such as metals and mining, and oil and gas. Other opportunities include the small- and medium-sized enterprise (SME) sector as well as Islamic microfinance which are crucial to create jobs and help to support economic growth and eradicate poverty through greater financial inclusion. This calls for Islamic banks to play a bigger role in the real sector development. To take advantage of the looming opportunities offered by Islamic finance, it is crucial for the African countries to put in place the relevant policies and financial infrastructure.

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This means that enabling environments must be improved and regulatory and supervisory frameworks strengthened. It will also be important to start the work on capacity and human resources development as soon as possible, as these typically have long gestation periods. These efforts will benefit from the participation and cooperation of the private sector, so that its energy and innovation is directed towards generating sustainable growth and a prosperity that is broadly shared across society. Excellencies, Ladies and Gentlemen,

The IFSB: Recent Initiatives Before closing, I would like to bring to your attention the following IFSB initiative. This is the IFSB Medium Term Strategic Performance Plan 2012-2015, which was approved by the IFSB Council in March of this year. The Plan lays out a roadmap for the IFSB over the medium term (i) To develop a range of new standards and guiding principles corresponding to the fundamental changes in the global regulatory environment arising from the Basel III capital and liquidity frameworks and related measures, (ii) To broaden the range of cross-sectoral prudential and supervision standards and guiding principles to include Takāful and capital markets, and (iii) To intensify efforts in support of implementation of prudential standards amongst IFSB member jurisdictions. In this context, and in relation to standards preparation, earlier this month, the IFSB issued two new Exposure Drafts, namely

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(i) ED-14: Standard on Risk Management for Takāful (Islamic Insurance) Undertakings, and (ii) ED-15: Standard on Revised Capital Adequacy for Institutions offering Islamic Financial Services. ED-14 identifies certain key features which a Takāful Operator should consider when observing Sharīàh rules and principles in its activities. The document calls for appropriate attention be given to the risks arising from the segregation of funds between the Participants’ Risk Fund (PRF), Participants’ Investment Fund (PIF) and the Shareholders’ Fund (SHF). Meanwhile, ED-15 is a revision of the previous IFSB Standard on Capital Adequacy and provides additional guidance on capital adequacy requirements which correspond to the global regulatory developments after the recent financial crisis, including Basel III. The ED aims to provide a comprehensive guidance to supervisory authorities and institutions offering IIFS on the application of capital adequacy regulations and macroprudential tools. We rely on, and benefit greatly, from the scrutiny and viewpoints of our members and stakeholders in the global and IFSI community. I would like to invite your comments to these standards, which are now on our website. Finally, I would like to draw your attention to the 10th IFSB Global Summit which will be held in May 2013, in Kuala Lumpur, Malaysia. The Summit takes place on 16-17 May, 2013, and will be preceded by pre-Summit Country-Showcases and other events on 15 May. Please mark those dates on your calendar and join us!

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Conclusion In closing, I would like to reiterate that the key strength of the IFSI is the close link between financial transactions and economic activity which has allowed Islamic finance to continue to serve the real economy. This, coupled with the system’s internal checks and balances through profit- and risk-sharing, transparency and disclosure requirements, and ethical values of fairness, will help to increase the prospects for sustainable economic prosperity and financial stability in the Islamic finance jurisdictions. For Africa, as with other emerging economies, its economic prosperity through sustained, inclusive growth and poverty reduction faces the challenge of global economic headwinds. In this context it will be of benefit, and indeed it is essential, that growth strategies be founded on strong forward looking principles. I will suggest three today for your consideration, and am assured that each will be familiar to you, especially here in Djibouti which has taken important steps towards developing its prospects as an economic hub. First, is the need for policies that spur private sector development through support for trade and investment. Second, is the diversification of funding sources and the investor base, through increased reliance on Islamic finance as a key component of a broader economic system. Finally, there is the need to put in place the legal and regulatory policies that will strengthen the resilience and soundness of the financial sector. I have suggested some of the key aspects of market and institutional development which will strengthen the capacity for risk management in the IFSI.

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This is likely to be a long term exercise, on which it is best to begin work as early as possible. On that note, let me thank you for your attention.

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Kiyohiko G Nishimura: Ageing, finance and regulations Keynote address by Mr Kiyohiko G Nishimura, Deputy Governor of the Bank of Japan, at the Joint Forum Meeting, Tokyo, 14 November 2012.

Introduction: Population ageing, economy and finance It is my great pleasure to have the opportunity to speak at the Joint Forum Meeting in Tokyo. The Joint Forum has for many years been at the forefront of dealing with various cross-industry issues related to banking, securities and insurance. The Forum has thereby contributed greatly to the evolution of successful regulatory and supervisory frameworks. However, many challenges remain. For example, as economic globalization and information technology advance, “cross-border” and “cross-industry” risks have become increasingly important in financial services, and failure to regulate and supervise them effectively may result in profound economic consequences. “Structured” securitized products and monoline insurances are examples of such risks, as we have learned to our cost in the recent crisis. Today, I would like to consider another significant challenge, which I think is increasingly important worldwide, though not yet widely recognized as crucially important. This is the issue of population ageing and how to regulate and supervise financial products and services to cope with problems arising from it.

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Indeed, these issues are deeply related to the fundamental nature of financial services, including all financial sectors such as banking, securities and insurance. In fact, I have warned of the unpleasant and in some cases grave consequences of ignoring demographic factors in our economic thinking in a series of recent speeches and papers, especially with respect to asset price bubbles, money demand and inflation. In particular, I have pointed out that asset price bubbles are most likely to occur at the final stage of the “demographic bonus” in which a country enjoys the benefits of an increase in the size of the working population. In contrast, a decline in growth potential due to “demographic onus” is likely to result in prolonged economic stagnation once the bubble bursts. These phenomena have been observed not only in Japan, but also in other countries such as the United States and peripheral euro area countries. What underlies the recent distress in the euro area is in fact deeply rooted in the structural changes resulting from demographic transition or population ageing. Figure 1 shows the relation between changes in the working age population curve and the timing of bubble bursts. These coincided in Japan around March 1991, in the United States in December 2005, in Ireland in September 2006, and in Spain in September 2007. And this is not simply a problem affecting advanced economies: the problem is just around the corner for some emerging economies like Korea, China, and Brazil. Population ageing is likely to have a significant impact on financial services, and requires a new policy response.

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Here I would like to raise two issues: one is the necessity of cross-industry and even cross-border coordination, and the other is the question of how to deal with the fundamental uncertainty surrounding population ageing.

Necessity of cross-industry and cross-border coordination Let me first consider the necessity of cross-industry and cross-border coordination. As a society begins to age, its older citizens become the dominant holders of financial assets. However, with the coming of age, many people are likely to become risk-averse in managing their financial assets, for natural reasons.

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Thus, a mature economy, with its lower growth potential due to ageing, faces the serious problem of how to provide risk money to promising sectors of the economy so as to encourage entrepreneurs’ sound risk-taking and enhance value production. To be more specific, financial products and services should enable older citizens to maintain their quality of life and help foster an environment where longevity is seen as a gift, rather than a risk. These products, in addition to retirement savings, are expected to play diverse roles. Given the improved average health of senior citizens in many countries, it is increasingly important that these financial products and services help the older population stay active and contributing to the community to the best of their abilities, while mitigating age-related risks such as illness. To provide such products, financial institutions must cooperate with other industries to take full advantage of their advanced technologies and expertise. At the same time, financial institutions should utilize their own expertise to measure, distribute, and manage the various risks as intermediates between asset-rich older citizens and prospective entrepreneurs. These attempts inevitably involve “cross-industry” elements. Furthermore, with the transition from a growing economy to a mature economy, it is natural for people in an ageing economy to pursue higher returns by investing their savings in growing overseas economies. Thus, it is also important for a mature economy to make full use of the benefits of cross-border transactions while managing the accompanying risks. This upcoming trend of cross-industry and cross-border expansion of financial products and services will pose a serious challenge to the current regulatory and supervisory frameworks.

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It will certainly call for a comprehensive approach. Regulation and supervision focusing only on a specific sector will likely result in a “waterbed effect”: problems will be simply shifted to other sectors rather than being dealt with effectively.

Fundamental uncertainty regarding life expectancy and fertility The second issue is the fundamental uncertainty surrounding the pace of population ageing. I first note the two kinds of risk involved: the first relates to life expectancy or longevity, and the second to birth rates or fertility. I then discuss the fundamental uncertainty in measuring these risks in the economy as a whole, and the possible consequences of this for regulation and supervision. Among the various risks we face in the real world, the longevity risk is the most fundamental one. No one can tell exactly how long he or she will actually live. While economic textbooks impersonally state that efficient allocation of resources can be achieved more easily if there is no uncertainty, very few people would prefer to know the exact date on which they are going to pass away. As human beings we need to accept such unavoidable uncertainties, and financial services have a critical role to play in helping us manage the risks associated with such inherent uncertainties while enabling us to enjoy a life full of surprises. As the population ages, the social need increases for financial products and services to respond to the longevity risk.

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To provide the tools necessary to respond to the longevity risk, providers need to be able to manage the accompanying risks in the economy as a whole. To this end, financial service providers such as insurers have traditionally utilized “the law of large numbers,” a rule assuming that as the number of samples increases, the average figure of these samples, such as average life expectancy, becomes more predictable. The same is considered to be true for fertility. Although the exact number of children for a given couple is not known for sure, the average rate of birth per couple becomes largely predictable. The popular perception that demographic change is in general predictable is based on this law of large numbers. Unfortunately, this perception is not always true, or to put it bluntly, not true in many instances. Take Japan for example. Between the 1970s and early 2000s, the total fertility rate forecasts regularly turned out to be wrong and were consistently revised down. The government repeatedly published its forecast in which the decline in the fertility rate was declared to be only temporary and the birth rate expected to rise again soon (Figure 2.)

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Similarly, life expectancy forecasts have shown that the actual figures consistently exceeded the forecasts (Figure 3).

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These forecast errors show the fundamental uncertainty surrounding the pace of population ageing. And if the actual outcome deviates from the estimated life expectancy and longevity of the entire population in an economy, all service providers will be affected. For example, in the case of longevity risk products, even a slight deviation could significantly increase the exposures of service providers.

Avoiding patchwork and “spaghetti code” problems Regulatory and supervisory reform is often called for once such deviation causes an unexpected accumulation of losses.

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However, this kind of loss-induced regulatory and supervisory reform often leads to patchwork plumbing, which in turn results in a vicious circle of further losses and more patchwork. The repetition of such ad-hoc adjustments to the framework can cause what computer programmers refer to as “spaghetti code” problems, in which the framework becomes too complex and entangled, like spaghetti, so that no one knows how to fix the problem. Thus, we must be careful not to make over-optimistic forecasts, especially when these forecasts underlie the overall framework and any forecast error might bring about irrevocable losses. It is also important to have in advance a clear strategy on appropriate policy responses when a forecast error is observed, especially in dealing with “spaghetti code” risks. The performance of the framework should be subject to continuous review, and necessary measures should be readily available at all times. With these measures in place, it should be possible to prevent a mere forecast error from turning into an “irreversible” disorder of the whole system. In this sense, it is better to address the challenges of population ageing by incorporating a second best “fail-safe” mechanism into our overall institutional framework, rather than by chasing the first best solution while pretending our forecasts are always rational and unbiased.

Concluding remarks The recent financial crisis has completely changed the landscape of financial services, both for financial institutions and for supervisors. Before the Lehman crisis, people tended to see only the “bright side” of new financial products, such as securitized products, derivatives, and cross-border transactions, believing them to be backed by advanced and innovative risk-management and investment tools.

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However, since the crisis revealed the risks and problems associated with them, people have come to see mostly the “dark side” of these services. Nonetheless, there is still an essential need for financial products and services that can help individuals and firms manage their risks, since sustainable economic development can only be achieved through sound risk taking by private entities. Moreover, financial institutions will be expected to play an even more active role as more countries face the problems arising from population ageing. This is especially relevant to satisfying the need for longevity risk management and in coping with the problems of declining fertility, since financial institutions’ full use of their technologies and resources is the key to solving these problems. Thus, financial service providers should be able to contribute to the economic society by providing people with the tools to address the risks and harsh uncertainties of life, while enabling them to enjoy its thrills and happy surprises. In this respect, I believe that regulators and supervisors should bear the following two things in mind: First, regulators and supervisors should always have a cross-industry and in some cases cross-border perspective, and they should also have a grand design as to how the economy can spread the risks necessary for sustainable growth, especially under population ageing. Second, regulators and supervisors should be aware that a desirable regulatory framework will continuously evolve, partly due to population ageing and the consequent structural changes in the economy and financial services. The current structure and regulatory framework will not last forever, and neither will sectoral classifications such as “banking,” “insurance,” and “securities”.

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For example, increased demand for longevity risk management could perhaps foster new cross-industry innovation between medical and financial services. From its unique vantage point, the Joint Forum is able to observe the signs of structural changes in financial services and to identify the need for regulatory and supervisory evolution. I sincerely hope that the Forum will continue to be attentive to new developments in financial services and lead the global debate on regulation and supervision. Now I come to the final words of my speech about ageing. Just as we mortal individuals mature and come of age, so too do institutions. Here is the Bank of Japan (Figure 4) more than a hundred years ago, in its youthful, burgeoning days.

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And here is the Bank of Japan as it is today (Figure 5), surrounded by new architectural additions to the city skyline and still the focal point of the landscape.

The building itself has indeed matured, and in its maturity has come to fit itself perfectly to the new age. I believe the same can surely be said of the Joint Forum. Thank you for your kind attention.

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William C Dudley: Solving the too big to fail problem Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York and President of the Committee on the Global Financial System (CGFS), at the Clearing House’s Second Annual Business Meeting and Conference, New York City It is a pleasure to have the opportunity to speak here today. I am glad to see the progress our city and region have made recovering from Sandy, but obviously significant challenges remain. I am going to focus my remarks today on what is popularly known as the “too big to fail” (TBTF) problem. In particular, should society tolerate a financial system in which certain financial institutions are deemed to be too big to fail? And, if not, then what should we do about it? The answer to the first question is clearly “no”. We cannot tolerate a financial system in which some firms are too big to fail – at least not ones that operate in any form other than that of a very tightly regulated utility. The second question is the more interesting one. Is the current approach of the official sector to ending TBTF the right one?

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I’d characterize this approach as reducing the incentives for firms to operate with a large systemic footprint, reducing the likelihood of them failing, and lowering the cost to society when they do fail. Or would it be better to take the more direct, but less nuanced approach advocated by some and simply break up the most systemically important firms into smaller or simpler pieces in the hope that what emerges is no longer systemic and too big to fail? As I will explain tonight, I believe we should continue to press forward on the first path. But, if we fail to reach our destination by this route, then a blunter approach may yet prove necessary. As always, my views may not necessarily reflect those of the Federal Reserve System.

What is the too-big-to-fail problem? The root cause of “too big to fail” is the fact that in our financial system as it exists today, the failure of large complex financial firms generate large, undesirable externalities. These include disruption of the stability of the financial system and its ability to provide credit and other essential financial services to households and businesses. When this happens, not only is the financial sector disrupted, but its troubles cascade over into the real economy. There are negative externalities associated with the failure of any financial firm, but these are disproportionately high in the case of large, complex and interconnected firms. Although the moniker is “too big to fail”, the magnitude of these externalities does not depend simply on size.

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The size of the externalities also depends on the particular mix of business activities and the degree of interconnectedness with the rest of the financial industry. One important element is the importance of the services the firm provides to the broader financial system and the economy and the ease with which customers can move their business to other providers. Another is the extent to which the firm’s structure and activities create the potential for contagion – that is, direct losses for counterparties, fire sales of assets held by other leveraged financial institutions, or loss of confidence that might precipitate runs on other firms with similar business models. The presence of large negative externalities creates a dilemma for policymakers when such firms are in danger of failing, particularly if the wider financial system is also under stress at the same moment. At that point in time, the expected costs to society of failure are very large compared to the short-run costs from providing the extraordinary liquidity support, capital or other emergency assistance necessary to prevent catastrophic failure. The market’s belief that a TBTF firm is more likely to be rescued in the event of distress than other firms weakens the degree of market discipline exerted by capital providers and counterparties. This reduces the firm’s cost of funds and incents the firm to take more risk than would be the case if there were no prospect of rescue and funding costs were higher. The fact that firms deemed by the market to be TBTF enjoy an artificial subsidy in the form of lower funding costs distorts competition to the detriment of smaller, less complex firms. This advantage, in turn, creates an unfortunate incentive for firms to get even larger and more complex.

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The funding benefit of being seen to be TBTF causes the financial system to become artificially skewed toward larger and more complex firms – in ways that are unrelated to true economies of scale and scope. Now to be clear, I don’t believe that firms necessarily deliberately set out to become TBTF. Nor do I think that TBTF was the main cause of the breakdown in market discipline that preceded the financial crisis. Many factors were at work, including the failure to grasp the riskiness of new types of credit products and business models, and principal-agent problems such as the “trader’s put”. But I do think TBTF contributed to the underpricing of risk in the system and did create a bad set of incentives, and if not addressed comprehensively, would likely be an even larger problem in the future.

So how did the problem become so serious? The TBTF problem is not new. For example, the FDIC (Federal Deposit Insurance Corporation) and other federal regulatory agencies intervened to prevent the abrupt failure of Continental Illinois, then the seventh largest bank in the United States, in the 1980s. Had Continental Illinois been allowed to fail without any intervention, the comptroller of the currency later testified, “we could very well have seen a national, if not an international, financial crisis the dimensions of which were difficult to imagine”. The comptroller went on to declare that the largest 11 national, commercial banks were too big to fail. But the problem has become more significant since that time for several reasons.

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First, the biggest financial institutions have become much larger, both in absolute terms and relative to the overall size of the banking system. This reflects many factors including the end of prohibitions on interstate banking, the repeal of the Glass-Steagall Act restrictions separating investment from commercial banking, the rapid growth of the capital markets, and the globalization of the economy – all of which created intense competitive pressures to expand in order to gain economies of scale and scope. In commercial banking, consolidation occurred at a rapid pace. For example, Bank of America was the outgrowth of over 160 different mergers, which pushed up the size of the original acquirer from $23 billion of assets in 1980 to $2.2 trillion today. In the securities industry, some partnerships became public companies, in part, so that they could more easily obtain the capital needed to expand rapidly. For example, when Goldman Sachs went public in 1999, it had about 15,000 employees and $250 billion of assets. Just eight years later, the firm had expanded to 35,000 employees and $1.1 trillion of assets. In the mid-1990s, the top five banks in the United States had total assets of $1 trillion or about 14 percent of gross domestic product (GDP). The top securities firms had total assets of $718 billion, or about 9 percent of GDP. By the end of 2007, the top five banks had assets of $6.8 trillion or 49 percent of GDP. Similarly, the top securities firms accounted for $3.8 trillion, or about 27 percent of GDP.

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In addition, the firms’ off-balance-sheet exposures rose sharply. Second, the complexity and interconnectedness of the largest financial firms increased markedly. Factors behind this include the adoption of a universal banking model by some commercial bank holding companies and the rapid growth of trading businesses, especially the over the counter (OTC) derivatives market. In the early 1980s, there were no true U.S. “universal banks” that combined traditional commercial banking with capital markets and underwriting activities. By 2007, there were several operating in the United States, including Citigroup, J.P. Morgan, UBS, Credit Suisse and Deutsche Bank. Also, the OTC derivatives business in foreign exchange, interest rate swaps and credit default swaps had exploded from its start in the early 1980s. The total notional value of the OTC derivatives outstanding for the five largest banks and securities firms currently totals about $200 trillion. During this period, there was inadequate attention to the risks that were building up in the system. The regulatory and supervisory framework did not keep up with the changes in size, complexity, interconnectedness and globalization that created growing systemic risk externalities and widened the wedge between private and social costs in the event of failure. Let me mention just a few of the issues: • Capital regulation was lax both in terms of the amount of capital required and the quality of that capital.

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As a result, many banks did not have the capacity to absorb large shocks and retain access to wholesale funding. • The oversight of the largest securities firms was particularly deficient in terms of ensuring that these firms had sufficient private resources to deal with shocks. The industry was also particularly exposed because in the United States, there was (and remains) no lender of last resort backstop for the securities industry except in extremis. • Although global integration brought with it a number of benefits, regulatory coordination did not keep pace with the globalization of financial firms and markets. This allowed the potential magnitude of the negative externalities associated with the failure of globally active firms to expand considerably. • Policymakers allowed market structures, particularly in wholesale funding markets, to evolve in directions that were efficient from a private perspective in normal times, but amplified run dynamics and therefore externalities in times of stress. Examples include the growth in triparty repo activities and the reliance of many large financial institutions on funding from money market mutual funds, as well as many other elements of the shadow banking system. The TBTF problem was further aggravated by the financial crisis and the policy response. Faced with system wide stress, the Federal Reserve, with the support of the U.S. Treasury, intervened to prevent the disorderly failure of Bear Stearns, a firm that would not have been high on the list of TBTF firms a few years earlier. Meanwhile, the failure of Lehman Brothers demonstrated that the cost to society of the uncontrolled failure of a TBTF firm in a period of generalized stress was considerably greater than anticipated.

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Following the bankruptcy of Lehman, contagion spread by many channels, including prime brokerage, OTC derivatives positions, money market mutual funds, tri-party repo and wholesale funding markets. The loss in confidence disrupted the flow of credit throughout the global financial system, generating a global economic downturn and the worst contraction in the United States since the Great Depression. Recognition of the costs generated by the Lehman failure led to extraordinary interventions to prevent further catastrophic failures. These included the rescue of AIG, the FDIC’s TLGP program, the ring-fence of Citigroup’s poorer quality assets, and the TARP injection of capital into the largest U.S. financial institutions. Because this solidified in investors’ minds that TBTF firms – after the Lehman debacle – would be protected, this worsened the TBTF problem. The problem was exacerbated during the crisis by the acquisition of weakened firms by stronger firms, a development that was actively promoted by policymakers in a bid to avoid or temper the consequences of their failure. J.P. Morgan absorbed Bear Stearns and Washington Mutual and its assets grew from $1.5 trillion in 2007 to $2.3 trillion today; Wells Fargo purchased Wachovia and its assets increased from $575 billion in 2007 to $1.3 trillion today; Bank of America purchased Countrywide and Merrill Lynch, increasing its assets from $1.7 trillion in 2007 to $2.2 trillion today. This, of course, made the surviving firms even bigger and more complex. When the smoke had cleared, the situation was clearly untenable.

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The experience of the crisis increased the advantage from being perceived as TBTF, and, thus, strengthened the incentives to become bigger, more complex, and interconnected. The Dodd Frank Act (DFA) set out to end TBTF. One means was by eliminating the Federal Reserve’s discretion to provide emergency financial support through a program open only to a single financial institution, and, in general, raising the bar for broader-based emergency interventions under section 13.3 of the Federal Reserve Act. But, as the DFA recognized, simply tying the Fed’s hands on intervention is insufficient. It does not reduce the cost to society from the failure of a large and complex firm. In order for the non-intervention strategy to be both fully credible and consistent with the public interest, we need to tackle the underlying externalities and incentive problems that give rise to TBTF in the first place.

Tackling too big to fail As I see it, solving the TBTF problem requires working on a number of different margins. These include measures that are firm-specific and those that address the structure of the financial system more broadly. One set of measures works to reduce the incentives for excessive risk-taking and to lower the probability that large financial firms fail or come close to failure. Another set lessens the disruption to the financial system and hence the cost their failure imposes on the broader economy and society as a whole.

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Along with measures that penalize characteristics associated with the negative externalities from failure, these changes work against the incentive to be too big to fail.

Policy measures that alter incentives and reduce the probability of distress A number of steps have already been taken that reduce the probability of failure. For example, there has already been considerable progress in forcing firms to bolster their capital and liquidity resources. On the capital side, consistent with the Dodd-Frank Act, Basel III significantly raises the quantity and quality of capital required of internationally active bank holding companies. This ensures that the firm’s shareholders will bear all the firm’s losses across a much wider range of scenarios than before. This should strengthen market discipline. Meanwhile, to the extent that some of the specific activities that generate significant externalities are now subject to higher capital charges, this should cause banks to alter their business activities in ways that reduce both the likelihood and social cost of their failure. Moreover, the new Basel regime explicitly adjusts capital requirements upward based on size, complexity, interconnectedness, global exposure and substitutability – attributes that are proxies for the negative externalities generated by failure. If a bank is deemed a global systemic financial institution or G-SIFI, then it will have to hold a greater amount of capital relative to its risk-weighted assets compared to a less systemic institution. The notion behind the SIFI surcharge is a simple one.

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The cost to society from the failure of a large, complex firm is proportionally considerably higher than the cost to society of the failure of a non-systemic firm. As a result the capital buffer for the more systemic firm should be higher so that its expected probability of failure will be lower than for the less systemic firm. The SIFI surcharge acts as a penalty for size and complexity, leaning against the funding cost advantage a firm may have because it is perceived to be TBTF. This helps level the playing field for smaller firms and reduces the incentive to seek to become TBTF in the first place. Domestically, we have adopted a more forward-looking approach to capital through the use of stress tests, in particular the annual Comprehensive Capital Assessment Review (CCAR) program. By promoting transparency, CCAR also strengthens market discipline. On the liquidity front, the largest, most systemically important bank holding companies will be required to hold a 30-day liquidity buffer – the so-called liquidity coverage ratio or LCR. The purpose of the LCR is to ensure that such a bank will have sufficient liquid resources so if it were to encounter business difficulties and temporarily lose access to market funding, it would still have some time to address its underlying problems. With a liquidity buffer, banks will not immediately be forced to sell illiquid assets during times of stress. This should enhance their stability, and provide some protection against the fire sale externalities we saw during the crisis: forced asset sales, falling asset prices, leading to rising capital losses at other firms that led, in turn, to further funding difficulties, asset sales and so on.

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On the supervisory side, firms are now increasingly being evaluated on a cross-industry basis in order to identify best practices and to identify laggards that need to upgrade areas such as MIS, governance, model validation, and risk management practices. Activity restrictions are another potential means to reduce the risk of failure. The biggest initiative in this area is the Volcker Rule. By limiting proprietary trading activities, the Volcker Rules seeks to reduce trading risk and the likelihood of failure. In addition, the Financial Stability Oversight Council (FSOC) is in the process of identifying those non-bank financial firms that are systemically important. These firms will be subject to tougher prudential standards and supervisory oversight by the Federal Reserve. Some argue that this designation process merely creates more TBTF firms. I see it differently. The system risk externalities do not depend on whether we label them systemic or not. If these risks are present, then we should face up to the issue with tougher standards and enhanced supervisory oversight rather than leave the issue unaddressed. This has to be a superior approach relative to pretending these firms could not be TBTF and the problem doesn’t exist.

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Policy measures to reduce the adverse systemic consequences from failure Because no plausible level of capital and liquidity standards will be sufficient to reduce the probability of failure to zero, it also makes sense to work on the other major margin – to reduce the cost of the failure of a large, complex financial firm. We can do this by making changes so that such failures are less likely to impair the functioning of the broader financial system. In this area, although many initiatives are in train, I would conclude that we are still very far from where we need to be. One simple but meaningful step that already has been enacted is to put a brake on the ability of the largest and most complex firms to become even larger and more complex. To this end, the Dodd-Frank Act adds “the risk to stability of the U.S. banking or financial system” as an additional factor to be considered in evaluating a proposed merger or acquisition under the Bank Merger Act and the Bank Holding Company Act. As Governor Daniel Tarullo discussed in a recent speech, there is not a hard and fast rule to be applied here. But his view, which I share, is that there would be a “a strong, though not irrebuttable, presumption of denial [of a merger or acquisition] by any firm that falls in the higher end of the list of global systemically important banks…” Another step for dealing with the firms that might be viewed by some as already TBTF is to understand better the interconnections and pathways through which the distress or failure of one firm impairs the larger system and causes harm to society. We have made progress through the supervisory process in mapping out critical activities performed by firms.

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Also, we have identified a number of areas, such as collateral management, where better practices could both improve the safety and soundness of the individual firm and reduce the negative externalities generated by a firm’s failure. Work is also underway to evaluate what changes would be required to make the future bankruptcy of large complex firms less disruptive, while also developing an alternative means for the orderly resolution of such firms outside the normal bankruptcy process. The costs to society of large complex financial firms failing can be reduced at least to some degree by having firms, working in conjunction with their regulators, “pre-plan” their own failure through the so-called “living will” process. The largest and most systemically important banks submitted their “living wills” to the Federal Reserve and the FDIC this summer. We have reviewed the first iterations of their plans and are currently drafting feedback for the firms to incorporate in their next submissions. Through such “living wills”, regulators are gaining a better understanding of the impediments to an orderly bankruptcy. This is the necessary first phase in the process of determining how to ameliorate these impediments over time and then doing so. In my view, this initial exercise has confirmed that we are a long way from the desired situation in which large complex firms could be allowed to go bankrupt without major disruptions to the financial system and large costs to society. Significant changes in structure and organization will ultimately be required for this to be achieved. However, the “living will” exercise is an iterative process, and we have only taken the first step in a long journey.

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The second way to potentially minimize the negative externalities from a firm’s failure would be to avoid a bankruptcy proceeding altogether and instead resolve the firm under the Dodd-Frank Act’s Title II orderly liquidation authority. The “single point of entry” model has much promise, but much remains to be done before it could be implemented with confidence for a globally active firm. Title II authority is U.S. law. Subsidiaries and affiliates chartered in other countries could be wound down under the bankruptcy laws of those countries, if authorities there did not have full confidence that local interests would be protected. Certain Title II measures including the one-day stay provision with respect to OTC derivatives and other qualified financial contracts may not apply through the force of law outside the United States, making orderly resolution difficult. The other essential dimension of solving TBTF is to make the financial system more robust – addressing structural vulnerabilities that tend to amplify shocks rather than absorb them. If the financial system can be made more resilient, it will be better positioned to withstand the failure of a large and complex firm and continue to provide essential financial services to the real economy. I would highlight three areas of work that are critical to solving the TBTF problem. First, regulators and supervisors are pushing for changes in wholesale funding markets, a source of particular vulnerability during the crisis. This includes reforms to tri-party repo, which are underway, and necessary reforms to the money market mutual fund industry, which are being evaluated by the Securities and Exchange Commission (SEC) and the Financial Stability Oversight Council.

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Second, the financial market infrastructures are being strengthened to make them more robust to the failure of individual firms. The Committee on Payments and Settlement Systems and the International Organization of Securities Commissions (IOSCO) have published a set of standards for financial market infrastructures called “Principles for Financial Market Infrastructures” that will serve as minimum standards globally. All standardized OTC derivatives in the interest rate, credit default, and equities markets will soon have to be centrally cleared through central counterparties (CCPs). The clearing of standardized derivatives trades through CCPs should reduce risk in the overall financial system by facilitating the netting down of OTC derivative exposures. Such trades will also have to be reported to trade repositories and information about the trades will be made available on a post-trade basis. This should make the OTC derivatives market more transparent and, thus, reduce the risk of contagion.

The way forward We have made some progress on the TBTF problem, particularly in reducing the likelihood that a large complex firm will reach the point of distress at which society faces serious costs. But we have a considerable ways to go to finish the job and reduce to tolerable levels the social costs associated with such failures. Further international coordination is almost certainly going to be necessary to ensure that bankruptcy regimes interact in ways that minimize negative externalities. At home we also need to ensure that different authorities and resolution regimes operate in a mutually consistent manner.

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In particular, we may need to revisit the SIPC regime that governs securities firms in bankruptcy. At present, the bankruptcy of a securities firm is very disruptive because the claims of all counterparties are typically frozen for a considerable period and the value of these claims is not easy to ascertain or monetize quickly. As I have argued above, we shouldn’t focus on solving TBTF exclusively at the level of the individual firm. We need significant changes in market structures and practices as well in order to have a financial system in which the key players can fail without big social costs. We also must continue to ask ourselves the question of whether the steps in train go far enough. For example, one could make a good case that the capital surcharge for systemically important firms should be higher than that contemplated by the Basel Committee. Of course, such a judgment depends on how much other policies succeed in reducing the negative externalities their failure would generate. Critics of our approach believe it would be better to just break up firms deemed TBTF now – perhaps through legislation requiring the separation of retail banking and capital markets activities or by imposing size restrictions that require firms to shrink dramatically from their current scale. My own view is that while this could yet prove necessary, it is premature to give up on the current approach: changing the incentives facing large and complex firms, forcing them to become more resilient, and making the financial system more robust to their failure. In my opinion, there are shortcomings to reimposing Glass-Steagall-type activity restrictions or strict size limits.

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With respect to Glass-Steagall, it is not obvious to me that the pairing of securities and banking businesses was an important causal element behind the crisis. In fact, independent investment banks were much more vulnerable during 2008 than the universal banking firms which conducted both banking and securities activities. More important is to address the well-known sources of instability in wholesale funding markets and give careful consideration to whether there should be a more robust lender of last resort regime for securities activities. With respect to size limitations, it is important to recognize that a new and much reduced size threshold could sacrifice socially useful economies of scale and scope benefits. And it could do this without actually solving the problem of system risk externalities that aren’t related to balance sheet size. Evaluating the socially optimal size, scope and organizational structure of financial firms is a complicated business, and so is establishing a viable transition path to a system of much smaller firms. It would be helpful in this regard if advocates of break-up solutions would put a bit more flesh on the bones and develop detailed proposals that address essential questions of how such downsizing or functional separation would be accomplished, and what benefits and costs could be expected. Such an analysis should answer several questions: How would you force divestiture (in good times and bad)? Should firms be split up by activity or reduced pro-rata in size? How much would they have to be shrunk in order for the externalities of failure to no longer create TBTF problems?

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How would global trading and investment banking services and network-type activities be supported? Should some activities be retained in natural monopoly form, but subject to utility type regulation? How costly would it be to replicate support services or to manage liquidity and capital locally? Are there ways of designing size limits that cannot be arbitraged by banks via off-balance-sheet structures and other forms of financial innovation? So far, advocacy for the break-up path has been strong, but without the detail to assess whether this is indeed superior to the course we are currently following. But, I’m open minded. It is important to recognize that any credible approach to addressing the TBTF problem, including the one we are pursuing today, necessarily implies changes to the structure and business mix of financial firms and financial markets. Moreover, it is important to stress that not all of these adjustments will be in the private interests of these firms, and some will result in changes to the price and volume of certain financial services. These are intended consequences, not unintended consequences. Too big to fail is an unacceptable regime. The good news is there are many efforts underway to address this problem. The bad news is that some of these efforts are just in their nascent stages.

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It is important that as the crisis recedes in memory, that these efforts not flag – this is a project that needs to be seen to a successful conclusion and then sustained on a permanent basis. Thank you for your attention, I would be happy to take a few questions.

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

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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

Monday November 26 2012 Top 10 Risk Compliance News Events

Documents

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