International Association of Risk and Compliance Professionals (IARCP)

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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.comTop 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,

Do you know what is contagiousness?

We distinguish between contagiousness (theshare of total banking assets represented by those banks that a specific bank brings down by contagion) and vulnerability (the number of banks by which a bank is brought down by cascading failures).

The purpose of this paper is to analyze (hypothetical) contagious bank defaults, i.e. defaults not caused by the fundamental weakness of a given bank but triggered by failures in the banking system.But this is superb!!! Who wrote that?At number 10 of our list, (Financial Stability Report, Oesterreichische Nationalbank, page 64) Claus Puhr, Reinhardt Seliger and Michael Sigmund, from the Oesterreichische Nationalbank, Financial Markets Analysis and Surveillance Division, at the paper Contagiousness and Vulnerability in the Austrian Interbank Market

Are you good in mathematics? If the answer is yes, you will enjoy Number10. I started my career as a mathematician, but it took me 4 hours to read the paper. It is absolutely brilliant.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 2

I have a long flight tomorrow, and guess what I have printed it and I will take it with me, to read it again.

I know it looks strange I told it to one of my friends, an attorney, and he sent me a paper entitled: The impact of fluctuating workloads on well-being and the mediating role of worknonwork interference in this relationship.

Oh, no, he believes that my problem is called occupational psychosis he is wrong

Ok, when I sleep I do dream of SIFIs and regulatory arbitrage opportunities, but it is quite normal I believe. Of course I sometimes experience the oppressive feeling of guilt, the sense of not having lived up to Basel iii frameworks expectations (Basel iii is against regulatory arbitrage), but I cannot resist.

After this analysis, I have decided what to read during the flight: The paper Contagiousness and Vulnerability in the Austrian Interbank Market

Did I tell you that we distinguish between contagiousness (the share of total banking assets represented by those banks that a specific bank brings down by contagion) and vulnerability (the number of banks by which a bank is brought down by cascading failures).?

Yes, I did, I remember now.Read more at Number 10 below.

Welcome to the Top 10 list.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 3Governor Daniel K. TarulloAt the Cornell International Law Journal Symposium: The Changing Politics of Central Banks, New York, New York

International Cooperation in Financial Regulation

Next month marks the fifth anniversary of the failure of Bear Stearns--in retrospect, the beginning of the most acute phase of the financial crisis.Gabriel Bernardino, Chairman of EIOPA

IMD2 and Solvency II The road to better policyholder protection and financial stability

Workshop organised by the European Federation of Insurance Intermediaries (BIPAR) BrusselsSubmitting a Suspicious Activity Report (SAR) within the Regulated Sector

This is a United Kingdom Financial Intelligence Unit (UKFIU) communications product, produced in line with the Serious Organised Crime Agency's (SOCA) commitment to sharing perspectives on the Suspicious Activity Reports (SARs) Regime.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 4

This document seeks to provide advice and relay best practice when making a Suspicious Activity Report (SAR), a piece of information that alerts Law Enforcement Agencies (LEAs) that certain client/customer activity is in some way suspicious and might indicate money laundering or terrorist financing.Financial Stability Board reports to G20 on progress of financial regulatory reforms

The Chairman of the Financial Stability Board (FSB) reported to the G20 Finance Ministers and Central Bank Governors on progress in the financial regulatory reform programme.Financial regulatory factors affecting the availability of long-term investment finance

Report to G20 Finance Ministers and Central Bank Governors

The most important contribution of financial regulatory reforms to LT investment finance is to promote a safer, sounder and therefore more resilient financial system.

If implemented in timely and consistent manner, these reforms will help rebuild confidence in the global financial system, which will enhance its ability to intermediate financial flows through the cycle and for different investment horizons.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 5KeynoteJames R. Doty, ChairmanFlorida Bar Association 31st Annual Federal Securities Institute, Miami Beach, FL

Today, I would like to talk to you about some of the PCAOB's initiatives to enhance the relevance, credibility and transparency of the audit to promote high quality financial reporting.

We meet in the midst of a robust andwide-ranging global debate on how to promote audit quality. Whatever the outcome, it is clear that the audit is indeed a valued, critical feature of the U.S. financial system, and it enjoys an important position in the eyes of people around the world.Strategic Goals 2013 to 2016The Swiss Financial Market SupervisoryAuthority FINMA is an institution under public law with its own legal personality.

It is responsible for implementing the Financial Market Supervision Act and financial market legislation.

As an independent supervisory authority, FINMA acts to protect the interests of creditors, investors and insured persons, and to ensure the proper functioning of the financial markets .International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 6Manuel Snchez: Mexicos economic outlook and challenges

Remarks by Mr Manuel Snchez, Deputy Governor of the Bank of Mexico, at the ConferenceRegulatory reform, the global economic outlook, and the implicationsfor Mexicos financial sector, organized by the Institute of International Finance and Banorte, Mexico CityThe SEC Speaks in 2013

Commissioner Daniel M. GallagherU.S. Securities and Exchange Commission Washington, D.C.Contagiousness and Vulnerability in the Austrian Interbank Market

Claus Puhr, Reinhardt Seliger, Michael Sigmund, Oesterreichische Nationalbank, Financial Markets Analysis and Surveillance Division

The purpose of this paper is to analyze (hypothetical) contagious bank defaults, i.e. defaults not caused by the fundamental weakness of a given bank but triggered by failures in the banking system.

As failing banks become unable to honor their commitments on the interbank market, they may cause other banks to default, which may in turn push even more banks over the edge in so-called default cascades.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 7Governor Daniel K. TarulloAt the Cornell International Law Journal Symposium: The Changing Politics of Central Banks, New York, New York

International Cooperation in Financial Regulation

Next month marks the fifth anniversary of the failure of Bear Stearns--in retrospect, the beginning of the most acute phase of the financial crisis.

The cross-border dimensions of the crisis itself and the global effects of the Great Recession that followed provoked a major effort to strengthen international cooperation in financial regulation.

While a good deal has already been accomplished, thisevening I will suggest the next steps that would be most useful inadvancing global financial stability.

Of course, the fashioning of an international agenda requires a clear understanding of the overall regulatory aims of participating national authorities.

Here is where international regulatory cooperation links to the subject of this conference--if not quite the changing politics of central banks, then at least their changing policy goals in the wake of the financial crisis.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 8

Almost by definition, systemic crises reveal failures across the financial system, from breakdowns in risk management at many financial firms to serious deficiencies in government regulation of financial institutions and markets.

While the recent crisis was no exception, it has presented particular challenges to the policy foundations of central banks, especially those like the Federal Reserve that carry out regulatory mandates alongside their monetary policy missions.

So I begin with some remarks on the nature of those challenges, before turning to a discussion of how changes in approach should inform international cooperation in financial regulation.

Central Banks and the Financial Crisis

In surveying the failings of financial authorities, both here and abroad, one can certainly identify some specific characteristics of pre-crisis regulation that look today to have been significantly misguided, rather than the advances they were formerly thought to be.

So, for example, regulators became prone to place too much confidence in the capacity of firms to measure and manage their risks.

Indeed, the decade or so prior to the crisis had seen an acceleration of the shift from a dominantly regulatory approach to achieving prudential aims--one that rests on activities and affiliation restrictions, and other reasonably transparent rules--toward greater emphasis on a supervisory approach, which relies on a more opaque, firm-specific process of watching over banks' own risk-management and compliance systems.

Yet the breadth and depth of the financial breakdown suggest that it has much deeper roots.

In many respects, this crisis was the culmination of fundamental shifts in both the organization and regulation of financial markets that began in the 1970s.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 9

The New Deal reforms of financial regulation, themselves spawned by a systemic crisis, had separated commercial banking from investment banking, cured the problem of commercial bank runs by providing federal deposit insurance, and brought transparency and investor protections to trading and other capital markets activities.

This regulatory approach fostered a commercial banking system that was, for the better part of 40 years, quite stable and reasonably profitable, though not particularly innovative in meeting the needs of depositors and borrowers.

In the 1970s, however, turbulent macroeconomic developments combined with technological and business innovations to produce an increasingly tight squeeze on the traditional commercial banking business model.

The squeeze came from both the liability side of banks' balance sheets, in the form of more attractive savings vehicles such as money market funds, and from the asset side, with the growth of public capital markets and international competition.

The large commercial banking industry that saw both its funding and its customer bases under attack sought removal or relaxation of the regulations that confined bank activities, affiliations, and geographic reach.

While supervisors differed with banks on some important particulars, they were sympathetic to this industry request, in part because of the potential threat to the viability of the traditional commercial banking system.

The period of relative legal and industry stability that had followed the New Deal thus gave way in the 1970s to a nearly 30-year period during which many prevailing restrictions on banks were relaxed.

A good number were loosened through administrative action by the banking agencies, but important statutory measures headed in the same direction.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 10

This legislative trend culminated in the Gramm-Leach-Bliley Act of 1999, which consolidated and extended the administrative changes that had allowed more extensive affiliations of commercial banks with investment banks, broker-dealers, private equity firms, and other financial entities.

But in sweeping away the remnants of one key element of the New Deal regulatory system, neither Gramm-Leach-Bliley nor financial regulators substituted new regulatory mechanisms to match the wholesale changes in the structure of the financial services industry and the dramatic growth of novel financial instruments.

In fact, I would generalize this last observation to say that the need to address the consequences of the progressive integration of traditional lending, trading activities, and capital markets lies at the heart of three post-crisis challenges to the policy foundations of the Federal Reserve and, to a greater or lesser degree, many other central banks.

Microprudential Regulation

The first challenge posed by the crisis was to traditional, microprudential regulation, which focuses on the safety and soundness of each prudentially regulated firm.

Not all central banks have microprudential regulatory authority, of course, and--as in the United States--those that do sometimes share it with other agencies.

But the shortcomings of pre-crisis regulatory regimes have been of concern to all central banks.

Most notably, capital requirements for banking organizations, particularly the large ones that might be regarded as too-big-to-fail, simply were not strong enough.

Risk-weights were too low for certain traded assets that had proliferated as credit and capital markets integrated more thoroughly.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 11

In some cases, the arbitrage opportunities presented by existing capital requirements were an incentive for securitization and other capital markets activities.

The exposures created by off-balance-sheet activities such as structured investment vehicles (SIVs) were badly underweighted.

Minimum capital ratios were not high enough and, in meeting even those inadequate requirements, firms were allowed to count liabilities that did not really provide the ability to absorb losses and still maintain the firms as viable, functioning intermediaries.

There has already been a substantial response to this challenge.

With the support of the Federal Reserve and other U.S. bank regulators, the Basel Committee on Banking Supervision has strengthened capital requirements by raising risk-weightings for traded assets and improved the quality of loss-absorbing capital through a new minimum common equity ratio.

The committee also has created a capital conservation buffer and introduced an international leverage ratio.

These Basel 2.5 and Basel III reforms either have been, or soon will be, implemented in the United States and most other countries that are home to internationally active banking firms.

Also, the Basel Committee has just recently adopted the Liquidity Coverage Ratio (LCR), a first step in addressing liquidity problems.

In the United States, some important additional steps have been taken. Beginning at the peak of the crisis, the Federal Reserve has conducted stress tests of large banking organizations, making capital requirements more forward-looking by estimating the effect of an adverse economic scenario on firm capital levels in a manner less dependent on firms' internal risk-measurement infrastructure.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 12

And the provision of the Dodd-Frank Act popularly known as the Collins Amendment ensures that banking organizations cannot usemodels-based approaches to reduce their minimum capital below generally applicable, more standardized risk-based ratios.

Macroprudential Regulation

A second challenge for central banks is that the crisis revealed the need for a much more active set of macroprudential monitoring and regulatory policies--that is, a reorientation toward safeguarding financial stability through the containment of systemic risk.

The failure to attend to, or even recognize, financial stability risks was perhaps the most glaring public sector deficiency in the pre-crisis period. This was a fault by no means limited to central banks.

On the contrary, systemic risk had also come to seem more theoretical than real to many academics and financial market participants.

Even most of those inside and outside the official sector who argued for stronger capital or other prudential standards did not appreciate the degree to which the secondary mortgage market had turned into a house of cards.

Still, regardless of formal mandates, central banks are better positioned than most other government agencies to see and evaluate the emergence of asset bubbles, excessive leverage, and other signs of potential systemic vulnerability.

In some respects this second challenge is an extension of the first, since the safety and soundness of large institutions must take account of the relative correlation of their asset holdings, interconnectedness, common liquidity constraints, and other characteristics of large banking organizations as a group.

Similarly, systemic risks and too-big-to-fail problems can increase if large, highly leveraged firms may operate outside the perimeter ofInternational Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 13

statutory microprudential oversight, as was the case prior to 2008 with the large, free-standing investment banks in the United States.

And market discipline will be badly compromised if financial market participants believe that an insolvent counterparty cannot be resolved in an orderly fashion and thus is likely to receive government assistance under stress.

Here again, domestic and international efforts have already produced significant reform programs, though implementation of some of these programs is less advanced than Basel 2.5 and Basel III.

Domestically, the Federal Reserve's annual stress tests examine the effects of unexpected macroeconomic shocks on asset classes held within all major regulated firms.

The Dodd-Frank Act gave the Financial Stability Oversight Council (FSOC) authority to bring systemically important firms that are not already bank holding companies within the perimeter of Federal Reserve regulation and supervision.

The FSOC is actively considering several firms for possible designation.

Finally, the Dodd-Frank Act gave the Federal Deposit Insurance Corporation orderly liquidation authority for systemically important financial firms, thereby creating an alternative to the Hobson's choice of bailout or bankruptcy that authorities faced in 2008.

Internationally, the Basel Committee has agreed to a regime of capital surcharges for large banks based on their systemic importance.

There is also an initiative to parallel U.S. efforts to identify non-bank systemically important firms.

The Basel Committee and the Financial Stability Board have developed international principles for resolution authority, though most of the rest of the world is behind the United States in actually implementing those principles.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 14

But meeting the macroprudential challenge will require measures beyond a more comprehensive, cross-firm approach to microprudential regulation.

Much academic and policy work of the past several years has revived and elaborated the previously somewhat heterodox view that financial instability is endogenous to the financial system, or at least the kind of financial system we now have.

Consider, for example, how the intertwining of traditional lending and capital markets gave rise to what has become known as the shadow banking system.

Shadow banking, which refers to credit intermediation partly or wholly outside the limits of the traditional banking system, involves not only sizeable commercial and investment banks, but many firms of varying sizes across a range of markets.

While some of the more notorious pre-crisis components of the shadow banking system are probably gone forever, current examples include money market funds, the triparty repo market, and securities lending.

From the perspective of financial stability, the parts of the shadow banking system of most concern are those that create assets thought to be safe, short-term, and liquid--in effect, cash equivalents.

For a variety of reasons, demand for such assets has grown steadily in recent years, and is not likely to reverse direction in the foreseeable future.

Yet these are the assets whose funding is most likely to run in periods of stress, as investors realize that their resemblance to cash or insured deposits in normal times has disappeared in the face of uncertainty about their underlying value.

And, as was graphically illustrated during the crisis, the resulting forced sales of assets whose values are already under pressure can accelerate an adverse feedback loop, in which all firms with similar assets suffermark-to-market losses, which, in turn, can lead to more fire sales.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 15

This kind of contagion lay at the heart of the financial stresses of 2007 and 2008.

As already noted, pre-crisis shortcomings at the intersection of microprudential and macroprudential regulation have motivated a variety of reforms, many explicitly directed at the problem of too-big-to-fail institutions.

While some of these reforms remain unfinished, and some additional measures are needed, there has been considerable progress.

Unfortunately, the same cannot be said with respect to shadow banking and, more generally, the vulnerabilities associated with wholesaleshort-term funding.

These vulnerabilities involve both large, prudentially regulated institutions, and thus too-big-to-fail concerns, and the broader financial system.

Except for the liquidity requirements agreed to in the Basel Committee, however, the liability side of the balance sheets of financial firms has barely been addressed in the reform agenda.

Yet here is where the systemic problems of interconnectedness and contagion are most apparent.

And, as evidenced by the funding stresses experienced by a number of European banks prior to the stabilizing measures taken by the European Central Bank, these problems are still very much with us.

Within the United States, reform efforts are underway in some discrete, but important, areas.

The provisions of Dodd-Frank requiring more central clearing of derivatives and minimum margins for those that remain uncleared are designed to provide more systemic stability.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 16

As to shadow banking itself, the FSOC recently proposed options to address the structural vulnerabilities in money market mutual funds, with an eye toward recommending action by the Securities and Exchange Commission.

And the Federal Reserve has begun using its supervisory authority to press for a reduction in intraday credit risk in the triparty repo market.

But these measures are incomplete, and do not extend to all forms of short-term funding that can pose run risks, a universe that is likely to expand as prudential constraints begin to apply to large existing shadow banking channels.

Monetary Policy

While the first two policy challenges are shared among regulatory and financial agencies, the third lies solely with central banks.

In the wake of the crisis, we need to consider carefully the view that central banks should assess the effect of monetary policy on financial stability and, in some instances, adjust their policy decisions to take account of these effects.

The dramatic rise in housing prices, and the associated high amounts of leverage taken on by both households and investors, occurred during an extended period of low inflation.

Some have suggested that, by not raising rates because inflation remained subdued, monetary policy in the United States and elsewhere may have contributed to the magnitude of the housing bubble.

Whatever the merits of that much-contested point, it seems wise to address this issue as we face what could well be another extended period of low inflation and low interest rates.

It is important to note that incorporating financial stability considerations into monetary policy decisions need not imply the creation of an additional mandate for monetary policy.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 17

The potentially huge effect on price stability and employment associated with bouts of serious financial instability gives ample justification.

Here I want to mention some comments by my colleague Jeremy Stein a couple of weeks ago.

After reviewing the traditional arguments against using monetary policy in response to financial stability concerns and relying instead on supervisory policies, Governor Stein offered several reasons for keeping a more open mind on the subject.

First, regulation has its own limits, not the least of which is the opportunity for arbitrage outside the regulated sector.

Second, whatever its bluntness, monetary policy has the advantage of being able to "get in all the cracks" of the financial system, an attribute that is especially useful if imbalances are building across the financial sector and not just in a particular area.

Finally, by altering the composition of its balance sheet, central banks may have a second policy instrument in addition to changing the targeted interest rate.

So, for example, it is possible that a central bank might under some conditions want to use a combination of the two instruments to respond to concurrent concerns about macroeconomic sluggishness and excessive maturity transformation by lowering the target (short-term) interest rate and simultaneously flattening the yield curve through swapping shorter duration assets for longer-term ones.

To be clear, I do not think that we are at present confronted with a situation that would warrant these kinds of monetary policy action.

But for that very reason, it seems that now is a good time to discuss these issues more actively, so that if and when we do face financial stability concerns associated with asset bubbles backed by excessive leverage, we will have a well-considered view of the role monetary policy might play in mitigating those concerns.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 18

Advancing the International Reform Agenda

Let me turn now to the way in which our shifts in policy approach should inform the agenda for international cooperation in financial regulation.

For obvious reasons, the monetary policy issues are not directly related to this agenda, though our understanding of these issues may profit from discussions with our central bank colleagues from around the world.

It is equally obvious that the other two sets of policy changes are quite closely related to the international agenda.

More than in most other areas, the financial sphere suffers from a basic lack of congruence between the authority to regulate and the object of regulation.

Thus we have a significantly internationalized financial system, in which shocks are quickly transmitted across borders, but a nationally-based structure of regulation.

Within countries, responsibilities may be divided between prudential regulators and market regulators, among regulators with similar mandates, or both.

Central banks may have exclusive prudential authority, share it with other agencies, or have none at all.

International arrangements both reflect, and try to compensate for, this web of divided and overlapping domestic authority.

Thus there are sectoral standards setters like the Basel Committee, the International Organization of Securities Commissions (IOSCO), and the International Association of Insurance Supervisors (IAIS) on the one hand, but also broader groupings such as the Group of Twenty, the Financial Stability Board (FSB), and the International Monetary Fund on the other.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 19

In addition, under the umbrella of the international home of central bankers, the Bank for International Settlements, numerous other committees work across fields also covered by one or more of the groups I have just mentioned.

There are some obvious weaknesses with such an assortment of international arrangements, notably the difficulty of coordinating initiatives where more than one group is working on an issue.

This kind of coordination challenge can be further complicated by the participation in international discussions of various national officials without domestic authority in a particular area.

The sheer proliferation of international arrangements, each with its own staff, has at times also led to a proliferation of studies and initiatives that become burdensome to the national regulators and supervisors who have been overtaxed at home since the onset of the crisis and ensuing domestic reform efforts.

Yet there are also some strengths derived from the crowded international field of organizations and committees.

One such virtue is that issues not falling squarely within the remit of a particular kind of standards setter can nonetheless be dealt with internationally.

This, in fact, has been the experience with the ongoing international effort to agree on minimum margin requirements for derivatives that are not centrally cleared.

Another is that different perspectives are frequently brought to bear on a single set of problems.

At some point, it likely will be beneficial to rationalize somewhat the overlapping, sometimes competing efforts of these various international arrangements.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 20

For the near to medium term, though, it is important to have some principles for deciding upon the international agenda that should govern the efforts of these arrangements as a whole.

First, initiatives should be prioritized.

One point of emphasis should be completing, and ensuring implementation of, the internationally agreed-upon framework for containing the too-big-to-fail risks associated with systemically important firms.

Another should be distilling the various ideas relating to short-term funding vulnerabilities into a few that have promise as discrete, relatively near-term initiatives, while continuing study of other, more comprehensive measures.

A second, related principle is that initiatives should be focused and manageable, reflecting not only the limited capacity of participating national authorities, but also the desirability of reaching at least a temporary equilibrium at which firms can get on with the business of planning their strategies in a clearer regulatory environment, and regulators can begin to take stock of the cumulative effects and effectiveness of the changes that have taken place in that environment.

A third principle is that, in most instances at least, international efforts to develop new regulatory mechanisms or approaches should build on experience derived from national practice in one or more jurisdictions.

The challenges encountered during the initial effort to devise an LCR in the Basel Committee, with little or no precedent of national quantitative liquidity requirements from which to learn, should counsel caution in trying to construct new regulatory mechanisms from scratch at the international level.

There will doubtless be exceptions to this general principle, such as where the transnational arbitrage incentives of a regulatory measure are so strong as to make national efforts difficult to initiate and sustain without substantial loss of financial activity to other countries.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 21And, in the immediate aftermath of the crisis, there was a need to harness the broad-based demands for reform and move forward on some priority reforms without benefit of learning from national initiatives.

On the other hand, there may also be areas where, notwithstanding the importance of a particular regulatory objective for international financial stability, it may be preferable to maintain a variety of approaches to achieving that objective.

Bearing in mind both these principles and the key areas for policy change at central banks and other financial regulators, let me now suggest some specific subjects for near-term emphasis.

As to the framework for systemically important financial institutions (SIFIs), I would urge that two ongoing initiatives be completed over the next year and two ideas that have been in the discussion stage be developed into concrete proposals.

First, the proposal for a capital surcharge for systemically important banking organizations is nearing completion.

The Basel Committee continues to refine the methodology to be used in identifying the firms and calibrating the surcharge amount--perhaps a byproduct of the fact that this methodology had to be developed in the Basel Committee without benefit of prior precedent.

But I have confidence that this work will be successfully completed.

The second ongoing initiative--work on designating non-bank SIFIs--has to date been pursued mostly in the IAIS and thus has concentrated on insurance companies.

It is important to take the time to evaluate carefully the actual systemic risk associated with these companies, and to understand the amount of such risk relative to other financial firms, before fixing on a list of firms and surcharges.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 22But this seems to me a realistic goal over the next six months. Third, we should build on the very good analytic work in the BaselCommittee, both on simplifying capital requirements for credit risk and on fashioning standardized capital requirements for market risk, to apply standardized credit and market risk capital measures to all internationallyactive banking firms.

As I mentioned earlier, the United States has already adopted such a requirement for capital requirements on credit risk.

These standardized measures serve as a floor to guard against the potential for models-based capital measures to understate capital needs under some circumstances.

They are also substantially less opaque than, for example, the advanced internal ratings-based approach of Basel II, and thus would provide more comparable measures that are also more amenable to international monitoring.

Fourth, I would hope to see a requirement proposed for large internationally active financial institutions to have minimum amounts of long-term unsecured debt, which would be available to absorb losses in the event of insolvency.

As I mentioned earlier, work on resolution continues, albeit at different paces in different jurisdictions.

Given the complexities arising from the independent, often differing national bankruptcy and insolvency laws, the goal of achieving a fully integrated resolution regime for internationally active financial firms may take a good deal of time.

But a minimum long-term debt requirement would at least provide national authorities with sufficient equity and long-term debt in these firms to bear all losses in the event of insolvency, and thereby counteract the moral hazard associated with taxpayer bailouts without risking disorderly failure.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 23

This requirement would not break brand new regulatory ground, since it would really be a modification of existing Tier 2 gone-concern capital concepts, and would complement the requirement for minimum equity levels included in Basel III.

As implied in my identification of short-term funding vulnerabilities as a priority area, the best way forward here is considerably less easy to specify.

Short-term initiatives on money market funds and triparty repo are both possible and desirable.

In truth, though, because money market funds are largely American and, to a somewhat lesser extent, European, the United States and the European Union together have the ability to address the global run risks associated with these products.

I think we also have the responsibility to do so, but not necessarily in identical ways.

Accordingly, I would hope that both the United States and the European Union would each take effective action to counter the run risk, tailored as appropriate to their regulatory environments, and then explain those actions at IOSCO and the FSB, where their efficacy can be reviewed.

Similarly, since the settlement process for triparty repo that remains of concern is centered at two institutions, both of which are regulated American banks, the United States can take effective action without need of an international agreement

As to broader initiatives, proposals to require minimum haircuts for all securities financing transactions have been tentatively discussed in the FSB.

This is certainly a ripe subject for discussion, insofar as securities financing transactions facilitate leverage, enable maturity transformation, and produce the kind of interconnectedness that can spawn runs and contagion.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 24

At present, no set of generally applicable prudential standards governs these activities.

Even within regulated firms, microprudential risk-weighted capital standards have little effect, since they are calibrated against credit risk and most such transactions are short-term and fully (or over) collateralized.

Thus requirements that would attach to instruments and transactions, as opposed to firms that happen to be prudentially regulated for other reasons, have considerable attraction.

On the other hand, universal haircut requirements are the type of regulatory innovation that I suggested earlier was best developed internationally following some experience within financially significant countries.

One may, for example, have significant concern about some of the unintended consequences that would ensue.

My instinct, then, is that the analysis of this idea should continue within the FSB and, one hopes, in other venues both in and out of the official sector.

There should also be concerted efforts internationally to gather relevant data, some of which is at present uncollected.

But we are not going to be in a position to establish an international securities transaction financing regime in the near term.

However, one proposal already on the international agenda might be reconsidered, so as to address more directly the short-term funding problem.

Following completion of the LCR earlier this year, the Basel Committee is turning its attention back to the Net Stable Funding Ratio (NSFR), a proposal that was intended to complement the LCR by regulating liquidity levels beyond the 30-day LCR horizon.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 25

Like the LCR, the NSFR proposal raised many questions even among those favoring robust measures to deal with the liability side of firm balance sheets.

There is some appeal to moving forward with this complementary measure fairly quickly by simply making some incremental changes to the NSFR while keeping its current structure.

But I think we may be better advised to take the opportunity of this review to examine whether there are approaches that might address more directly the vulnerabilities for the financial system created by largenon-deposit, short-term funding dependence at major financial institutions.

I do not mean to prejudge the outcome of such an examination, or the degree to which we might build on measures being considered in various jurisdictions to address these vulnerabilities. But I do think it worth the effort.

Conclusion

Responses to what I have described as the three challenges to pre-crisis central bank policies will continue to evolve.

So will the reenergized international agenda for cooperation in international financial regulation.

My aim tonight has not been to lay out a comprehensive program for either, but to suggest that these changing agendas are neither completely correlated nor completely independent.

In suggesting some concrete next steps, I have tried to define some useful and important points of intersection between the two.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 26Gabriel Bernardino, Chairman of EIOPAIMD2 and Solvency II The road to better policyholder protection and financial stability Workshop organised by the European Federation of Insurance Intermediaries (BIPAR) Brussels

Good evening ladies and gentlemen,

I would like to start by thanking BIPAR for the invitation to speak to you today and for the opportunity to meet again with the representatives of EU intermediaries.

In my speech, I will bring forward some personal reflections about the current challenges in revising the regulatory framework in the insurance area, namely IMD2 and Solvency II and will finish by pointing out some strategic reflections on the way to achieve further consistency of EU regulation and supervision.

Let me start with IMD2.

The review of the Insurance Mediation Directive is very relevant for EIOPA, because this directive affects almost all our stakeholders.

Intermediaries are, and will continue to be, a key link in the retail distribution chain.

We recognise that at EIOPA, in the same way that we see protection of consumers as a fundamental goal for us and an area where we are required to take a leading role.

For us, intermediaries are an essential part of the insurance market and play a crucial role in consumer protection.

Therefore, we welcome the publication of the Commissions proposal to recast the existing IMD (IMD2) in July 2012.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 27

I must say that it has certainly been a long time in the making ever since the review of IMD1 was first introduced into the Recitals of Solvency II by the European Parliament and then our predecessor, CEIOPS subsequently provided advice to the Commission on the Directive in 2010 with 39 different recommendations.

We support the Commissions objectives of making retail insurance markets work better and promoting a more level playing field by, for example, extending the scope of the Directive to include direct sales.

Indeed, preventing regulatory arbitrage and promoting equal conditions of competition are key objectives for EIOPA too.

From EIOPAs perspective, it is important that the final legislative text creates a regulatory regime in the retail insurance market that can be effectively supervised both from a national and a European perspective, bearing in mind the wide variety of existing structures at national level for supervising insurance distribution.

IMD2 also needs to adopt a proportionate approach as regards the objectives to be achieved.

There needs to be proper consideration of existing market specificities such as a very diverse range of distribution channels at national level, from high street brokers to multinationals.

As I say, I welcome the Commissions proposal.

Nevertheless, there are a number of points where I would personally recommend further reflection:

Transparency of remuneration

The proposal introduces a mandatory disclosure of the full amount of remuneration for life insurance products and a 5 year transitional period allowing for an on request disclosure regime for non-life products; at the end of the 5 year period, mandatory disclosure would apply.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 28

Furthermore, insurance undertakings are only required to inform the customer about the nature and the basis of the calculation of any variable remuneration received by any employee of theirs i.e. not disclosure of the full amount.

For non-life insurance, I consider an on request regime as a better way to move further at an EU level, while maintaining the possibility for Member States to impose stricter requirements.

In my view, this would be the best possible and balanced solution to improve the transparency of remuneration.

Furthermore, both insurance undertakings and insurance intermediaries should have to comply with the same high-level principles as regards information requirements and conflicts of interest provisions.

I also believe that disclosure is not a panacea to managing conflicts of interest.

The introduction of a general duty of care would help as would the implementation of proportionate and robust administrative and organisational arrangements to help systematically identify and manage conflicts of interest.

Scope Comparison Websites

Comparison websites are caught under the Recitals, but not under the definition of insurance mediation, creating legal uncertainty.

In my opinion, it is important that new forms of on-line distribution such as comparison web sites, are properly caught under the scope of the Directive to ensure a level playing field and adequate protection for consumers.

Some would argue that they are already caught by IMD1, but we need more clarity on this issue.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 29

Indeed, we are currently working on a Report on Good Practices regarding supervisory standards relating to comparison websites which we hope to publish before the summer.

It would also be useful if EIOPA could clarify by means of Guidelines the application of the Directive to aggregators or price comparison websites. Advice

Advice is defined under the proposal as the provision of a recommendation to a customer, either upon their request, or at the initiative of the insurance undertaking or the insurance intermediary.

I am surprised that the definition of advice was not personalised as at present it captures generic advice as well.

We think a clearer definition of advice is required where advice is provided on the basis of a personal recommendation.

Freedom to provide services/ Freedom of establishment

The proposal deletes the provision providing for a European passport based on a single registration and is not re-stated in the new Chapter IV regarding freedom to provide services and freedom of establishment

I am surprised that the provision was deleted as it was the foundation of IMD1 so as to encourage the cross-border activities of insurance intermediaries.

In my view, this needs to be reinstated to send out the right message.

Cross-selling

The proposal recognises the practice and risks of bundling products and requires certain information disclosure on sale of bundled products.

Tying is outlawed Tying and bundling is an issue that has regularly cropped up in discussions in EIOPA (with regard to sales of PPI or linking life insurance to sales of mortgages).International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 30

Several of our Members have taken action already at national level to combat this practice.

I support action on tying but a blanket ban on all tying has important implications, as there are an enormous amount of tied products on the market in the EU.

We need also to consider that a complete ban might also prevent consumers from getting cheaper deals.

It is important to have the same approach in IMD2, MiFID II and Mortgage Credit Directive to ensure consistency on this issue.

This is an area we have foreseen work under the Joint Committee of the ESAs.

Insurance PRIPs

The proposal introduces special requirements for insurance PRIPs e.g. requirement to identify, prevent, manage and disclose conflicts of interest when selling insurance investment products.

I believe that these provisions should be kept within IMD2 and we should avoid a simple cut and paste as the distribution channels involved are very diverse so a one size fits all approach could have major impact on the market.

Furthermore, I would definitely include in IMD2, the organisational requirements needed by distributors in order to manage conflicts of interest.

At EIOPA, we are following closely the negotiations in the Council and Parliament.

It is very interesting to see the wide range of different opinions coming to the fore on this issue.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 31

This is not surprising because IMD2 seeks to perform a very tricky balancing act: enhancing the possibilities for cross-border retail trade, but at the same time, raising the bar in terms of adequate safeguards for consumers.

This balancing act is even more difficult in the aftermath of the financial crisis.

EIOPA stands ready to support the EU political institutions in the negotiation process.

Let me know turn to Solvency II.

The EU is faced with an outdated and fragmented regulatory regime in insurance.

Solvency II has been developed during the last 13 years to answer to concrete needs.

It increases policyholder protection by using the latest developments in risk-based supervision, actuarial science and risk management.

We should be proud that Solvency II is based on sound core principles.

Obviously, the financial crisis had a number of consequences on Solvency II.

Some lessons were incorporated early on in the regime, but other challenges are still creating uncertainties on the final design and calibration.

The huge market volatility proved to be a challenge in a market-consistent regime, especially for long-term guarantees.

The sovereign crisis led to questions on the concept of the risk-free rate.

The changes in banking regulation create pressure on the role of insurers as providers of long-term bank funding.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 32

The low interest rate environment is threatening some insurance business models, especially in life insurance.This year will be a crucial year for Solvency II. So, what are we doing?

Following the agreement by the EU political institutions, EIOPA have launched the long-term guarantee assessment that aims to test various measures that have been discussed in the Omnibus II negotiations.

We are encouraged by the level of participation in the different member states, covering big, medium and smaller players.

EIOPA will present its final report in June.

It is essential for policyholder protection and financial stability that Solvency II appropriately reflects the long-term financial position and risk exposure of undertakings carrying out insurance business of a long-term nature.

We need a robust framework that would price correctly any options embedded in the contracts.

We need to recognise that guarantees have a price; there is no free lunch.

On top of the long-term guarantee assessment, EIOPA sees it as of key importance that there will be a consistent and convergent approach with respect to the preparation of Solvency II.

That is why, in December 2012, we issued our Opinion on interim measures regarding Solvency II.

Our plan is to develop Guidelines that will ensure that national supervisory authorities will start in 2014 to put in place certain important aspects of the new prospective and risk based supervisory approach.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 33

These Guidelines will cover the system of governance, including risk management and the process of developing an own risk and solvency assessment, pre-application of internal models, and reporting to supervisors.

We are not anticipating Solvency II, but preparing supervisors and undertakings for the new regime in a consistent way.

The guidelines are addressed to national supervisory authorities and will be subject to comply or explain procedure.

We are working in close cooperation with the European Commission and maintaining an informal dialogue with EIOPAs Insurance and Reinsurance Stakeholder Group and the different stakeholders.

We plan to have a public consultation on the Guidelines in April/May 2013 and they will be tabled to EIOPA Board of Supervisors in the autumn.

Going forward, one of the most critical challenges in the EU supervisory landscape is to ensure consistency of supervisory practices.

I believe that the convergence of supervisory practices is as important as the single rule book.

By assuring that day-to-day supervisory oversight of financial institutions is done within a consistent framework, we can effectively contribute to an increased level of protection of policyholders and beneficiaries in the European Union.

The single market requires it and EIOPA is committed to deliver it.

A first step should be the development of a Supervisory Handbook that would work as a guidebook for supervision in Solvency II, setting out good practices in all the relevant areas of supervision.

This handbook will foster the implementation of a more consistent framework for the conduct of supervision.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 34

EIOPA is starting to work in this area.

I believe that it is fundamental to build on the experience of what has been achieved by EIOPA under the current Regulation and start a reflection on the further steps (tasks and powers) needed to deliver a truly consistent supervisory process and, in particular, to assure the consistent oversight of cross-border insurance groups.

Furthermore, EIOPA needs to have resources to play its challenging oversight role according to the Regulation, by conducting inquiries into a particular type of financial institution, or type of product, or type of conduct in order to assess potential threats to the stability of the financial system and make appropriate recommendations for action to the competent authorities concerned.

In order to perform this independent assessment in a transparent, efficient and risk based way, EIOPA needs to reinforce its human resources, should have access to the relevant individual information available to the national supervisors and also have direct access to the individual institutions.

Another strategic challenge is the level of regulatory consistency in the financial sector.

I believe it is very relevant to achieve an appropriate level of convergence of the rules protecting retail consumers in the different areas of the financial sector.

Nevertheless, proportionality and good sense should prevail.

By covering the different angles of disclosure and selling practices in the insurance market, IMD2 should avoid the tendency to apply aone-size-fits-all approach.

Insurance business and insurance products have their own specificities that need to be carefully considered.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 35

Some may argue that these specificities are a sufficient argument to maintain the status quo. I dont believe that this is the case.

We need to recognize that an evolution is also needed in the way consumer protection is ensured in the different distribution channels.

We need to learn from the mis-selling events that occurred in certain markets involving products like PPI, unit-linked products and pensions.

Consumers attitudes and needs are changing, and that should be viewed positively.

The insurance market cannot and will not be out of this evolution.

Insurance intermediaries should support this trend and should view IMD2 as a good opportunity to improve consumer protection, preserve the relevant insurance specificities and increase consumer confidence.

Thank you for your attention.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 36Submitting a Suspicious Activity Report (SAR) within the Regulated Sector

This is a United Kingdom Financial Intelligence Unit (UKFIU) communications product, produced in line with the Serious Organised Crime Agency's (SOCA) commitment to sharing perspectives on the Suspicious Activity Reports (SARs) Regime.

This document seeks to provide advice and relay best practice when making a Suspicious Activity Report (SAR), a piece of information that alerts Law Enforcement Agencies (LEAs) that certain client/customer activity is in some way suspicious and might indicate money laundering or terrorist financing.

Persons in the regulated sector are required under Part 7 of the Proceeds of Crime Act 2002 (POCA) and theTerrorism Act 2000 (TACT) to submit a SAR in respect of information that comes to them in the course of their business, if they know, or suspect or have reasonable grounds for knowing or suspecting, that a person is engaged in, or attempting, money laundering or terroristfinancing.

A SAR must be submitted as soon as is practicable.

This document seeks to complement the Money Laundering Regulations and HM Treasury approved guidance in this regard.

It is important that when submitting a SAR to SOCA that reporters refer to the published guidance from their own regulatory body and their own internal guidance.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 37

By submitting a SAR to the Serious Organised Crime Agency (SOCA) you will be providing LEAs with valuable information of potential criminality whilst ensuring appropriate compliance with your legal obligations to report under POCA and TACT.

You are able to submit SARs in any format including by post, fax or via the SOCA website (www.soca.gov.uk) through the SAR Online system.

Once you have submitted your SAR you should remember your obligations not to make any disclosures which might constitute an offence of tipping off under section 333A of POCA or section 21D of TACT 2000.

SOCA does not provide or approve standard wording for you to use in such circumstances.

It is therefore recommended that you give careful consideration to how you will handle your relationship with the subject once you have submitted the SAR, particularly if the subject is a client or customer of your business.

You may wish to discuss with your supervisor or professional body if you are unsure.

SAR Online is a secure web based system by which you can submit SARs to SOCA.

Registering with SAR Online is a very simple process and ensures SARs are delivered directly to SOCA, including an activation process to create the account for the submission of SARs.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 38

SAR Online is SOCA's preferred means of SARs submission and provides a standardised approach to structuring SARs that reporters may find useful.

It is important to provide as much comprehensive detail as possible when registering.

In order to register for SAR Online, new users require an active email account as this is used as your user identification.

The registration is unique to the user so the email address needs to be designated to the appropriate person.

It is recommended that the Money Laundering Reporting Officer (MLRO), Nominated Officer or designated officer responsible for the Anti-Money Laundering (AML) compliance within the organisation is the registered user.

Use of SAR Online is recommended as:

it will provide you with an automated acknowledgement of receipt

it will help you structure your SAR in the most helpful way, thereby improving processing time in SOCA

it will give you the opportunity to flag the SAR as a consent issue.

Reporters that submit SARs via SAR Online will also receive an acknowledgement email containing a unique reference once the report has been submitted.

The submission of consent SARs is particularly valuable to ensure a prompt response.

There is a dedicated support team available during office hours to deal with any SAR Online enquiries. The SAR Online Helpdesk can be contacted on 020 7238 8282, option 3.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 39

Further support is available on the SOCA website (www.soca.gov.uk) or through your supervisor or professional body.

You should note that SAR Online does not retain a file copy for your future use and therefore you should ensure that you retain your own record of your submission.

SAR Online has an automatic timeout session of 20 minutes for each page.

You should save your work at regular intervals to re-set the timeout clock before the session expires.

However if you are not reporting electronically please use the SOCA Preferred Forms for manual reporting which can be downloaded from the SOCA website.Reason for suspicionMaking a quality report, structured in a logical format and including all relevant information, will significantly enhance LEAs' abilities to extract greater value from submitted SARs and speed up the process.

Often a seemingly minor piece of information to you can become a valuable piece of intelligence to LEAs.

It is helpful to write a brief summary to explain your suspicion and then also provide a chronological sequence of events.

It helps if you try to keep the content clear, concise and simple.

For example, describe the events, activities or transactions that led you to be suspicious, how and why you became suspicious, and where appropriate, the nature of the business activity you were engaged in and details of dates of any activities or transactions etc.

The SAR Glossary of Terms (available on the SOCA website www.soca.gov.uk) is used to identify specific categories of suspiciousInternational Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 40

activity and is widely used by law enforcement enabling them to identify SARs in which they have a specific interest.

The inclusion of the appropriate Glossary Term can be useful in ensuring the distribution of the SAR to a law enforcement or government agency which may be best placed to utilise or act on the information provided.

However, use of the SAR Glossary of Terms is not mandatory.

If the reported subject (for example client/customer) has been the subject of a previous SAR submitted by your organisation, it is valuable to include the previous SAR reference number, and, if appropriate to do so, the glossary code XXS2XX.

However, please also remember that under POCA and TACT, each SAR you submit on the same individual must contain a suspicion and all the relevant details; even if you have included the reference number for a previously submitted SAR.

As a basic guide, wherever you can, try to answer the following six basic questions to make the SAR as useful as possible:

Who? What? Where? When? Why? How?

Remember to include the date of activity, the type of product or service, and how the activity will take place or has taken place, when documenting the reason for suspicion.

If you are suspicious because the activity deviates from the normal activity for that customer/business sector, it would be helpful to briefly explain how the activity that gave rise to your suspicion differs.

Avoid the use of acronyms or jargon within SARs as they may not be understood by the recipient and may be open to misinterpretation.

If you are describing a service provided or a technical aspect of your work, it would be beneficial to provide a brief synopsis in your SAR to aid the financial investigator.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 41

We recommend you do not send attachments with your SAR all the relevant information should be within the SAR.

If further information is available which you are willing to share with an LEA then reference to this and who to contact may be recorded in the SAR.Subject information

The amount of information a reporter holds on the reported subject may be dependent on the nature of the relationship with the subject which may frequently be a client or customer, but may also for example be a prospective client, someone connected with or trading with a client/customer or other subject seen in the ordinary course of business.

Accordingly, the information may be derived from Customer Due Diligence (CDD) obtained in line with guidance published by its firm and supervisory body or other information gathered in the ordinary course of business.

It is helpful to those who will use your SAR to be as comprehensive as possible; however you are only required to provide information obtained within the ordinary course of your business.

Where known, the information listed below should be provided, and in the case of addresses, wherever possible the status of the address (e.g. current, business, residential etc) should be provided together with postcodes or equivalent for overseas addresses.

The inclusion of postcode allows the SAR to be automatically allocated to law enforcement.

Please note: If you are submitting a SAR using SAR Online you are requested to fill in the subject information within the fixed fields provided for the purpose.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 42

Individuals

Please provide all relevant details known about the individual reported. The amount of information you will have may well depend on the relationship to the reported subject.

Please provide all identifying information.

This should include, as far as possible: full name/s, date of birth, nationality and address.

It is important that the status of the address/es can be fully understoodcurrent, previous, home, business, and other known property, ensuring that postcodes are included.

If further information is held about the individual for example:

identification document details (including relevant reference or document numbers) e.g. passport, driving licence, National Insurance number

car details (registration number)

telephone numbers (clearly marked home, business, mobile etc)

full details of bank accounts or other financial details (including account numbers etc)

occupation

then the information can be provided in context with your suspicion.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 43

Businesses, trusts and other entities, incorporated and unincorporated

Incorporated

Please provide all relevant details known about the incorporated entity. The amount of information you will have may depend on the relationship to the reported subject. Please provide all identifying information such as:

full name

designation e.g. Limited, SA, GmbH

trading name

registered number

VAT and/or tax reference number

country of incorporation

business/trading address

registered office address.

Additionally if relevant to your suspicion, please provide details of the individuals or entities that are the directors (or equivalent) and details of the individuals who own or control or exercise control over the management of the entity.Unincorporated

Please provide all relevant details known about the unincorporated entity.

The amount of information you will have may depend on the relationship to the reported subject.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 44

Please provide all identifying information such as:

full name

business/trading address

VAT and/or tax reference number.

Additionally, if relevant to your suspicion, please provide details of all partners/principals who own or control or exercise control over the management of the entity.

Trusts

Please provide all relevant details known about the trust.

The amount of information you will have may depend on the relationship to the reported subject.

Please provide all identifying information such as:

full name of the trust

address

nature and type of the trust.

Additionally, if relevant to your suspicion, please provide details of all trustees, settlors, protectors and known beneficiaries as appropriate.Description of criminal property and its whereabouts

When the suspicion being reported relates to a financial transaction, the report should include the relevant details of the beneficiary/remitter of the funds and, if known, the destination/originating bank details e.g. sort code, correspondent bank details.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 45

It is important to accurately record the date on which the transaction has occurred or will occur.

It is also useful to understand the type of transaction for example online payment/receipt, debit or credit card, ATM withdrawal, cheque, electronic transfer (BACS/CHAPS), or cash.

If the beneficiary/remitter of the transaction is believed to be complicit in the suspicious activity then consideration should be given to providing their details as an associate subject.

An associated subject is a person or entity that is linked to the main person/entity in some direct way and is involved in the suspicious activity.

If the activity does not involve a financial transaction then an explanation of the suspicious activity that has occurred or will occur should be given.

When submitting a SAR using SAR Online there are fields for documenting specific financial transactions.

Equally, transactions or activity can be documented within the reason for suspicion field provided.

Appropriate consent

Obtaining consent provides a defence against the principal money laundering offences.

Should you wish to avail yourself of this you should refer to a separate document which has also been published on the SOCA website (www.soca.gov.uk) entitled Obtaining consent from SOCA.

This provides specific guidance on the process to be followed and what to expect if you wish to apply to SOCA for a consent decision.

If you are using SAR Online you are reminded to ensure you tick the appropriate Consent Box when completing your SAR.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 46

In all cases it is important to specify clearly the activity for which consent is required.Threshold Requests

Section 339A of POCA makes provision for a threshold in the case of deposit-taking institutions in operating an account if it is 250 or less without the need to seek consent.

If the proposed activity exceeds 250, permission to vary the threshold payment is required from SOCA before the activity may be conducted.

The reporter should still make a disclosure in respect of the initial opening of an account or, if different, the time when the deposit-taking body first suspects that the property is criminal property.

If you are submitting a SAR with a Threshold Request, please submit the SAR in the normal way and specify the threshold amount sought, the account it relates to, and details of the frequency, nature and value of the activity to which the threshold will relate.

If a threshold is already in place and you wish to seek a variation, then the reasons for the variation will need to be set out in an additional SAR and submitted to SOCA.

Please note:

A threshold request is not the same thing as a consent request and there are no statutory timescales for dealing with them.

However to facilitate threshold requests, SOCA uses the consent desk to progress the responses and it is helpful if the consent box is ticked on the SAR to enable the desk to identify the requests quickly.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 47

Court orders and law enforcement enquiries

In some instances, you may be served with or have notice of a court order such as a production order, made in respect of a particular individual or entity.

This may act as a catalyst for you to review the activity which you conduct or have conducted in relation to that individual or entity.

If, following such a review, you feel that there is an obligation to submit a SAR or seek consent, then the SAR/consent request should reflect your suspicions in the context of your engagement with the subject.

Acquisitive or fraud related crime

When you have knowledge or suspicion of an acquisitive or fraud related crime, you will be faced with a parallel decision making process. Firstly, you will have to decide whether or not you wish the offence to be investigated.

In cases of all fraud (confirmed fraud, attempted fraud or where information relating to fraud can be provided), reports should be made to Action Fraud via www.actionfraud.police.uk or telephone 0300 123 2040.

SOCA does not take crime reports.

Also, regardless of whether or not a crime has been reported, you will wish to consider your legal obligations under the Proceeds of Crime Act 2002 (POCA).

If you have knowledge or suspicion that a money laundering offence has taken place then you must submit a SAR to SOCA.

SOCAs advice from its police partners is that where a reporter wishes the content of a SAR to be formally recorded as a crime report they should report this directly to their local police force.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 48

Where the reporter has reported a crime and, in addition, has submitted a SAR, it would be helpful if the crime reference number could be included in the top line of the text in the SAR so that it can immediately becross-referenced by law enforcement.

Alerts and keywords

The Alerts process is a recognised and established way by which SOCA communicates with the UK's private sector.

These are written communications that warn of a specific risk, threat or problem.

All Alerts contain a keyword or a glossary code.

If you submit a SAR as a result of the information contained in an Alert please include the keyword within the free text field.

SAR confidentiality

The confidentiality of SARs is the cornerstone of the reporting regime. SARs are held on a secure central database within SOCA and access to the database by law enforcement is strictly controlled by SOCA.

The use of SARs is governed by Home Office Circular No. 53/2005 (Money Laundering: The Confidentiality And Sensitivity of Suspicious Activity Reports [SARs] And The Identity Of Those Who Make Them).

All law enforcement agencies using SARs are required to follow the guidance outlined

If reporters have concerns about the inappropriate use of SARs by Law Enforcement Agencies (LEAs), or breaches of SAR confidentiality, they should call the SAR Confidentiality Breach Line on freephone 0800 234 6657 (9am-5pm, UK time, Monday to Friday). This number is for reporting breaches of confidentiality only.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 49

Contacting SOCA UK Financial Intelligence Unit (UKFIU)

SARs should not be used as a communication channel e.g. as a means of gaining advice. SARs are only for the reporting of suspicious activity to SOCA.

If you need to seek general guidance relating to money laundering or the SARs Regime in particular, you are advised to contact your designated Money Laundering Reporting Officer (MLRO) or your regulatory body.

For information or assistance with submitting SARs, SAR Online enquiries and consent, please visit www.soca.gov.uk or contact the UKFIU as follows:

Tel: 020 7238 8282Press '2' - General SAR enquiries Press '3' - SAR Online helpdesk Press '4' - Consent SAR enquiries

When contacting the UKFIU please have available your SAR reference number if applicable.

General UKFIU matters may be emailed to ukfiusars@soca.x.gsi.gov.uk If you wish to make a SAR by post you should address your SAR to UKFIU, PO Box 8000, London, SE11 5EN or by fax on 0207 283 8286. You are reminded that post and fax are slower than SAR Online and therefore it will take longer for your SAR to be processed. You will not receive an acknowledgement if you use post or fax.

Disclaimer

While every effort is made to ensure the accuracy of any information or other material contained in or associated with this document, it is provided on the basis that SOCA and its staff, either individually or collectively, accept no responsibility for any loss, damage, cost or expense of whatever kind arising directly or indirectly from or in connection with the use by any person, whomsoever, of any such information or material.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 50

Any use by you or by any third party of information or other material contained in or associated with this document signifies agreement by you or them to these conditions.

Dialogue Team

The aim of the Dialogue Team is to drive the UK Financial Intelligence Unit (UKFIU) agenda on interfacing with stakeholders on Suspicious Activity Reports (SARs) activity.

The team strives to improve communication and understanding between the SARs regime participants, to increase the value extracted from the SARs regime, to provide, facilitate and contribute to various forums to share perspectives on the operation of the regime as a whole.

In essence the Dialogue Team seeks to improve the quality of SARs intelligence, and promote the value and greater use of this intelligence in mainstream law enforcement activity.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 51

What is SOCA?

We work to put serious criminals behind bars, and use many other tactics to fight crime and keep you safe.

In particular, we want to ensure crime doesnt pay and that its harder to commit.

The power to counter criminals SOCA officers can have the combined powers of police, customs and immigration officers.

We also have a substantial range of tools and legislation to target criminals with everything from the ability to recover assets through to Serious Crime Prevention Orders.

We work with agencies and officials across the UK and all over the world to help us do our job and to help them do theirs.New ways of fighting crimeWe use traditional law enforcement methods investigating, and arresting criminals.We also draw on innovative new approaches to prevent crimes from happening in the first place.Here are some examples:First class intelligence - we use all kinds of ways to gather the knowledge we need to know where, when and how to strike to best effect.Monitoring serious career criminals - in some cases we watch them for life, to prevent them from continuing their criminal activities in prison or after release.Hitting them where it hurts - by taking criminals cash and property. For many serious criminals, this worries them more than the prospect of going to prison.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 52

Working in partnership - serious organised crime is a major problem that affects everyone every day, so we co-operate with law enforcement, public and private sector partners to counter it.Worldwide operations - we go anywhere we need to when tackling criminal activity. For instance, a street drug dealer is just the last link in a chain that probably stretches to the other side of the world. So our activities arent limited by borders.Making it harder to commit crime - for example, passing on details of suspicious financial activities or forged identities to banks before frauds can take place.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 53Financial Stability Board reports to G20 on progress of financial regulatory reforms

The Chairman of the Financial Stability Board (FSB) reported to the G20 Finance Ministers and Central Bank Governors on progress in the financial regulatory reform programme.

In connection with this, the FSB is publishing:

a letter by the FSB Chair to the G20, sent ahead of their meeting, reporting on the good progress being made in financial reforms, including in the following priority areas: o creating continuous core markets by completing OTC derivatives and related reforms;o strengthening the oversight and regulation of shadow banking; o building resilient financial institutions; ando ending too big to fail.

The letter also summarises the FSBs recent work and plans to monitor the implementation of reforms.

An assessment of the effect of the G20 financial reform programme on the availability of long-term finance.

This assessment has been contributed by the FSB as part of a broader diagnostic report prepared by international organisations to assess factors affecting long-term financing.

The FSB assessment concludes that, while there may be short-term adjustment effects, the most important contribution of the financial reform programme to long-term investment finance is to rebuild confidence and resilience in the global financial system.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 54

a joint update by the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board on the status and timeline of their remaining projects on converging their standards.

At todays meeting the G20 Finance Ministers and Central Bank Governors reaffirmed their commitment to the full, timely and consistent implementation of internationally agreed financial sector reforms, and looked forward to a comprehensive report on progress in implementing all reforms at the St Petersburg G20 Summit in September.

G20 Ministers and Governors also welcomed the establishment of the FSB in January as a legal entity with greater financial autonomy and enhanced capacity to coordinate the development and implementation of financial regulatory policies, while maintaining strong links with the Bank for International Settlements.

Progress of Financial Regulatory Reforms

Financial market conditions have improved over recent months.

Nonetheless, medium-term downside risks remain, given weak growth prospects and high levels of public and private sector debt in many economies.

The recent improvement in financial market conditions owes much to central bank actions, in particular, the accommodative monetary policy aimed at stimulating the economic recovery.

As a consequence, market participants appetite for risk has increased, but this has not yet translated into a robust recovery in real investment.

The beginning of the return of risk appetite to financial markets while intended and welcome raises a number of issues.

First, market participants and authorities need to be on guard against mispricing of risk and valuations of assets.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 55

Second, the importance of timely completion of the reforms toover-the-counter (OTC) derivatives markets and the shadow banking system has increased.

Third, historically low interest rates in many countries pose challenges for institutional investors with long-dated liabilities and may leave market participants more vulnerable to unanticipated movements in the yield curve.

Financial institutions and supervisors should continue to assess the resilience of the financial system through regular stress testing, notably of credit and interest rate risk, and complete the process of balance-sheet repair.

Reports submitted for this meeting

Regulatory factors affecting the availability of long-term finance

As part of the diagnostic work you requested of the international organisations, the FSB has prepared an assessment of the effect of the G20 financial reform programme on the availability of long-term investment finance.

The reforms include Basel III, OTC derivatives market reforms, and changes affecting the regulatory and accounting framework for institutional investors.

The general conclusion is that, while there may be some short-term adjustment effects, the most important contribution of the financial reform programme to long-term investment finance is to rebuild confidence and resilience in the global financial system.

As a result, these reforms should substantially enhance the financial systems capacity to intermediate investment flows through the cycle at all investment horizons.International Association of Risk and Compliance Professionals (IARCP) www.risk-compliance-association.comP a g e | 56

Hence, the G20 regulatory reforms are unambiguously supportive of long-term investment and economic growth.

The submissions of FSB members found little evidence that the regulatory reforms have had a notable impact on long-term financing to this point.

This is not surprising given the fact that the reform process is still at an early stage.

Several features of the reforms are designed to avoid major unintended consequences: the long phase-in period for reforms; the ongoing implementation monitoring; and, in certain cases, the flexibility to adjust rules during the observation period.

The financial reform programme is not specific to the regulation of long-term finance.

Nevertheless, the reforms will change the incentives of some financial institutions and the costs of certain transactions, which may affect the composition of long-term finance.

In particular, institutional and other long-horizon investors are expected to assume a greater role in funding long-term assets and more of this investment may be intermediated via capital markets rather than the banking system.

There are three areas for specific follow-up by the FSB.