Making Compliance Pay

1. Making Compliance Pay FICCI-IBA Conference5th October 2005 Ian Larkin Head of Risk and Compliance LogicaCMG UK

2. Regulatory Compliance The harsh reality is: • Cost of regulation is huge • Implementation, then operation & maintenance • £200m for a Tier 1 bank, £1bn in 2005 for B2 across Europe • Aim for minimum acceptable compliance • Minimizing spend, cutting scope • Regulatory programmes are “siloed”, despite overlaps • Minimizing the project dependencies • Little coordination, few synergies, multiple hits • Compliance causes business and strategic disruption • Delays strategic business programmes • Impacts business as usual • Is a rubber stamp the only benefit?

3. An Alternative Strategy Regulatory compliance is not just an overhead - it should add value! so… Don’t do it because the regulator says so; do it for business benefit, and comply “en passant”.

4. Two ends of a spectrum Minimum compliance Benefit-based • Disparate projects to cost, implement & manage • No strategic overview • “Do what we must” • Back-pressure • Repetition of work • Resource intensive • Co-ordinated strategic approach • “Compulsory spend – use it wisely” • Business gain costs less! • Progressive, incremental development • Optimal economic capital allocation

5. Some quotes • Woolly or wise? • “We don’t want MI to provide information internally – only to send reports to satisfy the regulator!” • “We are not spending anything on Basel II! We are enhancing our Credit Risk system, which will be Basel compliant.” (Tier 1 Head of Risk) • “We see B2 as giving us the opportunity to develop risk-based pricing for our retail customers.” • "Spending on Sarbanes-Oxley is an upfront investment in making the processes of the company better," says BP’s Macdonald. "We don’t view it as an intolerable burden.”

6. How to get some benefit… • Re-use information & systems • Sox process maps  B2 OpRisk • AML analysis  CRM • Stress testing  risk navigation • Use aggregated information • Counterparty exposure  limit utilisation, sales authorisation • Shared statistics  model calibration, benchmarking • Use consistent metrics • Enterprise Compliance Data Management • Comparative risk measures  risk-adjusted returns • Finance & Risk Integration

7. Managing Compliance Data Production Systems Datamart, calc & reporting • Step by step • Map existing models to Metamodel • Migrate extracts to ETL • ….. Paper Stovepipes Reporting Production Engine Systems Staging Data Servers Paper or XBRL Mart Credit Risk & Enterprise Op Risk Basel II Data Warehouse IAS PSB, SarbOx Fraud, AML MetaData Data definition, Lineage Config Mgt Versioning, dev & prod, time stamp

8. Enterprise Compliance Data Management C’pty Data Mkt Data Production Systems Risk MIS Data Marts Staging Servers Reporting Engines Regulatory (Paper or XBRL) Enterprise Data Warehouse (logical or physical) Basel II Risk Engines Credit, Market, Ops, ALM… IAS Transports PSB, SarbOx Fraud, AML • Key Benefits • Enterprise risk management • Compliance with SarbOx • Single extract, single clean up • Easier reconcilation • Reduced storage • Consistent business reporting MetaData Data definition, Lineage Config Mgt Versioning, dev & prod, time stamp

9. Beyond Basel II – Adding Value Active Credit Portfolio Mgt with Front & Back-End Steering Adding Value Benefits and implementation complexity Risk Adjusted Pricing Based on IRB Economics Basel II Internal Ratings-Based Approach Regulation Typical Implementation Sequence

10. Steering the Organisation Front-End Steering Back-End Steering Origination Activities Active Portfolio Management Secondary Mkt. Products Credit Derivatives Account Management Syndication Central Portfolio Management Unit Structured Deals Secondary Markets Customers Credit Risk Management Insurance Secondary Market Mgt Credit Portal Product Processing Back Office

11. Making Compliance Pay In summary… • Manage your enterprise compliance data • Re-use compliance systems for business benefit • Implement economic measures of performance • Work towards maximizing the value of the enterprise Ian N. Larkin Head of Risk & Compliance LogicaCMG UK ian.larkin@logicacmg.com direct +44 (0)20 7446 5150 mobile +44 (0)7802 462 067

12. Who are we? • Logica cm… who? • LogicaCMG has implemented RTGS for RBI, nation-wide • LogicaCMG is a major international force in IT services to clients across diverse markets • We provide management and IT consultancy, systems integration and outsourcing services • Formed in December 2002, through the merger of Logica and CMG, the company employs around 20,000 staff in offices across 34 countries

13. Contact… Nath Parameshwaran Business Manager Financial Services - South Asia LogicaCMG Express Tower 3rd Floor Nariman Point Mumbai - 400 021 India Tel +91 (22) 5635 2984 Mob +91 98203 15084 Email nath.parameshwaran@logicacmg.com

14. LogicaCMG has taken reasonable care to ensure that the information contained herein is correct at the time of publication. Before using or relying on any content in this presentation, independent verification should be obtained. LogicaCMG accepts no liability nor responsibility for any use of or reliance upon the content of this document.