COMPLIANCE OFFICERS’ WORKSHOP

1. COMPLIANCE OFFICERS’ WORKSHOP MiFID – Systems and Controls Craigcrook Management Services

2. MiFID • Agenda • Overview • Areas Applicable: • General Organisation including Business Continuity • Employees including Senior Managers Craigcrook Management Services

3. MiFID • Agenda • Compliance and Internal Audit • Risk Controls • Outsourcing • Record Keeping • Conflicts of Interest • Deilverables included in your pack Craigcrook Management Services

4. MiFID • Overview • Common Platform • Super equivalence • Remember proportionality • New SYSC Rulebook • Commencement – 1st January 2007 for CRD firms and 1st November 2007 for MiFID firms Craigcrook Management Services

5. MiFID • General Organisation • Tightening of requirements and increased Senior Management responsibilities compared to SYSC 3 • Requirements are: • Robust Governance; • Sound decision making; • Clear and effective Organisational structure; Craigcrook Management Services

6. MiFID • General Organisation • Adequate Internal Controls; • Effective Internal communication (MI); • Adequate safeguards for the security, integrity and confidentiality of information • Accounting – unified standard • Obligation of continuous Monitoring Craigcrook Management Services

7. MiFID • General Organisation • Formal Verification of Compliance with the Regulatory System - • Very much only under consideration at the moment • Retain guidance on the Audit Committee • Business Continuity Craigcrook Management Services

8. MiFID • General Organisation • MiFID requirements wider • Require planning for an “interruption” to business activities • FSA Policy on the responsibilities of Senior Managers under review • Likely to increase Craigcrook Management Services

9. MiFID • Employees • FSA will require: • Awareness of procedures; • Segregation of duties; • Employees to be competent and have the appropriate skills, knowledge and expertise; • Firms to monitor both their systems and individual employees on a ongoing basis Craigcrook Management Services

10. MiFID • Compliance • Creation of a good Compliance culture a priority • Compliance to be independent (unless disproportionate) • However, then a test of effectiveness applies Craigcrook Management Services

11. MiFID • Compliance • Regular Monitoring Programme • Effective Policies and procedures • Identification of Risks if non compliant • Compliance Officer to report to Board Craigcrook Management Services

12. MiFID • Internal Audit • Viewed as part of the Compliance arrangements • Must be separate from Compliance and/or Risk • Internal Auditor responsible for audit plan and verifying compliance with recommendations Craigcrook Management Services

13. MiFID • Internal Audit • Internal Audit review of Compliance? Craigcrook Management Services

14. MiFID • Risk • Guidance replaced with High Level Rules • Covers all employees • Risk Management Strategy covering: • Risk assessment; • Sets the level of Risk tolerance; • Risk management arrangements; Craigcrook Management Services

15. MiFID • Risk • Create Risk strategies and policies; • Regular Monitoring of compliance; • Provision of Reports to Board (MI) • Risk function to be independent of Compliance and Internal Audit • Internal Auditor to review Risk function Craigcrook Management Services

16. MiFID • Risk • For Firms also subject to the CRD the following will also be part of the Risk Management Strategy: • Credit and Counterparty Risk; • Residual Risk; • Market Risk; Craigcrook Management Services

17. MiFID • Risk • Operational Risk covering identification, management, monitoring and reporting of operating risks including low frequency high severity risks Craigcrook Management Services

18. MiFID • Outsourcing • MiFID requirements apply to outsourcing of critical or important functions • Will apply to all firms activities • Outsourcing must not: • Impair Internal Control; • Ability of FSA to supervise Firm; Craigcrook Management Services

19. MiFID • Outsourcing • Result in the delegation by Senior Managers of their responsibility; • Relationship with clients must not be altered; • A series of conditions set out in SYSC 8.1.8 must be fulfilled (see pack) Craigcrook Management Services

20. MiFID • Record Keeping • Documents to be retained for a minimum of 5 years • Little change here • Taped Telephone Conversations to be retained for 1 year Craigcrook Management Services

21. MiFID • Conflicts of Interest • A recurring theme in MiFID • Of huge interest to FSA • Refer to “Dear CEO” Letters of November 2005 • Applies to all categories of clients • Disclosure is no longer the default position Craigcrook Management Services

22. MiFID • Conflicts of Interest • Firm must have a written Conflicts policy • Firms to identify potential conflicts and how these are to be managed • Also applies to Conflicts that employees might have or cause the firm to have • Firm should create appropriate procedures to manage Conflicts Craigcrook Management Services

23. MiFID • Conflicts of Interest • Examples when Disclosure not an appropriate measure: • Firms trades as a principal and has advisory or discretionary clients; • Firm is advising an issuer and has advisory or discretionary clients interested in investing in the offer; Craigcrook Management Services

24. MiFID • Conflicts of Interest • Firms clients have competing interests; • Conflicts affecting retail clients • Disclosure appropriate only in limited circumstances affecting professional clients • When a firm is a member of a Group the interests of other parts of the Group need to be considered Craigcrook Management Services

25. MiFID • Conclusion • Increased documentation and procedures • Greater responsibilities for Senior Managers • Greater Responsibility for Compliance Officer and Internal Auditor • Mostly revised policies but some IT implications • Especially the need for greater MI Craigcrook Management Services

26. MiFID William Macdonald Managing Director Craigcrook Management Services 198 Craigcrook Road, Edinburgh Tel: 0131-312-7501 Mobile:07889-534743 Email: william.macdonald@craigcrookms.co.uk Craigcrook Management Services