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1. P age |1 InternationalAssociationofRiskandCompliance Professionals(IARCP) 1200GStreetNWSuite800Washington, DC20005-6705USATel:202-449-9750www.risk-compliance-association.com Top10riskandcompliancemanagementrelatednewsstoriesandworldeventsthat(forbetterorforworse)shapedthe week'sagenda,andwhatisnext DearMember, “FedspeechesarenotlikeHollywoodmovies.” Whosaidthat? JohnC.Williams,PresidentandCEO,FederalReserveBankofSanFrancisco,duringhispresentationtoTownHallLosAngeles,California Whydidhesayso?Heexplained: “That’sbecauseI’lltellyouhowitendsrighthereatthebeginning.” JohndoesnotlookhappywithEurope: “EverytimeEurope’scauldronofwoesseemstobecoolingabit,somethingnewhappenstomakeitboiloveragain.” Hecontinued: “Thesituationwefindourselvesintodayislikedrivingacarupalong,steephill. Tokeepthecarmovingatareasonablespeed,theFedispushingdown hardontheaccelerator. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

2. P age |2 Astheroadgetsflatter—asthefactorsholdingbacktherecoverywane—we’llneedtolightenupontheacceleratorabit. And,eventually,ifwefindourselvespickinguptoomuchspeed,wemayneedtoapplythebrakes.” [Themoralofthestory:Ifyoucandriveacar,youunderstandtheFed’spolicies.] ReadmoreatNumber8below. Anotherinterestingspeech: MrAnselmoTeng,ChairmanoftheMonetaryAuthorityofMacao,spokeattheMacauAssociationofBanks(ABM)SpringFestivalLuncheonGathering,Macao. Hisintroductionissimplygreat: “IntheChinesetradition,theNewYearcarriesaspecialconnotation;firecrackersbidfarewelltothepastyearwhiletheoldcoupletsarereplacedtogreetnewthings. WeseetheYearoftheDragonoffandgreetthenewYearoftheSnake.OnbehalfofAMCM,Iwouldliketotakethisopportunityofgreetingthe newYearoftheSnake,towishtheMSARaharmoniouscommunity,prosperousbusiness.” WhatIremembernow… About6yearsago,Igaveapresentationtothisareaoftheworld…Atthefirstbreakayoungladyapproachedmeandsaid: “Lookatthespring.Aren’ttheflowersbeautiful?Isn’ttheweathernice?Ihopeyouenjoythespringandtheflowers…” InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

3. P age |3 Tocontinue: “Ididnotunderstandyourpresentation!” Ah,thesetraditionalniceandpoliteintroductionsinthePacificRim…Ilovethem. Readmore(aboutthespeech,notthelady)atNumber10below. WelcometotheTop10list. BestRegards, GeorgeLekatisPresidentoftheIARCP GeneralManager,ComplianceLLC 1200GStreetNWSuite800, WashingtonDC20005,USATel:(202)449-9750 Email:lekatis@risk-compliance-association.com Web:www.risk-compliance-association.comHQ:1220N.MarketStreetSuite804,WilmingtonDE19801,USA Tel:(302)342-8828 InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

4. P age |4 ProgressreportonimplementationoftheBaselregulatoryframework April2013 ThisupdatedProgressreportonimplementationoftheBaselregulatoryframeworkprovidesahigh-levelviewofBaselCommitteemembers'progressinadoptingBaselII,Basel2.5andBaselIII,asofendMarch2013. IOSCOtoprogressreformagendaundernewleadership Mr.GregMedcraft,chairoftheAustralianSecuritiesand InvestmentsCommission,tookoveraschairoftheInternational OrganizationofSecuritiesCommissions(IOSCO)BoardatitsmeetinginSydneyon21-22March. PrudentialRegulation Authority(PRA) On1April2013,thenewregulatoryregimeforfinancialservicesintheUnitedKingdomcameintoeffect. ThePrudentialRegulationAuthority(PRA)hasbecometheUnitedKingdom’sprudentialregulatorofdeposit-takers,insurersandmajorinvestmentfirms. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

5. P age |5 InterviewwithGabrielBernardino,ChairmanofEIOPA conductedbyChristophBaltzer,VersicherungsWirtschaft(Germany) “Insurersseemtobethevictimsofascenariooffinancialrepression,especiallywithlowinterestrates.Whatwould betheconsequencesofthepolicyofcheapmoneyforinsurers? WeseethisinsomecountriesintheEUwherealowinterestrate environmentstartsbeingabigchallengeforsometypesofproducts,especiallywhenyouhavegotlongtermguarantees.” EU-USINSURANCEDIALOGUEAGREESHIGHLEVELPROJECTPLAN TheSteeringCommitteeoftheEU-U.S.InsuranceDialogueProjecttoincreasemutualunderstanding andenhancecooperationmetinBasel,Switzerlandandagreedonahighlevelworkplanfrom2013to2017. Thepartiesachievedagreementonaprioritizationofobjectivesandaschedulefortheimplementationoftheinitiativespreviouslyagreedupon bytheSteeringCommitteeanddescribedinthe“WayForwardDocument”(December2012). InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

6. P age |6 Finalrule Therequirementsfordeterminingwhenacompanyispredominantlyengagedinfinancialactivities Forimmediaterelease TheFederalReserveBoardhasannouncedapprovalofafinalrulethatestablishestherequirementsfordeterminingwhenacompanyis"predominantlyengagedinfinancialactivities." TherequirementswillbeusedbytheFinancialStabilityOversightCouncil(FSOC)whenitconsidersthepotentialdesignationofanonbankfinancialcompanyforconsolidatedsupervisionbytheFederalReserve. AFewObservationsinthePrivateFundSpace DavidW.Blass,ChiefCounsel,DivisionofTradingandMarkets,U.S.SecuritiesandExchangeCommission,AmericanBar Association,TradingandMarketsSubcommittee,Washington,D.C. TheSecuritiesandExchangeCommission,asamatterofpolicy,disclaimsresponsibilityforanyprivatepublicationorstatementbyanyofitsemployees. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

7. P age |7 PresentationtoTownHallLosAngelesLosAngeles,California ByJohnC.Williams,PresidentandCEO,FederalReserveBankofSanFrancisco TheEconomyandtheFederalReserve:RealProgress,butTooSoontoRelax FinancialcooperationbetweenChinaandSingapore CongratulatoryremarksbyMrRaviMenon,ManagingDirectoroftheMonetaryAuthorityofSingapore,attheinaugurationofICBCSingaporeRMBClearingBank,Singapore BriefoverviewofMacao’seconomyin2012 SpeechbyMrAnselmoTeng,ChairmanoftheMonetaryAuthorityofMacao,attheMacau AssociationofBanks(ABM)SpringFestivalLuncheonGathering,Macao,26February2013. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

8. P age |8 ProgressreportonimplementationoftheBaselregulatoryframeworkApril2013 ThisupdatedProgressreportonimplementationoftheBaselregulatoryframeworkprovidesahigh-levelviewofBaselCommitteemembers'progressinadoptingBaselII,Basel2.5andBaselIII,asofendMarch2013. Itfocusesonthestatusofdomestic rule-makingprocessestoensurethattheCommittee'scapitalstandardsaretransformedintonationallawor regulationaccordingtotheinternationallyagreedtimeframes. TheCommitteebelievesthatdisclosurewillprovideadditionalincentiveformemberstofullycomplywiththeinternationalagreements. ThisreportupdatestheCommittee'sOctober2012reporttoG20FinanceMinistersandCentralBankGovernorsonimplementationoftheBasel regulatoryframework. ProgressreportonimplementationoftheBaselregulatoryframework,April2013 Introduction ThisreportprovidestheadoptionstatusofBaselII,Basel2.5andBaselIIIregulationsforeachBaselCommittee1memberjurisdictionasof end-March2013. ItupdatestheCommittee’sprevioussemi-annualprogressreportspublishedinOctober2011,April2012andOctober2012. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

9. P age |9 In2012,theBaselCommitteeadoptedtheRegulatoryConsistencyAssessmentProgramme(RCAP)tomonitorprogressinintroducingregulations,assesstheirconsistencyandanalyseregulatoryoutcomes. Regardingtheconsistencyofimplementation,theCommitteerecentlypublishedtheassessmentreportonSingapore’simplementationofBaselIIIbasedcapitalregulations,followingasimilarassessmentofJapan,and preliminaryassessmentsoftheEuropeanUnionandtheUnitedStates. ThereportsareavailableatthewebsiteoftheBankforInternationalSettlements. Currently,assessmentsofChinaandSwitzerlandareunderway,andassessmentsofAustralia,BrazilandCanadawillcommencein2013. Regardingtheregulatoryoutcomes,theCommitteepublisheditsfirstanalysisonthemeasurementofrisk-weightedassetsfortradingbookassetsinJanuary2013. Areportonrisk-weightingofbankingbookassetsisexpectedtobepublishedinthecomingmonths. Theattachedtablesfocusprimarilyonthestatusofadoptionofthe risk-basedcapitalrequirementsbytheCommitteememberjurisdictions. TheCommitteeintends,goingforward,toexpandtheadoptionmonitoringtootherBaselIIIcomponents,includingtheLiquidityCoverageRatio,capitalchargesforglobalanddomesticsystemicallyimportantbanksandtheleverageratio. ForjurisdictionsthatarenotmembersoftheCommittee,theFinancialStabilityInstituteoftheBankforInternationalSettlementspublishedinJuly2012theresultsofitssurveyonBaselIII’sadoptionstatus. Scope TheBaselIIIframeworkbuildsuponandenhancestheregulatoryframeworksetoutunderBaselIIandBasel2.5. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

10. P age |10 • Thetableshereinthereforereviewmembers’regulatoryadoptionofBaselII,Basel2.5andBaselIII. • BaselII,whichimprovedthemeasurementofcreditriskandincludedcaptureofoperationalrisk,wasreleasedin2004andwasduetobeimplementedfromyear-end2006. • TheFrameworkconsistsofthreepillars:Pillar1containstheminimumcapitalrequirements;Pillar2setsoutthesupervisoryreviewprocessandPillar3correspondstomarketdiscipline. • Basel2.5,agreedinJuly2009,enhancedthemeasurementsofrisksrelatedtosecuritisationandtradingbookexposures. • Basel2.5wasduetobeimplementednolaterthan31December2011. • InDecember2010,theCommitteereleasedBaselIII,whichsethigherlevelsforcapitalrequirementsandintroducedanewgloballiquidityframework.9CommitteemembersagreedtoimplementBaselIIIfrom1January2013,subjecttotransitionalandphase-inarrangements. • InNovember2011,G20LeadersattheCannesSummitcalledonjurisdictionstomeettheircommitmenttoimplementfullyandconsistentlyBaselIIandBasel2.5byend2011,andBaselIII,startingin2013andcompletingby1January2019. • InJune2012,G20LeadersattheLosCabosSummitreaffirmedtheircallforjurisdictionstomeettheircommitments.ThismessagewasreiteratedinMoscowinFebruary2013bytheG20FinanceMinistersandCentralBankGovernors. • Methodology • ThedatacontainedinthisreportarebasedonresponsesfromBaselCommitteememberjurisdictions. • ThefollowingclassificationisusedforthestatusofadoptionofBaselregulatoryrules: InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

11. P age |11 Draftregulationnotpublished:nodraftlaw,regulationorotherofficialdocumenthasbeenmadepublictodetailtheplannedcontentofthedomesticregulatoryrules. Thisstatusincludescaseswhereajurisdictionhascommunicated high-levelinformationaboutitsimplementationplansbutnotdetailedrules. Draftregulationpublished:adraftlaw,regulationorotherofficialdocumentisalreadypubliclyavailable,forexampleforpublicconsultationorlegislativedeliberations. Thecontentofthedocumenthastobespecificenoughtobeimplementedwhenadopted. Finalrulepublished:thedomesticlegalorregulatoryframeworkhasbeenfinalisedandapprovedbutisstillnotapplicabletobanks. Finalruleinforce:thedomesticlegalandregulatoryframeworkisalreadyappliedtobanks. Inordertosupportandsupplementthestatusreported,summaryinformationaboutthenextstepsandtheimplementationplansbeingconsideredbymembersarealsoprovidedforeachjurisdiction. Inadditiontothestatusclassification,acolourcodeisusedtoindicatetheimplementationstatusofeachjurisdiction. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

12. P age |12 InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

13. P age |13 InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

14. P age |14 InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

15. P age |15 InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

16. P age |16 InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

17. P age |17 InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

18. P age |18 • IOSCOtoprogressreformagendaundernewleadership • Mr.GregMedcraft,chairoftheAustralianSecuritiesand • InvestmentsCommission,tookoveraschairoftheInternationalOrganizationofSecuritiesCommissions(IOSCO)Boardatitsmeetingin • Sydneyon21-22March. • HesucceedsMr.MasamichiKonooftheJapanFSA. • TheBoardalsoelectedOntarioSecuritiesCommissionchairmanMr.HowardI.WetstonasIOSCOvicechairfollowingtheretirementofMr.EthiopisTafara. • "IamdelightedtobeappointedchairofIOSCOandIsaluteandthankMasaKonoforhisleadershipofIOSCO,”Mr.Medcraftsaid. • “Undermystewardship,IwanttobuildonMr.Kono'sworkandensureIOSCOisproactiveandforward-lookingindeliveringthreeobjectives–workingtoensurethatgloballyinvestorsareconfidentandinformed,marketsarefairandefficientandreducingsystemicrisk." • Mr.MedcraftsaidthatduringhistermaschairIOSCOwouldworktowardtheseobjectivesthrough: • Engagementwithmembersandstakeholders; • Co-operationacrossitsmembershipandwithindustry;and • Standard-setting. • Mr.Wetstonsaid:"IamlookingforwardtoworkingwithGregMedcraft toadvanceIOSCO'sstandard-settingagenda,includingnewmandatesoninvestorprotectionandeducation,cross-borderregulationand deterrence. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

19. P age |19 IwouldalsoliketotakethisopportunitytothankMasamichiKonoforhisleadershipandcontributionstoIOSCO." Mr.Konosaid:“IwouldliketoexpressmygratitudetoeveryoneatIOSCOfortheirkindsupportduringmytenureaschair. OurcollectivestrengthhasenabledIOSCOtomakeimportantheadwayoninternationalregulatoryreformandelevatedthevisibilityandrelevanceofIOSCOwithglobalstakeholders. Iamconfidentthatfurtherprogresswillbemadeunderthemostcapableleadershipofmysuccessor.” TheSydneyIOSCOBoardmeetingcoveredthefollowingareas: Engagement TheBoardmeetingunderscoredIOSCO’scommitmenttoimprovingengagementwithindustryandthebroaderIOSCOmembership. IndustryRoundTableonEmergingRisks ThemeetingwasprecededbyaRoundTableattendedbytheBoardandsevenfinancialservicesexecutivesfromAustralia,Asia,EuropeandNorthAmericatodiscussemergingrisks. ThediscussionsunderscoredIOSCO´sdeterminationtoengagewithindustryindevelopingearlyandforward-lookingresponsestothechallengesthatsecuritiesmarketsfaceinarapidlyevolvingenvironment. Participantsexchangedviewsonemergingrisksinglobalfinancialmarketsandthepossibleunintendedconsequencesofsecuritiesregulationandotherpolicymeasures,particularlyonemergingmarkets. Someofthepotentialrisksdiscussedincludedtheglobalimbalancescausedbycapitalflows,weaknessesinfinancialmarketinfrastructure,high-frequencytrading,marketfragmentation,andcyber-attacks. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

20. P age |20 Boardmembersexpressedconcernoverthepotentialrisksofthecurrentlowinterestrateenvironment. Membersgenerallyagreedthesearchforyieldcouldfuelthecreationofnewassetbubbles,particularlyinemergingmarketswithlargelyundiversifiedeconomies. Theynotedthatasuddenupwardspikeininterestratescoulddamageglobaleconomicgrowth. TheEmergingMarketsCommittee TheBoarddiscussedmeasurestoenhancetheinclusivenessofEMCmembersinIOSCOpolicyandimplementationwork. TheEMCaccountsfor75%ofIOSCOmembership,whichgivesitsignificantresponsibilityforthedevelopmentandimplementationofIOSCOstandardsonagloballevel. Boardmembersagreedthattheemergingmarketswouldplayanincreasinglyimportantroleasasourceoffinancingfortheglobal economy. Boardmembershipandworkingprocedures ThemeetinghadpreliminarydiscussionsonchangestothecompositionoftheIOSCOBoardanditsworkingprocedures. TheaimofthesechangesistoensuretheBoardisasinclusiveandrepresentativeaspossibleoftheIOSCOmembership. TheBoardwasestablishedinMay2012throughthemergeroftheExecutiveCommittee,theTechnicalCommitteeandtheEmergingMarketCommitteeAdvisoryBoard. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

21. P age |21 • TheaimistohaveinplaceapermanentbasisfordeterminingBoardmembershipbythetimeoftheAnnualmeetinginRiodeJaneiroinSeptember2014. • NewIOSCOmembers • TheBoardapprovedandwelcomedthefollowinginstitutionsasaffiliatemembersofIOSCO: • UnionofArabSecuritiesAuthorities(UASA) • JohannesburgStockExchange(JSE) • NigeriaStockExchange(NSE) • TheInternationalSwapsandDerivativesAssociation(ISDA) • Co-operation • IOSCO’songoingcommitmenttoenhancingconstructiveco-operationacrossitsmemberswasreflectedinanumberofnewinitiativesagreedat themeeting. • EstablishingtheIOSCOFoundation • TheBoarddiscussedthegovernanceframeworkfortheFoundationand discussedwhereitshouldbelocated. • BoardmemberssupportedphysicallylocatingtheFoundationinMadrid,aseffortscontinuetosecurefundingcommitments. • AfinaldecisiononallaspectsoftheFoundationwillbemadeandthenextstepsforformallyfilingtheFoundationdocumentswillbetakenaftercompletionofthepre-commitmentphaseandthoroughexaminationofalllegalissues. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

22. P age |22 • Newworkstreams • Themeetingagreedtoestablishataskforceoncross-borderregulationandanewstandingcommitteeoninvestoreducationandprotection,andagreedontheneedforaprojectondeterrenceframeworks. • -TheTaskForceonCrossBorderRegulationwilldevelopatoolbox ofmeasuresinregulatingsecuritiesmarketsactivitiesthatcrossborders. • Ifappropriate,itwillthendevelopprinciplestoguidethecoordinateduseofthesetools. • Thetoolstobeconsideredmayincludesubstitutedcompliance,mutualrecognitionandsupervisoryco-operation. • TheTaskForce’sworkisintendedtohelppolicymakersandmemberregulatorsinaddressingthechallengestheyfaceinregulatingcross-borderactivity. • TheCommitteeonInvestorEducationandProtectionwillhaveabroadmandatetoleadIOSCO’sworkonretailinvestoreducationandprotection. • ItsaimwillbetoensureIOSCOtakesaconsistentandcomprehensiveapproachtoretailinvestmentproductsandservices. • ByfocusingoninvestoreducationitwillenableIOSCOmemberstosharetheirexperiencesandbuildexpertisegloballyinfinancialliteracy. • Themeetingconsidered(andforeshadowedapprovalof)anewmandatetodevelopprinciplesforcredibledeterrenceframeworks. • ThemandatecallsfortheIOSCOcommitteeonenforcementtoidentifythecoreelementsofacredibledeterrenceframeworkforsecuritiesregulation,includingstrategiesandgoodpractices. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

23. P age |23 Itrespondstoapublicdemandfortoughersanctionstodetermarketmisconduct. Thefailuretopunishwrongdoersduringthecurrentfinancialcrisishaserodedpublicconfidenceincapitalmarkets. InternationalSecondmentsRegister TheBoardagreedtothecreationofanInternationalSecondmentsRegistertobemaintainedbytheIOSCOSecretariat,whichwillassistmembersinorganizingsecondmentswithotherIOSCOmembers. Mr.Medcraftsaid:“Secondmentsareakeywayofbuildingunderstandingandco-operationbetweenmembers. TheRegisterwillplayakeyroleinmakingthishappen.” MultilateralMemorandumofUnderstandingontheexchangeofinformation TheBoardconsideredadditionalmeasurestoencouragenon-signatorymemberstosigntheIOSCOMultilateralMemorandumofUnderstandingoncooperationandexchangeofinformation,theinstrumentusedbysecuritiesregulatorsaroundtheworldtocombatcross-borderfraudandmisconduct. ItalsoreiteratedIOSCO’scommitmenttoprovidetechnicalassistanceandpoliticalsupporttothosenon-signatoriesthatrequireitinordertosigntheMMoU. Earlierthismonth,theReserveBankofMalawisignedtheMMoU,bringingto94thetotalnumberofIOSCOmembersignatories. Togetherthesemembersregulateabout95%oftheworld’ssecuritiesmarkets. However,30membershaveyettobecomesignatories. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

24. P age |24 Aslongasthesejurisdictionsremainoutsidetheinternationalenforcementregime,theyofferpotentialsafehavensforwrongdoersandcreategapsinIOSCO’sinternationalenforcementnetwork. Standard-setting ThemeetingprogressedIOSCO’simportantstandardsettingworkforsecuritiesmarkets. ItalsohadpreliminarydiscussionsabouthowbesttoprioritizeandrationalizeIOSCO’sworkstreamsinanefforttofocusonareasthatdeliverthemaximumbenefittotheorganizationanditsmembers. FinancialBenchmarks TheBoarddiscussedthedraftprinciplesonfinancialbenchmarksdevelopedbytheTaskForceonFinancialMarketBenchmarks. Theprinciplesincludehighlevelprinciplesthatareapplicabletoallbenchmarksandadditionalprinciplesthatareappliedunderspecificcircumstances. TheBoardagreedtoissueasecondconsultationpaperfocusingprimarilyontheadditional,moredetailedprinciples. Theconsultationpaperisexpectedtobereleasedforafour-weekcommentperiodduringApril.ThefinalreportisexpectedtobepublishedinJune. G20/FSBmandatestorepairthefinancialsystem TheBoarddiscussedprogressinreformworkmandatedbytheG20LeadersandcoordinatedbytheFinancialStabilityBoard. ThemeetingheardupdatesonOTCderivativesreforminitiativesandimplementationissues,progressonjointIOSCO-BCBS(Basel CommitteeonBankingSupervision)workonMarginRequirementsfor InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

25. P age |25 non-centrallyclearedderivatives,theneedforfurtherworkoncreditratingagenciesandoncreditdefaultswaps. OnOTCDerivativesmembersstressedtheimportanceofassessingthecollectiveimpactofthedifferentmeasuresregardingtheregulationofOTCderivativesinanefforttostrengthenthefinaloutcomeandavoid unintendedconsequences. BoardmembersalsodiscussedprogressonIOSCO’sworkindevelopingamethodologytoidentifynon-banksystemicallyimportantfinancialinstitutions(non-bankSIFIs),coveringmarketintermediaries,assetmanagersandhedgefunds. TheprojectformspartofabroaderG20mandateonglobalsystemicallyimportantfinancialinstitutions(G-SIFIs)thatencompassesworkbytheBCBSandtheInternationalAssociationofInsuranceSupervisors(IAIS)onsystemicallyimportantinstitutionsinthebankingandinsurancesectors. Membersemphasizedtheimportanceoflookingatthisissuefromtheperspectiveofnotjustinstitutions,butalsomarkets,productsandinstruments. Entitiesinthesecuritiesspacewereconsiderablydifferentandsomeofthem,likemanyfunds,hadshock-absorbingfeatureswhichreducedratherthanexacerbatedsystemicrisk. BoardmembersalsodiscussedtheapplicationoftheFSBKeyAttributesofeffectiveresolutionregimesforfinancialinstitutionstoentitiesinthesecuritiesspace. Again,membersemphasizedtheimportanceofaligningthisworkwiththeprojectonidentificationofnon-bankSIFIsassomeentitieswithshockabsorbingfeaturesmightnotneedtoberesolvedinthemannerofothersystemicallyimportantentities. MembersalsonotedtheprogressbeingmadebyIOSCOandtheCommitteeonPaymentandSettlementSystems(CPSS)workingtogether InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

26. P age |26 • onrecoveryandresolutionofFinancialMarketInfrastructures,including centralcounterparties. • NOTES • IOSCOistheleadinginternationalpolicyforumforsecuritiesregulatorsandisrecognizedastheglobalstandardsetterforsecuritiesregulation.Theorganization'smembershipregulatesmorethan95%oftheworld'ssecuritiesmarketsinmorethan115jurisdictionsanditcontinuestoexpand. • TheIOSCOboardisthegoverningandstandard-settingbodyoftheInternationalOrganizationofSecuritiesCommissions(IOSCO),andismadeupof32securitiesregulators. • ThemembersoftheIOSCOboardarethesecuritiesregulatoryauthoritiesofArgentina,Australia,Belgium,Brazil,Chile,China,France,Germany,HongKong,India,Italy,Japan,Korea,Malaysia,Mexico,Morocco,theNetherlands,Nigeria,Ontario,Pakistan,Portugal,Quebec,Romania,Singapore,SouthAfrica,Spain,Switzerland,TrinidadandTobago,Turkey,UnitedKingdomandtheUnitedStates. • TheEmergingMarketsCommitteeisaspecializedworkinggrouprepresentingtheworld’semergingfinancialmarkets. • Itendeavorstopromotethedevelopmentandgreaterefficiencyofemergingsecuritiesandfuturesmarketsbyestablishingprinciplesandminimumstandards,preparingtrainingprogramsforthestaffofmembersandfacilitatingexchangeofinformationandtransferoftechnologyandexpertise. • IOSCOaimsthroughitspermanentstructures: • tocooperateindeveloping,implementingandpromotingadherencetointernationallyrecognizedandconsistentstandardsofregulation,oversightandenforcementinordertoprotectinvestors,maintainfair,efficientandtransparentmarkets,andseektoaddresssystemicrisks; InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

27. P age |27 • toenhanceinvestorprotectionandpromoteinvestorconfidenceintheintegrityofsecuritiesmarkets,throughstrengthenedinformationexchangeandcooperationinenforcementagainstmisconductandinsupervisionofmarketsandmarketintermediaries;and • toexchangeinformationatbothglobalandregionallevelsontheirrespectiveexperiencesinordertoassistthedevelopmentofmarkets,strengthenmarketinfrastructureandimplementappropriateregulation. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

28. P age |28 PrudentialRegulation Authority(PRA) On1April2013,thenewregulatoryregimeforfinancialservicesintheUnitedKingdomcameintoeffect. ThePrudentialRegulationAuthority(PRA)hasbecometheUnitedKingdom’sprudentialregulatorofdeposit-takers,insurersandmajorinvestmentfirms. AspartoftheBankofEngland,thePRAwillmakeanimportantcontributiontotheBank’sfinancialstabilityobjectiveofprotectingandenhancingthestabilityoftheUKfinancialsystem. ThePRAhastwostatutoryobjectives:ageneralobjectivetopromotethesafetyandsoundnessofthefirmsitregulates,focusingontheadverseeffectsthattheycanhaveonthestabilityoftheUKfinancialsystem;andanobjectivespecifictoinsurancefirms,tocontributetoensuringthatpolicyholdersareappropriatelyprotected. ThePRA’sobjectivesareunderpinnedbytheprinciplethatastablefinancialsystem,whichisresilientinprovidingthecriticalfinancialservicestheeconomyneeds,isanecessaryconditionforahealthyandsuccessfuleconomy. Firmscanadverselyaffectthestabilityofthefinancialsystemeitherthroughthewayinwhichtheycarryontheirbusinessorbyfailinginadisorderlymanner. Itwillnot,however,bethePRA’sroletoensurethatnofirmfails. Rather,thePRAwillseektoensurethatanyfirmsthatfaildosoinawaythatavoidssignificantdisruptiontothesupplyofcriticalfinancialservices,andthustothePRA’sstatutoryobjectives. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

29. P age |29 IwouldliketothankeveryonewhosubmittedwrittencommentsontheearlierdocumentorattendedthePRA’slaunchevents. ThecommentswereveryconstructiveandIamparticularlypleasedwiththestrongsupportforthePRA’scommitmenttoforward-looking,judgement-basedsupervisionandtransparentdecision-making. Withoutreplyingtoeverycomment,Iwouldliketofollowuponafewkeythemes. PerhapsthemostcommonissueraisedbyrespondentswastheinteractionbetweenthePRAandtheFinancialConductAuthority(FCA). Iunderstandfirms’concernsaboutthepotentialburdenof dual-regulation,whichiswhyboththePRAandtheFCAhavecommittedtoworkingtogetherandco-ordinatingacrossarangeofareas,forexamplebylookingtoavoidduplicativedatarequests. ThePRAandtheFCAhavedifferentobjectives,though,andthebenefitsofthenewregimewillonlybeachievedifbothinstitutionscanfocusontheirownresponsibilities. FurtherdetailonhowthePRAwillworkwiththeFCAissetoutintheMemorandumofUnderstandingbetweenthetworegulators,andinBox3ofthisdocument. Afewrespondentsraisedissuesaboutcapitalrequirements,includingthepotentialcompetitiveadvantageforlargerdeposit-takersofusinginternalcapitalmodelscomparedwithsmallerfirms. Asthisdocumentsetsout,thePRAiscommittedtoapplyingtheprincipleofproportionalityinitssupervisionoffirms. Inthiscontext,proportionalityisjudgedintermsofthethreatsthatfirmscanposetothePRA’sstatutoryobjectives. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

30. P age |30 Animportantfirststepinthedirectionofapplyingtheprincipleofproportionalityisdescribedintherecentpublicationonbarrierstoentryfornewfirms. IbelievethatthisstepalsorepresentsacommitmenttoapplytheprinciplesetoutinthenewlegislationthatthePRAshouldhaveregardtominimisingadverseeffectsoncompetitionintheindustriesitregulateswhenpursuingitsstatutoryobjectives. Finally,somerespondentshighlightedtheimportanceofregulatingcreditunionsappropriately. ThePRArecognisesthesignificantrolethatcreditunionsplayintheUKeconomyandgiventheparticularnatureoftheirbusiness,creditunionsaresubjecttotheirownprudentialregime. Therelativelysmallsize,lackofcomplexityandinterconnectednessof creditunionsmeansthattheywillgenerallyposefewerriskstothePRA’sobjectivesthanotherfirmsandthereforewillbesubjecttoalessintensiveformofsupervision. ThisisagainconsistentwiththeapplicationoftheprincipleofproportionalityinthePRA’sapproach. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

31. P age |31 InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

32. P age |32 Workingwithotherauthorities Co-ordinationwithotherauthoritiesisessentialtothePRA’ssuccess. BankofEnglandandFPC ThePRAisapartoftheBankofEngland,andisthereforeconnectedtotheBank’sotherfunctions—includingitsroleaslenderoflastresort,anditsworkonmarketintelligence,oversightoffinancialmarketinfrastructure,prudentialpolicy,financialsectorresilienceandresolution. Thisfacilitatestheflowofinformationbetweenthesefunctions. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

33. P age |33 ThePRA’sobjectiveofpromotingthesafetyandsoundnessoffirms,focusingprimarilyontheharmthattheycancausetotheUKfinancialsystem,complementstheBank’swiderobjectiveto‘protectandenhancethestabilityofthefinancialsystemoftheUnitedKingdom’. AndthePRA’sfocusonminimisingtheadverseeffectsoffirmfailurecomplementsthespecialresolutionobjectivesundertheBankingAct2009whichtheBank,asSpecialResolutionAuthority,shareswithotherauthorities. Aneffectiveregulatoryframeworkforfinancialstabilityalsoneedstocombinefirm-specificsupervisionwithworktoprotectandenhancetheresilienceofthefinancialsystemasawhole. ThePRAthereforeworkscloselywiththeFPC,withintheBank,whichhasstatutoryresponsibilityforreducingriskstothefinancialsystemasawhole. TheFPCcanmakerecommendationsandgivedirectionstothePRAonspecificactionsthatshouldbetakeninordertoachievetheFPC’sobjectives. ThePRAisresponsibleforimplementingFPCrecommendationsona ‘complyorexplain’basis,andforcomplyingwiththeFPC’sdirectionsinrelationtotheuseofmacroprudentialtools,specifiedbyHMTreasuryinsecondarylegislation. ThePRAreportstotheFPConitsdeliveryoftheserecommendationsanddirections. Thereisafrequenttwo-wayflowofinformationandexchangeofviewsbetweenthePRAandtheFPC. ThePRAprovidesfirm-specificinformationtotheFPC,toassistitsmacroprudentialsupervision. AndtheFPC’sassessmentofsystemicrisksinfluencesthePRA’sjudgementsinpursuitofitsownobjective. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

34. P age |34 Co-ordinationbetweenthePRAandtheFPCisassistedbythecommonmembershipoftheGovernoroftheBankofEngland,theDeputyGovernorforFinancialStabilityandtheChiefExecutiveOfficer(CEO)ofthePRAonboththePRABoardandtheFPC. FCA TheFCAactsasconductregulatorforthefirmsprudentiallyregulatedbythePRA. ThePRAhasastatutorydutytoco-ordinatewiththeFCAintheexerciseofitspublicfunctions,includingpolicymakingandsupervision. AMemorandumofUnderstanding(MoU)betweentheFCAandthePRAdescribeshowthetworegulatorsfulfilthisdutytoco-ordinateinawaythatsupportseachregulator’sabilitytoadvanceitsownobjectives. Akeyprincipleforthisco-operation,giventheregulators’separatemandatesforprudentialandconductregulationofPRA-authorisedfirms,isthateachauthorityshouldfocusonthekeyriskstoitsownobjectives,whilebeingawareofthepotentialforconcernsoftheother. Insomecases,thetwoauthoritieshaveadirectinterestinthesameissues,butfromdifferentperspectives,oratdifferentlevelsofdetail. Forexample,thePRAwillwanttounderstandriskstofirms’capitalandprofitabilityifsumsaredueasredressforaconductmatter,butitwillnotneedtobeasclosetothedetailsoftheremedialactionastheFCA. Inothercases,thereneedstobecloserco-operation. Forexample,theFCAandthePRAwillsharetheirrespectiveviewson keyconductandprudentialissuesfacingafirm. Publicactionssuchasenforcementcasesarecarefullyco-ordinatedtoassessthepotentialformoresignificantprudentialimplications. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

35. P age |35 • Andfromanoperationalperspective,structureddataroutinelycollected byoneregulatorarereadilyaccessibletotheother. • Co-ordinationbetweenthePRAandtheFCAisassistedbythemembershipoftheirCEOsoneachother’sboard. • Thiscross-boardrolefocusesonareasofoverlapanddiscussionsofmaterialrelevancetoeachCEO’sownorganisation. • Co-ordinationbetweentheorganisationsisalsoassistedbycommonmembershipoftheirCEOsontheFPC. • ThePRAandtheFCAarealsopartytootherMoUswiththeBankasawholeandHMTreasuryoninternationalengagement,andtherestoftheBankontheoversightoffinancialmarketinfrastructure. • OtherUKbodies • ThePRAoftenneedstoworkwithotherUKregulators,eithertopursueitsownobjectiveortoassistthemintheirs;thismayalsoincludeotherenforcementagencies. • ThePRAhasagreementstosupportthesharingofinformationandjudgements,andtheco-ordinationofactions. • ThePRA’sgeneralapproachtothesearrangementsandtherelationshipstheyunderpinisfocusedon: • enablingallpartiestofocusontheirownobjectives; • thesubstantiveissuesofpotentialco-ordination; • avoidingwherepossibleadetailed,prescriptiveapproach,toensurethatjudgementandflexibilityarenotlost;and • provisionsforregularreview,ensuringthatMoUsremaincurrentandembeddedwithintheorganisations. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

36. P age |36 Internationalco-operation Bankingisaninternationalindustry.ManyUKfirmshaveoperationsoverseas,andmanyfirmsdomiciledoverseashavesubsidiariesorbranchesintheUnitedKingdom. Deposit-takersandinvestmentfirmsarethereforesupervisedonaco-operativeinternationalbasis,andthepolicyframeworkforthis supervisionistoalargeextentagreedglobally,includingbytheBaselCommitteeonBankingSupervision(BCBS)andFinancialStabilityBoard(FSB),toensurethatalljurisdictionsupholdappropriatestandards intheircollectiveinterest. ThePRAparticipatesactivelyinglobalandEuropeansupervisoryfora,playingafullandactiverolewithitscounterpartsinsupervising cross-borderfirms,andseekingtobeaninfluentialandpersuasive participantininternationalpolicydebates. Inparticular,thePRAactivelyparticipatesintheworkoftheFSBandtheBCBS. AnditaimstoinfluenceandreflectinitsapproachtheworkoftheEuropeanSystemofFinancialSupervision,ofwhichitisapart. TheapproachtosupervisionsetoutinthisdocumentimplementsthePRA’sinternationalobligationsandcommitments,includingtheBaselCommittee’sCorePrinciplesforEffectiveBankingSupervisionanditsConcordatonconsolidatedsupervisionandsubsequentpublicationsoninternationalsupervisoryco-ordination. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

37. P age |37 InterviewwithGabrielBernardino,ChairmanofEIOPA,conductedbyChristophBaltzer,VersicherungsWirtschaft(Germany) Insurersseemtobethevictimsofascenariooffinancialrepression,especiallywithlowinterestrates.Whatwouldbetheconsequencesofthepolicyofcheapmoneyforinsurers? WeseethisinsomecountriesintheEUwherealowinterestrateenvironmentstartsbeingabigchallengeforsometypesofproducts,especiallywhenyouhavegotlongtermguarantees. WeatEiopahaveidentifieditalreadyin2011. Wehaverunthefirststresstestexerciseparticularlyonlowinterestenvironment,becauseweseeitassomethingwhichisapproaching. TheexperienceofJapanshoweduswhatcanbetheconsequencesofsuchascenario. It’stheresponsibilityofthesupervisoryauthoritiestobeproactiveonthis. Thisisanareawhereweneedtobeattentive. Wehaveidentifiedcertainvulnerability:therearecompaniesthatcouldfaceproblemsifthislowinterestratescenariowillbemaintained. TherearenumberofsupervisorsintheEUthathavealreadytakensteps,butearlierinMarchEIOPAissueditsOpinion,inwhichwerecommendacoordinatedsupervisoryresponsetothelonglastinglowinterestrates. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

38. P age |38 Gladly,ontheinsuranceorpensionmarketwestillhavesufficienttimetodealwithit,providedthatweidentifyriskssufficientlyinadvanceandtakenecessaryactions. That’sadifferencecomparingtothecrisisinthebankingsector,whereyouneedtoactimmediately. Atthesametimesomenewproductsthatwereintroducedbeforethecrisisshouldbeadoptedtotheneweconomicenvironment:insurancecompaniesshouldreflectonthetypeofproductsandthetypeofguaranteesthattheyareissuingtothemarket. DoesSolvencyIIhelptoprepareforthisscenario? Onemisunderstandingthatneedsclearlytobespelledoutisthatit’snotSolvencyIIthatprovokeschallengestobusiness. It’stheeconomicenvironment. SolvencyIImakesonedifference:Youneedtorecognizeitearlier. Ifyouhaveamarketconsistentvaluationofassetsandliabilitiesitwillbemuchmoreclearthatyouhaveachallengeinyourportfolio. Ifyoucontinuetohaveavaluationthatdoesnotreflectthemarket,then youcanpretendthatthereisnoproblem. Buttheproblemexists. SolvencyIImakesthistransparentandthatisgoodforconsumers,forcompaniesandalsoforsupervisors. Weneedtohaveapreventivesupervision. Supervisionshouldnotbetheretoactwhenthefireisalreadyinyourhome. Supervisionshouldbetheretopreventthatthefireoccurs. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

39. P age |39 Versicherungswirtschaftwrotein2003thatSolvencyIIwouldbeinforcein2006.DoyoubelievethatSolvencyIIwillbeinforcewhenyourtermfinishes? Mytermfinishesin2016. That’sadatethatisstillpossibletohaveSolvencyIIinplace. Beforethatweneedanumberofpoliticaldecisions,butIbelievethatSolvencyIIwillbeinplace. It’sfundamentalfromasupervisoryperspectivebecausewenowhavearegimethatdoesnotrespondtotherisks. WehavetorememberwhywestartedSolvencyII. Thepurposewastoincreasepolicyholderprotectionandincentivizebetterriskmanagement. AndfromalltheworkthatwehavedoneinSolvencyIIthereisalready somepositiveevolutioninthewayinsurersmanagerisks. Wehaveseenabankingcrisisin2008.Whatweforgetaboutistheinsurancecrisisintheyears2001until2003.Thiswascausedbyequityinvestments,reservedeficienciesandunprofitablebusinessinmanylines.DoyouthinkascenarioofthiskindwillstillbepossibleunderSolvenyII? Noregulatoryregimecanavoidcrisis.Thereisnoperfectregime. SolvencyIIbringsmuchmoreawarenessofrisksatanearlystage. Fromthesideofthecompaniesit’safundamentalchangeofculturewhencompanieswhileinvestinginmarkets,needtounderstandtherisksthattheyarerunning. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

40. P age |40 Thesupervisorsintheirturnwillalsohavenecessarytoolsandinformationinordertolookatthecompaniesfromtherisk-basedprospective. Isthisazerofailuresystem?No. Therearenozerofailuresystems.Buttherehasbeenprogress. Youmentionedthecrisisof2001until2003. TheindustryhaslearnedfromthatandweincorporateditinSolvencyII. Thepushforincreasedriskmanagementandforbetterunderstandingbycompanieswhentheyinvestincertaintypesofassets–thesearethelessonslearnedfromthatpast. Thisisfundamentalrightnow:oneoftheconsequencesofthelowinterestratesisthatinsurancecompaniesaresearchingforyield. It’sboundtohappenthattheygotoothertypesofinvestment. Butthenit’sfundamentalthattheyhaveagoodunderstandingofthose classes. Andthat’swhatSolvencyIIbrings. InsurerscriticizewhattheyrefertoasartificialvolatilityinthebalancesheetsunderSolvencyII.Someeventalkaboutirrationalityofcapitalmarkets.Doyouunderstandthiscriticism? SolvencyIIwillgivefiguresthatwillbemorevolatilethaninthecurrentsituation. Itwasclearfromthebeginning.Everybodywasalertedtothat. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

41. P age |41 Whathaschangedisthemagnitudeofthisvolatility. Wedidn’thaveashighvolatilitiesinthepastaswehadintherecentyears. Wehavetodealwiththisvolatilityinthesystem. That’swhatwearedoingrightnowwiththelongtermguaranteeassessment(LTGA),whichpreciselyfocusesonthat. TheLTGAistryingtounderstandwhatkindofadjustmentsweneedtomaketotheregimetodealwithartificialvolatility. Butnotallvolatilityisartificial. Muchofitisrepresentativeofwhatisinthemarket. Idon’twanttodiscusswhethermarketsarerationalornot. Ifyouhavelongtermliabilitiesandlongtermassetsandyouhaveaverygoodmatchbetweenthem,yournumbersarelesspronetohavethisvolatility. Ifyouhaveahugelevelofmismatchingthenontheonesideyouaretakingadvantageofopportunitiesinthemarkets,butyouhavearisk. Butforsomelongtermliabilitiesweneedtohavesomeadjustmentstocopewiththefactthattheproductsandtheliabilitiesarelongtermandtheshorttermvolatilitiesintheassetshaveameaning,buttheydon’thaveaneconomicmeaningforthetypeofliabilitythatinsurershave. Thisistheadjustmentthatwearetryingtoeffectrightnow. Theregimewassincethebeginningbasedontheideathatwewanttoseethereality. Andtherealityisthatmarketsaremorevolatilenowadays. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

42. P age |42 Weneedtorecognizethereality. Whatwouldbeapositivepoliticalsolutionforthat? AnagreementonOmnibusIIwhichispreservingthefundamental elementsofSolvencyII,preservingthemarketconsistentvaluationthatwehavegotinSolvencyIIandpreservingtheprinciplesofarobustand prudentialregimewhileconsideringalsotheeconomicnatureoftheliabilities. Ithinkthatwehavegotsomegoodproposalsonthetable. Governmentbondsarecategorizedasnoriskinvestments.Doyouthinkthatthisisagoodwaytotackleproblemsofstatedebt? MorethananyothersystemSolvencyIItakesintoaccounttherealityoffinancialmarkets,includingonsovereigns. InaSolvencyIIbalancesheet,sovereignswillbeassessedatmarketvalue. It’smuchmoreadvancedthanotherregimes. AnykindofinfluencethatmarketsareputtingonanykindofsovereignsinEuroperightnow,istakenintotheSolvencyIInumbersimmediately,withoutanykindofadjustments. Thenthereistheelementofcapitalrequirementsontopofthat.Butit’simportanttounderstandthemagnitude. Ifyoulookattechnicalprovisionsandcapitalrequirements,technicalprovisionsrepresent80to85percentofabalancesheet. Capitalrequirementisjustasmallitemcomparedtothat. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

43. P age |43 Byhavingmarketconsistentevaluationinthetechnicalprovisionsandin thebalancesheets,youhavealreadyahugereflectionofalltheriskstheassetshave,includingsovereigns. Nowtheperceptionofsovereignriskiscompletelydifferentfromwhatitwastenyearsago,whenwestartedtodevelopthesystem. Goingforwardweneedtoconsiderthis. Whatisalsoimportanttounderstandiswhensomethingshouldbedone,itshouldbedoneforallsectors. Wecannothaveadifferentappreciationofsovereignriskforinsurersandforbanks. Itneedstobedoneforthefinancialsystemasawhole. Andit’salsoimportanttotakedueattentiontothetimewhenwearedoingthis. It’snotagoodpolicytochangethiswhenyouarestillinacrisis. HowdoyouevaluatetheSwissSolvencyTest?It’sinusesince2006andisinforcealreadyfortwoyears. TheprinciplesareverymuchalignedtoSolvencyII. Ithinkit’sverygoodthattheystartedtoimplementthesystembecauseSwitzerlandisanimportantinsurancemarketandEIOPAhasverygoodrelationshipandcloselycooperateswiththeSwissauthorityFINMA. Wecanobservechallengesbutalsoagoodoutcomefromtheimplementationofarisk-basedregimeinSwitzerland:wehaveseensomechangesinbehaviorinthemarketsandintheproductsthatSwissinsurerssell. Butlet’sbefrank:it’smucheasierforonecountrytoimplementaregimethantohaveadecisiononatablewith27differentapproaches. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

44. P age |44 WhatarethemostimportanttasksforGermaninsurerstotackleontheirwaytoSolvencyII? Therearesomecompaniesthataremorepreparedandothersthatarelessprepared. That’swhywearedevelopingguidelinesforthepreparationphaseforSolvencyII. Wehavedefinedareaswherewewantsupervisorstoensurethatundertakingsareprepared:governance,riskmanagement, pre-applicationofinternalmodels,elementsrelatedtotheOwnRiskandSolvencyAssessment(ORSA),theinformationtobeprovidedtosupervisors. Theobjectiveoftheseguidelinesistohelpmarketsandsupervisorstohaveaclearideaofhowtopreparetothenewregime. Forexamplethereisaneedtomakeprogressinthesystemsand processesthatarenecessarytodeliverhighqualitydatatobeprovidedbycompaniesandfurtheranalysedbysupervisors. Thisisfundamentalfortherisk+basedenvironment. SobyourguidelineswearenotintroducingSolvencyIIearlyon,butweexpectnationalsupervisorstostartimplementingtheseelementsina consistentandconvergentwayandtorequestfromcompaniestopreparethemselvesintheseareasinordertobeinagoodshapewhenSolvencyIIisenforced. Itisawin-winsituationforbothcompaniesandsupervisors. Isthereasituationwheresystemicriskbecomesaproblemforinsurersandreinsurers? Weunderstandwhatissystemicriskinbanking.Lookingattheinsurancesectorit’salsochallenging. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

45. P age |45 Butthetypeofbusinessisdifferent. Thematuritiesofbusinessaredifferent. Ifyoutalkabouttraditionalinsurancebusiness,wedon’tseemuchevidenceofallthesefactorsthatcanbringsystemicrisk. Butinsurerscaninvolvethemselvesinsometypesofbusinesswhichismuchmorepronetosystemicevents,forexampleexposurestocreditdefaultswaps. Systemicriskintheinsurancemarketismoreaquestionsoftheactivitiesratherthaninsurersbythemselvesbeingsystemic. Ifyouhaveatypeofbusinessthatismuchmoreleveraged,whereyouhavematuritytransformationslikeyouhaveonthebankingside,ifyouwalkandrunlikeabank,thenyouneedtobetreatedlikeabank. Arethecollegesofsupervisorsabletocopewiththeirtask,especiallyifyoulookatthevastnessofsomeinsuranceenterprises. It’simportantthatsupervisionisperformedinawaythatitcandealwithreality. It’simportantthatwelookattherisksfromagroupperspective. InEuropewehaverecognizedthismuchearlierthanmanyjurisdictionsaroundtheglobe. Inthelate1990swehadaninsurancegroupdirectivewhichsaidthatit’snotsufficienttosupervisesinglecompanies,buttodosupplementarysupervisionatagrouplevel. WithSolvencyIIwearerecognizingthereality:Thegroupsmanagetheirbusinessinamuchmorecentralisedwayandthisneedstobereflectedinsupervisioninordertoavoidduplicationsanddoubleburdensbutatthesametimeinordertohaveabetterperceptionoftherealrisksthatarerunatthegrouplevel. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

46. P age |46 That’swhycollegesofsupervisorsaresuchanimportanttool.Theprogressthattheyhavemadeishuge. TheroleofEIOPAinthesecollegesistomakesurethatthereisa consistentandconvergentsupervision. Thisisaprocess.Wehavestillsomeroomforimprovement. Doyouthinkamorecentralizedapproachwouldbebetterforthebigfinancialinstitutions? Therearestepsthatneedtobetakeninthisarea. IthinkthebestwaytodothatistobuildupontheroleandresponsibilitiesgiventousbytheRegulationestablishingEIOPA. Wecanbuildastepbystepapproachtowardsamorecentralizedsupervision. Idon’tbelieveinruptures. Thatneedstobeanevolutionandnotarevolution. Wegainfromhavingmorecentralizationinsomeareas. Forexampleinternalmodelsarefundamentalforthenewregime. It’simportantthatthereisgoodunderstandingofhowthemodelsworkonindividualandgroups’levelHerewecouldhaveanapproachcentralizedbyEIOPAbecauseit’snotpossiblethatalltheauthoritiesinallthecountrieswhereyouhavecompanieswithinagroup,willhavethesameexperienceimmediatelytodealwithit. Butitneedstobeastepbystepapproach. InUKitisnowprohibitedforbrokerstotakecommissions.Doyouthinkthatthiswillimproveconsumerprotection? InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

47. P age |47 Intermediariesarethevisiblefaceoftheindustrytowardsconsumers.Thequalityoftheinformationandadvicethatisprovidediscrucial.Thereareanumberofthingstoimprove. Butisitallaboutdisclosure?Isdisclosurethekeyissue? Therealityprovesthatthisisnotthecase. Disclosureisimportantbutit’snotthepanacea. Ithinkthisisnotfairtosay“Wegavealltheinformationtotheconsumer,buthedoesn’tunderstandit,soit’shisproblem” ThatisnotapolicyIwouldrecommendfromaperspectiveofconsumerprotection. Firstofalltherearedifferenttypesofintermediariesandbusinesseswearetalkingabout. Inlifeinsuranceit’simportantthattheconsumershavegoodknowledgeofthecommissiontheintermediariesaretaking. Thisisacontractformanyyears,soinlifeinsurancethemandatorydisclosureshouldbetherule. Ifyoulookatthenon-lifesideyoushouldhavetherighttogettheinformation. Buttheconditionsfornon-lifecontractscanbechangedonanannualbasis,theyarenotfundamentalforyourdecision. Theconflictofinterestismuchlessrelevantfornon-lifeproducts. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

48. P age |48 Whatisimportantinconsumerprotectionthen? Youneedtounderstandwhatconsumersareworriedabout.Evidencestellusthatinmanycasesthecommissiontheintermediary gets,isnotfundamentalforconsumers. Theywanttohaveagoodadvice. Butiftheyneededtopayforthatadvicedirectly,thentheywouldnotbuytheproduct. Butasasocietydoyouwantpeopletobelessinsured? Sobanningthecommissionsthismeasureneedstobewellanalyzed. ShouldpensionfundsbeobligedtofulfilltherequirementsofSolvencyII? It’snotourintentionthatpensionfundsshouldfollowSolvencyII. WhenweadvisedtheEuropeanCommission,wesaidthattherearesome areas,whereweseeanadvantageofapplyingthesamebasicstructurePensionfundsaredealingwiththesimilarkindofrisk,soit’simportantfortheprotectionofmembersandbeneficiariestohavegoodriskmanagement,goodgovernance,bettertransparencyetc. ButwesaidalsothatastraightforwardapproachlikeinSolvencyIIisnot thebestsolutionforpensionfunds. TherearedifferenttypesofsecuritymechanismsaroundEurope.It’simportantinanykindofsolvencyregimethatthecalculationof liabilitiesandthevalueoftheassetsaretakenmorerealistically. WemadeaQISexerciseandwewillhavepreliminaryresultsfromthistestattheendofMarchorinthebeginningofApril. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

49. P age |49 SomeoftheQISoptionswereconsistentwithSolvencyII,otherswerelessconsistent. ButweneversaidthatweshouldfollowSolvencyII. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

50. P age |50 EU-USINSURANCEDIALOGUEAGREESHIGHLEVELPROJECTPLAN TheSteeringCommitteeoftheEU-U.S.InsuranceDialogueProjecttoincreasemutualunderstandingandenhancecooperationmetinBasel,Switzerlandandagreedonahighlevelworkplanfrom2013to2017. Thepartiesachievedagreementonaprioritizationofobjectivesandaschedulefortheimplementationoftheinitiativespreviouslyagreedupon bytheSteeringCommitteeanddescribedinthe“WayForwardDocument”(December2012). Aspartofthefive-yearplan,anagreementwasreachedtomoveforwardin2013withparticularfocusonthoseinitiativesrelatingtoprofessionalsecrecy/confidentialityandreinsuranceandcollateralrequirements,aswellastobeginworkonsomeotherinitiatives pertainingtosolvencyandcapitalrequirements,groupsupervisionandon-siteexaminationpractices. TheSteeringCommitteeanticipatesapublicforuminlate2013toreport ontheyear'sachievements,tolaunchcollaborativeworkonsupervisorycollegesandtogivestakeholdersanopportunitytosharetheirthoughtsonbestpracticesandexperiencesregardingsupervisorycooperationandcoordination. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com