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Compliance Project Management -- Presentation at PMI Switzerland

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After the global financial crisis of 2008, banks have been heavily pressured by governments and regulatory authorities to comply to new financial laws and regulations (Dodd-Frank Act, MiFID2, FIDLEG, ..). The FATCA legislation is active since 2014. The Automatic Exchange of Information (AEoI), building on FATCA, will become reality for Switzerland for most other clients on 01 January 2017! Others, such as MiFID2, are upcoming.

This presentation, held at PMI Switzerland on 01 November 2016, first provide the background of the financial crisis of 2008, then describes some of the regulatory responses that have been brought to it. Then, it dwells into the specificities of Compliance Project Management, the effective implementation of the regulations in banks.

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Compliance Project Management -- Presentation at PMI Switzerland

  1. 1. Serge Garazi – Interim Project Leader “Bank Compliance” FATCA/AEoI…: A journey inside Bank Compliance Project Management PMI (Switzerland) - Zurich - 01 Nov 2016
  2. 2. 2 FATCA/AEoI…: A journey inside Bank Compliance projects A journey inside Bank Compliance projects W World Wildlife Fund Today: Why What How The 2008 Crisis The (some) Regulatory Responses Management of Compliance Projects W W F W H
  3. 3. 3 Intro About me • French-speaking Swiss • Now, in the Greater Zurich Area • Education: Information Technology Finance (Project-) Management A presentation, based on the combination of IT, Finance and Project-Management. A journey inside Bank Compliance projects
  4. 4. 4 Intro My professional Experience • Professional Experience: • Currently: o Board member, VP Operations at Project Management Institute PMI (Switzerland) o Interim Project/Program Leader «Bank Regulatory» A journey inside Bank Compliance projects ABN Amro T-SystemsDeutsche Telekom Rothschild Bank Detecon Consulting AMSComit UBSCredit SuisseJulius BaerBNP Paribas Project Management Institute
  5. 5. 5 Intro Project Organization of a Compliance project On the Business side, Business Consultants are key to bring the information about the regulation to the Bank Management and requirements to the Project Team. The Project Team then implements the new regulation in the Bank. Head Compliance / General Counsel / COO / … Project Sponsor Business Consultant(s) Business Representative(s) Project Leader Business Analyst(s) IT Team (Programmers, Testers, Infrastructure, Rollout…) Business Project Or A journey inside Bank Compliance projects
  6. 6. 6 Welcome on board! 1. W – Why: Review of the financial crisis A journey inside Bank Compliance projects 2. W – What: Regulatory Responses to the Crisis 3. H – How: Management of Compliance Projects
  7. 7. 7 1. Short Review of the Financial Crisis 2008 1.1 The Housing Bubble 1990s 2000s A journey inside Bank Compliance projects Why
  8. 8. 8 1. Short Review of the Financial Crisis 2008 1.2 The Fall 2006 2008 XA journey inside Bank Compliance projects Why
  9. 9. 9 1. Short Review of the Financial Crisis 2008 1.3 The Causes Deregulation Poor economic policy Moral hazard Over-reliance on quantitative models Excessive leverage Availability of cheap credit Dangerous assumptions regarding market dynamics Undisclosed conflicts of interest Failure of regulators Failure of credit rating agencies Failure of the market High risk, complex financial products Lack of transparency Failures in financial supervision Failures of corporate governance Inconsistent action by government Systemic breakdown in accountability and ethics Deregulation of OTC Derivatives High debt Collapsing mortgage lending standards Excessive risk-taking Compensation schemes encouraged gambling A journey inside Bank Compliance projects Deregulation Why
  10. 10. 10 1. Short Review of the Financial Crisis 2008 1.4 About Deregulation  2008 “Financial Tsunami” A journey inside Bank Compliance projects Why 68% 100% 1946
  11. 11. 11 2. Regulatory Responses A journey inside Bank Compliance projects How Why What How The 2008 Crisis The (some) Regulatory Responses Management of Compliance Projects W W H 
  12. 12. 12 2. Regulatory Responses 2.1 Towards Transparency in OTC Derivatives A journey inside Bank Compliance projects What
  13. 13. 13 2. Regulatory Responses 2.1 Towards Transparency in OTC Derivatives Warren Buffet “derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.” (2003) A journey inside Bank Compliance projects What
  14. 14. 14 2. Regulatory Responses 2.1 Towards Transparency in OTC Derivatives • Situation: o OTC (over-the-counter) Derivatives were not regulated • Problems: o No Transparency o Excessive risk-taking • Solutions (simplified): o Trade standardized OTC Derivatives on exchanges • Involved regulations: o USA: Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) o EU:  European Market Infrastructure Regulation (EMIR)  Markets in Financial Instruments Directive 2 (MiFID2) o CH: Financial Markets Infrastructure Act FMIA (DE: FinfraG, FR: LFIM) A journey inside Bank Compliance projects What
  15. 15. 15 2. Regulatory Responses 2.1 Towards Transparency in OTC Derivatives IMPORTANT: This book is a very niche and specific piece relevant to a small target audience of potential clients of the Affinity business. Please consider whether it is relevant to you before buying it. Despite of the seriousness of the subject, … keep having humor! A journey inside Bank Compliance projects What
  16. 16. 16 2. Regulatory Responses 2.2 Towards Client Protection & Market Efficiency • Problems: o Loans were given to persons who could not afford them o Conflict of interest between banks’ interests & their Clients’ interests o Banks didn’t understand the products they sold • Solution: o Rules of conduct for financial intermediaries (e.g. with inducements) o Info requirements about financial institutes and their products and services o Suitability and appropriateness tests • Involved regulations: o USA: Dodd-Frank Act o EU: MiFID2 o CH:  Financial Institution Act FinIA (DE: FINIG, FR: LEFIN)  Federal Financial Services Act FFSA (DE: FIDLEG, FR: LSFIN) A journey inside Bank Compliance projects What
  17. 17. 17 2. Regulatory Responses 2.3 Towards Bank Resilience • Problems: o Capital cushion was depleted by moving items off-balance sheet o Liquidity was insufficiently taken care of o Banks grew so large that they threatened existence of states • Solutions: o Increase of required capital o Liquidity requirements o Too big to fail • Involved regulations: o USA: Dodd-Frank Act, etc. o EU:  Capital Requirement Directive CRD IV/CRR  Bank Recovery & Resolution Directive (BRRD) o World: Basel III o CH: Too big to Fail (TBTF) A journey inside Bank Compliance projects What
  18. 18. 18 2. Regulatory Responses 2.4 Towards international Tax Compliance Problem Solution Consequence Swiss Banking Secrecy (For outside CH) (UK-FATCA) FATCA and AEoI cause the death of the Swiss Banking Secrecy, except for people who are non-US persons and tax-resident only in Switzerland. A journey inside Bank Compliance projects What
  19. 19. 19 2. Regulatory Responses 2.4 Towards international Tax Compliance • FATCA: – «Foreign Account Tax Compliance Act», a US legislation – FATCA requires that banks around the world report their American Clients (and accounts) to the Internal Revenue Service (IRS), in the US. – Based on Nationality++ • Automatic Exchange of Information (AEoI): – OECD-triggered, targeting the whole world, except USA – Based on bilateral agreements, reciprocal – Based on Tax Residence A journey inside Bank Compliance projects What
  20. 20. 20 2. Regulatory Responses 2.4 Towards international Tax Compliance A journey inside Bank Compliance projects What • Information Exchange: o Between countries, it‘s Exchange of Information o For Bank: it‘s Export of Information • For Individual Clients and Legal Entities (incl. trusts!) • Transferred data (yearly, automatic) o KYC (Know-your-Client) data: name, birthdate, … o Financial data: account balance, transactions, … Tax Authority of other country Tax Authority of own country FATCA: - IGA2 - Final regulations FATCA: - IGA1 (most countries) AEoI 1 2
  21. 21. 21 2. Regulatory Responses 2.5 Recap • Regulatory Responses targeting causes of the crisis – 2.1 Towards transparency in OTC Derivatives – 2.2 Towards Client protection – 2.3 Towards Bank resilience • Regulatory Response targeting a consequence of the crisis – 2.4 Towards international Tax Compliance (FATCA, Automatic Exchange of Information) A journey inside Bank Compliance projects What Questions?
  22. 22. 22 3. Management of Compliance Projects A journey inside Bank Compliance projects How Why What How The 2008 Crisis The (some) Regulatory Responses Management of Compliance Projects W W H  
  23. 23. 23 1. A regulatory project is a safe place to be: it‘s regulatory, therefore it‘s a must! A journey inside Bank Compliance projects How X or X or X or 2. Once a regulation exists, it remains. 3. Regulatory projects are usually complex and require flexibility and speed ? ? ? 3. Management of Compliance Projects 3.1 True or False? ( ) X 
  24. 24. 24 3. Management of Compliance Projects 3.2 Agile Project Management? A journey inside Bank Compliance projects How • Managing a compliance project in an agile way?
  25. 25. 25 3. Management of Compliance Projects 3.2 Agile Project Management? • A definition: – an iterative, incremental method of managing the design and build activities (…) that aims to provide new product or service development in a highly flexible and interactive manner … https://en.wikipedia.org/wiki/Agile_management A journey inside Bank Compliance projects How • Development driven by a representative of those who want the product • Based on User-stories, prioritized by the value they bring • Even if project is stopped before the end, end-users have some value • Have Regulators drive your product development? • Want the Regulators to define your User-stories? Compliance project • Implement only 1/2 of the regulation? Or 2/3? • Some key characteristics: no no no But… be agile!
  26. 26. 26 3. Management of Compliance Projects 3.3 An Analysis (1/2) • Regulators A journey inside Bank Compliance projects How • Consultancies • Local authorities • Bank Management • Consultancies • Project Management • What makes a compliance project particular? – No incentive for simple/cost-effective regulation – Many Stakeholders
  27. 27. 27 3. Management of Compliance Projects 3.3 An Analysis (2/2) • What makes a compliance project particular (cont.)? A journey inside Bank Compliance projects How No control Time Scope Resources Cost • Short time to implement • Manage delays • Increased complexity • Work based on working assumptions • Difficult to forecast • High variability in the project • Difficult to plan, allocate and retain Decision • When a new regulation is decided • Possibility to delay introduction – No upside potential – No control of key input – Costs are not supported by decision-makers
  28. 28. 28 3. Management of Compliance Projects 3.4 Recap • Agile project management: – not suitable for bank regulatory projects • Project Management is at the end of the chain; – it inherits all the problems that were created (or not solved) before • Strong external control – on Time Management, Scope Management and, therefore, strong dependencies on Cost Management and HR Management A journey inside Bank Compliance projects How
  29. 29. 29 FATCA/AEoI…: A journey inside Bank Compliance projects Serge Garazi Zug, Switzerland Interim Project Leader “Bank Compliance” www.xing.com/profile/Serge_Garazi ch.linkedin.com/in/sergegarazi Why: Review of the Financial Crisis of 2008 What: Regulatory Responses to Crisis How: Management of Bank Compliance Projects Thank you for flying “Regulatory Airlines”! www.garazi.netWeb: A journey inside Bank Compliance projects
  30. 30. 30 FATCA/AEoI…: A journey inside Bank Compliance projects Appendix
  31. 31. 31 FATCA/AEoI…: A journey inside Bank Compliance projects
  32. 32. 32 FATCA/AEoI…: A journey inside Bank Compliance projects Switzerland signed bilaterally the AEoI with …

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