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State of Compliance 2013
18 October 2013
GLOBALIZATION:
THE REGULATORY
COMPLIANCE
TREND FOR TODAY
Agenda
oThe Story of Regulation
oGlobal Economy and Global Investment
oGlobal Regulation
oThe Joint Forum and their AIG Case Study
oAML
oConclusions
The Story of Regulation
Investment
Damage
Regulation
Global Investment
Real GDP Growth 2005-2010
Real GDP Growth 2011-2015 (Projected)
7
Regional GDP Trends 1990-2018
Global CDO Issuance 2000-2009
0.00
50,000.00
100,000.00
150,000.00
200,000.00
250,000.00
300,000.00
350,000.00
400,000.00
450,000.00
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
USD
Mill
ion
s
Year
AUD
EUR
GBP
JPY
Other
USD
http://www.sifma.org/uploadedFiles/Research/Statistics/SIFMA_GlobalCDOData.pdf
Global Regulation
G-20
ArgentinaAustraliaBrazilCanadaChinaFranceGermanyIndiaIndonesiaItalyJapanMexicoRussiaSaudi ArabiaSouth AfricaRepublic of KoreaTurkeyUnited KingdomUnited States of America
The Joint Forum
G20
BCBS IOSCO IAIS
Financial Stability Board
The Joint Forum: January 2010
Five Key Findings
1) Key Regulatory Differences within Sectors
• Banking
• Insurance
• Securities
2) Supervision and Regulation
3) Mortgage Origination
4) Hedge Funds
5) Credit Risk Transfer Products
AIG Case Study
Lessons from AIG Case Study
• Past may not be prologue when assessing risk of exotic investments
• Lack of liquidity weakened AIG
• AIG became too big to fail and required a bail out by the US government
• Global regulatory compliance standards will reduce the potential for regulatory arbitrage.
International Trends in Anti-Money Laundering
1970: Bank Secrecy Act
1989: FATF Established
by G-7
2001: September
11
2001 USA PATRIOT ACT
2003 Updated
FATF 40 (+9)
FATF Standards
A. Legal Systems
B. Measures to be taken by financial institutions and non-financial businesses and professions to prevent money laundering and terrorist financing.
C. Institutional and other measures necessary in systems for combating money laundering and terrorist financing.
D. International co-operation
http://www.fatf-gafi.org/dataoecd/7/40/34849567.PDF
+9 Special Recommendations (SR) on Terrorist Financing (TF)
I. Ratification and implementation of UN instruments
II. Criminalising the financing of terrorism and associated money laundering
III. Freezing and confiscating terrorist assets
IV. Reporting suspicious transactions related to terrorism
V. International co-operation
VI. Alternative remittance
VII.Wire transfers
VIII.Non-profit organisations
IX. Cash couriers
http://www.fatf-gafi.org/document/9/0,3343,en_32250379_32236920_34032073_1_1_1_1,00.html
A world of “no”?
Conclusions
oInterconnected economies create shared pain
oShared pain causes governments to seek shared solutions.
oThe global trend in regulation is Globalization
oGlobal standardization reduces the opportunities for regulatory arbitrage
oA world of “no?”
Day 1 Day 365
Risk
Compliance Technology
Independent Producer Clearinghouse (IPC)
Compliance Manuals
Audit Services
Anti-Money Laundering (AML)
3012
&
3130(b)
Adequacy
ReviewCompliance Consulting
Benchmarking, Research, Surveys
Compliance Status Improvement
Regulatory Services - The Continuity of Support
3012
&
3130(b)
Adequacy
Testing
www.limra.com/compliance : (877) 843-2641 : [email protected]
300 Day Hill Road Windsor, CT 06095
COMPLIANCE STRUCTURES
Compliance System: Regulatory Overview
Federal
States
SEC
FINRA
Corporation
Third Parties Field Offices
Producers
• Compliance Department
• Corporate oversight
• General direction
• Manuals
• Cleary state policies
• Cleary state procedures
• Specialized
• Supervisors
• Delegate authority
• Final decisions
• General oversight
• Administrative Support
• New Business
• Data entry
• Licensing /Registration
• Systems
• Order entry
• Communications
• Producers
• Good sales practices
• Active cooperation
Compliance System: Structural Example - Retail
Corporation
Law:
Gen Counsel
Business
Lines
Div. President
Compliance
Department:
CCO
Law
Department
Embedded
Compliance
Staff
Compliance
Department:
Staff
Compliance RAVPs
Regional VPs
Office Managers
Local Staff
Producers
Compliance AVPs
Teaching & Entrenching Compliance Principles
• Review regulatory requirements
• States
• FINRA
• Business Model
• Consider the Audience
• Home office staff may be licensed
• Local support staff may be licensed
• Does the firm have any special markets like international markets or options?
Teaching & Entrenching Compliance Principles
• Education Processes
• Formal Education Programs
• Insurance Agent required credit hours
• Regulatory Element
• Firm Element
• Annual Compliance Meetings
• Content
• Provided / mandated by government
• Firm created
• Third Parties
• Certification Processes
• Annual Attestation
Whistleblower System: Part 1
• Definition:
Most whistleblowers are internal whistleblowers, who report misconduct to a fellow employee or superior within their company. External whistleblowers, however, report misconduct to outside persons or entities. In these cases, depending on the information's severity and nature, whistleblowers may report the misconduct to lawyers, the media, law enforcement or watchdog agencies, or other local, state, or federal agencies. (http://en.wikipedia.org/wiki/Whistleblower)
• What are the primary functions of a “whistleblower?”
• Alert the public
• Alert law / regulatory enforcement
• Sarbanes-Oxley
• Applies to public companies
• Recognized the current “patchwork” protection for “whistleblowers”
Whistleblower System: Part 2
• FINRA Ombudsman Program
• Corporate Ombudsman Programs
• Anonymous
• Independent from business reporting lines
• Receive data from multiple sources
• Often referred to the Law Department (to preserve privilege)
• Because “whistleblowing” tends to be rare, reports are ad hoc, but will contain basic data about the source, nature of the issue, subject, (i.e. person) of reporting.
Designing a Supervisory System: Part 1
• Conduct an inventory of the businesses in which the firm engages
• Determine the requirements of the applicable securities laws or regulations
• Determine who is responsible for supervising the conduct
• Determine if internal firm policies further curtail conduct beyond regulatory requirements.
• Analyze the data, determine whether any gaps, deficiencies or inaccuracies in the existing supervisory procedures.
Designing a Supervisory System: Part 2
• In conducting this analysis, firms should review whether:
• Has the firm has launched new business lines or products
• Have there been changes in the securities laws and regulations
require revisions to WSPs
• Review customer complaints, litigation, branch office exams, other
internal audits or regulatory issues reported in the media
• The information gleaned from this analysis should be developed into new
or amended supervisory procedures that resolve any identified gaps,
deficiencies or inaccuracies.
* http://www.finra.org/Industry/Issues/SupervisoryControl/P038007
SOCIAL MEDIA FOR FINANCIAL
SERVICES: COMPLIANCE AND RISK
MANAGEMENT
Agenda
•Introduction to Social Media Risk
•Compliance Considerations for your Strategy
•Current regulations apply to social media.
•Business use defines the compliance issues.
•Learn “best practices” from regulators’ use of social media.
INTRODUCTION TO
SOCIAL MEDIA RISK
Risk Environment
Clouds
DevicesCrowds
Propagation and “Going Viral”
• Intra network propagation
• “Like”
• Re-Tweet
• Inter network propagation
• LinkedIn to Twitter
• Twitter to Facebook
• Facebook to the world
• Viral communications
• Advertising
• Sales Material
Single Sign-on for the social net…
Part 1:
Current regulations applyto social media.
FINRA Regulatory Notice 10-06
The old rules apply!
Static Content
Adoption
Entanglement
State Insurance Advertising Regulations
§8513. Disclosure Requirements
A. In connection with any advertising, solicitation, negotiation, or procurement of a universal life insurance policy:
1. any statement of policy cost factors or benefits shall contain:a. the corresponding guaranteed policy cost factors or benefits, clearly identified;b. a statement explaining the nonguaranteed nature of any current interest rates, charges, or other fees applied to the policy, including the insurer's rights to alter any of these factors;c. any limitations on the crediting of interest, including identification of those portions of the policy to which a specified interest rate shall be credited.2. Any illustration of the policy value shall be accompanied by the corresponding net cash surrender value.3. Any statement regarding the crediting of a specific current interest rate shall also contain the frequency and timing by which such rate is determined.4. If any statement refers to the policy being interest indexed, the index shall be described. In addition, a description shall be given of the frequency and timing of determining the interest rate and of any adjustments made to the index in arriving at the interest rate credited under the policy.5. Any illustrated benefits based upon nonguaranteed interest, mortality, or expense factors shall be accompanied by a statement indicating that these benefits are not guaranteed.6. If the guaranteed cost factors or initial policy cost factor assumptions would result in policy values becoming exhausted prior to the policy's maturity date, such fact shall be disclosed, including notice that coverage will terminate under such circumstances.
AUTHORITY NOTE: Promulgated in accordance with Title 22, Section 2 and Title 36, Section 682 of the Insurance Laws of the State of Louisiana.HISTORICAL NOTE: Promulgated by the Department of Insurance, Commissioner of Insurance, LR 11 :690 (July 1985).
SEC: Registered Investment Advisers
§ 275.206(4)-1 Advertisements by investment advisers.
(a) It shall constitute a fraudulent, deceptive, or manipulative act, practice, or course of business within the meaning of section 206(4) of the Act (15 U.S.C. 80b–6(4)) for any investment adviser registered or required to be registered under section 203 of the Act (15 U.S.C. 80b–3), directly or indirectly, to publish, circulate, or distribute any advertisement:
(1) Which refers, directly or indirectly, to any testimonial of any kind concerning the investment adviser or concerning any advice, analysis, report or other service rendered by such investment adviser; or
(2) Which refers, directly or indirectly, to past specific recommendations of such investment adviser which were or would have been profitable to any person: Provided, however, That this shall not prohibit an advertisement which sets out or offers to furnish a list of all recommendations made by such investment adviser within the immediately preceding period of not less than one year if such advertisement, and such list if it is furnished separately: (i) State the name of each such security recommended, the date and nature of each such recommendation (e.g., whether to buy, sell or hold), the market price at that time, the price at which the recommendation was to be acted upon, and the market price of each such security as of the most recent practicable date, and (ii) contain the following cautionary legend on the first page thereof in print or type as large as the largest print or type used in the body or text thereof: “it should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list”; or
(3) Which represents, directly or indirectly, that any graph, chart, formula or other device being offered can in and of itself be used to determine which securities to buy or sell, or when to buy or sell them; or which represents directly or indirectly, that any graph, chart, formula or other device being offered will assist any person in making his own decisions as to which securities to buy, sell, or when to buy or sell them, without prominently disclosing in such advertisement the limitations thereof and the difficulties with respect to its use; or
(4) Which contains any statement to the effect that any report, analysis, or other service will be furnished free or without charge, unless such report, analysis or other service actually is or will be furnished entirely free and without any condition or obligation, directly or indirectly; or
(5) Which contains any untrue statement of a material fact, or which is otherwise false or misleading.(b) For the purposes of this section the term advertisement shall include any notice, circular, letter or other written communication addressed to
more than one person, or any notice or other announcement in any publication or by radio or television, which offers (1) any analysis, report, or publication concerning securities, or which is to be used in making any determination as to when to buy or sell any security, or which security to buy or sell, or (2) any graph, chart, formula, or other device to be used in making any determination as to when to buy or sell any security, or which security to buy or sell, or (3) any other investment advisory service with regard to securities.
(Sec. 206, 54 Stat. 852, as amended; 15 U.S.C. 80b–6)[26 FR 10549, Nov. 9, 1961, as amended at 62 FR 28135, May 22, 1997]
Not Just Advertising…
• Not Just Advertising / Sales Literature
• CAN- SPAM
• State Registration Disclosure / Solicitation
• Fraud
• Pump and Dump
• … all the old issues on a new platform…
… and that’s the good news!
The problem is NOT what rules
apply, but HOW they apply.
Part 2:
Business use defines the compliance issues.
Look who’s talking now!
How do you want to engage?
Brand Awareness / ManagementEducation / Edutainment
ResearchSurveys
Social GoodOperationsRecruiting
Fraud Early WarningIdentify and Respond to Complaints
Virtual Business CardWhite Papers
Build CommunityE-Mail Replacement
Warm LeadsEngage with Gen Y
Collaborate with Clients and Centers of Influence
Part 3:
Learn “best practices” from regulators’ use of social media.
Lessons from the Regulators
Conclusion
•Current regulations apply to social media.
•Business use defines the compliance issues.
•Learn “best practices” from regulators’ use of
social media.
Q&A
LIMRA AND COMPLIANCE 2012Past, Present and Future
Compliance and Regulatory Services
We provide a wide range of products and services to help companies run an effective compliance program and meet today's regulatory scrutiny. We strive to be the trusted source for compliance knowledge and serve the industry through our unique solutions and meetings.
KEY ISSUES AND NEW
DIRECTIONS
Focus
Anti-Money Laundering
• AML Training
• AML Independent Testing
• AML Roundtable
Fiduciary Standards
• Training requirements
• Buy, Sell and Hold Recommendations
NAIC Annuity Regulation
AnnuityXT
LIMRA's AnnuityXT is today's ready solution for meeting your annuity training needs. It gives you the power and control to choose the CE training program you want to use, and the on-demand reporting system allows you and your distributors to monitor and report training status in real time.
Social Media
• NAIC White Paper Comments:
• Draft 1
• LIMRA Member Comments on the First Draft
• Draft 2
• LIMRA Member Comments on the Second Draft
60
New Directions
• Anti-Money Laundering
• Fiduciary Standards
• NAIC Suitability Standards
• Social Media
• …What’s next?
• Industry driven
• Research Supported
• Thought Leaders
61
Q&A
Thank you for your membership!
Thomas Caraher860-285-7873
Stephen Selby 860-285-7858
@limra_crs
