Paul Campbell Deloitte & Touche LLP November 5, 2012
Dodd-Frank And The Impact On Internal Audit The Path Forward For Energy Companies The Institute Of Internal Auditors – Houston Chapter
Copyright © 2012 Deloitte Development LLC. All rights reserved.
Table of contents
1. Overview of Dodd-Frank Act Title VII
2. Classification and potential impact on an organization
3. Major requirements, timeline updates and recent changes
4. Where the energy industry is struggling
5. What companies and internal audit should consider doing now
6. Specific internal audit considerations
7. Questions & Answers
Deloitte Center for Energy Solutions
Copyright © 2012 Deloitte Development LLC. All rights reserved.
Paul Campbell
Principal, Deloitte & Touche LLP
Email: [email protected] Office: 713.982.4156 Mobile: 713.503.6993
Paul is a leader in Deloitte’s Energy Risk practice, providing services to the energy industry and the federal government. With
more than 20 years of experience, he also leads specialists from a group of approximately 200 professionals solely dedicated
to providing services related to risk strategy, regulatory compliance, credit, climate change, quantitative analytics, technology,
business process and operations and risk accounting to energy companies.
Paul has worked with some of the largest companies in North America on transformation efforts related to the underlying
infrastructure, systems, processes and technologies for new organizations as well mature organizations focused on
significantly changing operations with thorough programs of change or responding to regulatory directives. This includes
helping to design, develop, select and implement energy trading and risk management systems, as well as those to support
compliance with derivative accounting guidance. This includes leading all energy related efforts for regulatory compliance and
Dodd-Frank.
He has led numerous risk assessments of front, middle and back office operations and worked extensively on risk
management issues related to new business strategies; including the resulting process, technology and accounting change
implementations. These assessments have often then led to the development of a program of activities related improvements
in the risk and trading processes.
His client service work also includes developing of end user energy management strategies, due diligence analyses,
bankruptcy work, and significant litigation support efforts regarding portfolio valuation, internal investigations and support to
external counsel in trading and risk management matters. Paul also has significant experience speaking and providing training
to both internal and external audiences. Prior to joining Deloitte, Paul worked for 4 years as a regulatory economist for the
Maryland Public Service Commission and then worked for several energy trading companies moving to Houston.
• BS, Physics – The George Washington University
• BA, Political Communications – The George Washington University
3 Deloitte Center for Energy Solutions
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Overview of Dodd-Frank Act Title VII
Copyright © 2012 Deloitte Development LLC. All rights reserved.
Glossary of terms and acronyms
API Application Programming Interface
BCS Business Conduct Standards
CFR Code of Federal Regulations
CFTC Commodity Futures Trading Commission
CPO Commodity Pool Operators
CRFC Core Reference Futures Contract
DRR Data, Recordkeeping and Reporting
DCM Designated Contract Market
DCO Derivative Clearing Organization
ECP Eligible Contract Participant
ETRM Energy Trading Risk Management
FAS Financial Accounting Standard
FTR Financial Transmission Rights
ISO Independent System Operator
LEI Legal Entity Identifier
LTR Large Trader Reporting
MSP Major Swap Participant
NFA National Futures Association
Nons Non SD / Non MSP
OTC Over the Counter
PLR Position Limits Reporting
RTO Regional Transmission Organization
RTR Real Time Reporting
SD Swap Dealer
SDR Swap Data Repository
SEF Swap Execution Facility
SPV Special Purpose Vehicle
UCI Unique Counterparty Identifier
UPI Universal Product Identifier
USI Unique Swap Identifier
5 Deloitte Center for Energy Solutions
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Dodd-Frank Act1: Background and perspective
6 Deloitte Center for Energy Solutions
Dodd-Frank Act Title VII includes key provisions for the energy
industry with clear consideration of the Commodity
Futures Modernization Act of 2000 that exempt
many over-the-counter energy trades from federal
regulation.
Transparency
Counterparty Risk
Management
CFTC (Commodity Futures Trading Commission)
Swap Data Repositories, Swap Execution Facilities
Major Swap Participants, Swap Dealers, End Users
Reporting requirements (execution and record keeping)
Push from OTC to Derivative Clearing Organizations
Portfolio valuations and reconciliations
From un-cleared to cleared transactions
Position limits (TBD)
Capital requirements
Compliance (Chief Compliance Officer)
Controls
1. Legislative Phase
2. Regulatory Phase
3. Commercial Phase
• Act signed into law July 2010
• Many rule making responsibilities
delegated to the SEC and the CFTC
• Law passed as response to concerns over
inadequate oversight of financial and
commodity markets
• CFTC aimed for Dec 2011 for final rules
(numerous delays have occurred)
• 30+ rule making processes initiated
• Rule making activities address new market
structures and functions, changing
definitions, new processes and more
oversight
• Ongoing advocacy process
• Dealing with uncertainty over final rules and
implementation timelines
• Evaluating readiness to handle proposed
rules
• Evaluating financial impacts related to credit
and collateral as well as potential capital
investment needs
• Implementing changes to people, processes,
technology, and governance
Systemic Risk
in Financial
Markets
associated
with
derivatives
trading
1 http://www.cftc.gov/LawRegulation/DoddFrankAct/index.htm
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Energy industry and Non-SD application
7 Deloitte Center for Energy Solutions
Title VII – Wall
Street Transparency
and Accountability
(regulates OTC
Swaps)
• For SDs, 1,000s of
applicable rules Expecting majority of
energy companies to be
classified as a Non-SD /
Non-MSP (aka NON)
Applicable to All Eligible
Contract Participants
• Reporting
• Record keeping
• Compliance with exchange
rules
• Position limits (TBD)
• Adherence to trade practices
• End-use exception tracking
and reporting
• Margining (to the extent that
trades are moved to clearing)
Title VII as applicable to
Non-SD’s / Non-MSPs
• Approximately 10 Potential
RMAs, 100s of rules
All of Dodd-Frank
Title VII - Swap Dealers /
Major Swap Participants
Non Swap Dealers /
Non Major Swap Participants
Applicable to Swap Dealers and Major
Swap Participants
• Registration
• Large trader reporting
• Business conduct rules
• Margin and collateral management
• Capital requirements and reporting
• Risk management
• Centralized clearing
• Business continuity
• Board and Senior Management have
specific responsibility and personal liability
• Designation of a Chief Compliance Officer
• Annual Compliance Report
Based on both qualitative and
quantitative assessments.
Dodd-Frank Wall
Street Reform and
Consumer
Protection Act (All
Industries)
- Categorized into
16 Titles
- 10,000s of rules
across 16 Titles
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Important points for energy companies
• The CFTC is working to finalize the rule-writing across the more than 30 different rule categories and
is implementing a process balancing market disruption, cost and desired compliance status. The
rules are generally comprehensive in nature across all commodities, IR and FX.
• Final rules yet to be published include:
1. Margin and clearing requirements, including risk capital for Swap Dealers and MSP
2. Position limits – unclear on regulatory path following Sep 22
• The CFTC has finalized most rules for compliance so the time to comply may vary depending on the
category of company or asset. A staged approach is underway, in which effective dates for
compliance vary by rule and become known as final rules are published. Current compliance
timelines have ranged from 30 to 270 days.
• Most companies in the energy industry would describe themselves as having an internal group
―maintaining awareness‖ of the rules, but often struggling with governance issues and how to plan or
commit resources in the face of regulatory uncertainty
• Most companies have not addressed Sec. 1502 or 1504 as part of integrated planning.
• There are significant compliance requirements for almost any entity using swaps.
• There are specific concerns related to “special entities”.
• There is some chance for further delays or altering of regulations, but a clear desire by
regulators to finalize rules quickly.
• Further uncertainty is likely.
8 Deloitte Center for Energy Solutions
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Beyond Title VII - Other non-swap related provisions (Title XV) 1
9 Deloitte Center for Energy Solutions
Conflict Minerals Provision (Sec. 1502)
• Finalized on August 22, 2012
• Companies that use conflict minerals from the Democratic Republic of the Congo and adjoining
countries (―DRC‖) that are ―necessary to the functionality or production of a product manufactured
by such person‖ must disclose annually public on their website, file a conflict mineral report to the
SEC and annual report.
• The report will include description of measures of due diligence on the minerals source and chain of
custody. Even if the minerals did not originate in the DRC the company would be required to
maintain all documentation and issue the report.
• The SEC requires this report go through an independent private sector audit.
• The SEC realizes that there is some ambiguity as to whom the conflict mineral provision applies to.
This would include many companies that do not have to report today.
• The SEC proposed rule would make amendments to Form 10-K, Form 20-F, and Form 40-F to add
this information.
• Issuers must comply with the final rule for the calendar year beginning January 1,2013 with the first
reports due May 31, 2014
Mine Safety (Sec. 1503)
• Finalized on December 21, 2011
• Already in effect
1 http://www.cftc.gov/LawRegulation/DoddFrankAct/index.htm
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Beyond Title VII - Other non-swap related provisions (Title XV) 1
10 Deloitte Center for Energy Solutions
Disclosure of Payments to Governments by Resource Extraction Issuers (Sec. 1504)
• Finalized on August 22, 2012
• Companies that extract or commercial development related to oil, natural gas, or minerals will need
to file an annual report with SEC containing all the payment information to foreign governments at
the project level. This report will include:
‒the total amount of payments, by category;
‒the currency used to make the payments;
‒the financial period in which the payments were made;
‒the business segment of the resource extraction issuer that made the payments;
‒the government that received the payments and the country in which the government is located;
and
‒the project of the resource extraction issuer to which the payments relate
• The SEC proposed rule would make amendments to Form 10-K, Form 20-F, and Form 40-F to add
this information.
• According to the rules the companies will need to include this information starting with an issuer’s
annual report relating to any fiscal year beginning on or after September 30, 2013.
1 http://www.cftc.gov/LawRegulation/DoddFrankAct/index.htm
Copyright © 2012 Deloitte Development LLC. All rights reserved.
Whistleblower Regulations - Section 7481
11 Deloitte Center for Energy Solutions
The CFTC has issued final rules to provide whistleblower incentives and protection which
became effective in September 2010
• Requires CFTC to pay awards to whistleblowers if provided information leads to successful
enforcement of CFTC action.
‒ Enforcement must produce monetary sanctions >$1million.
• Certain criteria evaluated to determine issuance of reward:
‒ Significance of information.
‒ Degree of assistance in support of covered judicial or administrative action.
‒ Public policy
• Certain government employees are ineligible to be granted whistleblower rewards
1 http://www.cftc.gov/LawRegulation/DoddFrankAct/index.htm
Copyright © 2012 Deloitte Development LLC. All rights reserved. 12 Deloitte Center for Energy Solutions
Classification and potential impact on an organization
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Classification determines impact on an organization
13 Deloitte Center for Energy Solutions
Swap Dealer
Or
Major Swap Participant
Many of the reporting requirements fall
upon the SD/MSP categories including
reporting some information on behalf of
the non-SD.
A common question: What is our
comfort level as an organization relying
upon others’ records and how do we
want to validate this data?
• Registration
• Large trader reporting
• Business conduct rules
• Margin and collateral
management
• Capital requirements and
reporting
• Risk management
• Centralized clearing
• Business continuity
• Designation of a Chief
Compliance Officer
• Annual Compliance
Report
Balance cost/benefit of registering as a Swap Dealer
• Reporting
• Record keeping
• Compliance with
exchange rules
• Position limits
• Adherence to trade
practices
All Eligible Market Participants
How would an organization
characterize its
swap activity*?
e.g., hedging, asset optimization,
speculation, potentially volume and
intent.
*Strongly consider the role of external counsel in interpretation of rules.
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Major requirements, timeline updates and recent changes
Copyright © 2012 Deloitte Development LLC. All rights reserved.
Requirements applicable to all energy market participants
15 Deloitte Center for Energy Solutions
Basic
Requirements
Details
Reporting and
Recordkeeping
• Retention and reporting of pre-execution, execution and post execution
transaction information including orders, executions, oral and written
communications; all indexed to the transaction
• Data kept for the entire existence of a swap and five years after the swap’s
termination or expiration.
• Data must be ―readily accessible‖, and records must be retrievable by the
recordkeeping counterparty within five business days.
Clearing • All swaps must be cleared with limited exceptions
End-Use
Exception To
Clearing
• Process at time of transaction, with pre and post execution documentation
and controls
Compliance with
exchange rules
• Adherence to margin and collateral requirements for transactions executed
on the exchange platforms
Adherence to
trade practices
• Enhanced anti-manipulation authority requiring stronger self-surveillance
along with anti-fraud protection.
Position limits • Monitoring and reporting to be defined at a later date
There is a general misconception by non-financial entities that if “all we are doing is hedging
(or asset optimization)” there are little or no compliance obligations. There currently is no
broad “end-user exemption” or classification that would be applied.
Copyright © 2012 Deloitte Development LLC. All rights reserved.
Illustrative Dodd-Frank regulation timeline
16 Deloitte Center for Energy Solutions
Non SD:
Real-time
Reporting &
Data
Recordkeeping
(All Asset
Classes)
Real Time
Reporting &
Data
Recordkeeping
(Credit & IR
Swaps)
Final
Entity
Definition
Published
SD/MSP:
Real-time Reporting &
Data Recordkeeping
(Other Commodity
Swaps)
Business Conduct
Standards (Ext and Int)
Swap
Definition
Published
(TBD)
Position
Limits
Reporting SD/MSP:
Large Trader
Reporting
May
12
Jun
12
Jul
12
Aug
12
Sep
12
Oct
12
Nov
12
Dec
12
Jan
13
Feb
13
Mar
13
Apr
13
May
13
Jun
13
Q3-Q4
2013
Remanded
Position
Limits
Reporting
Election Day Inauguration Holidays
Swap
Definition
Finalized
Registration
(Joint with
NFA)
Estimated:
Reporting
End-User
Exceptions
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Where the energy industry is struggling
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Key challenges summary
1. Scope of the impact across operations
2. Major uncertainty within regulatory environment
3. SD vs. non-SD classification (considering future operations and prices)
4. To clear or not to clear?
5. Potential hedging & end-user exception violations
6. Changes to contracts with counterparties, SDR, DCO, etc.
7. System enhancements
8. Corporate changes and decision making
9. Position limit compliance (TBD)
• Technical issues outstanding include
‒ Bookouts
‒ Notional value calculations
‒ Swap definitions
18 Deloitte Center for Energy Solutions
Copyright © 2012 Deloitte Development LLC. All rights reserved.
Illustrative spectrum of industry reaction
How to move forward when faced with uncertainty? 1. Deal with this as you would any other project.
2. Act on the known and plan for the unknown – assess the potential impact of change to both.
3. Balance the cost of waiting and higher potential cost if significant external resources are
called in at the last minute.
4. Always have a plan!
19 Deloitte Center for Energy Solutions
Wait and See Maintain
Awareness Pro-Active
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Illustrative spectrum of IA responsibility
20 Deloitte Center for Energy Solutions
Wait and See Maintain
Awareness Pro-Active
Compliance /
Project Execution
Improve Efficiency /
Add Value
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What companies and internal audit should consider
doing now
Copyright © 2012 Deloitte Development LLC. All rights reserved.
What energy companies should consider doing now
22 Deloitte Center for Energy Solutions
1) Deploying Cross-
functional Dodd-Frank
Implementation Team
• Engage risk, IT, compliance,
accounting
• Engage external counsel
• Deploy a detailed plan, with
estimates of resources/budget
• Maintain awareness with Senior
Management and Board of
Directors
2) Assessing Likelihood of
Being an SD/MSP
• Detail all swap transactions
• Confirm ability to identify and
aggregate all needed data
• Disaggregate cleared vs. non-
cleared and hedges
• Document counterparties and
―special entities‖ dealing
• Conduct rule by rule gap
assessment
4) Evaluating Technology
Requirements and
Capabilities
• Developing short term reporting
solutions
• Identifying immediate and long
term changes to ETRM systems
• Understanding and building
connectivity with SEF/SDR
3) Validating Recordkeeping
Capabilities and Preparing
for Real-Time and General
Reporting Obligations
• Identify process changes across
front, middle, and back office
• Ensure all transition swap
documentation is being
maintained
• Identify reporting counterparty
• Develop the process for data
verification and correction
• Develop processes for capturing
recordkeeping data elements
6) Preparing for Position
Limit Obligations (TBD)
• Work with IT to document needed
changes and functional
requirements for tracking positions
• Identify and aggregate positions
across entities
• Confirm internal notification
capabilities exist
5) Evaluating Potential Credit
Implications
• Analyze liquidity impacts of
margin posting for cleared swaps
• For uncleared swaps, determine if
counterparties are subject to
CFTC or bank regulator margin
rules
• Determine if changes are needed
to counterparty mix
• Reviewing existing contract mix
Copyright © 2012 Deloitte Development LLC. All rights reserved.
Illustrative long term Dodd-Frank compliance
Illustrative
Real-time Reporting and Record
Keeping Deadline (SD/MSP)
Phase 3: Implementation Planning
Phase 5: Compliance Program Maintenance
Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013
Decisions required
• Allocation of resources for PMO and Implementation Support – internal/external
• Allocation of resources to change management – internal/external
• Impact across trading systems and/or reliance upon vendor solutions
Any approach should balance cost/resource requirements with regulatory risk tolerance and the ability to
sustain a program
Phase 2: Assessment
• Entity Classification
• Rule-by-rule Impact
Analysis
Phase 1: Project
Governance
23 Deloitte Center for Energy Solutions
Illustrative Rule Milestones
(e.g. final definition of Swap
Dealer)
Phase 3: Gap Assessment
• Rule-by-rule gap analysis
• Implementation Planning
Phase 4: Implementation Plan Execution
Large Trader Reporting
Deadline
Phase 4: Implementation
• Plan Execution
Phase 2: Assessment
Real-time Reporting and Record
Keeping Deadline (Non-SD/MSP)
Copyright © 2012 Deloitte Development LLC. All rights reserved.
Illustrative Example of Customizable Deloitte Methodology
24 Deloitte Center for Energy Solutions
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13.1 13.2 13.3 13.4 13.5 13.6 13.7 13.9 13.10 13.11 13.1213.8
ComplianceConfirmationMgmt Dashboard Trader Tools Financial ReportingMarket RiskCredit Risk RegulatoryContract Scheduling SettlementsMtm, P&L, Position
1 Data Management1.1 1.2 1.3 1.4 1.5 1.6 1.7
Counterparty Prices Volatilities and Correlations
FX and IR Weather Market Data Other
2.1Production
Forecasting
3.1Contract
Management
4.1Credit Limit
Management
5.1Pre-Trade
Analysis
5.2Deal/Trade
Approval
5.3Natural Gas Physical
6.1Confirmation
Generation
7.1Book Structure
7.2Curve
Management
8.1 Gas Scheduling
9.1Natural Gas
Settlement
9.2
Pipeline
Settlement
10.1
ASC 815
Derivative
Accounting
11.1
User/Group
Management
12.1
Baseline
Information
2.2Revenue
Forecasting
3.2Counterparty
Management
4.2Credit Exposure
Calculation
5.4Natural Gas
Storage
5.5Natural Gas
Financial
5.6Natural Gas Transportation
6.2Confirmation
Management
7.3Market Risk
Valuation
7.4Risk Limit Management
8.2Power
Scheduling
9.3Crude Oil
Settlement
9.4Storage
Settlement
10.2
Tax
11.2
Access
Mgmt
12.2
Forecasting
2.3Asset
Optimization
3.3Contract
Document Mgmt
4.3Collateral
Management
5.7Fuel Oil
6.3Deal Modification Notification
7.5Scenario
Management
7.6Stress Testing
8.3Crude Oil
Scheduling
10.3
AR/AP
11.3
Security Access
Monitoring
12.3
Inventory
Management
2.4Scenario
Analysis
4.4Credit Scoring
5.11CrudePhysical
5.12Crude- Storage
6.4Confirmation Document Mgmt
7.7Risk Reporting
7.8P&L Attribution
8.4Other Commodity Scheduling
9.7Exchange Traded Settlement
9.8
3rd Party
Fee Settlement
10.4
Cash
Management
11.4 Application Configuration Mgmt
12.4
Simulations
4.5Margining
5.13CrudeFinancial
5.14Crude-
Transportation
5.15Other Commodity Physical
4.6Advanced Credit Analytics
5.16Other Commodity Storage
5.17Other Commodity Financial
5.18Other Commodity Transportation
4.7Exposure
Monitoring
5.19Foreign
Exchange
5.20Interest Rates
5.21Structured Deals
4.8Credit Reporting
5.22Freight & Vessel Chartering
5.23Emissions
4.9Cash Flow Forecasting and Mgmt
7.9Advanced Risk
Analytics
8.5Freight Vessel
Scheduling
9.9FinancialTransaction Settlement
9.10
Dispute
Resolution
10.5
Trading sub
Ledger Mgmt
8.6Rail Car
Scheduling
9.11Broker
Reconciliation
9.12
Broker
Settlement
8.7Truck
Scheduling
9.13Vessel Freight
Settlement
9.14
Rail Settlement
8.8Terminal
Scheduling
9.15Truck
Settlement
9.16Emissions
Settlement
11.5
Workflow/Job
Scheduling
7.11Risk Policy Compliance Monitoring
7.10Valuation
Modeling
8.9Inventory
Management
9.17Terminal
Settlement
9.18SettlementDocument Mgmt
10.6
GL Interface
11.6 Application DataManagement
12.5
Capture of
Emissions
Reporting Requirements
5.24DFElectronic Communication Capture
5.25DFPost Trade Surveillance
5.26DF Transaction Reporting to Regulator / SDR
7.12 DF Real Time Limit Management
7.13 DF Position Limit Monitoring
7.14 DF Capital Calculation and Margin Requirements
5.5DF Confirmation
Reporting to SDR / Regulators
9.19 Interface to DCMs and DCOs
9.20 Reporting to SDRs / Regulators
10.7 Economic to Accounting P&L Reconciliation
14. Governance and Compliance
New Process
Existing Process with significant
Dodd-Frank impact
Existing Process with limited Dodd-
Frank impact
14.1 SD /MSP Registration and Updates
3.2a Counterparty Eligibility Verification
14.2 Quarterly Risk Mgmt Program Audits
7.16 DF Portfolio Reconciliation
7.15 DF Daily MTM Reporting by Customer
7.17 DF Portfolio Compression Updates
14.7 Data Retention Standards
14.5 Compliance Annual Report
3.2b Special Entity Dealing Requirements
3.2c Swap Disclosures to Counterparties
14.6 Business Continuity and Disaster Recovery
5.27DF End User Exception Reporting
Key
14.3 General DFA Compliance Standards
14.4 Risk Mgmt Program – DFA Requirements
Heat Map to visualize the impact of
Dodd-Frank Tile VII regulations on
different aspects of business – capital,
liquidity, legal entity structure,
compliance, information systems,
workforce etc.
A library maintaining Dodd-Frank
Title VII rules from CFTC and SEC
A list of implementation activities
and interdependencies to drive
project planning for internal
regulatory compliance programs
A Gap assessment to
determine the compliance
level, gaps and mitigating
steps
Dodd-Frank
Diagnostic Tool
Self and Gap
Assessment
Library of Rules
Project
Management
Impact
Assessment
Advanced
Reporting
Derivatives
Trading
Lifecycle
Map
An interactive derivatives trade lifecycle
mapped to relevant rules and
identifying existing and new business
processes impacted as a result of
Dodd-Frank regulation
Interactive dashboards and report
with drill-down capabilities
1
2
3
4
5
6
Copyright © 2012 Deloitte Development LLC. All rights reserved.
Illustrative Examples of QuickStart Methodology & Components
QuickStart may provide an out-of-the-box solution for assessment and implementation planning
Workplan
The workplan will serve as a project plan and status
dashboard. It can be customized to include specific project
dates, milestones, and project team members
Deliverables
Deliverables include the Final Report outline, final
presentation outline, gap assessment inventories, and
implementation plans
Templates
The templates include customizable work products including
rules/requirements inventories for each rulemaking area
Reference Guide
The reference guide provides step-by-step instructions for
project setup, population of templates, and how to produce
the final deliverables
ID Reference Requirement (Rule Text) Gap Assessment Tasks/Activities Potential Implementation Steps IT Implications
Comment /
Questions /
Observations
Gap Rating
Primary
Point of
Contact
Level of
Effort
1
2
4 45.2 Swap
Recordkeeping
(b) Recordkeeping by non-SD/MSP
counterparties. All non-SD/MSP
counterparties subject to the
jurisdiction of the Commission shall
keep full, complete, and systematic
records, together with all pertinent
data and memoranda, with respect to
each swap in which they are a
counterparty, including, without
limitation, all records demonstrating
that they are entitled, with respect to
any swap, to elect the clearing
requirement exception in CEA
section 2(h)(7).
GAP Assessment
1) Evaluate whether current processes and procedures
support maintaining complete and systematic records of
the activities related to swaps including all pertinent
records and memoranda.
Implementation Steps
1) Develop a process and procedure to retain records of
swap transactions for a minimum of the life of the swap
plus five years, per the requirements of subpart 45.3 (c)
2) Ensure that the infrastructure for recording "full,
complete and systematic" information related to swaps to
which you are a counterparty, is in place.
3) Ensure that the recordkeeping systems retains these
records for a period of 5 years. These records can be in
any form- electronic or paper (You have the option of
keeping these records in paper form even if they were
created electronically) provided that the records are
retrievable within five business days for the period during
which the records are required to be retained).
4) Determine the data format required for reports
submitted to the CFTC under this section (§ 45.2(h)).
5) Ensure that the capability exists to submit the required
Ensure that systems
are capable of
capturing new data
record fields
14 45.3 Swap data
reporting :
Creation data
(b) Off-facility swaps subject to
mandatory clearing. For all off-facility
swaps subject to the mandatory
clearing requirement, except for
those off-facility swaps excepted
from that requirement pursuant to
CEA section 2(h)(7) and those off-
facility swaps covered by CEA
section 2(a)(13)(C)(iv), required
swap creation data must be reported
as provided in paragraph (b) of this
section. (1) The reporting
counterparty, as determined
pursuant to § 45.8, must report all
primary economic terms data for the
swap, within the applicable reporting
deadline set forth in paragraph
(b)(1)(i) or (ii) of this section.
However, if the swap is voluntarily
submitted for clearing and accepted
GAP Assessment
1) If you have been designated as the reporting
counterparty : Determine if the swap has been voluntarily
submitted and accepted for clearing by a DCO before the
applicable deadline. If the swap is accepted before the
counterparty reports, then it shall be excused from the
reporting requirements.
If (1) doesn't apply, then:
Implementation Step
1) Develop process controls to check whether transaction
data is reported and is accurate (with counterparties or
SDRs).
(Refer to RTR Task Checklist - step 1. of 43.3(a)(2)
regarding data accuracy)
2) Determine internal ownership of the swap data
repository reporting responsibility within client.
(Refer to RTR Task Checklist - step 1. of 43.3(a)(1)
regarding data accuracy.)
1) If information is not currently captured, develop a
process/capability to capture this information.
2) Establish necessary controls to verify required
information is captured.
3) Update policies and procedures to ensure that all
primary economic terms data is reported in the timeframe
required by the section.
4) Refer to RTR Task Checklist - Task 5 of 43.3(a)(1) with
respect to timing requirements for swap data submission.
Gap Assessment
45.2 Swap Recordkeeping
§ Definitions
Reference # Activities Responsible Inform Priority Effort Gap Action Steps Start Date End Date
2 Form a DFA Working Group PMO All High Low High
2.1 Identify all stakeholder groups that will be impacted by the DFA Implementation, and identify
a representative from each group for participation in the Working Group
2.2 Determine how communications will be handled with the Working Group
2.3 Determine how often the Working Group will meet on a formal basis (for status meetings,
etc.)
2.4 Agree on a Project Terms of Reference
8/1/2012 8/31/2012
3 Form a DFA Steering Committee PMO All High Low High
3.1 Identify members for DFA Steering Committee
3.2 Determine how communication will be handled with the Steering Committee
3.3 Determine how often the Steering Committee will meet on a formal basis
8/1/2012 8/31/2012
4 Educate stakeholder groups on Dodd Frank Act and the impact to client PMO All High High High4.1 Determine which stakeholder groups should receive DFA Primer Training
4.2 Develop material and schedule sessions8/1/2012 8/31/2012
5
Develop and maintain a list of counterparties and their legal designation, and
develop process to revisit designation quarterly/semi-annual/annual.
Client Personnel
#5All Medium Medium Low
5.1 Develop due diligence process for new counterparties to ascertain their registration status.
Revisit this process quarterly/semi-annually/annually.
5.2 Confirm that legal entity identifier utility will be available through the CFTC or another
mechanism
5.3 Determine means of capturing registration status in the reporting solution to be enable
automated reporting.
TBD TBD
6
Determine if client should report all swap transactions to a (preferred) SDR,
regardless of if reporting counterparty or not Client Personnel
#4All Medium Medium High
6.1 Work with preferred SDR to understand reporting capabilities and if all swaps can be
reported
6.2 Develop process to report all swaps TBD TBD
I. General Project Considerations
II. Legal Considerations/Counterparty Management Activities
Implementation Plan Template
25 Deloitte Center for Energy Solutions
Project Leader: Deloitte Superstar Project: Client X DFA Compliance Readiness Date: w/c 5/14/12
Major Activities On-Site Off-Site
1 Perform Qualitative Assessment of Transaction Types and Business Strategies x
2 Summarize and Finalize Assessment Notes x x
3 Gather Transaction data for Quantitative Analysis x
4 Confirm data exclusions for de minimus calculation x x
5 Confirm data inclusions for Special Entity calculation x x
6 Perform Gross Notional Value Calcs x x
7 Stress Test Gross Notional Value Calcs x x
8 Complete First Draft of Qualitative/Quantitive Analysis (Deliverable: Draft Classification Results) x x
9 Faciliate Team discussion for Classification Determination x
10 Agree Classification and Document Conclusions (Deliverable: Final Classification Results) x
11 Perform Project Kick-off x
12 Facilitate Team discussion for classification compliance strategy x
13 Work with External Counsel to draft Compliance Delay Memo x
14 Analyze client's existing process documentation x x
15 Perform Initial Analysis for Gap Assessment x x
16 Develop RMA Material for client staff; Conduct Info Sessions x x
17 Customize Requirements Assessment Template/Tool x x
18 Conduct Interviews for Gap Assessment (Rule-by-Rule) x
19 Position Limit Reporting Gaps x
20 Data Record Keeping and Reporting/Real Time Reporting Gaps x
21 Other (Addl Rules based on Classification Result) x
22 Document findings in DFA Template/Tool x x
23 Create detailed Action Items List and validate findings x x
24 Agree Gap Assessment Actions (Deliverable: Detailed Actions Inventory) x
25 Develop Implementation Strategy x x
26 Map detailed Actions to Task Owners x x
27 Develop Initial Recommendations on Resources, Task Owners, Priorities x x
28 Review Iniital Recommendations with client staff and close remaining questions x x
29 Develop Implementation Plan x x
30 Agree Implementation Plan (Deliverable: Project Plan and Timeline) x
Quickstart begins at Task #11
Objectives Schedule
Copyright © 2012 Deloitte Development LLC. All rights reserved. 26 Deloitte Center for Energy Solutions
Specific internal audit considerations
Copyright © 2012 Deloitte Development LLC. All rights reserved.
Audit Committee Considerations
27 Deloitte Center for Energy Solutions
Implementation Financial Reporting
High level implementation plans, timeline and
resourcing
Tone at the top – management support for a
culture of compliance
Risk management process
Role of Chief Compliance Officer and
responsibilities
Impact on internal audit function and reporting
Change management
Impact of new external and internal reporting
Accounting policy changes affected by Dodd-
Frank
Impact on earnings, equity, key ratios,
performance indicators and compensations
Internal control certifications
Disclosure requirements
Impact on the board and board committees Commercial and Operational Impact
Risks or changes relevant to board and its
committees – level of commitment, internal
controls and certifications
Education and training of board members
Impact on risks and oversight responsibilities
How this implementation affects competitive
position vs. competitors
Assessments of new controls
Improvement opportunities and controls
rationalization
Impact on management reporting within the
enterprise – planning, budgeting and
forecasting
Communication to stakeholders on impact
While major responsibility lies with management and the Chief Compliance Officer, the implementation
of these new rules should have thoughtful and ongoing oversight by the Audit Committee.
Copyright © 2012 Deloitte Development LLC. All rights reserved.
Recap and opportunities
• Understand and confirm key stakeholders expectations of internal audit - including
audit committee and other key committees
• Validate expectations around Dodd-Frank assurance requirements
• Become a key player in the risk management program
• Dodd-Frank Act will impact people, process, governance & controls and technology –
be prepared to factor this into the internal audit planning process and resources
• Forward looking organizations see regulatory changes as an opportunity to simplify,
standardize, and transform their current processes and culture
• Engage executives and board members in thoughtful consideration of potential risks
• Continue being a trusted advisor and don’t assume that Dodd-Frank is ―going away‖
28 Deloitte Center for Energy Solutions
Internal audit = Assurance, Insight, and Objectivity 1
1 Internal Audit Value Proposition. Insight: Delivering Value to Stakeholders 2011 by The Institute of Internal Auditors Research Foundation
Copyright © 2012 Deloitte Development LLC. All rights reserved. 29 Deloitte Center for Energy Solutions
Questions & Answers
Copyright © 2012 Deloitte Development LLC. All rights reserved.
Contact information
Paul Campbell
Deloitte & Touche LLP
(713) 982-4156
30 Deloitte Center for Energy Solutions
About the Deloitte Center for Energy Solutions
The Deloitte Center for Energy Solutions provides a forum for innovation, thought leadership, groundbreaking research, and industry
collaboration to help companies solve the most complex energy challenges.
Through the Center, Deloitte’s Energy & Resources Group leads the debate on critical topics on the minds of executives — from legislative
and regulatory policy, to operational efficiency, to sustainable and profitable growth. We provide comprehensive solutions through a global
network of specialists and thought leaders.
With locations in Houston and Washington, D.C., the Deloitte Center for Energy Solutions offers interaction through seminars, roundtables
and other forms of engagement, where established and growing companies can come together to learn, discuss and debate.
www.deloitte.com/energysolutions
About Deloitte
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Copyright © 2012 Deloitte Development LLC. All rights reserved. Member of Deloitte Touche Tohmatsu Limited