Federal Reserve Fiduciary Risk FIRMA March 2010

Federal Reserve Fiduciary Risk Federal Reserve Fiduciary Risk FIRMA March 2010FIRMA March 2010

J. Douglas PollittJ. Douglas Pollitt

Trust Risk Specialist Team LeaderTrust Risk Specialist Team Leader

Federal Reserve Bank of ChicagoFederal Reserve Bank of Chicago

[email protected]@frb.chi.org

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DisclaimerDisclaimer Views expressed are those of Views expressed are those of

presenter and they are not presenter and they are not necessarily those of the Federal necessarily those of the Federal Reserve and do not otherwise Reserve and do not otherwise constitute policy and/or position constitute policy and/or position statements of the Federal Reserve.statements of the Federal Reserve.

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Federal Reserve System StructureFederal Reserve System Structure

Process For Determining Trust Risk Supervisory ThemesProcess For Determining Trust Risk Supervisory Themes

• Annual Spring System Determination/VettingAnnual Spring System Determination/Vetting

How Trust Risk Themes Are Incorporated Into Supervisory How Trust Risk Themes Are Incorporated Into Supervisory Process Process

• State Member banks Trust related examinations & targetsState Member banks Trust related examinations & targets

• Annual CPC/Dedicated teams Risk Assessment/Sup PlanningAnnual CPC/Dedicated teams Risk Assessment/Sup Planning

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Enterprise Wide Fiduciary Risk AssessmentEnterprise Wide Fiduciary Risk Assessment• Role of the Federal Reserve/Consolidated Regulation, post Role of the Federal Reserve/Consolidated Regulation, post

GLBA & functional regulated entitiesGLBA & functional regulated entities

• CPC/Dedicated team responsibilitiesCPC/Dedicated team responsibilities

• Base & Updated Risk Profiles of Fiduciary Activities (RIAs, Base & Updated Risk Profiles of Fiduciary Activities (RIAs, Brokerage, Service Providers, Family Offices, etc) reflected in Brokerage, Service Providers, Family Offices, etc) reflected in legal/reputational and operational risk categorieslegal/reputational and operational risk categories

• Enterprise Wide Risk and Compliance Management Enterprise Wide Risk and Compliance Management assessing whether & how all fiduciary risk captured at assessing whether & how all fiduciary risk captured at holding company level, determining threat to BHC earnings, holding company level, determining threat to BHC earnings, liquidity, & capital liquidity, & capital

• Factor into BHC ratings of RFI with I component =Impact on Factor into BHC ratings of RFI with I component =Impact on BHC of stress within and risks posed by non-bank RIA BHC of stress within and risks posed by non-bank RIA affiliates and sponsored fundsaffiliates and sponsored funds 4


Fiduciary Themes, PrioritiesFiduciary Themes, Priorities Firms support for stressed funds (not just 2a7 funds)Firms support for stressed funds (not just 2a7 funds)

Meeting Client Objectives and Adhering to Fiduciary Meeting Client Objectives and Adhering to Fiduciary StandardsStandards

Strategic & Earnings Pressure Strategic & Earnings Pressure

E.g. rising interest rate impact on RIAs and 2a7 fundsE.g. rising interest rate impact on RIAs and 2a7 funds

Increased Litigation RiskIncreased Litigation Risk

Regulation R & GLB Push Out RulesRegulation R & GLB Push Out Rules

Operational Risks – Staffing Turnover, Fraud & Operational Risks – Staffing Turnover, Fraud & OutsourcingOutsourcing

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Documents

Federal Reserve Fiduciary Risk FIRMA March 2010