Financial services industry session · 2015-07-29 · This presentation is provided solely for the purp ose of enhancing knowledge on tax matters. It does not provide tax advice to

Financial services industry session26–29 October 2014

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Disclaimer

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► Views expressed in this presentation are those of the speakers and do not necessarily represent the views of Ernst & Young LLP.

► This presentation is provided solely for the purpose of enhancing knowledge on tax matters. It does not provide tax advice to any taxpayer because it does not take into account any specific taxpayer’s facts and circumstances.

► These slides are for educational purposes only and are not intended, and should not be relied upon, as accounting advice.

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Agenda

► Welcome and introduction► The world of financial services► Discussion topics

► Global payroll► Business travel

► Closing comments

Presentation title

Page 4 Financial services industry session

EY moderators

► Cheryl Spielman► EY Americas Financial Services – Human Capital► Partner, Ernst & Young LLP► [email protected]► +1 212 773 8711

► Nick Bacon► EMEA Financial Services – Human Capital► Partner, Ernst & Young LLP (UK)► [email protected]► +1 44 20 795 11413


EU remuneration regulation


Overview of regulatory environment

Asset Management

Banking andCapital Markets

Insurance

AIFMD has resulted in a CRD type approach for Alternative Asset ManagementUCITS V is expected to follow the same strategic direction in 2015

Founded in the G20 FSB principles, banking regulation globally has evolved to focus on sustainable risk and economic systemsWithin Europe, CRD has epitomised this focus in a more prescriptive way than in the rest of the world

FSB principles set global banking standards for remuneration approaches, including deferrals and clawbacks

CRD applies to EU headquartered organisations and other banks operating in the EU. It implements restrictions on pay structures and has more prescriptive rules on the identification of Material Risk Takers

While the remuneration regulations do not apply to all firms equally as a result of proportionality, many of the principles do.

FSB Principles

CRD III and CRD IV

AIFMD and UCITS

Solvency II regulation will be implemented on 1 January 2016. It will likely follow the same direction as other EU remuneration regulation


MiFID► Applicable across

regimes

► Conduct based regulation providing protection to investors

► Client facing emphasis, applicable across directives

► Adds conduct of business dimension to prudential perspective

Prudential regulation Conduct regulation

► CRD ensures prudential focus

► Applies to credit entities and MiFID investment firms

► Applies to regulated AIFMs

► Applicable to UCITS managers if their actions are material to AIF

► Focuses on collective investment in transferable securities

► Fund managers with AIF and UCITS portfolios will be identified under one regime

► Final EC Directive (2014/91/EU) released Aug 2014

CRD

AIFMD

UCITS V

► When considering a remuneration approach to comply with Solvency II, account should be taken of current and proposed remuneration regulation (AIFMD, UCITS V, MiFID II and CRD IV)

Overview of regulatory environment: Why is an holistic approach appropriate?

“Remuneration policies and practices should be designed…so as not to create incentives that may lead relevant persons to favour their own interest, or the firm’s interest…to the potential detriment of clients.” Firms should consider the “…types of products offered, and the methods of distribution…in order to prevent potential conduct of business and conflict of interest risks from adversely affecting the interests of their clients.”

- ESMA Guidelines on Remuneration policies and practices (MiFID) ESMA/2013/606. October 2013


Solvency II: Remuneration policy guidelines

Set below is a summary of the key principles of the remuneration policy published in the Delegated Act on 10 October 2014 (Section 5, Article 275)

Key Principles

► Remuneration policy and practice that is aligned with the business and management strategy► Remuneration policy that promotes sound and effective risk management and does not encourage risk

taking that exceeds the risk tolerance limits of the firm► Remuneration Policy applying to the firm as a whole in a proportionate way taking into account Material

Risk Takers► Clear, transparent and effective governance around remuneration.► An independent remuneration committee created, if appropriate, in relation to the scale and significance

of the firm► The balance between fixed and variable remuneration including the need for deferral, no less than three

years► Performance based on financial and non financial measures and risk metrics taking account of current

and future risks► Termination payments related to performance achieved over the whole period of activity and designed to

not reward failure► Remuneration policy designed to take into account internal organisation, nature, scale and complexity

of risks inherent.


CRD IV: Overview and implications

New CRD IV regulations will have a significant impact on the remuneration environment in the European financial services sector. Key changes in CRD IV are as follows:

Impa

ct

1:1 Cap 1:2 Cap

BonusBase

Applying Bonus CapIdentifying Material Risk Takers

Companies will need to identify Material Risk Takers, through a series of prescriptive qualitative

and quantitative criteria set out by the EBA

Material Risk Takers must not receive variable pay worth more than 100% of fixed pay (or 200%

with shareholder approval)

Financial Restatement

Risk Failures

Bonus Award

Adjusted Pay-out

Managing Clawback and Malus

Financial Services organisations must have a robust process in place to ensure that malus and clawback can be applied to any

employees responsible for material risk failings


AIFMD: What is the Industry saying?

On 8 September we hosted a round-table seminar with FS participants to gain greater industry insight

► 80% of firms have not yet completed their remuneration review and communicated their revised approach to staff

► Reassuringly, 75% of firms had included sales incentives in their review, a good approach given the MiFID requirements

► Over 1/2 the firms are adopting a holistic approach in reviewing compliance issues, that is including likely approaches from UCITS V and other future regulations

► There is a wide variation in payment in instruments with only 32% providing direct payment in the AIF

► Reporting remains an area of great uncertainty with 50% of people only proposing to report at the AIFM level

Most firms outlined that they would like to participate in providing an industry view for submission to the FCA ahead of our meeting with them in October

AXA IMBlackrockBNP ParibasBNY MellonCitigroupDeutsche BankDVB BankFidelityGoldman Sachs

HermesM&G Man GroupMorgan StanleyNorthern TrustPGGMRoyal LondonSchroders Standard Life

Key themes► Firms are still finalising their remuneration approach to

AIFMD► Different approaches to proportionality► Substantial range in the number of identified employees► Different approaches to the “payment in instruments”

requirements► Reporting requirements are becoming increasingly

important

The following firms participated in the session:

According to the pulse survey we conducted at the round-table:


Next steps

The following key areas should start to be addressed now in anticipation of the likely remuneration guidelines

► The need to identify those employees who can have a material impact on the risk profile of the organization

► The need to embed risk metrics into the bonus determination process► The need for individuals to be assessed on financial and non financial

metrics (including risk adjusted metrics)► The need to review sales incentives plans to ensure that the

customers interests are put first► The need to ensure a strong remuneration governance framework. ► The need to develop a communication strategy to key stakeholders,

investors, Board, Remco and employees


Global payroll in the financial services sector


Global payroll in the financial services sector

► Norbert J. Braun► Vice President, HR Delivery and Service

Manager – Global Payroll► Wells Fargo


Wells Fargo – A GREAT Company – Vision is to satisfy all of our customers financial needs and help them succeed financially

► #1 – total stores ► Retail banking deposits► Retail mortgage lender and servicer► Home loan originator to minority and low-to moderate-income

borrowers ► Small business lender

► In 2013 – Wells Fargo was ranked #1 by United Way Worldwide for the fifth year in a row.

► Our team members supported 30,000 nonprofits nationwide, and recorded 315,000 volunteer hours.

Slide courtesy of Wells Fargo


Wells Fargo Facts

► Worlds largest bank by market cap!► Fortune magazine ranks Wells Fargo the No. 1 megabank

► Top 20 biggest public companies in the world – Forbes► 25th Revenue - U.S. - Fortune► 27th Most Respected – in the world - Barron's► Best Corp/Institutional Internet Bank (North America) -

Global Finance Magazine► Top Company For Lesbian, Gay, Bisexual, and

Transgender (LGBT) employees► # 25 for Diversity – up from 33! – Diversity Inc.► 14th For Latinas (2012) - LATINA StyleSlide courtesy of Wells Fargo


Wells Fargo Worldwide

70+ MM Customers9004 locations

Store Distribution

Retail Banking 6,175

Wells Fargo Advisors

1,375

Wholesale 767

Mortgage 687

Other DistributionChannelsATMs

Online Banking Customers

Mobile Customers

Apple Banking



Wells Fargo Business Model

Communities

Team Members

Wells Fargo Brand

Customers

We were named No. 1 financial services company in brand value by Brand Finance, a global brand valuation company.

Community Investment – We provide human and financial resources to help build strong communities

Environmental Sustainability – We focus on environmental mindfulness Into our products, services and operations

We received a Gallup Great Workplace Award, which recognizes the most engaged and productive companies in the world.

Wells Fargo was rated the No. 1 megabank in Fortune magazine’s annual list of “World’s Most Admired “ companies.

Our mobile banking offering was ranked No. 1 in overall performance by Keynote, a national internet performance and research firm



The Role

► How was the Global Payroll role and group created at Wells Fargo?



The Role

► What were the steps that led to the creation of a Global Payroll leadership team? What was the evolution within your organization?



Major Findings = More Complexity

Source: 2012 Global Payroll Performance Study, The Hackett Group



Global Payroll Services – Multi-Year Roadmap 2013-2015

Service and Relationship

Focused

Value Proposition: Business &

TM’sClear

AccountabilityModel

Centers of Excellence

Career Pathing

Enhancing Skills & Defining

Opportunities

Data & Feedback

Metrics and Benchmarks:

RoadmapsTools and Services:

Setting the Course

5

A dynamic and forward-thinking Global Payroll team which provides cutting-edge products and services that are accurate, timely, compliant, and delivered in mediums to suit the diverse nature of our global team members, lines of business, and the enterprise.



Questions to ask?

Why?What?How?Who?

These questions need to be addressed in the context of overall Business and HR/Payroll/Finance strategy

Single Payroll/HR platform

pIdentify: Common, standardized, repeatable processes

Determine: Selected processes in Regional/ Global Shared Service Center

p )Optimize: Sourcing Model (In-house/Outsource processes)

Global Oversight, Audits, Control and Scorecards

Transformation Journey

Take a hard look at where you are today:

Open your mind to where you want to be:

Identify the tools to create your new reality:

Organization design Process design Technology

infrastructure

Business strategy alignment New role of HR/Payroll Redesign of processes

Information/education Data Global Community

Global TransformationGlobal Payroll Transition



The Role

► Is the Global Payroll leader role a new and emerging role within Financial Services organizations?



Governance

► What is your governance model in the Global Payroll space?



Governance Model – BAU

Chairman/Management Committee

Tier

GPS team will triage changes and determine level of approval needed GPS team will facilitate review and approval meetings HR Policy Committee includes Tier 3 representation Service Delivery Team will be made aware of all changes prior to

external teams Changes that are not subject to this governance model will be reviewed

through Business Partner/Steering Committee meetings

Documents for all changes may include: Cost / Benefit Analysis Legal Review Benchmarking Alignment of best practices Number of tm’s impacted

HR Director/Payroll Leader will facilitate approval discussion with Chairman GPS team will provide necessary documentation to facilitate approval

Payroll Leader will facilitate approval discussion with HR Executive Payroll Leader/HR/Payroll Executive will make determination on

additional approvers if Tier 3 is required GPS team will provided necessary documentation to facilitate

approval

HR Director will be informed prior to discussion if multiple approvers are engaged or high risk/$$

Payroll Leader will facilitate approval discussion with HR Director Core team will provided necessary documentation to facilitate approval Payroll Leader / HR Director will determine if additional approvers are

needed

Low

High

Tier 1 Approval

Payroll Leader HR Policy Committee if needed

Impa

ct

• Risk

• Compliance

• Benefits

80%

10%

8%

2%

• HR

• Audit

• Legal

Tier 2 Approval

HR/ Payroll Executive Management

Global Payroll Steering Committee (If Needed)

Tier 4 Approval

Corporate HR Director/SHRL

• Business Partners

• Legal

• Finance

• Compensation

• Corporate Tax

• Lines of Business

Tier 3 Approval* – As Needed 1 or more



Different Models

► Models include► Outsourcing► Near-shoring► Off-shoring

► What direction has your organization taken with respect to the model for Global Payroll?

► Does your organization subscribe to a centralized, decentralized, regional or local model for payroll?



Wells Fargo Model

Corporate

EMEAAmericas

(Canada, US, LATAM)HR Insourced/Near-shoredPayroll Outsourced/Near-

shored

APACIndia / Philippines

Local Practice

Regional Delivery

Controls

BCP

Location Agnostic

Policy

Oversight

Local Delivery

Interactions with Regulators

Compliance

GovernanceSlide courtesy of Wells Fargo


Compliance Challenges for Financial Services Sector

► Sanctions► Political Stability► Country Holidays► Audits are the norm► Regulatory Compliance ► Changing Regulatory

Compliance► Real-Time Reporting► Short-Term Visitor Tracking

► Data privacy and information management

► Active corporate involvement► Development of global vision

and strategy► Understanding of International

Accounting Standards► Plan for geographic challenges► Identify and plan solutions for

system and process gaps► Communicate effectively!► Implement and maintain a strong

governance structure

What Are Your Biggest Compliance Challenges Running A Global Payroll Model?



Compliance Challenges for Financial Services Sector

► How have you dealt with various country audits in your global model? (Is all data for the audits in the host location? Is some date in other locations?)



The business traveler in the financial services sector


Panelists

► Matthew Ozburn► Director, HR International► Deutsche Bank AG

► Anita McEwen ► Vice President, Compensation International

Banking & Global Mobility ► Scotiabank


Scotiabank – Canada’s Most International Bank

• Full range of services in retail, commercial, corporate or trade finance products

• Selective services in retail, commercial, corporate and investment banking or capital markets businesses

As at Q3, 2014 (C$)

Scotiabank Canadian Peer Rank (1)

Total Assets $792B 3rd

Market Capitalization

$87B 3rd

Q3/14 Net Income (2)

$1.8B 3rd

ROE 20.6% 2nd

Capital Ratio (3) 10.9% 1st

Geographic Footprint

> 55 countries

# of Employees 86, 949

(1)Canadian Peers include BMO, CIBC, RBC, and TD (2)Excludes notable CI gain in Q3/14 (3)Basel III “all‐in” Common Equity Tier 1 Ratio

Slide courtesy of Scotiabank


Strategic Priorities and Areas of Growth

► Scotiabank’s Strategic Priorities► Increasing customer focus► Enhancing leadership depth, diversity and deployment► Organizing to better serve our customers and reduce

structural costs

Primary Areas of Growth► Latin America and Asia Geographically► Global offering in wealth management► Insurance► Deposits and payments



Diversified and Growing Businesses

Geographic Distribution of Business - Target: 50/50

Presence in High Growth Markets

*All figures based on YTD Q3, 2014 net income

International

Canada

Caribbean & CentralAmerica

Asia

Latin America

Diversification creates stability and lowers risk



Canadian BankingStrong Core Canadian Base

Highlights:► Contributed 34% of YTD Q3/14 consolidated net income► Double digit growth in personal loans and credit cards► # of Employees 19,899

Strategic Priorities: ► Transform retail and deepen relationships within targeted customer segments ► Build on our expertise in payments and accelerate credit card growth ► Leverage commercial banking platform to achieve greater market penetration ► Extend Tangerine’s offerings to meet banking needs of self-directed

customers ► Improve operational excellence and deliver sustained cost savings



International Banking Unmatched Presence in Higher Growth Markets

Highlights:► Contributed 24% of YTD Q3/14 consolidated net income► Strong performances from Latin America and Asia regions► # of Employees 47,022 (excludes affiliates)

Strategic Priorities: ► Leverage expertise in key markets with a focus on becoming the primary bank to our

customers► Optimize our operating model to maximize efficiency to best serve our customers► Make it easier for our customers to do business with us► Drive growth and scale in our highest priority markets of Mexico, Peru, Colombia and

Chile



Global Wealth and InsuranceSignificant Growth in Wealth and Insurance

Highlights:► Contributed 19% of YTD Q3/14 consolidated net income► The quarter reflected notable CI gain of $534MM after tax► # of Employees 7,546

Strategic Priorities: ► Focus on acquiring and building loyal and profitable client relationships► Expand international capabilities in key wealth and insurance businesses► Continue to build scale in global asset management► Drive growth in Global Transaction Banking through integrated cash

management, payments and trade finance solutions



Global Banking and MarketsNiche Focus – Select Products, Geographies and Industries

Highlights:► Contributed 22% of YTD Q3/14 consolidated net income► Record quarter in investment banking, strong results in equities► # of Employees 2,049

Strategic Priorities: ► Strengthen customer relationships and product capabilities to enhance

profitability► Optimize our coverage model to drive cross-sell► Grow our business in regions that capitalize on the Bank’s existing

geographic footprint



Leadership is a Competitive Advantage

Executive Management Team► 23 member Executive Management Team led by President & CEO, Brian J. Porter► Highly experienced: average Scotiabank tenure of 24 years and average industry

experience of 30 years► 4 Group Heads lead the Bank’s four business lines► 16 Executive Vice Presidents► Women represent 35% of the Executive Management Team population

Global Talent Pool► Global business platform provides broad spectrum of talent and opportunities within the

organization► Approximately 1,400 high potential employees globally at the Director and above level,

32% of whom are women – strong talent pipeline► Ongoing commitment to developing customer-focused leaders► Significant investment in leadership development at all levels



What Defines Global Mobility at Scotiabank

At Scotiabank, we look at the definition of Global Mobility by the objectives we seek to achieve:

► To support the Bank’s leadership strategy and

► To support business line strategies globally to ensure Scotiabank delivers on its promise to our customers

Our Global Mobility Program provides Scotiabankers with the opportunity to develop “Global Mindset”, acquire leadership experience in another geography, and strengthen leadership capability.Slide courtesy of Scotiabank


Deutsche Bank‘s Global Context Autumn 2014

► Culture and businessmodel reforms

► Regulatory and legal challenges

► Focus on risk management(3 Lines of Defense)

► Significant cost savingstargets (OpEx)

► Postbank integration► Financial results

Slide courtesy of Deutsche Bank


Deutsche Bank Mobility Themes 2014 and Beyond

► Restructuring mobilityservice delivery

► Shifting emphasis from LT to ST assignments, and toL2L moves

► Increased focus on vendorgovernance & reporting

► Business travellers

Slide courtesy of Deutsche Bank


Financial services short-term business travelers – the path to full compliance


Agenda

► Short-term business travelers (STBT) maturity model► Polling questions► Panel discussion – the path to full compliance


Segmented Comprehensive

Mat

urity

Compliance

Awareness

STBT maturity model

• Minimal corporate ownership• Limited or no standardized policy and process• Variety of service providers

• Solution in place to address some STBT risks but typically not immigration

• Majority of the population covered• Governance framework in place

• Other compliance issues addressed as part of the solution e.g., financial services regulatory

• All populations covered (e.g., cross border commuters)

• Multiple data source reconciliation• Other considerations (e.g., transfer pricing, sales tax

reclaim addressed)

Example models/characteristics

Ownership

Global solution to address a single risk

Global solution to address multiple risks

Full integration into pre travel process

Multiple data source reconciliation

Basic

Developing

Established

Advanced

Leading

Country solution to address a single risk

A

B

C

D

E

FG


Polling questions

1. Where on the STBT maturity model do you believe that your organization currently is (A-G)?

2. Do you anticipate that the number of employees on formal assignment within your organization will decrease and that there will be a substantial increase in the number of STBTs? (Yes/No)

3. Do you believe that the degree of STBT compliance expected by the tax and immigration authorities will increase? (Yes/No)


Panel discussion – the path to full compliance► What was the impetus for your company's STBT program? Were you aiming

to address a single risk or were you looking for a more holistic solution? Did this evolve through the project?

► Who owns the STBT program in your organization? How did you align the multiple stakeholders where sometimes there are competing demands?

► How did you procure the necessary budget for this project?

► What has been the greatest challenge thus far in the implementation of the STBT program?

► What lessons have you learned in implementation? What has been easier and what has been harder than you originally might have expected?

► How have your employees reacted to the implementation of the solution?

► In terms of your current solution, where do you go next?


Financial services organization (FSO) STBT panelOrigins of the program

► What was the impetus for your company’s STBTprogram?

► Was there an event (external or internal) that prompted actions?

► What were the internal steps that led to a “move forward” decision?


FSO STBT panelBiggest implementation challenge

► What was the biggest implementation challenge?► What aspects of implementation went easier than

anticipated?


FSO STBT panelBudget

► How were budgets for the business traveler are arranged?► What was some of the internal debate around budget?


FSO STBT panelC-suite

► How high up in your organization did the business travelers issue go?

► Did you have C-suite (CFO/CEO, etc.) support?


The STBT team

► Is there a separate team fully focused on STBT internally?► What does the staffing model look like?


Future next phase

► What is next on the horizon for the STBT area?