Risk Management Presentation December 10 2012

7/28/2019 Risk Management Presentation December 10 2012

1/119

P a g e | 1

International Association of Risk and ComplianceProfessionals (IARCP)

1200 G Street NW Suite 800 Washington, DC 20005-6705 USATel: 202-449-9750www.risk-compliance-association.com

Top 10 risk and compliance management related news storiesand world events that (for better or for worse) shaped the

week's agenda, and what is nextDear Member,

What is the Micro Macro Schizophrenia?

It is the tensionbetween themicro-prudential imperative to require morecapital, more quickly, and macro-prudential concerns over theimplications for pro-cyclicality and sovereign debt sustainability.

Who said that?

Matthew Elderfield, Deputy Governor of the Central Bank of Ireland.

Matthhew continues:So, is there a cure for the Micro-Macro

Schizophrenia condition?

Well, there are perhapsthree competing schools of thought regardingtreatment: what we might call the St Augustine, Schwarzenegger and Dellcures.

Read more at N umber 5 of our list.

Another interesting development:

What is better, to be a risk manager, or a risk manager with Basel I I Iskills?

International Association of Risk and Compliance Professionals (IARCP)www.risk-compliance-association.com
http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/


2/119

P a g e | 2

Basel I I I Jobs, Salary Trend in UK

Risk Management Jobs, Salary Trend in UK

Read more at Number 1below.

Welcome to the Top 10 list.

http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/


3/119

P a g e | 3

Basel II I Risk Experts vs. RiskManagement Experts

It is interesting to feel the market.

Do you make more money as a risk manager, or a risk manager with Baseliii knowledge? What do you believe?

The Comptroller of the Currency Speaks to

Community Bankers About Risk Management

Remarks by Thomas J. Curry, Comptroller of theCurrency, Before the 8th Annual Community BankersSymposium, Chicago, Illinois

SEC Chairman Mary Schapiro to Step DownNext Month

After nearly four years in office, SEC ChairmanMary L. Schapiro announced that she will stepdown on Dec. 14, 2012.

Chairman Schapiro, who became chairman in the wake of the financialcrisis in January 2009, strengthened, reformed, and revitalized the agency.



4/119

P a g e | 4

On learning from history truths and eternaltruths

Speech by Mr Jan F Qvigstad, Deputy Governor ofNorges Bank (Central Bank of Norway), at theNorwegian Academy of Science and Letters, Oslo

Micro-macro schizophrenia Banking Union

and the European capital dilemma

Address by Mr Matthew Elderfield, Deputy Governorof the Central Bank of Ireland and Alternate Chairmanof the European Banking Authority, to Bloomberg,Dublin

Deleveraging and monetary policy

Speech by Peter Praet, Member of the Executive Boardof the ECB, Hyman P. Minsky Conference on Debt,deficits and unstable markets, Berlin

Opening Remarks at the H ighLevel Seminar ofMacro -prudential policy: AsianPerspective



5/119

P a g e | 5

EMIR: The bigger picture and lookingforward

Speech by David Lawton, Director of Markets, FSAat the Tradetech Conference

[Note: EMIR is the acronym for the European Market InfrastructureRegulation].

The Governor of the Bank of England

Her Majesty the Queen has been pleased to approvethe appointment of Mark Carney as Governor of theBank of England from 1 July 2013.

He will succeed Sir Mervyn King.

UBS trading losses in London:FINMA finds major control failures

The proceedings launched by the SwissFinancial Market Supervisory Authority FINMA into UBS's tradinglosses in London have highlighted serious deficiencies in riskmanagement and controls at UBS's Investment Bank.



6/119

P a g e | 6

Basel II I Experts vs. RiskManagement Experts

It is interesting to feel the market.

Do you make more money as a risk manager, or a risk manager with Baseliii knowledge? What do you believe?

Source: IT Jobs Watch, that provides a unique perspective on today'sinformation technology job market.http:/ / www.itjobswatch.co.uk/ jobs/ uk/ basel%20iii.do

Note: This is not an advertisement. We have no affiliation or any other relationshipwith IT Jobs Watch and the stakeholders of IT Jobs Watch

Basel I I I Top 30 Related IT Skills in UK

http://www.itjobswatch.co.uk/jobs/uk/basel%20iii.dohttp://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.risk-compliance-association.com/http://www.itjobswatch.co.uk/jobs/uk/basel%20iii.dohttp://www.itjobswatch.co.uk/jobs/uk/basel%20iii.dohttp://www.itjobswatch.co.uk/jobs/uk/basel%20iii.dohttp://www.itjobswatch.co.uk/jobs/uk/basel%20iii.dohttp://www.itjobswatch.co.uk/jobs/uk/basel%20iii.dohttp://www.itjobswatch.co.uk/jobs/uk/basel%20iii.dohttp://www.itjobswatch.co.uk/jobs/uk/basel%20iii.dohttp://www.itjobswatch.co.uk/jobs/uk/basel%20iii.dohttp://www.itjobswatch.co.uk/jobs/uk/basel%20iii.dohttp://www.itjobswatch.co.uk/jobs/uk/basel%20iii.dohttp://www.itjobswatch.co.uk/jobs/uk/basel%20iii.dohttp://www.itjobswatch.co.uk/jobs/uk/basel%20iii.dohttp://www.itjobswatch.co.uk/jobs/uk/basel%20iii.dohttp://www.itjobswatch.co.uk/jobs/uk/basel%20iii.dohttp://www.itjobswatch.co.uk/jobs/uk/basel%20iii.dohttp://www.itjobswatch.co.uk/jobs/uk/basel%20iii.dohttp://www.itjobswatch.co.uk/jobs/uk/basel%20iii.dohttp://www.itjobswatch.co.uk/jobs/uk/basel%20iii.dohttp://www.itjobswatch.co.uk/jobs/uk/basel%20iii.dohttp://www.itjobswatch.co.uk/jobs/uk/basel%20iii.dohttp://www.itjobswatch.co.uk/jobs/uk/basel%20iii.dohttp://www.itjobswatch.co.uk/jobs/uk/basel%20iii.dohttp://www.itjobswatch.co.uk/jobs/uk/basel%20iii.dohttp://www.itjobswatch.co.uk/jobs/uk/basel%20iii.dohttp://www.itjobswatch.co.uk/jobs/uk/basel%20iii.dohttp://www.itjobswatch.co.uk/jobs/uk/basel%20iii.dohttp://www.itjobswatch.co.uk/jobs/uk/basel%20iii.dohttp://www.itjobswatch.co.uk/jobs/uk/basel%20iii.dohttp://www.itjobswatch.co.uk/jobs/uk/basel%20iii.dohttp://www.itjobswatch.co.uk/jobs/uk/basel%20iii.dohttp://www.itjobswatch.co.uk/jobs/uk/basel%20iii.dohttp://www.itjobswatch.co.uk/jobs/uk/basel%20iii.dohttp://www.itjobswatch.co.uk/jobs/uk/basel%20iii.dohttp://www.itjobswatch.co.uk/jobs/uk/basel%20iii.dohttp://www.itjobswatch.co.uk/jobs/uk/basel%20iii.dohttp://www.itjobswatch.co.uk/jobs/uk/basel%20iii.dohttp://www.itjobswatch.co.uk/jobs/uk/basel%20iii.dohttp://www.itjobswatch.co.uk/jobs/uk/basel%20iii.dohttp://www.itjobswatch.co.uk/jobs/uk/basel%20iii.do


7/119

P a g e | 7

Basel I I I Jobs, Salary Trend in UK

Risk Management Jobs, Salary Trend in UK



8/119

P a g e | 8

Basel I I I Salary H istogram in UK

Risk Management Salary Histogram in UK



9/119

P a g e | 9

Basel II I , Top 9 Job Locations in UK

Risk Management, Top Job Locations in UK



10/119

P a g e | 10

The Comptroller of the Currency Speaks toCommunity Bankers

About Risk Management

Remarks by Thomas J. Curry, Comptroller of theCurrency, Before the 8th Annual CommunityBankers Symposium, Chicago, I llinois

Good morning. I ts a pleasure to be here in Chicago,and to have this opportunity to talk about some of theissues affecting community banks.

The past few years have been extraordinarily challenging for all financialinstitutions and for community banks and thrifts in particular.

Margins are under pressure, the regulatory environment is evolving, andcreditworthy borrowers are hard to find.

Commercial real estate, a bread-and-butter product for many communityinstitutions, is still suffering from high vacancy rates, as well as asignificant level of problem assets.

However, the environment is getting betterforsmall banks and thrifts.

I dont want to minimize the difficulties, but we are seeing realimprovements in asset quality, liquidity, underwriting, and capital,among other indicators.

The number of problem banks is beginning to stabilize, and the volumeof problem assets is falling.

After the financial crisis and the recession that followed, these steadysigns of improvement are welcome indeed.

But as the industry moves to a better place, we ought to ask ourselveswhat it was that differentiatedthe more than 460 banks and thrifts that



11/119

P a g e | 11

failed over the past few years from those that not only survived, but inmany cases thrived.

Clearly, the ones who made it had stronger capital, better liquiditymanagement, better underwriting, and, in most cases, smaller assetconcentrations.

They are the ones who stuck to their knitting, served their communities,and didnt try to reach too far for profits.

They are the community banks that maintained their reputations, andwere able to build upon their customerstrust and confidence.

But as important as each of those characteristics was, the strength of the

community banks that prospered in difficult times came from more thanjust the sum of those parts.

In fact, I would say it was something far more fundamental.

They managed to prosper through hard times because they had effectiverisk management systems in place.

In one sense, thatsalmost self-evident.

After all, banking is a business of managing risk, of understanding howdecisions that are made today will affect the condition of the bank in thefuture, and planning accordingly.

And importantly, the banks that were successful werent those with thefanciest systems.

They were the institutions that focused on understanding the risks theywere taking on and anticipating the future consequences of those risks.

Id like to spend the rest of my time today on the subject of riskmanagement, and in particular on enterprise risk management.



12/119

P a g e | 12

And yes, thatsa subject broad enough to capture almost everything youdo in managing your institutions.

But I ll limit my comments to a few specific areas that I think areparticularly important today, including capital planning, stress testing,and operational risk, which I m sure will be more than enough for thetime we have available.

If you havent seen it yet, then I would encourage you to take a look at theOCCs Semiannual Risk Perspective, which we published for the first timethis spring.

The report highlightsthree areas of risk that are front and center for theOCC, and each of them illustrates the importance of enterprise risk

management.

The firsthas to do with the aftereffects of the housing-drivenboom-to-bust credit cycle.

The second involves the challenge of increasing revenues in aslow-growth economy, and the third is focused on the potential for banksand thrifts to take excessive risks to improve profitability.

None of this is really new: weve seen booms turn into busts before, and

weve dealt with the consequences that followed.

And of course,weve gone through cycleswhere revenue growth andearnings were hard to come by, and some banks and thrifts took oninappropriate risks to compensate.

But there is something different about this cycle.

Its been far more challenging than any I ve experienced in my workingcareer, and it has been far more painful to work through it.

And for all the improvementswere seeing, creditworthy borrowers whowant loans are still hard to find.



13/119

P a g e | 13

This is a time where banks and thrifts of all sizes need to manage theiroperations carefully to ensure that they arent planting the seeds for thenext crisis.

Reaching out on the risk spectrum for earnings can be problematic.

We have seen institutions cutting back on operating controls to enhanceincome, and this is a cause for concern.

And I would say thatswhere a strong enterprise risk management or astrong risk assessment system comes in.

Enterprise risk management is an integrated approach to identifying,assessing, managing, and monitoring risk in a way that maximizes

business success.

It startsat the top, with the board and senior management makingdecisions about the institutionsbusiness model and its appetite for risk,but it cant be successful unless those policies are filtered into the banksculture.

Astrong risk culture is proactive, and it drives the way your bank setsstrategy and makes decisions.

It alsotranslatesinto how your management team and employeesanticipate and respond to risk throughout the bank.

This means that individual risksarent considered only within the lines ofbusinessor by function, although the board and management can andshould think about them in this way.

It also means that risk and risk management are considered in theirtotality across the bank, as well as how different risks are related and

interact with one another.

So one aspect of enterprise risk management involves sharinginformation and breaking down the silos.



14/119

P a g e | 14

For example,your loan staff should be talking with compliance staff whendeveloping new products or services.

This is especially important, and weveseen problems in the past whensilos prevent these two groups from talking to each other.

The fact is, everyone with a vested interest in new product decisionsshould be involved in the conversation, and that includes your supervisor.

The regulatory agencies can be good resources to help you make sureyouve identified all aspects of new product decisions that should beconsidered.

Another key element of risk management involves taking advantage of

the guidance issued by the OCC and other regulators and tailoring it toyour own unique circumstances.

Stress testing is an example.

Our guidance describes a variety of methodsthat community banks canuse to stress test their portfolios, and provides one example of a simplestress test framework.

However, each institution is different, and every bank and thrift will need

to decide for itself what method is most appropriate for its own specificcircumstances.

The key hereand the purpose of the guidancewas to encouragecommunity banks to do some simple stress testing, and to help themunderstand how to do it.

I want to underscore thatwerenot requiring community banks to havethe types ofsophisticated models and processes that we expect fromlarger institutions,or that we think banks have to go hire consultants tomeet our expectations.



15/119

P a g e | 15

What we really want to see is that your banks do considersome form ofstress testing or sensitivity analysis of your key loan portfolios on at leastan annual basis.

The goal is to help you analyze what ifswhat happens if a group ofborrowers or an industry segment runs into problemswhat will be theimpact on your loan portfolios, your earnings and your capital.

Community banks that have incorporated such conceptsand analysesinto their credit risk management and strategic and capital planningprocesses have demonstrated the ability to minimize the impact ofnegative market developments more effectively than those that did notuse stress testing.

Risk management is also a key element of a banks capital planningprocess, a point that we highlighted in guidance issued earlier in the year.

In fact, the first step in capital planning is the identification andevaluation of all material risks.

Again, every bank is different in the way it funds itself, its willingness toenter new lines of business, or its tolerance for asset concentrations,among other factors.

Not every risk can be offset by the addition of capitaloverly high CREconcentrations, for examplebut once risks are identified, managementand the board can begin to assess the institutionscapital needs.

Of course, capital isnt the only buffer available to banks and thrifts toprovide a cushion against economic shocks.

A well-managed allowance for loan and lease losses is also a vital riskmanagement tool, and itsone that I hope each of you is monitoring veryclosely.

As the quality of some classes of assets has improved and charge-offshave moderated, there has been a tendency to reduce quarterly



16/119

P a g e | 16

provisions, in many cases to levels that are inadequate to covercharge-offs.

It would be short-sighted to say that banks and thrifts cant engage insome level of reserve releases, given the improvement weve seen in thefundamentals, and we at the OCC arent saying that.

But I have warned on several occasions lately that we are monitoring thistrend very closely, and were ready to take action if necessary.

In this context, let me say that this is a trend each of you should bemonitoring as well.

One of the key lessons of the financial crisis has to do with the importance

of capital and reserves.

If you are letting your reserves decline rapidly, our examiners will want tosee that you have a carefully-considered strategy for matching theallowance to risk in your loan portfolio.

Finally, I said toward the outset that I wanted to discuss operational risk.

I doubt that any single area of risk management has occupied as much ofmy time since I became Comptroller in April as operating risk.

From the foreclosure processing mess to fair lending violations to creditcard marketing issues, the risk of loss that results from the failures ofpeople, processes, systems, and external events has become a significantsafety and soundness issue.

Im sure that all of you noted that the problems I cited are all ones thatinvolved large banks and thrifts, not community institutions.

However, I want to caution each of you to be particularly vigilant aboutmonitoring and managing operational risk, particularly in areas thatinvolve the fair treatment of your customers.



17/119

P a g e | 17

Op-risk failures are the surest way to undermine the reputation of yourbank, and one of the greatest advantages community banks and thriftshave in todays marketplace is their reputation.

Your customers trust you and want to do business with you, and that is avital resource that you should protect at all costs.

The op-risk example highlights one key aspect of enterprise riskmanagement, and that is the competitive advantage it confers on thosewho do it well.

Whether it is taking the steps necessary to safeguard your reputation ormatching your long term capital needs against your risk profile, riskmanagement should not be viewed as a defensive strategy, but as a

proactive means of gaining a competitive advantage in the market.

The reason I am so concerned about all of this is simple.

Community banks and thrifts play a vital role in supporting localeconomiesthroughout the country, and Americas families andcommunities cant be successful unless you are.

So our goal in promoting sound risk management is to help ensure thatthe nations smaller banks and thrifts remain healthy, profitable, and

strong enough to serve communities across the United States.

Thank you.



18/119

P a g e | 18

SEC Chairman Mary Schapiro to StepDown Next Month

After nearly four years in office, SECChairman Mary L. Schapiro announced thatshe will step down on Dec. 14, 2012.

Chairman Schapiro, who became chairmanin the wake of the financial crisis in January 2009, strengthened, reformed,and revitalized the agency.

She oversaw a more rigorous enforcement and examination program, and

shaped new rules by which Wall Street must play.

It has been an incredibly rewarding experience towork with so many dedicated SEC staff who striveevery day to protect investors and ensure ourmarkets operate with integrity,said ChairmanSchapiro.

Over the past four years we have brought a recordnumber of enforcement actions, engaged in one ofthe busiest rulemaking periods, and gained greaterauthority from Congress to better fulfill ourmission.

Chairman Schapiro is one of the longest-serving SEC chairmen, havingserved longer than 24 of the previous 28. She was appointed by PresidentBarack Obama on Jan. 20, 2009, and unanimously confirmed by theSenate.

During her tenure, Chairman Schapiro worked to bolster the SECsenforcement and examination programs, among others.

As a result of a series of reforms, the agency is more adept at pursuing tipsand complaints provided by outsiders, better able to identify wrongdoers



19/119

P a g e | 19

through vastly upgraded market intelligence capabilities, and morestrategic, innovative and risk-focused in the way it inspects financialfirms.

In each of the past two years, the agency has brought more enforcementactions than ever before, including 735 enforcement actions in fiscal year2011 and 734 actions in FY 2012.

In addition, the SEC engaged in one of the busiest rulemaking periods indecades.

Due to new rules now in place, investors can get clear information aboutthe advisers they invest with, vote on the executive compensationpackages at companies they invest in, benefit from additional safeguards

that protect their assets held by investment advisers, and get access tomore meaningful information about company boards and municipalsecurities.

Ive been so amazed by how hard the men and women of the agencywork each and every day and by the sacrifices they make to get the jobdone, added Chairman Schapiro.

Sooften they stay late or come in on weekends to polish a legal brief,review a corporate filing, write new rules, or reconstruct trading events.

And despite the complexity and the intense scrutiny, they always excel atwhat they do.

As a result of the Dodd-Frank Wall Street Reform and ConsumerProtection Act, the agency has implemented a new whistleblowerprogram, strengthened regulation of asset-backed securities, laid thefoundation for an entirely new regulatory regime for the previously -unregulated derivativesmarket, and required advisers to hedge funds andother private funds to register and be subject to SEC rules.

During Chairman Schapiros tenure, the agency worked to improve thestructure of the market by approving a series of measures that have



20/119

P a g e | 20

helped to strengthen equity market structure and reduce the chance ofanother Flash Crash.

Among other things, the Commission for the first time has required theexchanges to create a consolidated audit trail that will enable the agencyto reconstruct trading across various trading venues.

Chairman Schapiro previously served as a commissioner at the SEC from1988 to 1994.

She was appointed by President Ronald Reagan, reappointed byPresident George H.W. Bush in 1989, and named Acting Chairman byPresident Bill Clinton in 1993.

She left the SEC when President Clinton appointed her as chairman of theCommodity Futures Trading Commission, where she served until 1996.

She is the only person to have ever served as chairman of both the SECand CFTC.

As SEC chairman, Schapiro also serves on the Financial StabilityOversight Council, the FHFA Oversight Board, the Financial StabilityOversight Board, and the IFRS Foundation Monitoring Board.



21/119

P a g e | 21

The SEC -- Revitalized,Reformed and ProtectingInvestors

As Chairman of the U.S.Securities and ExchangeCommission, Mary L. Schapirohelped strengthen and revitalizethe agency; oversaw a morerigorous enforcement program;and, shaped new rules by whichWall Street must play.

During her tenure, the agencysdedicated work force brought a record

number of Enforcement actions, swiftly reacted to the May 6, 2010 FlashCrash, and achieved significant regulatory reform to protect investors.

Executive Summary

Reforming and Revitalizing the SEC --During Chairman Schapirostenure, the agency:

- Streamlined itsenforcement procedures to launch investigationsmore quickly

- Developed itsfirst national, centralized database for all tips andcomplaints and established an office to triage them

- Created specialized enforcement unitsto harness expertise andexperience

- Eliminated a layer of management to put more expert attorneys backon the front lines

- Modernized its technology and upgraded its case managementsystem



22/119

P a g e | 22

- Established a new whistleblower program already paying dividends

- Established a new division to focus on risk and economic analysis

- Created new corporate disclosure units

- Bolstered its ranks by hiring more experts in risk management,quantitative analytics, trading, portfolio management, valuationskills-- and stepped up training

- Enhanced collaboration by creating cross-agency working groupsand making it a criteria for performance evaluations

- Created the agency's first-ever Office of the Chief Operating Officer

- Improved the agencys financial reporting, eliminating materialweaknesses

Achieved Record Results in Enforcement and Inspections

- Brought a record number of enforcement actions-- including 735enforcement actions in FY 2011 and a near-record 734 actions in FY2012

- Returned more than $6 billion since FY 2009 to harmed investors

- Obtained more than $11 billion in ordered disgorgements andpenalties since FY2009

- Brought an increased average of50 Ponzi scheme caseseach yearbetween FY 2009 and 2012more than twice as many as compared toFY 2007 and 2008

- Filed actions against129 individuals and institutionsstemming fromthe financial crisis, including more than 50 CEOs, CFOs and other

senior officers

- Brought financial-crisis related actions against Fannie Mae andFreddie Mac, State Street, American Home Mortgage, New Century,



23/119

P a g e | 23

IndyMac, Bancorp, Countrywide, Brookstreet, Citigroup, WachoviaCapital Markets, Goldman Sachs, Evergreen, J.P. Morgan Securities,Bank of America, Charles Schwab, Morgan Keegan, TD Ameritrade,and others

-Brought a record number of enforcement actions against investmentadvisers

- Increased the amount of enforcement actionsinvolving municipalsecurities

- Brought a record number of enforcement actionsagainst investmentadvisers

-Increased the amount of enforcement actions involving municipalsecurities

- Introduced new tools, similar to those used by criminal authorities,to secure the cooperation of persons who are on the inside

- Prosecuted the largest insider trading scheme ever discovered,winning a record $92.8 million fine in the civil case against the CEOof the Galleon Hedge Fund

-Witnessed gains from a new Aberrational Performance Inquiryfocused on hedge funds

- Embraced a risk-based approach targeting examinations ofregistered firms, bringing a 50% increase in the rate at which examsresult in referrals to the enforcement division

- Imposed first-ever penalty against an exchange for rule violations

-

Launched an initiative to address concerns arising from reversemergers and foreign issuers



24/119

P a g e | 24

Investor-Focused Rulemaking

- Experienced one of the busiest rulemaking periods in decades,including proposing or adopting more than of the rules requiredby the Dodd-Frank Act.

- Enhanced safeguardsfor investorsassets held by investmentadvisers

- Proposed and began adopting an entirely new regulatory regime forthe previously-unregulated derivatives market

- Required companies to let shareholders weigh in on executivecompensation and "golden parachute" compensation arrangements

- Required advisers to hedge funds and other private funds to registerand be subject to SEC rules leading to the registration of about4,000 of them -- and implemented a new reporting regime.

- Required companies to disclosetheir use of conflict minerals andrequired resource extraction companies to disclose payments togovernments

- Adopted widely-hailed 2010 rules to enhance the resiliency of money

market funds

- Curtailed pay-to-play practicesby advisers to government clients,like public pension plans

- Provided investors with more meaningful and more-timelyinformation regarding municipal securities and issued a reportrecommending ways to improve the structure of the municipalsecurities market

-Provided investors with more meaningful information aboutcompany boards and risk management



25/119

P a g e | 25

- Required advisers to provide clients with brochures that plainlydisclosesuch things as the advisersbusiness practices, fees,conflicts of interests and disciplinary information

- Adopted new rules designed to help revitalize the asset-backedsecuritiesmarket by encouraging better disclosure

- Proposed rules to create a new and more equitable frameworkgoverning the way in which investors pay the costs for mutual fundsto be marketed and sold

- Proposed rules to help clarify the meaning of a date in a target datefundsname and enhance the information in fund advertising andmarketing materials in order to assist investors preparing for

retirement

Addressed the Structure of the Market

- Approved measures that have helped to reduce the chance of anotherFlash Crash occurring

- Approved single stock and market wide circuit breakers that havehelped to limit the impact of technology errors in the market

-Clarified up front for investors how and when erroneous tradeswould be broken

- Required broker-dealers to put in place risk controls and effectivelyprohibited unfiltered access to the exchanges

- Required, for the first time, the exchanges to establish aconsolidated audit trail system that will enable regulators to trackdetailed order/trade information across the securities markets

-Eliminated stub quotes

- Set up a new system to collect information that will inform futurerulemaking regarding high frequency trading



26/119

P a g e | 26

Reforming and Revitalizing the SEC

Streamlined enforcement procedures to launch investigations morequickly This eliminated the need for attorneys to obtain clearance fromthe full Commission before initiating an investigation or commencing

settlement negotiations.

Developed the SECs first national, centralized database for all tips andcomplaints and set up an office to triage them The system allowsinformation to be effectively sorted, stored and compared regardless ofhow the information is received.

A new Office of Market Intelligence reviews and analyzes the informationto conduct market surveillance, to determine whether to open newinvestigations or route data to existing investigations, and to discover

emerging trends that need to be watched.

Created specialized enforcement units to harness experience -- The fivenew national specialized units allow the enforcement unit to buildspecialized expertise and institutional experience in areas includingStructured and New Products, Market Abuse, Municipal Securities andPublic Pensions, Asset Management, and FCPA.

They allow the agency to better detect trends, links and patterns related tofraudulent conduct, and to more effectively investigate suspicious activityin these areas.

Eliminated a layer of management to put more expert attorneys onthe front lines of investigations-- This returned experiencedattorneys to investigations and litigation.

Modernized the agencys technology and upgraded its case managementsystem Three systems have been increasing efficiency, including

1) A new eDiscovery system that is giving investigators faster access to

information by vastly expanding their ability to parse evidence and drilldown on key subjects;



27/119

P a g e | 27

2)An enhanced case management system that is providing a clearer viewinto the progress of every investigation and enforcement action, as well asaggregated statistics and performance metrics; and

3)A new system, TRENDS, that is helping the National Exam Program

become more uniform in the way it does its exams and ensuring that staffenter exams fully prepared.

Advocated and established a new whistleblower program that is payingdividends-- A new program, advocated by Chairman Schapiro,incentivized insiders to come forward with information regardingpossible securities law violations.

The new program has helped to reduce the length of investigations; paidout its first reward; and, generated more than 3,000 tips.

Established a new division to focus on risk and economic analysis -- TheDivision of Risk, Strategy and Financial Innovation serves as the SECsthink tank, improving the agencys ability to track and respond to newproducts, trading practices and risks.

Staffed with academics, economists and financial industry professionals,this division enhances the SECs cost/ benefit analysis capabilities.

Created new corporate disclosure units The division that focuses on

corporate disclosures set up new groups each to concentrate closely onthe largest financial institutions, structured finance products, andcapital markets trends.

Hired new skill sets and stepped up training -- The agency has broughton board experts in risk management, trading, quantitative analytics,portfolio management and valuation skills to help it keep pace withthose it regulates.

And, it has more than doubled its training resources to ensure that

veteran employees are up-to-date on the financial industrys latestdevelopments.

Enhanced collaboration by creating cross-agency working groups andmaking it a part of performance evaluations-- Chairman Schapiro



28/119

P a g e | 28

emphasized the need for collaboration to ensure rulemakings and studiesbenefit from the insight of the full spectrum of agency expertise.

She also created a host of cross-functional teams to develop the tips andcomplaints database, establish requirements for the new consolidated

audit trail, conduct the Muni Field hearings; address life settlements; and,study how to establish a fiduciary duty for both I nvestment Adviser andbroker-dealers. She also incorporated collaboration criteria intoperformance evaluations.

Created the agency's first-ever Office of the Chief Operating OfficerThis position has enhanced agency efforts -- around informationtechnology, financial reporting and records management -- to refocusresources and make the agency more efficient and effective.

Improved the agencys financial reporting, eliminating materialdeficiencies-- The SEC improved its internal controls, as the GAOreported that the agency had no material weaknesses for the second yearin a row, and no significant deficiency in the area of information systems,a key area for strong financial reporting.

Overseeing a Successful Enforcement and Exam Program

Brought a record number of enforcement actions In FY 2011, the

agency brought 735 enforcement actions -- more than at any time inthe agencys history.

And, in FY 2012, it brought a near-record 734 actions.

Returned more than $6 billion to harmed investors -- Since FY 2009, theagency has identified and tracked down investors who were harmed bywrongdoing, and returned $6.75 billion to them.

Obtained more than $11 billion in ordered disgorgements and penalties

The agency obtained $2.4 billion in FY 2009; $2.85 in FY 2010; $2.8 billionin FY 2011; and $3.1 billion in FY 2012.



29/119

P a g e | 29

Brought an increased average of 50 Ponzi scheme cases --Between FY2009 and 2012, the agency brought approximately 50 Ponzi cases eachyear, up from 22 per year between 2007 and 2008.

Filed actions against 129 individuals and institutions stemming from the

financial crisis-- The actions resulted in $2.6 billion in disgorgement,penalties and other financial relief.

The institutions involved in the SECs credit crisis cases included FannieMae and Freddie Mac, J.P. Morgan Securities, Goldman Sachs, StateStreet, American Home Mortgage, New Century, I ndyMac, Bancorp,Countrywide, Brookstreet, Citigroup, Wachovia Capital Markets, ICPAsset Management, Taylor, Bean & Whitaker, Evergreen, Bank ofAmerica, Charles Schwab, Evergreen, Morgan Keegan, and TD

Ameritrade, and Stifel, Nicolaus & Co.

Brought actions against more than 50 CEOs, CFOs and other seniorofficers in connection with the financial crisis The agency has chargedindividuals in all but 8 of the financial-crisis related cases it has brought.

A $67.5 million settlement with the former Countrywide Financial CEOresulted in the largest-ever penalty paid by a public companys seniorexecutive in an SEC settlement.

Brought a record number of enforcement actions against investmentadvisers -- The SEC filed record numbers of enforcement actionsagainst investment advisers and investment companies in FY 2011 and2012.

Increased the amount of enforcement actions involving municipalsecurities-- In FY 2012, the SEC filed more than double the number ofenforcement actions related to municipal securities than it filed theprevious year.

Included in these actions were charges against the former mayor and citytreasurer of Detroit in a pay-to-play scheme involving investments in thecitys pension funds, and Goldman Sachs for violations of variousmunicipal securities rules resulting from undisclosed in-kind



30/119

P a g e | 30

non-cash contributions that one of its investment bankers made to aMassachusetts gubernatorial candidate.

Encouraged greater cooperation with insiders-- The agency introducednew cooperation tools, similar to those used by criminal authorities, to

secure the cooperation of persons who are on the inside.

This program is helping investigators to obtain information and theassistance of witnesses earlier in investigations, enabling the agency tobuild stronger cases more quickly.

The SEC used this tool for the first time, among many, in 2010 when itcharged a former executive of Carters Inc. with financial fraud but notthe company, which cooperated with the agency.

Detected and prosecuted the largest insider trading scheme everdiscovered The agency won a record $92.8 million fine in the civil caseagainst Raj Rajaratnam, Galleon Hedge Fund CEO.

Rajaratnamsparallel criminal conviction resulted in an 11-year prisonsentence and $64 million in fines and forfeitures.

In addition to Rajaratnam, the SEC has won civil judgments ornegotiated favorable settlements with other traders, analysts, researchersand high-ranking executives.

SEC support helped lead to pleas and criminal convictions for more than50 other members of the conspiracy, including former Goldman Sachsboard member and former Managing Director of McKinsey & Company,Rajat Gupta.

The number of SEC insider trading actions filed since October 2009 havebeen the most in SEC history for any three-year period.

Witnessed gains from a new Aberrational Performance Inquiry Thiscollaborative effort-with Risk Fin and the exam unit--uses quantitative

analytics to search for hedge fund advisers whose claimed returns areunusual enough to raise a red flag.



31/119

P a g e | 31

For instance, in 2011, as a result of a sweep, the agency charged fourhedge fund advisers for inflating returns, overvaluing assets and otheractions that materially misled and harmed investors.

In 2012, the SEC charged three advisory firms and six individuals as part

of this initiative to combat investment adviser fraud.

Embraced a risk-based approach for targeting examinations-- By makingits program more risk-based, the examination program has seen a 50%increase in its rate of referrals to the enforcement unit.

The new program developed and improved algorithms that use publiclyavailable data from registered entities to target those whose behavior isconsistent with increased risk of unethical or illegal actions.

Imposed first-ever penalty against an exchange The penalty stemmedfrom rules violations that gave certain customers an improper head starton trading information.

Launched an initiative to address concerns arising from reversemergers and foreign issuers--Deregistered the securities of nearly 50companies and filed more than half a dozen fraud actions againstforeign issuers and executives since the initiative began.

Engaging in One of the Busiest Rulemaking Periods

Experienced one of the busiest rule-writing periods in decades -- In both2010 and 2011, the Commission proposed and/ or adopted about 70 rules,concept releases or interpretive releases each year.

In addition, the Commission proposed or adopted about 80% of the rulesrequired by the Dodd-Frank Act, including adopting 36 rules, proposingmore than 39 other rules and conducting 15 studies required by the Act.

Enhanced safeguards for investorsassets-- In cases where registeredinvestment advisers retain custody of a clientsassets, advisers are nowrequired to hire an independent public accountant to conduct an annual"surprise exam" to verify those assets actually exist.



32/119

P a g e | 32

In addition, the adviser must obtain a written report -- prepared by anaccountant registered and inspected by the Public Company AccountingOversight Board -- assessing the safeguards that protect the clients'assets.

The agency has proposed similar rules for registered broker-dealerswho retain custody.

Proposed an entirely new regulatory regime for the previously unregulatedderivatives market The agency has laid the groundwork for an entirelynew system that includes defining a series of terms related to security-based swaps; establishing a process for clearing transaction, trading onexecution facilities and storing data in repositories; developing standardsfor operating and governing of clearing agencies; specifying steps that

end-users must follow when engaging in transactions; and establishingregistration requirements.

Required companies to let shareholders weigh in on executivecompensation -- The agency adopted rules allowing shareholder toapprove executive compensation and "golden parachute"arrangements.

It also joined with other regulatory agencies to propose rules requiringcertain large financial institutions to disclose the structure of theirincentive-based compensation practices, and prohibit such institutionsfrom maintaining compensation arrangements that encourageinappropriate risks.

In addition, the agency adopted rules requiring exchanges and nationalsecurities associations to prohibit the listing of any equity security of anissuer that does not comply with new compensation committee andcompensation adviser requirements.

Required advisers to hedge funds and other private funds to register andbe subject to SEC rules leading to the registration of about 4,000 of them-- The SEC adopted rules requiring advisers to hedge funds and otherprivate funds to register with the SEC as part of the Dodd-Frank Act.



33/119

P a g e | 33

As a result, the agency can now see the full landscape of hedge funds,rather than just a sliver based on those who registered voluntarily.

In tandem with the CFTC, the Commission also adopted a new rule thatwould require hedge fund advisers and other private fund advisers to

report systemic risk information to the Financial Stability OversightCouncil.

The SEC adopted a rule defining family offices that will be excludedfrom the definition of an investment adviser under the InvestmentAdvisers Act.

The SEC also adopted a rule defining advisers to venture capital funds,who are required to report basic information to the SEC and the public.

Required companies to disclose their use of conflict minerals andrequired resource extraction companies to disclose payments togovernments The SEC adopted rules, under the Dodd-Frank Act, thatrequire companies to disclose annually whether they useconflictminerals that originate from the Democratic Republic of the Congo oradjoining countries because of concerns that the exploitation and tradeof these minerals by armed groups is helping to finance conflict in theregion and is contributing to a humanitarian crisis.

The agency also adopted rules under the Dodd-Frank Act that requireresource extraction companies to disclose payments to governments.

Adopted widely-hailed rules to enhance the resiliency of money marketfunds-- The SEC adopted rules to make money market funds moreresilient by strengthening credit quality, liquidity and maturity standards,as well as introducing stress testing requirements and mandating newreporting of money market fund holdings.

In addition, the SEC made available to investors the detailed information

about a fund's investments and the market-based price of its portfolioknown as its "shadow NAV" (net asset value) or mark-to-marketvaluation.



34/119

P a g e | 34

The Chairman also called upon the Financial Stability Oversight Councilto act to make such funds less susceptible to destabilizing runs likeoccurred during the credit crisis.

Curtailed pay-to-play practices by advisers to government clients, like

public pension plans -

The agency prohibited the use of campaign contributions and relatedpayments to influence the awarding of contracts for the management ofpublic pension plan assets and similar government investment accounts.

Provided investors with more meaningful and more-timely informationregarding municipal securities The Commission expanded existingrules prohibiting brokers, dealers, and municipal securities dealers frompurchasing or selling municipal securities unless they reasonably believethat entities issuing the securities have agreed to disclose such things as

annual financial statements and notices of certain material events, such aspayment defaults and rating changes.

The new rules expand coverage to variable rate demand obligations,improve disclosure of tax risk, strengthen disclosure of important eventsand establish more specific filing deadlines.

The Commission also issued a report laying out a range ofrecommendations to improve the structure of the municipal market.

Provided investors with more meaningful information about companyboards--The Commission required companies to file detailedinformation about the structure of their boards; the qualifications of theirdirectors and nominees; the fees and conflicts of compensationconsultants; and the relationship between a company's overallcompensation policies and its risk profile.

Required advisers to provide clients with a brochure of key informationThe Commission improved and updated a form so that clients ofinvestment advisers can now get details most relevant to them, written inplain English, such as the advisersbusiness practices, fees, conflicts ofinterests and disciplinary information.



35/119

P a g e | 35

It also required brochure supplements to give resume-like informationabout the individuals at an investment advisory firm.

Further, it ensured investors have easy access to the brochures, FormADV, Part 2, which are filed electronically and posted on the SECs

website.

Adopted new rules designed to help revitalize the asset-backedsecurities market by encouraging better disclosure The new rulesrequire issuers of asset-backed securities:

1)To disclose the history of the requests they received and repurchasesthey made related to their outstanding asset-backed securities; and

2) To conduct a review of the assets underlying those securities.

Proposed rules to create a new and more equitable framework governingthe way in which investors pay the costs for mutual funds--The proposedrules would create a new and more equitable framework for the way inwhich investors pay the marketing and sales costs so-called12b-1 fees-- for mutual funds.

In addition, the rules would limit the amount of asset-based sales chargesthat individual investors pay.

Proposed rules to help clarify the meaning of a date in a target date fundsname --

The Commission proposed rules to help investors to better assess theanticipated investment glide path and risk profile of a target date fund by,for example, requiring graphic depictions of asset allocations in fund ads.

The rules, which would require an asset allocationtag lineadjacent to atarget date fundsname in an ad, also would enhance the information inads and marketing materials to help investors prepare for retirement.

Improving the Structure of the Market

Approved a series of measures that have helped to reduce the chance ofanother Flash Crash occurring Months before the Flash Crash,Chairman Schapiro launched a comprehensive review of the structure of



36/119

P a g e | 36

the markets and, following May 6, summoned the exchange heads toWashington to hammer out a series of measures to address the issuesraised by that days volatile trading.

Approved a variety of circuit breakers to help limit the impact of

technology errors in the market -- The Commission approved a proposalestablishing alimit up-limit down mechanism that prevents trades inindividual exchange-listed stocks from occurring outside of a specifiedprice band.

It also approved market-wide circuit breakers that when triggered, halttrading in all exchange-listed securities throughout the U.S. markets.

Clarified up front for investors how and when erroneous trades would bebroken -- The new rules approved by the Commission outline when anerroneous trade would be broken, so that market participants are lesslikely to flee when computer glitches occur.

Required broker-dealers to put in place risk controls and effectivelyprohibited unfiltered access to the exchanges-- The Commissionapproved new rules that require broker-dealers to implement controlsand supervisory procedures to manage the financial and regulatory risksof market access, particularly the technology systems that enter orders into the marketplace.

The rules also assured broker-dealers would implement risk controls toreduce the chance of computer glitches.

Approve a first-ever consolidated audit trail system -- The Commissionapproved a new rule requiring the exchanges and FINRA to submit acomprehensive plan for developing, implementing, and maintaining aconsolidated audit trail.

The audit trail will collect and accurately identify every order,

cancellation, modification, and trade execution for all exchange-listedequities and equity options across all U.S. markets.

The new measure will increase the data available to regulatorsinvestigating illegal activities and it will significantly improve the ability



37/119

P a g e | 37

to reconstruct broad-based market events in an accurate and timelymanner.

Eliminated stub quotes --The Commission approved new rulesproposed by the exchanges and FINRA to strengthen the minimum

quoting standards for market makers and effectively prohibit stubquotes in the U.S. equity markets.

Set up a new system to collect market and trading data -- The newsystem will inform future rulemaking regarding high frequency trading

ADDITIONAL INVESTOR PROTECTI ON MEASURES

- Issued a record number of investor alerts and bulletins

-Established an investor advisory committee

- Created a new investor.gov website and upgraded sec.gov



38/119

P a g e | 38

Jan F Qvigstad: On learning fromhistory truths and eternal truths

Speech by Mr Jan F Qvigstad,Deputy Governor of Norges Bank(Central Bank of Norway),at the Norwegian Academy ofScience and Letters, Oslo,

I have received valuable assistance inpreparing this speech.

Ou

Documents

Risk Management Presentation December 10 2012