Compliance Project Management -- Presentation at PMI Switzerland

Serge Garazi –

Interim Project Leader “Bank Compliance”

FATCA/AEoI…:

A journey inside Bank Compliance Project

Management

PMI (Switzerland) - Zurich - 01 Nov 2016

2

FATCA/AEoI…:

A journey inside Bank Compliance projects


W

World Wildlife Fund

Today:

Why

What

How

The 2008 Crisis

The (some) Regulatory Responses

Management of Compliance Projects

W

W

F

W

H

3

Intro About me

• French-speaking Swiss

• Now, in the Greater Zurich Area

• Education:

Information

Technology

Finance

(Project-)

Management

A presentation, based on the combination of IT, Finance and Project-Management.


4

Intro My professional Experience

• Professional Experience:

• Currently:

o Board member, VP Operations at Project Management Institute PMI (Switzerland)

o Interim Project/Program Leader «Bank Regulatory»


ABN Amro

T-Systems Deutsche

Telekom

Rothschild

Bank

Detecon

Consulting

AMS Comit

UBS Credit Suisse Julius Baer BNP Paribas

Project

Management

Institute

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Intro Project Organization of a Compliance project

On the Business side, Business Consultants are key to bring the information about the

regulation to the Bank Management and requirements to the Project Team.

The Project Team then implements the new regulation in the Bank.

Head Compliance /

General Counsel /

COO / …

Project Sponsor

Business

Consultant(s)

Business

Representative(s)

Project Leader

Business

Analyst(s) IT Team

(Programmers, Testers,

Infrastructure, Rollout…)

Business Project

Or


6

Welcome on board!

1. W – Why: Review of the financial crisis


2. W – What: Regulatory Responses to the Crisis

3. H – How: Management of Compliance Projects

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1. Short Review of the Financial Crisis 2008 1.1 The Housing Bubble

1990s

2000s


Why

8

1. Short Review of the Financial Crisis 2008 1.2 The Fall

2006

2008

X A journey inside Bank Compliance projects

Why

9

1. Short Review of the Financial Crisis 2008 1.3 The Causes

Deregulation Poor economic policy

Moral hazard

Over-reliance on quantitative models

Excessive leverage

Availability of cheap credit

Dangerous assumptions regarding

market dynamics

Undisclosed conflicts of interest

Failure of regulators

Failure of credit rating agencies

Failure of the market

High risk, complex financial products

Lack of transparency

Failures in financial supervision

Failures of corporate governance

Inconsistent action by government

Systemic breakdown in accountability

and ethics

Deregulation of OTC Derivatives

High debt

Collapsing mortgage lending standards

Excessive risk-taking

Compensation schemes encouraged gambling


Deregulation

Why

10

1. Short Review of the Financial Crisis 2008 1.4 About Deregulation

2008

“Financial

Tsunami”


Why

68%

100%

1946

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2. Regulatory Responses


How

Why

What

How

The 2008 Crisis



W

W

H

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2. Regulatory Responses 2.1 Towards Transparency in OTC Derivatives


What

13


Warren Buffet

“derivatives are financial weapons of mass

destruction, carrying dangers that, while now

latent, are potentially lethal.” (2003)


What

14


• Situation: o OTC (over-the-counter) Derivatives were not regulated

• Problems: o No Transparency

o Excessive risk-taking

• Solutions (simplified): o Trade standardized OTC Derivatives on exchanges

• Involved regulations: o USA: Wall Street Reform and Consumer Protection Act (Dodd-Frank Act)

o EU:

European Market Infrastructure Regulation (EMIR)

Markets in Financial Instruments Directive 2 (MiFID2)

o CH: Financial Markets Infrastructure Act FMIA (DE: FinfraG, FR: LFIM)


What

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IMPORTANT: This book is a very niche

and specific piece relevant to a small

target audience of potential clients of the

Affinity business. Please consider

whether it is relevant to you before

buying it.

Despite of the seriousness of the subject, … keep having humor!


What

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2. Regulatory Responses 2.2 Towards Client Protection & Market Efficiency

• Problems: o Loans were given to persons who could not afford them

o Conflict of interest between banks’ interests & their Clients’ interests

o Banks didn’t understand the products they sold

• Solution: o Rules of conduct for financial intermediaries (e.g. with inducements)

o Info requirements about financial institutes and their products and services

o Suitability and appropriateness tests

• Involved regulations: o USA: Dodd-Frank Act

o EU: MiFID2

o CH:

Financial Institution Act FinIA (DE: FINIG, FR: LEFIN)

Federal Financial Services Act FFSA (DE: FIDLEG, FR: LSFIN)


What

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2. Regulatory Responses 2.3 Towards Bank Resilience

• Problems: o Capital cushion was depleted by moving items off-balance sheet

o Liquidity was insufficiently taken care of

o Banks grew so large that they threatened existence of states

• Solutions: o Increase of required capital

o Liquidity requirements

o Too big to fail

• Involved regulations: o USA: Dodd-Frank Act, etc.

o EU:

Capital Requirement Directive CRD IV/CRR

Bank Recovery & Resolution Directive (BRRD)

o World: Basel III

o CH: Too big to Fail (TBTF)


What

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2. Regulatory Responses 2.4 Towards international Tax Compliance

Problem

Solution

Consequence Swiss

Banking

Secrecy

(For outside CH)

(UK-FATCA)

FATCA and AEoI cause the death of the Swiss Banking Secrecy, except for people

who are non-US persons and tax-resident only in Switzerland.


What

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• FATCA: – «Foreign Account Tax Compliance Act», a US legislation

– FATCA requires that banks around the world report their American Clients (and accounts) to

the Internal Revenue Service (IRS), in the US.

– Based on Nationality++

• Automatic Exchange of Information (AEoI): – OECD-triggered, targeting the whole world, except USA

– Based on bilateral agreements, reciprocal

– Based on Tax Residence


What

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What

• Information Exchange: o Between countries, it‘s Exchange of Information

o For Bank: it‘s Export of Information

• For Individual Clients and Legal Entities (incl. trusts!)

• Transferred data (yearly, automatic) o KYC (Know-your-Client) data: name, birthdate, …

o Financial data: account balance, transactions, …

Tax Authority of

other country

Tax Authority of

own country

FATCA:

- IGA2

- Final regulations

FATCA:

- IGA1 (most countries)

AEoI

1

2

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2. Regulatory Responses 2.5 Recap

• Regulatory Responses targeting causes of the crisis – 2.1 Towards transparency in OTC Derivatives

– 2.2 Towards Client protection

– 2.3 Towards Bank resilience

• Regulatory Response targeting a consequence of the crisis – 2.4 Towards international Tax Compliance (FATCA, Automatic Exchange of Information)


What

Questions?

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3. Management of Compliance Projects


How

Why

What

How

The 2008 Crisis



W

W

H

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1. A regulatory project is a safe place to be: it‘s regulatory,

therefore it‘s a must!


How

X or

X or

X or

2. Once a regulation exists, it remains.

3. Regulatory projects are usually complex and require

flexibility and speed

?

?

?

3. Management of Compliance Projects 3.1 True or False?

( )

X

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3. Management of Compliance Projects 3.2 Agile Project Management?


How

• Managing a compliance project in an agile way?

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3. Management of Compliance Projects 3.2 Agile Project Management?

• A definition: – an iterative, incremental method of managing the design and build activities (…) that aims to provide

new product or service development in a highly flexible and interactive manner …

https://en.wikipedia.org/wiki/Agile_management


How

• Development driven by a

representative of those who

want the product

• Based on User-stories,

prioritized by the value

they bring

• Even if project is stopped

before the end, end-users

have some value

• Have Regulators drive your

product development?

• Want the Regulators to define

your User-stories?

Compliance project

• Implement only 1/2 of the

regulation? Or 2/3?

• Some key characteristics:

no

no

no

But… be agile!



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3. Management of Compliance Projects 3.3 An Analysis (1/2)

• Regulators


How

• Consultancies

• Local authorities

• Bank Management

• Consultancies

• Project Management

• What makes a compliance project particular?

– No incentive for simple/cost-effective regulation

– Many Stakeholders

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3. Management of Compliance Projects 3.3 An Analysis (2/2)

• What makes a compliance project particular (cont.)?


How

No control Time

Scope

Resources

Cost

• Short time to implement

• Manage delays

• Increased complexity

• Work based on working assumptions

• Difficult to forecast

• High variability in the

project

• Difficult to plan, allocate

and retain

Decision

• When a new regulation is decided

• Possibility to delay introduction

– No upside potential

– No control of key input

– Costs are not supported by decision-makers

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3. Management of Compliance Projects 3.4 Recap

• Agile project management: – not suitable for bank regulatory projects

• Project Management is at the end of the chain; – it inherits all the problems that were created (or not solved) before

• Strong external control – on Time Management, Scope Management and, therefore, strong dependencies on Cost

Management and HR Management


How

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FATCA/AEoI…:


Serge Garazi

Zug, Switzerland

Interim Project Leader “Bank Compliance”

www.xing.com/profile/Serge_Garazi

ch.linkedin.com/in/sergegarazi

Why: Review of the Financial Crisis of 2008

What: Regulatory Responses to Crisis

How: Management of Bank Compliance Projects

Thank you for flying “Regulatory Airlines”!

www.garazi.net Web:


http://www.xing.com/profile/Serge_Garazi

https://ch.linkedin.com/in/sergegarazi

http://www.garazi.net/

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FATCA/AEoI…:


Appendix

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FATCA/AEoI…:


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FATCA/AEoI…:


Switzerland signed bilaterally the AEoI with …

Compliance Project Management -- Presentation at PMI Switzerland

Business

Transcript of Compliance Project Management -- Presentation at PMI Switzerland