Suitability Event
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Transcript of Suitability Event
Suitability Event
Wednesday, 28 November 2013
1 © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
Agenda
08:00 Introduction Micha Bitterli, Partner, KPMG
Regulatory requirements at the Point of Sale Micha Bitterli, Partner, KPMG Ertugrul Tuefekci, Director, KPMG Pascal Sprenger, Director, Head of Legal Financial Services, KPMG Michel Simantirakis, Senior Manager, KPMG
Digitised Cross Border Manuals for Banking Michael Rombach, Engagement Manager, Appway
The Avaloq Investment Suitability Framework Rafael Keller, Product Manager, Avaloq Evolutions AG
09:30 Wrap-up, Q&A
09:45 Breakfast
Future Challenges
Micha Bitterli, Partner, KPMG
3 © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
A constantly evolving environment
Main reasons for these changes ■ Increased frequency of financial crises with a global
impact over the last decade
■ High costs for tax payers as bank losses were "privatized" in the last crisis
■ Increasing government deficits/debts
■ Increased sense of injustice regarding tax evasion in the populace
■ General aversion against so-called tax havens
■ General public's loss of confidence in financial sector due to flighty business practices including aiding and abetting tax evasion
■ Broad support for (partially excessive) regulation of the banking industry in order to avoid future crises and for a sustainable adjustment in corporate cultures
States are becoming increasingly coordinated in their global hunt for untaxed assets and in the persuasion of governments to regularize unreported assets.
Performance
Governance
Growth
Regulation
Margin erosion
Investor inactivity
Corporate governance
Suitability/ Distribution
rules Tax Haven Black Lists
Transparency
Cross border regulation
FATCA
Business model
realignment
Basel III
Market place harmonization
Data secrecy
Dodd Frank Act
MiFID
AIFMD
Cooperation/ outsourcing
OECD Lists
Differentiation
Asset repatriation
International Tax
Agreements (UK/DE)
Capital requirements
Added-value services
FATF
Suitability Interaction with Suitability
AEI
US Tax
How are banks affected?
5 © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
A selection of international regulatory initiatives. Can you keep up? E
U
Jan 2013 Feb Mar Apr May Jun Jul Aug Sept. Oct Nov Dec 2018 2015 2016 2017 2019
Glo
bal
N
AT
ION
AL
EMIR in force
Banking Union
SSM in force
CFTC swap in
force
MiFID2 final MEP
vote
MiFID2 Council
agreement
MAD/MAR
trialogue
EC EMIR level 2
measures Banking Union fully
in force EC
Liikanen update
EC FTT proposal
Basel 3 liquidity in
force
Basel 3 capital in
force
FSB GSIB surcharge
in force
FSB GSIBs fully
in force
Banking Union SRA in place
MiFID2 in force
UK - Vickers in
force
CRD4 Regulation in force
PRIPs in force
IMD in force
France - FTT
US DFA mandatory
clearing
RRD MEP vote
AIFMD final text
ESMA MiFID2 level 2
PRIPS / IMD MEP
vote Banking Union DGS
proposals
RRD trialogues
EC Shadow Banking
2014
Systemic risk and capital buffers
2014
Governance and supervision Customers and markets
CRD4 MEP vote
CRD4 Directive
Solvency 2 in force
PRIPS / IMD level
2
Audit reform
proposals
MEP Shadow Banking
vote Shadow Banking in
force
EC ESA review
EC LIBOR proposals
EC UCITS 6
UCITS 5 MEP vote
EC data protection proposals
EBA CRD4 /
CRR ITS consult
EBA CRD4 Home /
Host ITS
EBA RRP RTS
EMIR initial
margin in force
AIFMD national
implement
EMIR reporting in force
EMIR clearing
obligation
EBA stress testing
EBA Mortgage guidelines
CRA RTS
ESMA CSD ITS
ESMA Short selling
In force Consultation
FCA/PRA
FSB Shadow Banking
BCBS RWA
BCBS trading book
FSB GSIB list
G20 Leaders Russia
G20 Finance Russia
BCBS shadow banking update
FSB review of GSIBs
CFTC swap in
force FR – Bank separation proposal
DE – Bank separation proposal
Source: KPMG EMA Center of Excellence
6 © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
Trading strategy Trade initiation Trade execution Settlement and clearing
Ongoing management
2 3 4 5 6 7 8 1 2 7 8 1 2 5 7 1 2 7 2 3 4 5 6 7
Financial counterparty
Non-financial counterparty
Exchange
Bilateral
Other regulated trading platform
Pre and post trade
reporting
CCP
Bilateral
Margin and collateral
Risk management
Asset, servicing and custody
Accounting
Transactions reporting
Close out
8
1. European Market Infrastructure Regulation (EMIR)
2. Markets in Financial Instruments Directive (MiFID 2)
3. BASEL 2.5/3
4. Fundamental review of trading book
5. Activities specific 6. Market Abuse Directive (MAD)
7. Dodd-Frank 8. Financial Market Infrastructures
(FMIs)/CSDs
How are banks affected - Transactions
7 © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
Initially, financial institutions will be affected by sinking AuM and margins due to their portfolio adjustments. However, if they do this correctly, institutions will eventually improve their margins and acquire new AuM by expanding their range of products and services.
0
20
40
60
80
100
120
Yesterday Today Tomorrow Strategic state
Profitability
Transforming FI Non-transforming FI
30
40
50
60
70
80
90
100
110
Yesterday Today Tomorrow Strategic state
Asset Base
Transforming FI Non-transforming FI
60
70
80
90
100
110
120
130
140
Yesterday Today Tomorrow Strategic state
AuM Margin
Transforming FI Non-transforming FI
Transformation process
Note: Profitability of Transforming FI indexed at 100 / Profitability of Non-transforming FI relative to Transforming FI Asset base of Transforming and Non-transforming FI indexed at 100 AuM Margin for Transforming and Non-transforming FI in bps
Transition Process
Asset Transformation Process
Product Transformation Process
Service Transformation Process
Point of non-viability
Long-term viability
Transition Process
Point of non-viability
Long-term viability
Transition Process
Point of non-viability
Long-term viability
Suitability MiFID / FSA
9 © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
MiFID / Financial Services Act (FSA)
MiFID
Best execution Inducements (retrocessions)
Outsourcing
Customer classification
Suitability & appropriateness
Risk structures,
organization
Conflicts of interest
Cross-border services
Distribution report / in content, FSA is very similar to MiFID
10 © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
The EU Markets in Financial Instruments Directive (MiFID I) was passed on 21 April 2004
It replaced the Investment Services Directive (ISD) of 1993
It is part of the Financial Services Action Plan (FSAP)
The most important rules were introduced with the Lamfalussy procedures/directive (contains the Prospectus Directive, Market Abuse Directive, Transparency Directive, etc.)
MiFID was one of the most comprehensive reforms within the European Economic Area (EEA)
Important parts were implemented in local laws
Effective: 1 November 2007
MiFID I - Background
11 © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
Strengthening the European financial markets – Robust and harmonized framework for regulating the European
financial market – MiFID I contained the "passport principle" which was introduced with
the Investment Services Directive The passport simplifies market entry in EEA countries Increases competition
Improved customer protection
– Conduct of Business Rules / Best Execution Rules – Client and product analysis – Requirements regarding information and disclosure
MiFID I - Objectives
12 © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
Timeline MiFID II
2010 2011 2012 2013 2014 2018
April 2010
CESR consultation papers on MiFID review
December 2010
European commission releases substantial public consultation on the review of MiFID (MiFID II)
May 2011
Commission reports that proposals will be presented before end of 2011
October 2011
EC adopts formal proposals for a Directive repealing Directive 2004/39/EC (MiFID II) and for a Regulation on markets in financial instruments (MiFIR), which would amend the proposed European Market Infrastructure Regulation (EMIR)
March 2012
Markus Ferber suggests amending the EC’s proposal intended to further restrict high frequency trading
End Q4 2014
Expected release date of MiFID II and MiFIR. While MiFIR will become effective immediately, there will be an implementation period for MiFID II
1 January 2016
MiFID II locally implemented?
1 January 2017
FSA Report up and running
today
September 2008
Bankruptcy of Lehman Brothers
December 2008
Madoff’s sons tell authorities that their father’s firm was a massive Ponzi scheme
13 © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
MiFID II - Introduction
Just like MiFID I, MiFID II is an important pillar for the European financial regulation MiFID II cannot be looked at in isolation but needs to be seen in context of other regulations. For a
comprehensive picture, the following regulations must also be looked at:
− MiFIR (Markets in Financial Instruments Regulation) Objective: improve transparency of financial markets, centralized trading platforms, improves regulation and competition
− EMIR (European Market Infrastructure Regulation) Objective: reduce counterparty risk, reduce operational risk by improving standardization, improved transparency, improved market integrity
− UCITS (Undertakings for Collective Investment in Transferable Securities) Objective: harmonize and strengthen the European investment industry, EU passport
− AIFMD (Alternative Investment Fund Managers Directive) Objective: regulate the licensing and distribution of AIFs; EU passport (limited to retail clients); prohibition to discriminate specific forms of AIF
− MAR / MAD (Market Abuse Regulation / Market Abuse Directive) Objective: guarantee the integrity of European financial markets and improve investor confidence; create a level playing field for economic efficiency as a condition for combating market abuse
− Prospectus Directive Objective: improve the quality of customer information; harmonize the rules on prospectus content
− SLD (Securities Law Directive) Objective: harmonize legal framework for intermediated securities; improved investor protection
− REMIT (Regulation on Energy Market Integrity and Transparency) Regulates: prohibits insider trading and market manipulation, communication of insider information
14 © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
14 © 2013 KPMG Rechtsanwaltsgesellschaft mbH, Mitglied des KPMG-Netzwerks unabhängiger Mitgliedsfirmen, die KPMG International Cooperative ("KPMG
International"), einer juristischen Person schweizerischen Rechts, angeschlossen sind. All rights reserved. Der Name KPMG, das Logo und "cutting through complexity" sind eingetragene Markenzeichen von KPMG International Cooperative
MiFID II/MiFIR – What is it all about? Impacts are far-reaching affect the entire value chain
Objectives/Core topics
Governance
Supervisory authorities
Market infrastructure
Market transparency
Investor protection 1
5
4
3
2 D
istr
ibut
ion
of s
ecur
ities
–
typi
cal d
istr
ibut
ion
cycl
e –
Distribution strategy
Product con- ceptualization
Product introduction
Organization of distribution
Advisory services
Sales efforts
Documen- tation
Execution of orders
After sales
Mat
urity
/Pro
duct
pr
oces
ses
and
sa
le b
y cl
ient
Trad
ing
and
mar
kets
–
typi
cal t
radi
ng c
ycle
–
Trading strategy
Trading operations
Settlement
Clearing
Data
Reporting
Manage- ment D
eliv
ery
or c
lose
-out
Execution of trade and confirmation
1
4
5
2
3
4
5
15 © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
MiFID II Overview of regulation
MiFID Theme Topic MiFID II MiFID I Impacts
Market Structure
Organized Trading Facilities
- New category of trading venue designed to capture organised trading outside of RMs, MTFs and Sis
- Three trading platforms: Multilateral Trading Facilities (MTFs), Regulated Markets (RMs) and Systematic Internalisers (SIs). Threshold test in order to register as a Systematic Internaliser
- Impacts internal crossing systems operated by sell side brokers
- Pre-trade requirements applied to OTC volumes
- Ban on proprietary capital may impact the way in which sell side brokers achieve best execution
Automated Trading
- Continuous liquidity during the trading period
- Annual description of trading strategies to competent authorities
- New registration system and control requirements
- No specific requirements - Impacts execution strategies for
sell side brokers - Significant impact to High
Frequency trading (HFT) risk management
OTC Derivatives - Eligible OTC derivative contracts
to be traded ‘on-exchange’ - Clearing obligation in EMIR
- No specific requirements - Added costs arising from
execution on trading platforms and central clearing
- Potential reduction in flexibility when hedging positions
Commodity derivatives - Position reporting for all
commodity positions - Position limits to be enforced by
trading venues
- No specific requirements - Added cost for trading venues
and participants to enact - Restrictions in the positions that
participants may take could inhibit firms executing, inter alia, client orders
Central Clearing - Non-discriminatory access to
index and benchmark data - Non-discriminatory access to
CCPs
- Investment firms have the right of access to CCPs
- MTFs and RMs may enter into appropriate arrangements with CCPs and Settlement Systems in other territories
- Threat to those Exchanges operating vertical operating models
- Competition in clearing and derivatives should reduce costs, but potential for increased complexity
- Additional risk management challenges if dealing with multiple CCPs
Data Consolidation - New regime for data
consolidation and reporting, including Consolidated Tape, APAs and ARMs
- No specific requirements - Should improve data quality,
consistency and granularity - but, greater complexity and risk
of double reporting
16 © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
MiFID Theme Topic MiFID II MiFID I Impacts
Investor Protection
Investment Advice - Advisers have to state whether
their advice is independent or not.
- NA
- Where advice is independent, firms will need to consider a wide range of products and offerings available, at a potential cost to its own products/ offerings
Inducements - Ban on independent advisers
receiving/giving third party fees, commissions or other monetary benefits.
- NA
- Firms will need to carefully evaluate their remuneration and commission policies. Some face significant changes to business models
Execution Only - Meaning of ‘complex’ has been
redefined to include all products with embedded derivatives, and some Structured UCITS
- Execution only services can be offered for non-complex products traded on a Regulated Market or where they are UCITS compliant
- This may reduce the liquidity of some financial instruments - Firms will need to update their appropriateness tests
Best execution
- Firms to publish top five trading venues for executing orders - More granular reporting requirements for clients
- Trading venues to publish data relating to the quality of executions
- Firms required to achieve best execution for their clients
- Greater costs for trading venues and investment firms in achieving best execution, and reporting against it
Appropriateness - Need to account for the type and
complexity of financial instruments involved, and, in the case of advice, report how that advice meets the personal characteristics of the client
- Firms to assess whether financial instruments are appropriate for clients based on information received from them on their financial situation and investment objectives
- Impacts on policies and procedures
MiFID II Overview of regulation
17 © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
MiFID Theme Topic MiFID II MiFID I Impacts
Transparency
Pre- and post-trade - Pre- and post-trade requirements
extended to non-equity instruments, also applies to OTFs
- Pre-trade requirements apply to shares traded on an SI, RM or MTF
- Extending pre-trade requirements to volumes that are currently OTC, and to non-equity, will require firms to adjust their risk management systems, as quotes extended to a client could be filled by others
Transaction reporting
- Details of persons responsible for the execution, including executing algorithms, to be submitted
- Details of end clients on whose behalf orders are executed
- Reports can be made by the Investment Firm, the Trading Platform, or an ARM
- Relevant details of executions in financial instruments to be reported to the competent authority
- Complexity in determining who reports the transactions - may require individual agreements if double reporting is to be avoided
- Added costs of updating systems to comply with added data fields
Position reporting - See commodity derivatives
above - No specific requirements - Overly prescriptive requirements
that may run counter to Comply or Explain
Governance
Organization Requirements
- More specific requirements for Investment Firms, RMs, SIs, Data Providers and Algorithmic Trading
- General requirements for Investment Firm and Market Operators, ensuring that adequate policies and controls are in place to ensure compliance
- Greater systems and controls and record keeping requirements will add cost and complexity to Firms
Authorization/ Registration
- All members of RMs and MTFs
need to be authorized - Tightening of the exemptions
regarding commodity traders
- Exemptions currently exist for non market-making proprietary traders who are not Sis, and also for those trading on own account in commodities or commodity derivatives
- A larger universe of market participants will be captured by MiFID, and will therefore need to ensure that they are authorized and compliant
Managing bodies - New requirements for Managing
Bodies of Firms and Market Operators, including quantitative requirements for the number of positions that a Board member may hold
- No specific requirements
MiFID II Overview of regulation
18 © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
MiFID Theme Topic MiFID II MiFID I Impacts
Third Country Equivalence
- The Commission will rule whether the regulatory regime of a third country is equivalent to the EU’s -This will be required before
- No specific requirements
- May impose high barriers of entry into the EU for third country firms - Underestimating the scale of achieving equivalence arrangements uncertainty remains on practical implementation
Establishing a branch - Third-country firms wishing to
provide investment services to retail clients will be required to establish an authorised branch in the member state
- No specific requirements
MiFID II Overview of regulation
19 © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
FINMA position paper "Distribution rules / General Direction of Possible Regulations"
Insufficient investor protection
FINMA analysis of problems
Insufficient determination of
suitability and adequacy of financial products
Insufficient product documentation
Insufficient codes of conduct
Financial service companies are not
completely subject to regulatory supervision
International developments
Mandatory client segmentation (like
MiFID)
FINMA solutions
Standardized product documentation
(prospectus / product description)
Codes of conduct and organization rules (duty to disclose)
Extension of the supervision
(FINMA supervision for all asset managers)
Harmonization of international standards
(MiFID/AIFMD) Financial Services Act
• The legislative process is still in its infancy • However, international conditions are restricting Switzerland's reach drastically (e.g. MiFID II)
20 © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
MiFID II vs. distribution report vs. hearing report
MiFID Theme Topic MiFID II Distribution report (FINMA) Hearing report (FDF) Market Structure
Organized Trading Facitlites
Not included. However, European counterparties will require that trades are cleared/settled at an exchange.
Not included. However, European counterparties will require that trades are cleared/settled at an exchange.
Automated Trading OTC Derivatives Commodity derivatives Central Clearing Data Consolidation
Investor Protection
Investment Advice Key point 5: Information on services General direction "conduct and organization" Inducements Decision of the Swiss Federal Supreme Court on
retrocessions General direction "conduct and organization"
Execution only Key point 10: Execution only (only for non-complex products)
Not included
Best execution Best-execution rules already exist Best-execution rules already exist Appropriateness Key point 1: Product information
Key point 3: Prospectus requirements (upon request) Key point 4: Information on own business and status Key point 7: Product description Key point 8: Knowledge & experience Key point 9: Suitability test
General direction "documentation of product characteristics" General direction "conduct and organization"
Transparency Pre- and post-trade transparency
Key point 2: Pre-trade information (product)
Key point 6: Transaction data (costs, risk, nature of offer)
General direction "documentation of product characteristics" General direction "conduct and organization"
Transaction reporting Key point 11: Scope and object of the service Not included
Position reporting Not included Not included Governance Organisation
Requirements Regulated in various FINMA circulars Regulated in various FINMA circulars
Authorization/ registration
Key point 12: external asset managers will be regulated Key point 13: investment advisors will be audited
General direction "change of group of supervised institutions" General direction "training for client relationship managers"
Managing bodies Not included Not included Third Equivalence Key point 14: equivalence of customer protection General direction "cross-border activities"
21 © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
Holistic understanding of suitability
Can the service/product be offered?
No local clients are not eligible
Yes local regulation on suitability is applicable
Cross-Border
How can the service/product be offered? Information on clients Information provided to clients Knowledge and experience Financial circumstances of the
client Investment objective Risk awareness and risk
appetite
Client Suitability
Is the service/product suitable? Specific service/product-
related restrictions Adverse tax impact Requirements for
prospectuses Disclaimer
Product Suitability
Specific rules are applicable for each country
Client suitability depends on local regulations
Services/products must satisfy the requirements of the local regulations and must be approved and suitable
MiFID / FSA
22 © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
Suitability - Example
Client from
Germany
at a Swiss bank
fund from
Luxembourg
is interested
in a
MiFID CISA/FSA UCITS/AIFMD
The client disposes of assets of CHF 2m Question: Is the client a "qualified investor"?
Suitability Which law is applicable? Pascal Sprenger, Director, Head of Legal Financial Services KPMG
24 © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
Which law is applicable?
Bank
Funds
Client
3
2
1 4
CRM at the point of sale (POS): "What should I be on the look-out
for?"
This seemingly easy question does not have an easy answer!
25 © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
Services provided to clients from the MiFID area
Can the service/product be offered?
No local clients are not eligible
Yes local regulation on suitability is applicable
Cross-Border
How can the service/product be offered? Information on clients Information provided to clients Knowledge and experience Financial circumstances of the
client Investment objective Risk awareness and risk
appetite
Client Suitability
Is the service/product suitable? Specific service/product-
related restrictions Adverse tax impact Requirements for
prospectuses Disclaimer
Product Suitability
Specific rules are applicable for each country
Client suitability depends on local regulations
Services/products must satisfy the requirements of the local regulations and must be approved and suitable
For the following examples it is assumed that the institution has the required licenses for each activity.
26 © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
Swiss bank - Swiss client
Bank
Client
1
Background A (CH) banking client disposes
of a (CH) bank account.
The contract stipulates that CH law is applicable and that the place of jurisdiction is the bank's domicile.
Private law Contract contains clauses on place of jurisdiction
and applicable law, CH law is agreed upon Materially, the Swiss Code of Obligations
(specifically contractual law) is applicable. Contractual due diligence, information and
loyalty duties
Bank / account relationship
Account
1 Regulatory provisions Adherence to code of conduct (e.g. banking
secrecy, data protection) Professional and regulatory duties of due
diligence, information and loyalty find their origin in contractual law.
No substantial rules of conduct (in comparison to MiFID)
Pro memoria: CH procedural, penal, tax and anti-money laundering laws
27 © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
Cross-border activity - Legal areas affected (categories)
Supervisory law Penal law Civil law Tax law
Anti-money laundering
law
Procedural law
As a rule, above-mentioned laws come into play for every jurisdiction (country) involved.
Regulatory requirements (e.g. MiFID)
Local penal codes
Contractual obligations / duty to be
diligent and loyal
Local tax codes
Local AML provisions
Norms relating to civil laws,
conflict of laws and procedural
laws (e.g. Lugano Treaty)
Administrative penalties
imposed by foreign
authorities
Criminal charges
Delivery / liability
Unfavorable investments / participation in
tax offense
Violations of local AML provisions
Undesired forums /
applicable law
28 © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
Swiss bank - German client
Bank
Client
1
Background A (D) banking client disposes
of a (CH) bank account. The contract stipulates that
CH law is applicable and that the place of jurisdiction is the bank's domicile.
Civil law / procedural law Contract contains clauses on place of jurisdiction
and applicable law, CH law is agreed upon, however client cannot waive jurisdiction on consumer contracts (art. 15 Lugano Treaty)
Swiss banks' clients are usually considered as consumers (even if investing large amounts)
Bank must have commercial/professional activities in the consumer's home country or have some connection to that country.
Bank / account relationship
Account
1 Regulatory provisions If active in Germany, German regulatory law also
becomes applicable, apart from CH provisions (see above).
Being active in Germany requires an exemption / approval from BaFin.
Tax law The product/service must be compatible with
German tax law requirements (risk: unfavorable investment from a tax perspective and possibly, aiding and abetting a tax offense)
Pro memoria: Penal code and AML provisions (D + CH)
2
2
29 © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
Penalization if providing service without relevant license (e.g. German banking act, KWG, in Germany)
§ 54 Kreditwesengesetz - Verbotene Geschäfte, Handeln ohne Erlaubnis (1) Wer
1. Geschäfte betreibt, die nach § 3, auch in Verbindung mit § 53b Abs. 3 Satz 1 oder 2, verboten sind, oder
2. ohne Erlaubnis nach § 32 Abs. 1 Satz 1 Bankgeschäfte betreibt oder Finanzdienstleistungen erbringt, wird
mit Freiheitsstrafe bis zu fünf Jahren oder mit Geldstrafe bestraft.
(1a) Ebenso wird bestraft, wer ohne Zulassung nach Artikel 14 Absatz 1 der Verordnung (EU) Nr. 648/2012 des
Europäischen Parlaments und des Rates vom 4. Juli 2012 über OTC-Derivate, zentrale Gegenparteien und
Transaktionsregister (ABl. L 201 vom 27.7.2012, S. 1) eine Clearingdienstleistung erbringt.
(2) Handelt der Täter fahrlässig, so ist die Strafe Freiheitsstrafe bis zu drei Jahren oder Geldstrafe.
.
30 © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
Example: Fund Distribution (I)
Bank
Funds
Client
3
2
1 4
Background (CH) bank recommends that a
(D) client invest in a (LUX) fund
Fund distribution CH The scope of CISA includes the distribution of collective
investment schemes In Switzerland and from Switzerland (cf. art. 3 para. 1 in connection with art. 2 para. 1 lit. e CISA).
This means that Swiss distribution rules are being adhered to.
Fund distribution (D) As a rule, distribution activities in Germany are subject to the
laws applicable in Germany (e.g. UCITS Directive, AIFMD, German Code on Collective Investment Schemes, etc.)
Pro memoria: All other legal provisions mentioned earlier continue to be applicable.
Banking client / fund distribution 3
31 © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
Example: Fund Distribution (II)
Bank
Funds
Client
3
2
1 4
Background (CH) bank recommends that a
(D) client invest in a (LUX) fund
Prospectus Product-specific requirements must also be taken into
consideration. Individual requirements may apply for each subfund / unit
classes, of which the PoS has to be aware of.
Supervisory law of fund domicile Other legal requirements may arise due to the applicability of
(supervisory) laws applicable in the fund's domicile.
Product requirements 4
32 © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
Summary
Focus on Switzerland
Swiss civil law requirements form the base of the activity. Up to now, the PoS needed to heed relatively few legal requirements
(FSA?) 1
Focus on target country
As a rule, the civil code and regulatory provisions (e.g. MiFID) of each target country should be observed.
Example MiFID: analyze whether a product/service is suitable and adequate for a client
2
Distribution rules (funds)
In regards to collective investment schemes, there are also specific requirements which must be observed (high level of investor protection).
Foreign regulations must also be observed. 3
Product requirements
Product-specific provisions and requirements must be tested and adhered at the PoS.
4
• The various regulations cause increasing complexity at the PoS, which, in turn, could increase costs considerably.
Products and services must be regularly reviewed for their profitability.
What can I do today?
Micha Bitterli, Partner, KPMG
34 © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
How are the current challenges being addressed?
Quelle: KPMG
The ongoing "transformation process" will continue to affect profitability.
The currently strong markets have a mitigative effect on individual banks but a downward trend would only worsen the situation even more.
A project's target is to deliver specific recommendations on how to shift the profitability curve back into the positive and increase its slope again once it has reached the low-point.
Separately adjusting prices or costs usually just causes a parallel shift of the profitability curve as the economy of scales approach (which will cause a positive shift) can only be attained with high degree of standardization.
For individual institutions, the existing complexity may be difficult to identify. This is why such areas should be outsourced.
Wherever possible, the economy of scales approach should be preferred (similar to today's settlement of securities)..
The presented transformation process is made up of different components: «Assets», «Product» and «Service».
How can costs be minimized?
Ertugrul Tuefekci, Director, KPMG
36 © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
Review of the existing client base
Client base
Exit market 1
2
3
Cash only Market «to be analyzed»
Core market (full service)
Exit market Cash only Limitation of PF
Services & products
Core market (full service)
Qualitatives Assessment: • Client behavior (active, etc.) • # of transactions • Product categories (EQ, FI, fund, alternative) • Client type (mandate, advisory, EAM, etc.) • AuM
bgrsquared
Data mining
No business relationships Directives
Avoid regulatory costs
a) Avoid regulatory costs
b) Limitation of PFs
Complete implementation of regulatory requirements
Strategy
Scenarios
Decision
Quantitatives Assessment:
+ Optimization of income
- KPMG Compliance costs
Optimized services/products on offer =
37 © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
Process on the example of suitability
38 © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
Sample analysis: current portfolio (e.g. Germany)
AuM: Income (in millions) Regulatory requirements
Regulatory costs (in millions)
Net income (in millions) Activities
15 1 1 Cash accounts
7 3
MiFID*
2* 2.5 Shares
25 10 EMIR, AIFMD 1.5 8 Funds
2.5 0.5 non-standard / complex 1 -1 Structured products
62.5 15.5 4.5 11 Non-optimized total
13 1 0.5 Bonds
*e.g. MiFID conversion 1/4
39 © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
Sample analysis: optimized PF (e.g. Germany)
AuM: Optimized income (in millions)
Regulatory requirements
Regulatory costs (in millions)
Net income (in millions) Optimized activity
15 1 1 Cash accounts
7 3.2
MiFID*
1.8* 2.6 Shares
25 10.5 EMIR, AIFMD 1.5 8.4 Funds
---- ---- non-standard / complex --- --- Structured products
60.5 15.8 3.3 12.5 Optimized total
62.5 15.5 4.5 11 Non-optimized total
13 1.1 0.5 Bonds
*e.g. MiFID conversion 1/3
62.5 +0.3 -1.2 +1.5 Optimization effect
40 © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
Important aspects in the client analysis
As a rule, a bank should only be active in markets which either have a positive return or which are strategically relevant.
Costs will be kept down by achieving the necessary critical size in a particular market.
Therefore, it will be vital to the bank's success to implement the regulations which only bear low marginal costs in order to maintain the numerous off-shore markets also in the future.
In order to keep the costs of an additional country at a minimum, the requirements should be standardized.
Standardized requirements can then be automated.
As such, the compliance function should be industrialized in regard to suitability.
How can adherence be ensured?
Micha Bitterli, Partner, KPMG
42 © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
4. Asset
3. Safe custody
A graphic presentation of new regulatory requirements A graphic presentation of regulatory requirements Workflows (I)
Capturing orders
2. BP / Client
1. Service
Cro
ss B
orde
r
Suita
bilit
y / T
ax
Cross-border test
Product suitability test
Regulatory Compliance
Module
Embedding the regulatory tests:
1. Service
3. Safe custody
2. BP / Client
4. Asset
Client suitability test
43 © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
A graphic presentation of new regulatory requirements A graphic presentation of regulatory requirements Workflows (II)
Order (example 1):
Advice on the phone
Hans Muster, client domiciled in Switzerland
Cross-Border Test: PASSED
Buy recommendation UBS (N): Suitable Product
Active Advisory Container with risk profile "Dynamic“
Client Suitability Test: PASSED
Order (example 2):
Advice on the phone
Hans Muster, client domiciled in Germany
Cross-Border Test: FAILED
Order (example 3):
Advice on the phone
Hans Muster, client domiciled in Switzerland
Cross-Border Test: PASSED
Buy recommendation UBS (N)
Active Advisory Container with risk profile "Defensive“
Suitability Test: FAILED
44 © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
A graphic presentation of new regulatory requirements Product Suitability – Tax view in detail
45 © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
A graphic presentation of new regulatory requirements Example: graphic presentation of cross-border requirements
Cro
ss B
orde
r
Documentation of cross-border test
Regulatory Compliance
Module
Type of contact
… …
Service (z.B. advisory services)
Serv
ice
Client type
… …
Client's domicile
BP
/ Per
son
Digitised Cross Border Manuals for Banking
Michael Rombach, Engagement Manager, Appway
KPMG/Appway Digitised Cross Border Manuals for Banking KPMG Suitability Event November 2013
10 Years of Growth and Success Onboarding the digital future of the biggest brands in finance
180% GROWTH Double the speed of the industry average over the past 3 years.
4/5 WORLD LEADER 4 out of the top 5 Wealth Managers in the world choose Appway
2003 - 2010 2011
2012
2013
6 Locations GLOBAL PRESENCE Zurich HQ Geneva Hong Kong
Lugano New York Singapore
110k+ USERS Appway delivers unbeatable process experiences to people all over the world.
48
Digitised Cross Border Manuals Appway Cross Border Solution
49
Client Relationship Manager
Compliance
Cross Border Compliance
Send an Email
Safe as PDF Print out Save to DB
Cross Border Rules
Can the service be delivered
Log activity
Solution Demo
The Avaloq Investment Suitability Framework Rafael Keller, Product Manager Internationalisation & Regulations, Avaloq Evolutions AG
The Avaloq Investment Suitability Framework KPMG Suitability Event, November 2013
Avaloq Evolution AG | Allmendstrasse 140 | 8027 Zurich | Switzerland T +41 58 316 10 10 | F +41 58 316 10 19 | www.avaloq.com
Rafael Keller , Product Manager Internationalisation & Regulations
Agenda
54
The Avaloq Investment Suitability Framework
System Demonstration
Agenda
55
The Avaloq Investment Suitability Framework
System Demonstration
Necessary Checks in a Suitability Framework
56
Area Service Country information Check
Client information Product/portfolio
Service to be offered to the client
Cross-border Is the bank allowed to offer a cross-border service?
Integrated country manuals
Domicile of the client Sales restrictions Inappropriate tax charges Additional risk information
Product suitability
Is the asset suitable for a client of a specific domicile?
Area
Knowledge and experience of the client per product class and per risk aspect
Product ratings based on product classes and risk aspects
Knowledge & Experience (K&E)
Has the client the K&E for the product?
Product risk classifications (e.g. 1-5)
Bearing of financial risks
Client product risk classification based on the client risk profile (e.g. 1-5)
Is the client able to bear the financial risks associated with the product?
Investment goals of the client
Loss capacity of the client
Expected return Loss capacity
(CVaR, stress scenarios)
Investment goals Is the portfolio risk (after trade) adequate for the client?
Is the portfolio in line with the client’s financial goals?
57
The Avaloq Suitability Framework
Avaloq solution
Integration of country manual (KPMG) GUI browser, process integration
Cross-border Is the bank allowed to offer a cross-border service?
Area
Integration of product suitability manual (KPMG) GUI browser, process integration Standard interface towards SIX/cleversoft
Product suitability
Is the asset suitable for a client of a specific domicile?
Facilitated rules management and Avaloq integration by the regulatory framework
Knowledge & Experience (K&E)
Has the client the K&E for the product?
Facilitated rules management and Avaloq integration by the regulatory framework
Standard adapter to Credit Suisse
Bearing of
financial risks
Is the client able to bear the financial risks associated with the product?
Check
Integration of Risk Engine for the calculation of stress scenarios and CVaR, VaR into module
Investment goals Is the portfolio risk (after trade) adequate for the client?
Is the portfolio in line with the client’s financial goals?
58
Application of the Avaloq Investment Suitability Framework
58
2 K&E 1 Product Suitability
4
1 2
3
3 Bearing of financial risks
4 Investment goals
1
3
59
Implementation and Management of Rules is Crucial for TCO
Business abstraction layer allows delivering generic rules for completely different parameterisations.
Customer only maps the standard business glossary to his specific Object Model and is completely compliant.
Customisation would still be possible but, even in such a case, a bank had a huge jump start for the implementation.
Industrialisation of Compliance Rules
External provider
Mapping on bank’s Object Model
Business Layer
Avaloq
Community External Consultant
Avaloq
Technical Layer
Business Rule Logic – Defined by Bank
Business Rules
Business Rule Glossary
Rule Glossary Implementation
Rule Engine Description
Rule Loader Table Model
Comparison of Solution Approaches
60
Challenge Avaloq Third-party tool
Documentation Integrated and fully reproducible audit trail for whole advisory process Integration in advisory protocols
Effort Effort
Automated pre-deal checks S&A testing Stress scenarios Product suitability Cross-border checks
Effort Effort
Risk simulation State-of-the-art simulations (stress scenarios, volatilities, VaR, CVaR…) Drill-down possibilities Mathematical documentation Consulting
Compliance rules Single point of truth for all compliance rules Central place for rule management Possibility to “purchase” standard rule tables
Integration Full Avaloq portal and multi-channel integration
Why industrialize?
Micha Bitterli, Partner, KPMG
63 © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
Why industrialize?
This allows the solution of a seemingly unsolvable problem!
1st line of defense 2nd line of defense 3rd line of defense
preventive (not at arm's
length)
detective (at arm's length)
detective (at arm's length)
preventive (at arm's length)
detective (at arm's length)
detective (at arm's length)
Exception Report
manual
automated
By introducing an independent preventive control at the front, it is possible to save significantly.
64 © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
Why industrialize?
The targeted solution also harbors economies of scale as added costs for additional countries are reasonable and therefore the "fixed costs" can be allocated to more clients.
Non-compliant activities can be avoided.
The solutions specifically target the front office and are meant to support client relationship managers.
This then considers the idea that compliance should be an enabler not a "hindrance".
High-margin products can once more be distributed (expansion of positive lists).
Should it come to a legal suit, the proof is standardized evidence that all requirements have been adhered to.
Information on individual transactions are standardized which marginalizes the legal risk.
65 © 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
Why industrialize?
For the client, there is a true added value to a well-founded and comprehensive supervision of a client portfolio, and can therefore be developed into a new paid service. A subscribing client could for instance be informed of the following:
that a DTT has been terminated which could bring about tax consequences,
that a DTT has been amended so that there will be a negative after-tax effect,
that the client is holding a risk concentration (i.e. by changing values)
that the portfolio's risk no longer reflects the client's risk appetite,
that an amendment in a national law of the issuing state may have negative
consequences for the holder (e.g. FTT),
etc.
Q&A