Compliance Oversight of Broker-Dealer

1
Compliance Oversight of Broker-Dealer Wealth
and Investment Management

• FIRMAs 23rd National Risk Management Training
  Conference
• New Orleans, April 30, 2009
• James Strickland, Chief Auditor, TD Bank

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Compliance Oversight of Broker-Dealer Wealth
and Investment Management

• INTRODUCTION
• Session Overview
• Industry Survey overview
• Risk coverage/structure of oversight functions
• Resources/tools in independent oversight
  functions
• Coordination/interactions by risk oversight
  functions
• Monitoring/reporting during business as usual and
  industry/firm events
• Response to recent market events
• Q A

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Compliance Oversight of Broker-Dealer Wealth
and Investment Management

• INDUSTRY SURVEY
• Process
• 8 questions, along themes of session overview
• MAX CAE Peer Group
• FIRMA Members
• Respondent demographics
• Question 1 How would you categorize the size of
  your bank/financial institution (based on assets
  under management (AUM), assets under
  administration (AUA) and/or assets under custody
  (AUC))?

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Compliance Oversight of Broker-Dealer Wealth
and Investment Management

• INDUSTRY SURVEY

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Compliance Oversight of Broker-Dealer Wealth
and Investment Management

• RISK COVERAGE/STRUCTURE OF OVERSIGHT FUNCTIONS
• Compliance/Risk/Audit oversight at TD Bank
• Structure
• Wealth Mgt. Compliance

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Compliance Oversight of Broker-Dealer Wealth
and Investment Management
RISK COVERAGE/STRUCTURE OF OVERSIGHT FUNCTIONS

1. Compliance/Risk/Audit oversight at TD Bank

• Structure
• Wealth Management Risk

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Compliance Oversight of Broker-Dealer Wealth
and Investment Management
RISK COVERAGE/STRUCTURE OF OVERSIGHT FUNCTIONS

1. Compliance/Risk/Audit oversight at TD Bank

• Structure
• Internal Audit

8
Compliance Oversight of Broker-Dealer Wealth
and Investment Management

• RISK COVERAGE/STRUCTURE OF OVERSIGHT FUNCTIONS
• Compliance/Risk/Audit oversight at TD Bank
• Duties/Mandates
• Wealth Management Compliance
• Recent realignment w/TDBFG parent (mandates in
  development)
• Parent Company Mandates
• Direct legislative regulatory awareness
• Develop Implement policies procedures to
  equip line management into compliance

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Compliance Oversight of Broker-Dealer Wealth
and Investment Management

• RISK COVERAGE/STRUCTURE OF OVERSIGHT FUNCTIONS
• Compliance/Risk/Audit oversight at TD Bank
• Duties/Mandates
• Wealth Management Risk
• US Wealth Mgt Risk Committee-approved Mandate
• Develop policies/Best Practices for Operational,
  Investment, Regulatory, Reputational, Credit Risk
• Partner with Internal Audit, Legal, Compliance,
  Group Risk Management

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Compliance Oversight of Broker-Dealer Wealth
and Investment Management

• RISK COVERAGE/STRUCTURE OF OVERSIGHT FUNCTIONS
• Compliance/Risk/Audit oversight at TD Bank
• Duties/Mandates
• Internal Audit
• Audit Committee/Board-approved Audit Department
  Charter
• Provide independent and objective assurance
  designed to add value
• Evaluate the effectiveness of risk management,
  control and governance processes
• Defined Objectives, Operating Principles,
  Authority, Scope of Responsibilities

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Compliance Oversight of Broker-Dealer Wealth
and Investment Management

• RISK COVERAGE/STRUCTURE OF OVERSIGHT FUNCTIONS
• Industry Survey Results
• Reporting Line
• Question 2 Does the Compliance function for the
  broker-dealer, investment and wealth areas report
  directly to the business line, or independently
  to a separate function.

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Compliance Oversight of Broker-Dealer Wealth
and Investment Management

• RISK COVERAGE/STRUCTURE OF OVERSIGHT FUNCTIONS

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Compliance Oversight of Broker-Dealer Wealth
and Investment Management

• RESOURCES/TOOLS IN INDEPENDENT OVERSIGHT
  FUNCTIONS
• Approaches to compliance coverage for testing and
  monitoring activities
• Options for aligning people to needs
• Subject Matter Experts (SMEs) or generalists
• Horizontal or vertical alignment, or mix
• Dedicated or multiple duties/coverage areas
• Industry Survey Results
• Resource Alignment
• Question 7 Which statement best describes the
  Risk Oversight structure for the Broker-Dealer,
  Investment Management and Wealth Management
  business lines?

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Compliance Oversight of Broker-Dealer Wealth
and Investment Management

• RESOURCES/TOOLS IN INDEPENDENT OVERSIGHT FUNCTIONS

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Compliance Oversight of Broker-Dealer Wealth
and Investment Management

• RESOURCES/TOOLS IN INDEPENDENT OVERSIGHT
  FUNCTIONS
• Approaches to compliance coverage for testing and
  monitoring activities
• Extent of automated tools utilization
• Definition/examples
• Degree of reliance
• Industry Survey Results
• SME/Tool Reliance
• Question 4 Structurally, please select the
  phrase that best describes the approach taken by
  Compliance and/or Audit.

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Compliance Oversight of Broker-Dealer Wealth
and Investment Management

• RESOURCES/TOOLS IN INDEPENDENT OVERSIGHT FUNCTIONS

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Compliance Oversight of Broker-Dealer Wealth
and Investment Management

• RESOURCES/TOOLS IN INDEPENDENT OVERSIGHT
  FUNCTIONS
• Training and Certification
• Compliance/Risk/Audit
• Corporate Training (Corporate Policies, Products,
  Regulations, AML)
• Industry Training (SIFMA, FINRA, FIRMA, BAIs
  CRP)
• Industry Certifications (FINRA Licensing S-7,
  S-24, mandatory Firm / Regulatory Element CE)
• PRODUCT!

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Compliance Oversight of Broker-Dealer Wealth
and Investment Management

• RESOURCES/TOOLS IN INDEPENDENT OVERSIGHT
  FUNCTIONS
• TD Bank approach
• Compliance
• SMEs
• License Monitoring
• CIP Exception Monitoring
• Risk
• Risk Control Self Assessment (RCSA)
• Operational Risk Event Reporting
• Key Risk Indicators (KRIs)
• Risk Dashboard

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Compliance Oversight of Broker-Dealer Wealth
and Investment Management

• RESOURCES/TOOLS IN INDEPENDENT OVERSIGHT
  FUNCTIONS
• TD Bank approach
• Audit
• SMEs
• ACL data mining
• Continuous Monitoring

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Compliance Oversight of Broker-Dealer Wealth
and Investment Management

• COORDINATION/INTERACTIONS BY RISK OVERSIGHT
  FUNCTIONS
• Organizational Mandates of Independent Risk
  Functions
• Approaches to coordinating mandates
• Coordinated objectives/mandates with clear
  handoffs/full transparency
• Coordinated objectives/mandates but on parallel
  paths with little interactions
• Not coordinated on objectives, mandates or
  scheduling
• Extent of coordination at TD Bank
• Industry Survey Results
• Intra-Risk Relationships
• Question 3 Organizationally, please select the
  phrase that best describes the relationship
  between Compliance and Internal Audit at your
  company?

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Compliance Oversight of Broker-Dealer Wealth
and Investment Management

• COORDINATION/INTERACTIONS BY RISK OVERSIGHT
  FUNCTIONS

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Compliance Oversight of Broker-Dealer Wealth
and Investment Management

• COORDINATION/INTERACTIONS BY RISK OVERSIGHT
  FUNCTIONS
• Interaction with Business Line Management by
  Independent Risk Functions
• Corporate culture timing / scope of Compliance
  / Risk / Audit involvement in business line
  initiatives
• Real-time, comprehensive engagement
• Point-in-time for reviews / exams / audits
• On request of line of business
• Examples of interaction at TD Bank
• Industry Survey Results
• Inter-Risk Relationships
• Question 5 Select the phrase the best describes
  Compliance and Audit interaction with business
  line management?

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Compliance Oversight of Broker-Dealer Wealth
and Investment Management

• COORDINATION/INTERACTIONS BY RISK OVERSIGHT
  FUNCTIONS

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Compliance Oversight of Broker-Dealer Wealth
and Investment Management

• MONITORING/REPORTING
• Reporting on Regulatory Violations/Breaks/Breaches
  During Business as Usual Activities
• Corporate requirements top down required
  reporting with consistent presentation and
  content
• Business line decision - self reporting upwards
  within business and outwards to broader
  organization
• Risk functions reporting of exams / reviews /
  audits
• Examples of interaction at TD Bank
• Industry Survey Results
• Monitoring and Reporting Protocols
• Question 6 Select the phrase the best describes
  the monitoring and reporting functions within the
  broker and investment/wealth management
  businesses.

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Compliance Oversight of Broker-Dealer Wealth
and Investment Management

• MONITORING/REPORTING

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Compliance Oversight of Broker-Dealer Wealth
and Investment Management

• MONITORING/REPORTING
• Involvement and reporting during Market /
  Industry / Firm events
• Are market events treated with a lessons
  learned or impact analysis within the business
  or firm?
• When at what depth are Risk functions involved?
• Who has the responsibility for reporting results
  outside of the business?
• Industry Survey Results
• Market Events Response
• Question 8 In response to general market events,
  which statement best describes your firm?

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Compliance Oversight of Broker-Dealer Wealth
and Investment Management

• MONITORING/REPORTING

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Compliance Oversight of Broker-Dealer Wealth
and Investment Management

• Recent Market Events
• Auction Rate Securities
• Market freeze / auction failures
• Liquidity issues client impact
• Marketing
• sold as cash equivalent?
• Disclosure of risks?
• Redemptions
• When underwritten by firm
• When underwritten by others
• Continuing to hold
• Yield, yield, yield

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Compliance Oversight of Broker-Dealer Wealth
and Investment Management

• Recent Market Events
• Brokered CDs
• Failed banks
• Exceeding FDIC insurance coverage
• Monitoring placements
• Process/parameters to approve banks
• Disclosure to clients
• Can they exceed?

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Compliance Oversight of Broker-Dealer Wealth
and Investment Management

• Recent Market Events
• Ponzi Schemes
• Too often investors are blinded by dreams of
  untold wealth, Assistant Director Kenneth W.
  Kaiser of the FBIs Criminal Investigative
  Division.
• Madoff
• 65 Billion
• 4,800 clients
• 1st 3 months of 2009
• 1.6 Billion
• 100,000 clients
• Can it happen in your firm?

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Compliance Oversight of Broker-Dealer Wealth
and Investment Management

• Recent Market Events
• Market Decline / Performance
• Approved investment list
• Frequency of updating
• Client responses/expectations

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Compliance Oversight of Broker-Dealer Wealth
and Investment Management

• Q A