Innovation and your Culture of Compliance

1. Innovation and your Culture of Compliance

2. Innovation and your Culture of Compliance It’s all about E-T-H-I-C-S

3. E = Earnings • Your goal is transparency in the monitoring and controlling of earnings-at-risk. • Avoiding the pitfalls of a ‘short-term mindset.’ • Commissions are superb incentives, when properly designed and controlled.

4. T = Teamwork • Teamwork happens when there are properly- • chartered New Product Working Groups (or full- • blown committees) and/or a Reputational Risk • Committee characterized by collaborative • discussions. • Innovation is often measured in terms of speed-to- • market. • Clear roles and measurable opportunities for • contributions/rewards --– and accountability for on- • time deliverables.

5. H = Holistic • Sometimes folks prefer to say end-to-end.  It is • often very helpful to have a schematic of the new • product, especially complex ones, and legal • entities used for booking purposes, as well as • workflows for approvals.  • In your packet, you will find a schematic entitled • “Six Degrees of Independence.” It takes you from • the client’s buying experience through to • reporting of the revenues to shareholders.

6. “End-to-End” Roles Six degrees of Separation? NO. Six Opportunities to obtain expert views? YES! Transactional information moves left to right: from point of sale, through the governance, compliance and control processes, and eventually “out” onto the firm’s publicly disclosed books & records. Highest level of perceived independence; furthest from the firm’s clients. External Audit Process & Disclosure focused. Internal Audit Process & Risk focused. Risk DisciplinesRisk & Process-focused, e.g.,Credit & Market, Ops & IT,Legal/Compliance,BSA Back Office Transaction & Process focused. Low level of perceived independence; closest to the firm’s clients. Middle Office Client & Transaction focused. A “weak link” in your enterprise chain will lessen the confidence and satisfaction of clients, shareholders and regulators. Links are kept strong through clear workflows, roles & responsibilities = TEAMWORK. Front Office Client & revenue focused.

7. I = Integrated • Avoid “silo’d” governance. Several departments, • business units and/or legal entities may be involved.  • Your approach must be cohesive. • Your systems platform will likely not be cohesive - • because what you are doing is innovative/new! • It is especially important that people have shared • goals/language. • This is an ever-present challenge at U.S. firms – and • doubly so for firms in which English is the second • language.

8. C = Compliance • It’s not optional. It’s not a ‘best practice.” • It’s required.  • Our panelists have covered the key • requirements and have shed light on best • practices to avoid or minimize non-compliant • outcomes.

9. S = Solutions • You need to work toward an enterprise-wide • system of sustainable Governance, Compliance • and Control over all new products. Focus on • authorities & communications, escalation • channels and record-keeping.  • As Steve Strombelline and Doug Freedman • have ably pointed out at IIB events, your • sustainable systems also need to be resilient • systems.

10. Recap A culture-of-compliance is all about Earnings, Teamwork, Holistic and Integrated Compliance Solutions.

11. Thank you ICS NY Contact Information: 11 Penn Plaza 5th Floor New York, NY 10001 Phone 212.946.4707 www.icscompliance.com John C. Soffronoff President jsoffronoff@icscompliance.com Jim Wistman Director – NY Region jwistman@icscompliance.com Jill Shann, CAMS, CRP Assistant Director – Foreign Branches jshann@icscompliance.com Bill Sachs, CFSA, CBA Compliance Manager bsachs@icscompliance.com Jim DeMieri, CFSA Compliance Manager jdemieri@icscompliance.com