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1. P age |1 InternationalAssociationofRiskandComplianceProfessionals(IARCP) 1200GStreet NWSuite800Washington,DC20005-6705USATel:202-449-9750www.risk-compliance-association.com Top10riskandcompliancemanagementrelatednewsstoriesandworldeventsthat(forbetterorforworse)shapedthe week'sagenda,andwhatisnext DearMember, IwastravellingfromLondon to Dubai tochairtheMarcusEvansconference(Strategic Risk&Compliance2013).IhadaheadachewhenIread: “Ifamedicinedoesnotworkasexpected,it'snotnecessarilybecausethedosagewastoolow.” Wow.Ishetalkingtome? Hewasnot.Hewasnotevenadoctor. HewasJaimeCaruana,GeneralManageroftheBankforInternationalSettlements,speakingabout… …“Hittingthelimitsof"outsidethebox"thinking?Monetarypolicy in thecrisisandbeyond.” Speecheslikethatarenotusuallygoodwhenyouhaveaheadache,butasIamaBaseliiiaddict,itworkedhandsomelyforme. Mr.Caruanacontinued: “Prolongedmonetaryaccommodationgivesborrowers,financialinstitutionsandpolicymakersanincentivetokeep"kickingthecandowntheroad",delayingnecessaryrepairandreform.” InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

2. P age |2 IfIseesomeonekickingacandowntheroad,Ihavetorememberwhyhedoesit … … itisduetoprolongedmonetaryaccommodation. Ididnothaveaheadacheanymore.Ihadevenstartedunderstandingthenon-financialworldaroundme! Mr.Caruanacontinued: “Theglobalbondmarketcrashof1994isacautionarytaleoftherisksinvolvedin exitingfromaprolongedperiodoflow interestrates.” Unbelievable!ThisisthestresstestIwaslookingfor.Agreatscenarioforamajor investmentbankIconsult.Whoisgoingto challengethat?Willsupervisoryauthoritiesdisagree?ItisMr.Caruana’sownidea! ReadmoreatNumber1below.Timeforapuzzlenow… …whichisyouropinionabouttheURLthatfollows? http://www.cbrc.gov.cn/showWhist.doWhatisit about? No,youdidnotfindit!Don’tlietome! Ok,yousawitis*.cn– China Ok,yousawitis*gov.cn– GovernmentofChinaButwhatistheshowWhist.do? WhistisaclassicEnglishtrick-takingcardgamewhichwasplayedwidelyinthe18thand19thcenturies. What?WebsitesbelongingtotheChinesegovernmentexploreEnglish InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

3. P age |3 trick-takingcardgames? Accordingto Merriam-Webster,Whistisacardgameforfourplayersintwopartnershipsthatisplayedwithapackof52cardsandthatscoresonepointforeachtrick inexcessofsix. No,itisnotaboutWhist.Itis aboutWhistleblowers! AChineseSarbanes-Oxley(like)approachfromthe… InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

4. P age |4 ThemainfunctionsoftheCBRCinclude:Toformulatesupervisoryrulesandregulationsgoverningthebankinginstitutions,to authorizetheestablishment,changes,terminationandbusinessscopeofthebankinginstitutions,to conducton-siteexaminationandoff-sitesurveillanceofthebankinginstitutions,andtakeenforcementactionsagainst rule-breakingbehaviors,to conductfit-and-propertestsontheseniormanagerialpersonnelofthebanking institutions. Welcome totheTop10list. BestRegards, GeorgeLekatisPresidentoftheIARCP GeneralManager,ComplianceLLC1200GStreetNWSuite800,WashingtonDC20005,USA Tel:(202)449-9750 Email:lekatis@risk-compliance-association.comWeb:www.risk-compliance-association.comHQ:1220N.MarketStreetSuite804,WilmingtonDE19801,USA Tel:(302)342-8828 InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

5. P age |5 Hittingthelimitsof"outsidethebox"thinking?Monetarypolicyinthecrisisandbeyond SpeechbyJaimeCaruana,GeneralManageroftheBankforInternationalSettlements,toOMFIF(GoldenSeriesLecture),London,16May2013 Centralbankshavehadto"thinkoutsidethebox"to addressunprecedentedfinancialinstabilityandtoprovidemonetarystimulusintryingtimes. NISTPostsInitialAnalysisofRFICommentsonCybersecurityFrameworkforCriticalInfrastructure TheNationalInstituteofStandardsandTechnology(NIST)has postedaninitialanalysisofhundredsofcommentssubmittedbyindustryandthepublicrelatedtothePresident's"ImprovingCriticalInfrastructureCybersecurity"ExecutiveOrder,issuedFeb.12,2013. OpeningRemarksatSECRoundtableonCreditRatings ByChairmanMaryJoWhite U.S. SecuritiesandExchangeCommission,Washington,D.C. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

6. P age |6 Raisingthebarforthenext phaseofgrowthanddevelopment–sustainingtransformativemomentum WelcomingaddressbyDrZetiAkhtarAziz,GovernoroftheCentralBankofMalaysia,atthe10thIFSB(IslamicFinancialServicesBoard) Summit2013“ThefutureoftheIslamicfinancialservicesindustry– resilience,stabilityandinclusivegrowth”,SasanaKijang,KualaLumpur. ChangesintheLargeExposureRegime Thispapercontainsfulldetailsofthe proposalstosubstantiallyaltertheLargeExposureprinciplesandguidancethatapplytolicenseddeposittakersthatareincorporatedinGuernsey. GovernorSarahBloomRaskin AttheSocietyofGovernmentEconomistsandthe NationalEconomistsClub,Washington,D.C. ProspectsforaStrongerRecovery InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

7. P age |7 OpeningSpeech byYolandaBanksMcCoy, Head– InvestmentsandSecuritiesDivision, CaymanIslandsMonetaryAuthorityatthe100WHFCaymanEvent2013 APerspectiveontheU.S.EconomicOutlookandMonetaryPolicy PresentedbyCharlesI.Plosser,PresidentandChiefExecutiveOfficer,FederalReserveBankofPhiladelphia GlobalInterdependenceCenter'sCentralBankingSeries:Recovery2013—StrengthorStagnation,Milan,Italy MichaelS.Gibson,Director,DivisionofBankingSupervisionandRegulation Cross-BorderResolution BeforetheSubcommitteeonNationalSecurityand InternationalTradeandFinance,CommitteeonBanking,Housing,andUrbanAffair,U.S.Senate,Washington,D.C. “In myremarks,Iwouldlike tofirstreflectontheimprovementsthathavebeenmadeinthelastfewyearsintheunderlyingstrengthand resiliencyofthelargestU.S.bankingfirms,andthenturn toadiscussion InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

8. P age |8 ofwhathasbeen accomplishedandwhatremainstobeaccomplishedinfacilitatingacross-borderresolution.” Adjustmentandgrowthintheeuroarea SpeechbyMrPeterPraet,MemberoftheExecutiveBoardoftheEuropeanCentralBank,attheEuropeanBusinessSummit,Brussels,16May2013. “Manyofyouwillhavecomeacrosscommentatorswhoclaimthatadjustmentisinfactinimicaltogrowth;andthatconsolidatinggovernmentbudgets whileintroducingstructuralreformsisthemaincauseofourcurrent difficulties.” InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

9. P age |9 Hittingthelimitsof"outsidethebox"thinking?Monetarypolicyinthecrisisandbeyond SpeechbyJaimeCaruana,GeneralManageroftheBankforInternationalSettlements,toOMFIF(GoldenSeriesLecture),London,16May2013 Centralbankshavehadto"thinkoutsidethe box"toaddressunprecedentedfinancialinstabilityandtoprovidemonetarystimulusintryingtimes. Monetaryaccommodationhasbeencriticaltostabilisethefinancialsystemandtheeconomy. Butquestionsremain abouttheefficacyofsuchpoliciesaslongasbalancesheetsandstructuralheadwindsarenotmorefullyaddressed. Monetaryaccommodation canonlybeashelpfulasthebalancesheet,fiscalandstructuralpoliciesthataccompanyit. Lookingahead,centralbanks willcontinue to facedauntingchallengesastheynavigateinunchartedwaters,includinghowbesttointegratenewperspectivesonthefinancialcycleandglobalspilloversintotheirmonetarypolicy frameworks. Fullspeech Ladiesandgentlemen, Itisagreatpleasure to behereatOMFIF. Thecrisisanditsaftermathhaveposedformidablechallengesforcentralbanks. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

10. P age |10 Theyhavehadto"thinkoutsidethebox" to addressunprecedentedfinancialinstabilityandprovidemonetarystimulusinthefaceoftheconstraintimposedbythezerolowerboundofpolicyrates. Lookingahead,thechallengesremaindaunting.Centralbanks have tonavigateunchartedwaters. Inthenearterm,thequestionishowmonetarypolicycanbestcontributetowhathassofarbeenanunevenrecovery. Can'tcentralbanksdomuchmore? Perhapstherelevantquestioniswhethercentralbanks canmakeupforinsufficientactionelsewhere. Whatmonetarypolicy cansubstituteforbalancesheetrepairbybanksandborrowers? Whatmonetarypolicycanremoveimpedimentstoaworkermovingfromanoverbuiltsectortoamorepromisingone? Thesekindsofquestionrequireamedium-termperspective,andinamedium-termperspectivemonetaryaccommodationwillproveonlyasgoodasthebalancesheet,fiscalandstructuralpoliciesthataccompanyit. Fromalonger-termperspective,achallengeistobetter integratefinancialstabilityconsiderationsintomonetarypolicyframeworks. Therecentcrisisbroughttheglobalfinancialsystemtothevergeofcollapseandhashaddiresocialandeconomicconsequences. Thishasraisedfundamentalquestionsabouthow to integrateamodern understandingofthefinancialsystemintoourtraditionalmonetarypolicymodels. Theseareallexceedinglydifficultquestions,thesituationisdifferentfromcountry to countryandnoone canclaimtohaveacrystalballthatprovidesdefiniteanswers. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

11. P age |11 Yet,experiencedoesofferatleastsomepointersforthefuture. In thefollowing,Iwillthereforestartbyreviewingthemaininsightssuggestedbymonetaryhistory,beforeturningtothecurrentchallenges. Insightsfrommonetaryhistory Thepastcenturysawconsiderablechangesintheconductofmonetarypolicy. Thesechangeswereoftentheresultofbothhistoricaleventsandnewwaysofthinkingabouttheroleofcentralbanks. Bytheendofthe20thcentury,therewasaclearconsensusthataremitofmonetarypolicy focusedonpricestabilityhadmanybenefits. Thisviewreflectedlessonsfromthepainfulexperienceofdouble-digitinflationratesanderraticgrowththatprevailedinmanycountriesworldwideinthe1970s, andinsomeemergingmarketeconomieswellintothe1990s. Themainreasonforthisdismalinflationandeconomicperformancewasthatmonetarypolicyneglectedpricestability. Instead,centralbanks pursuedothergoals,whichturnedout to beinconsistentwithpricestability. In manyadvancedeconomies,forexample,monetarypolicywastooaccommodativeduringthe1970s,andcentralbanks endeduppushingoutputbeyondsustainablelevels. In emergingmarketeconomies,politicalpressures to generate seigniorageincomeandfinancepublicspendingprogrammesviatheprintingpresswerefrequentsourcesofhighinflation. In alltheseexperiences,theneglectofpricestabilitydidnotimproveeconomicperformance. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

12. P age |12 Overtime,welearned,quitepainfully,thatthereisnobeneficiallong-runtrade-offbetweeninflationandgrowth. Indeed,welearnedthathighandvolatileinflationratesgohandinhandwitherraticgrowth,largeexchangerateswings,andeveneconomicand politicalcrises. Chastenedbytheseexperiencesofthe1970sand1980s,centralbankshadtorethinktheirroles. Atthattime,theresultwastoconsideranarrow mandateforpricestability. Tobesure,thisrequiredaverypainfuladjustmentprocess. Centralbankshadtosqueezeinflationoutoftheireconomiesatthecostofrecessions.Butthatcostwaswellworththeprice. Thosewhohadthecouragetotrywerevilifiedthen,onlytoberecognisedashavingdonetherightthingyearslater. Anotherlessonlearntduringthisperiodwasthatcentralbankautonomyiscriticalto achievepricestability. Onemainunderlyingcauseofinflationinstabilitywasthefailuretoshieldmonetarypolicymakerssufficientlyfromshort-termpoliticalcycles. Somecentralbanks,suchastheBundesbankandtheSwissNationalBank,hadledtheway. Theyenjoyedahighdegreeofeffectiveindependenceand,onthisbasis,consistentlydeliveredlowerinflationthantheirpeersduringthe post-BrettonWoodsera. Thesearehard-earnedlessonsthatshouldnotbeforgotten. Today,centralbanksareonceagain"thinkingoutsidethebox"asnewchallengeshavearisen. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

13. P age |13 Evenbeforethecrisis,concernsamongcentralbankersweregrowingthat thepolicyenvironmentwaschanging inwaysthatcalledforafurtherevolutionofcentralbanking. In particular,thenarrowfocusonnear-termdomesticpricestabilitydid notseemtobeenoughinanenvironmentinwhichthefinancialcycleandglobalspilloverswerebecomingmoreprominent. Withrespect to thefinancialcycle,wenow seethatmonetarypolicyplayedanimportantpartinthebuild-upoffinancialimbalancesduringthe2000s. Afterthebustofthedotcomboom,monetarypolicy intheadvancedeconomiesremainedaccommodativeformanyyears.Interestrateswerelow,andcreditandhousepricessoared. Ofcourse,therelevanceofthefinancialcycleforcentralbanks isnotanentirelynewinsight. Theforgingofmanycentralbanks,suchasthatoftheFederalReservein1913,wasthedirectresultofthebankingcrisesofthe19thandearly20thcentury. ItbecamelessrelevantintheearlypostwarperiodagainstthebackgroundoftightlyregulatedfinancialsystemsputinplaceaftertheGreatDepressionandtheSecondWorldWar. Butthefar-reachingfinancialderegulationpursuedsincethe1970sallowedthefinancialcycletore-emergeasamajormacroeconomicforcethatgreweverstronger. Globalisation,too, has been changingthepolicy environmentinsignificantways. In additiontothegrowinginfluenceofglobalfactorsondomesticinflationdynamics,globalisationappears to haveaddedfueltothemonetaryeasing in therun-uptotherecentcrisis. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

14. P age |14 Theunusuallylow policy ratesprevailing in themajoradvancedeconomiesaffectedothersviaaresistancetocurrencyappreciationpressures. Manyemergingmarketeconomieskeptinterestrateslowerthanwould havebeensuggestedbydomesticmacroeconomicconditionsalone. In turn,theiraccumulationofforeignexchangereservesputadditionaldownwardpressureonyieldsintheadvancedeconomies. Thenetresultwasunusuallyaccommodativeglobalmonetaryconditions.Real interestratesaveragedamere1.5%globallybetween2002and2007whileoutputgrewrobustlyatroughly4%. Managingthepost-crisisrecovery Whilethepre-crisisperiodalreadygavecentralbanksmuchfoodforthought,thecrisishasgiventhemstillmore to chewon. Thefinancialcrisishastestedthecrisis-managementreadinessofcentralbanks,andthesubsequentphasetheirabilitytonursetheeconomybacktogrowth. Centralbankshaverespondedinanunprecedentedwayinbothscaleandscope. Theyhaveprovidedampleliquidityintheirlenderoflastresortfunctions,havecommittedtolow -ofteneffectivelyzero- interestrates,haveengagedinlarge-scalebalancesheetpolicies,haveaugmentedthiswithenhancedforwardguidancelinked to real-economyoutcomes,haveputinplacetargetedlendingschemes,havepurchasedriskyassetsandsoon. Theresponseofcentralbankshashadimportantbenefits. Thereisnoquestionthatinthemostacutephaseofthecrisisitpreventedthefinancialsystemfromimploding,whichwouldhavebroughttherealeconomydown. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

15. P age |15 Lowpolicyratesandtheunprecedenteddeploymentofbalancesheetpoliciesboostedconfidenceandimprovedfinancialmarketconditions. Andasdoubtsre-emergedin financialmarketsmorerecently,centralbankmeasureseffectivelyreducedperceivedfinancialtailrisks. Andyet,despitetheseunprecedented actions,theglobalrecoveryhasbeenlacklustre. Fiveyearsintotherecovery,economicperformanceislaggingpreviousonesatthesamestage. Economicactivityiswell below itspre-crisistrendinthemajoradvancedeconomiesandunemploymentisstubbornlyhigh. Thereis,understandably,frustrationaboutthisapparentlackoftraction. Thisfrustrationhasledsome to callforevermoremonetarypolicyactivism. Butisitreallyjustified? Ifamedicinedoesnotworkasexpected,it'snotnecessarilybecausethedosagewastoolow. Maybeinsteadtheoveralltreatment,andtheroleofthemedicinewithinit,shouldbereconsidered. Mostlikelysomethingelseisneeded. Balancesheetrecessionsarespecial:itislessclearthanoftenthought thatmonetarypolicycan fosteraquick androbustrecoveryinabalancesheetrecession. Whenprivatesectorbalancesheetsneedrepair,accommodativemonetarypoliciesarelesseffective. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

16. P age |16 Whentheproblemis toomuchdebtandagentsarein themoodtoretrench,itisunrealistictoexpectmonetarypolicytorevivestronggrowthbyloweringinterestrates. Whenfinancialinstitutionsareweak,itisequallyunrealistictoexpectthemtoeffectivelytransmitmonetaryimpulses. Moreover,itiswellknownbynowthatgrowthtendstobeweakerafterfinancialcrisesthanafterordinaryeconomicdownturns. Thisisnotjust,orevenprimarily,aquestionofdeficientdemand. Itreflectstheneedfortheeconomytoreabsorbtheaggregateandsectoralrealimbalancesthatbuiltupduringtheprecedingunsustainableexpansion, hiddenunderthefrothofthefinancialboom. Suchboomstypicallyleaveintheirwakenotonlytoomuchdebt,butalsotoomuch capitalandlabour inthewrongsectors. Therefore,thechallengeforcountriesinthenextfewyearswillbetoreallocatelabourand capitalamongsectorsbothwithinandacrossnationalborders. Structuralreformtoremoverigidities,notmonetarypolicy,istheway tofacilitatethis. True,monetarypolicy canbuytimetoimplementthenecessarybalancesheetrepairandstructuralreforms. Butit cannotsubstituteforthem.Afterfiveyearsofbuyingtime,onehastoaskwhetherthattimehasbeen-orwillbe-usedwisely. Refocusingthepolicymixto relymoreonrepairandreformandnottooverburdenmonetarypolicy iscrucialbecausethebalanceofrisksof prolongedverylow interestratesandunconventional policiesisshifting. Thecostsaregrowinginrelationtothebenefits,foranumberofreasons: InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

17. P age |17 First,prolongedmonetaryaccommodationgivesborrowers,financialinstitutionsandpolicymakersanincentivetokeep"kickingthecandowntheroad",delayingnecessaryrepairandreform. Certainly,progresshasbeenmadeinaverytryingenvironment.Butmoreneedstobedone. Indeed,theslowprogressintheimplementationofstructuralreformsandinthedeleveragingprocessmaysignalthatthisdelayingmechanismisatwork. Persistenthighunemploymentratesinmanyadvancedeconomiesindicatethechallengesoflabourrigiditiesandsectoralrebalancingthatstillfaceus. Atthesametime,althoughsomeprivatesectordeleveragingisoccurringinsomecountries,andthefinancialsystemisbettercapitalised,the totaldebtfiguresarenotreassuring. Sincetheendof2007,totaldebtoftheG20non-financialsector,both privateandpublic,hasrisenbymorethan30trillionUSdollars,whichrunscountertodeleveraging,atleastasIunderstandthe term. Itisnoteworthythatoverthesameperiodglobalcentralbankassetshaveincreasedbyroughly10trillionUSdollars. Second,prolongedaccommodationcanproduceotherunintendedsideeffects. In the1970s,thedesire to liftoutputandemploymentbacktopre-crisislevelsresultedinsurginginflation. Onemightarguethatthesituation todayisquitedifferentfromthen. Inflationhasremainedlowinmostjurisdictionsandclosetocentralbanktargets. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

18. P age |18 However,monetarystimulusmayfinditswayintoassetpricesandleveragebeforeinfluencinggoodsandservicespriceinflation. Moreover,prolongedverylowinterestrates candistortmarketsignals,maskunderlyingbalancesheetweaknessesandunderminetheearningscapacityofbanks,thebusinessmodelsoflife insurancecompaniesandthesolvencyofpensionfunds. Thismayfurthermisallocatecredit,weakenfinancialinstitutions'balancesheetsandencourageexcessiveandunwelcomerisk-taking. Anothersignificantsideeffectarisesfromglobalmonetarypolicyspillovers. Persistentlylow interestratesinthemajoradvancedeconomiesgenerallyencourage capitalflowstofast-growingemergingmarketeconomiesand putupwardpressureonemergingmarketexchangerates. This cancomplicatetheabilityofemergingmarketcentralbanks topursuetheirstabilisationgoals. Ontheonehand,ifcentralbanksinemergingmarketskeeppolicy ratesverylow,capitalinflowswouldbediscouraged,butdomesticcreditgrowthwouldbeencouraged. If,ontheotherhand,theyraisepolicyrates,therisksofdestabilisingcapitalflowswouldrise. Sofar,wehavebeenseeingacombinationoftheseforcesatwork. Despitesomeslowingofcapitalflowsoverthepastyear,privatesectorcreditandpropertypriceshavebeensurging in anumberoftheseeconomies,aswellasin someopenadvancedeconomies. Finally,prolongedaccommodationraisesriskstocentralbanksthemselves. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

19. P age |19 Ifeconomiesremainweakandstructuralproblemsunresolveddespiterepeatedroundsoffurthermonetarystimulus,thecredibilityofcentralbanksmaysuffer,andcredibilityisimportantforeffectiveness. Letmeinsistherethatresultsintherealeconomywilldependontheextentthatneededrepairandreformsarecarriedout. Resultswilldependtoalargeextentonfactorsthatarenotundercentralbanks'control. Aviciouscirclecandevelop,withawideninggapbetweenwhatcentralbanksareexpectedtodeliverandwhatthey actually can deliver. Thismayultimatelyunderminetheircredibilityand,withit,theirlegitimacyandeffectiveness. Allthisunderscorestheimportanceofbeingpreparedfortheeventualexitfromtheextraordinarilyaccommodativemonetaryconditionsthathaveprevailedforthepastseveralyears. Whilecentralbankssurelyhaveallthe toolsavailabletotechnicallyengineeranexit,itcannotbetakenforgrantedthatitwillbesmooth. Theglobalbondmarketcrashof1994isacautionarytaleoftherisksinvolvedin exitingfromaprolongedperiodoflow interestrates. Atthesametime,wealsohave to recognisethatthesituation todayisratherdifferentfrombackthenin atleastonecriticaldimension:centralbanksaremuchmoretransparentabouttheirpolicy intentionsnow andtheircommunicationismuchbetter. Thisshouldreducetherisk ofmajorpolicysurprises. Thatsaid,thepolicyenvironmentcentralbankshave to grapplewithtodayisalsomuchmorecomplexinsomeimportantdimensions. Recordlevelsofdebthavebeenissuedatverylow interestrates. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

20. P age |20 Centralbanks,atleastfornow,areplayinganimportant,ifnotdominant,rolein keyfinancialmarketsegments. So,asinterestratesriseandcentralbanksparebackandeventuallyreverselarge-scaleassetpurchases,financialmarketswillhavemuch todigest. Differentnationalconditionswillrequireunsynchronisedexits,whichmayraiseadditionalcomplexities. Eveninthecurrentenvironmentofenhancedcentralbanktransparencyandcredibility,achoppyexitisamaterialrisk. ItgoeswithoutsayingthatIwouldlovetobeprovenwrongaboutthis,andthatalotofworkisbeingdonetoreduceexitrisks. Monetarypolicyandthefinancialcycle Aswepeerfurtherintothefuture,onekeychallengecentralbanksfaceishowtobetter integratefinancialstabilityconsiderationsintotheirmonetarypolicy frameworks. Theeconomicandsocialdamageoftherecentcrisishaspainfullyshownwhatisatstake. Andcentralbanksmustreflectonhowtheycanforgeanewconsensusaboutthewayforward. Thisisnotjustanarrowoperationalissue,forexample abouthow torespondtocreditandassetpriceboomsandbusts. Itraisesthemuchbroaderconceptualquestionofhow toshiftour traditionalpurelymacroeconomicperspectivetowardsanew,fullyintegratedmacro-financialperspective. AsIseeit,thecrisishas notdiscreditedthecoreelementsofpre-crisismonetarypolicy frameworks. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

21. P age |21 Thecredibilityofcentralbanks asguarantorsofpricestabilityhasbeeninstrumental in anchoringinflationexpectations,onboththedownsideandtheupside,duringthecrisisanditsaftermath. Astrong,credibleanchorhelps tocounteractthedestabilisingforceshittingtheeconomyandfinancialmarkets. Atthesametime,thepre-crisismonetarypolicy frameworksdidnotpreventthecrisisfromhappening. Theexperienceintherun-upsuggeststhatcentralbanksneed tobetterappreciatetheirroleininfluencingthefinancialcycle. Forthispurpose,byfinancialcycleIrefertothecombinedendogenousbehaviourofcreditandassetprices,particularlyhouseprices. Regulatoryreformobviouslyplaysakeyrolein mitigatingfinancialcycles,andwehavealreadyseensignificantprogressinthisarea:betterandhigherbuffers,theintroductionofcountercyclicalcapitalbuffersunderthenewBaselIIIframeworkandthedevelopmentofmacroprudentialframeworksand tools. Tobesure,prudentialandmacroprudentialmeasuresareclearlynecessary. Buttheyalonewillnotbeenoughandcanalsobecircumventedbyregulatoryarbitrage. Thisiswhymonetarypolicyhasacomplementaryroletoplay. Thepolicyraterepresentstheuniversalpriceofleveragein agiven currencyand cannotbebypassed easily. In thisrespect,centralbanks willneedtoreflectonhowbestto respondtofinancialstabilityconcernsinthefuture. Thecrisishasclearlyshownthatfinancialstabilityisessentialforlastingpricestability. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

22. P age |22 Onelessonisthatmonetarypolicymayneed to respondmoresymmetricallytothefinancialcyclethanin thepast-tighteningmorestronglyinboomsandeasinglessaggressively,andpersistently,inbusts. Inpractice,thismeanspayingmoreattentiontopolicychallengesbeyondtheconventionalpolicy horizonsoftwoorsoyears. Whenfinancialstabilityconcernsgrow,policyhorizonsneedto belengthenedtotakeaccountofthefactthatthefinancialcycleisconsiderablylongerthanthebusinesscycle. Analyticalframeworks alsoneedtobetterreflectthecharacteristicsoffinancialcyclesandtheir interactionswithfinancialandmacroeconomicstability. Centralbanks'pre-crisisworkhorsemodelsgenerallyassignednomeaningfulrole tomacro-financiallinkages. Thefinancialcrisishasdemonstratedthatsuchanalyticalperspectivesare woefullyinadequate. Anotherdimensionalongwhichcentralbanksneedtoreflectisabetterappreciationofglobalmonetarypolicy spillovers. Globalfeedbackeffectsamplifiedthepre-crisisfinancialboom,andwemightbeseeingthismechanismatworkagain. In ahighlyglobalisedworld,keepingone'sownhousein ordersurelyisnotenough. Whatdoesthismeaninpractice? Itdoesnotrequirecentralbanks to coordinatetheirpoliciesclosely. But,ataminimum,itdoescallforthemtoappreciatebettertheglobalsideeffectsandfeedbacksthatarisefromtheirmonetarypolicydecisions. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

23. P age |23 Thisisineachcentralbank'sowninterest,especiallyifthespillovershavethepotentialtofosterregionalfinancialinstabilitythatendsincrisis,withsignificantglobalrepercussionsthatswingbacktotheoriginatingcountries,like aboomerang. Apreconditionforthisshiftinperspectiveisamoreglobalanalyticalapproachthatfactorsin interactionsandfeedbacksappropriately. Finally,Idonotwanttoleaveyouwiththeimpressionthatfiscalpolicyisirrelevantinthisdiscussion. Indeed,fiscalpolicyplaysanimportantrolein financialstability,too.Thefinancialcrisishasdemonstratedtheimportanceofhavingthefiscalcapacitytosupportthefinancialsectorthroughbankrescuepackagesandtherealeconomythroughfiscalbuffers. Butthefinancialcrisishaspushedfiscalpolicy inmanyeconomiesontoanunsustainablepath. Thisisalessonthatwehavetokeepinmindforthefuture. Accumulatingbudgetsurplusesingoodtimesprovidesgovernmentswiththeability to respondflexibly to afinancialcrisiswithoutputtingfiscalsustainabilityatrisk. In otherwords,governmentsneedtofactor inthefinancialcycleandtobuildupadditionalfiscalbuffersduringgoodtimesthat canbedrawndown toprovidesupportinbadtimes. Summingup Letmesumup.Thereislittledisagreementthatthepastfiveyearshavebeenunusuallychallenging. Centralbankshaveplayedacriticalrolein managingthecrisisanditsaftermath. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

24. P age |24 Theyarenow underhugepressuretopromoteasustainablerecoveryunderdifficultcircumstances. And,lookingahead,theywillcontinue tofindthemselvesconfrontingmajorchallenges. Ihavesuggestedthatmonetaryhistoryprovidesavaluablecompasstonavigatethesetrickywaters:aclearfocusonlastingpricestability,amoresymmetricalapproachtothefinancialcycle,andabetterappreciationofglobalspillovereffects-thesewouldappeartobethekeyelementsofstrongermonetarypolicy frameworks. Atthecurrentjuncture,thereisalsoapremiumoncentralbankcommunication. Centralbanksneedtoclearlycommunicatethelimitsofmonetarypolicy,both tothepublicandto otherpolicymakers. Theprivatesectorandpolicymakers,whohavebeenfacingtheir ownsetofdauntingchallengesinextraordinarilydifficulttimes,willhave toplayalargerrolein thenextlegoftheglobalrecovery. Crucially,thiswouldalsoallow centralbanks tonormalisemonetarypolicy inamannerconsistentwithareturn to sustainableandbalancedgrowth. Thankyou. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

25. P age |25 NISTPostsInitialAnalysisofRFI CommentsonCybersecurityFrameworkforCriticalInfrastructure TheNationalInstituteofStandardsandTechnology(NIST)has postedaninitialanalysisofhundredsofcommentssubmittedbyindustryandthepublicrelatedtothePresident's"ImprovingCriticalInfrastructureCybersecurity"ExecutiveOrder,issuedFeb.12,2013. NISTismakingthisinitialanalysisavailableasastatusupdateand tohelpprovidebackgroundforaworkshoplaterthismonth todiscussthecybersecurityframework. TheExecutiveOrdercallsforNISTtoworkwithindustrytodevelopavoluntaryframeworkto reducecybersecurityriskstothenation'scriticalinfrastructure,whichincludespower,water,communicationand othercriticalsystems. Thefirststep towarddraftingtheframeworkwassolicitinginformationoncurrentrisk managementpolicies,existingstandardsandguidelines,andspecificindustrypracticesfromstakeholdersthroughaRequestforInformation(RFI). ThesecommentsweredueApril8,2013.NISTreceivedmorethan200responsesandpostedthempublicly. NIST'sapproachtoanalyzingtheinputfromthe RFI,aswellasidentificationofthecommoncybersecurityframeworkthemesthatemergedasaresultoftheanalysis,isdescribedinthepaper,InitialAnalysisofCybersecurityFrameworkRFIResponses. In additiontoidentifyinganddescribingthecommonthemes,thispaperprovidesquestionsforstakeholders to consider. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

26. P age |26 Thepapercanbefoundat http://csrc.nist.gov/cyberframework/nist-initial-analysis-of-rfi-responses.pdf andadditionalinformationaboutthecybersecuritycriticalinfrastructureframeworkprojectisavailableatwww.nist.gov/itl/cyberframework.cfm Informationonthe2ndCybersecurityFrameworkWorkshop,May29-31,2013,atCarnegieMellonUniversityisatwww.nist.gov/itl/csd/cybersecurity-framework-workshop-may-29-31-2013.cfm CybersecurityFramework RecognizingthatthenationalandeconomicsecurityoftheUnitedStatesdependsonthereliablefunctioningofcriticalinfrastructure,thePresidentundertheExecutiveOrder“ImprovingCriticalInfrastructureCybersecurity”hasdirectedNISTtoworkwithstakeholdersto developavoluntaryframeworkforreducingcyberriskstocriticalinfrastructure. TheFrameworkwillconsistofstandards,guidelines,andbestpracticestopromotetheprotectionofcriticalinfrastructure. Theprioritized,flexible,repeatable,andcost-effectiveapproachoftheframeworkwillhelpownersandoperatorsofcriticalinfrastructure tomanagecybersecurity-relatedrisk whileprotectingbusinessconfidentiality,individualprivacyandcivilliberties. Background-NISTResponsibilities NISTwilldeveloptheFrameworkinamannerthatisconsistentwithitsmissiontopromoteU.S.innovationandindustrialcompetitiveness. TheFrameworkwillbedevelopedbyongoingengagementwith,andinputfrom,stakeholdersingovernment,industry,andacademia,includinganopenpublicreviewandcommentprocess,workshopsandothermeansofengagement. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

27. P age |27 TodeveloptheFramework,NISTwilluseaRequestforInformation(RFI)andongoingstakeholderengagementto: identifyexistingcybersecuritystandards,guidelines,frameworks,and bestpracticesthatareapplicabletoincreasethesecurityofcriticalinfrastructuresectorsandother interestedentities; specifyhigh-prioritygapsforwhichneworrevisedstandardsareneeded;and collaborativelydevelopactionplansbywhichthesegapscanbeaddressed. TheFrameworkwillseektopromotethewideadoptionofpracticestoincreasecybersecurityacrossallsectorsandindustrytypes. Itwillseektoprovideownersandoperatorsaflexible,repeatableandcosteffectiverisk-basedapproachtoimplementingsecuritypracticeswhileallowingorganizations toexpressrequirementstomultipleauthoritiesandregulators. ThebelowpresentationshowstheprocessbywhichNISTwillworkwithstakeholders todeveloptheInitialFramework. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

28. P age |28 • InitialAnalysisofCybersecurityFrameworkRFIResponsesIntroduction • OnFebruary26,2013,NISTissuedaRequestforInformation(RFI)onDevelopingaFrameworkToImproveCriticalInfrastructureCybersecurity. • Thepurposeofthispaperistodescribethemethodologyusedtoperformtheinitialanalysisofthesubmittedresponses,andtoidentifyand describetheCybersecurityFrameworkthemesthat emergedasapartoftheinitialanalysis. • Thisinitialanalysiswillserveasthebasisforadditional discussionandstudyattheCybersecurityFrameworkWorkshop#2tobehostedatCarnegieMellonUniversityinPittsburgh,PennsylvaniaonMay29-31,2013. • AnalysisMethodology • NISTimplementedaconsistentandrepeatablemethodology to conductitsinitialanalysisoftheRFIresponsestoFederalRegisterNotice78FR13024. • a.ReviewandCategorizeRFIResponses • EachsubmittedRFIresponse2wasreviewedandanalyzedbyNIST.3ThereviewofeachRFIresponseincluded: • Analysisofresponsecoverageacrosscriticalinfrastructuresectorsandorganizationtypes; • IdentificationofsectionsoftextrelevanttooneormoreoftheRFIquestions; • Categorizationofrelevanttext to category/sub-category,asshowninAppendixA;and InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

29. P age |29 • Specificationoftermsandphrasesthatidentifykeypointsineachcategorizedsectionofrelevant text. • Theresultingcategorizationwasthenusedtoidentifycommonalitiesandrecurringthemes. • b. IdentificationofCommonalitiesandRecurringThemes • CommonlyusedtermsandphrasesidentifiedduringtheRFIresponsecategorizationhelpedidentifycommonalitiesandrecurringthemesamongresponses. • Due tothevarianceinterminologyandnomenclatureacrosssectors,NISTidentifiedandnormalizedtermsthatexpressedkeypoints. • Forexample,thetermssecurityrequirement,securitymeasure,andsecuritycontrolwereoftenusedinterchangeably. • Tocorrelatethese terms,NISTselectedthetermsecuritycontrolto labelthisconcept. • Theselectedtermallowsforconsistencyinnomenclature. • Examplesofcommonlyusedtermsandphrasesinclude,butarenotlimitedto: InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

30. P age |30 • NISTusedthecommonlyusedtermsandphrasestogrouprelevant textfromRFIresponses.Thesegroupingsidentifiedrecurringandcommonthemes,whichwerethenseparatedintothree categories: • FrameworkPrinciples:CharacteristicsandconsiderationstheFrameworkmustencompass. • CommonPoints:Practicesidentifiedashavingwideutilityandadoption. • InitialGaps:ForthepurposesofRFIinputanalysis, initialgapsarethoseareaswhereRFIresponseswerenotsufficienttomeetthegoaloftheExecutiveOrder. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

31. P age |31 TheresultsoftheinitialanalysisofRFIresponses,includingthedescriptionofeachCybersecurityFrameworktheme,identificationofassociatedkeytermsandphrases,summarystatistics,examplesofRFIresponses,andrepresentativequestionsare includedinthefollowingsections. Thisinformationrepresentsaninitial,high-levelanalysisoftheinputsNISThasreceivedtoassistwiththedevelopmentoftheFramework.StakeholdersareaskedtoevaluatethethemesidentifiedbyNIST,determineifthesethemesarereflectiveofthecommentsreceived InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

32. P age |32 throughtheRFI,andassistinthoseareaswhereadditionalstakeholderengagementwillbeneeded todevelopasufficientlyrobustFramework. Toassist,NISThasprovidedaseriesofrepresentativequestionstoencouragediscussiononthesekeythemes. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

33. P age |33 OpeningRemarksatSECRoundtableonCreditRatings ByChairmanMaryJoWhite U.S. SecuritiesandExchangeCommission,Washington,D.C. Goodmorningeveryone,andwelcometotheSecuritiesandExchangeCommission'sCreditRatingsRoundtable,whichIhavebeenverymuchlookingforwardtoandwhichwilladdressarangeofcriticalsubjects. Iwouldlike first to extendaspecialwelcometoourdistinguishedMembersofCongresshere today:SenatorFranken,SenatorWicker,andChairmanGarrett. Thankyoufortakingtimefromyourhecticschedulestospeaktoustoday. Thankyoualsoinadvancetoourdistinguishedpanelistsforcontributingyourtimeandknowledgetothisroundtable. Therearemanyquestionsabouttheappropriateroleofcreditratingsinourfinancialmarketplacegenerally. Wetakeallthequestionsseriously. Buttoday,ourdiscussionswillcenteronwhetherandhow tochangetheagencyassignmentsystemandalternativestothecompensationmodelsnow inuse. WhenCongressenactedtheDodd-FrankAct,itnotedthecritical"gatekeeper"roleplayedinthedebtmarketbyNationally RecognizedStatisticalRatingOrganizations(NRSROs). InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

34. P age |34 Italsonotedthesystemicimportanceofcreditratingsandthatcreditratingagenciesarecentralto capitalformation, investorconfidence,andtheefficientperformanceoftheU.S.economy. Congressalso citedtheadverseimpactontheeconomyofinaccurateratingsassignedtostructuredfinanceproductsduringthefinancialcrisis. Anditnotedthatincertain activities—particularlyadvisingarrangersofstructuredfinancialproductsonpotentialratings—ratingagenciesfaceconflictsofinterestthatneed toberecognizedandcarefullymonitored. Asaresult,theCommissionwaschargedwithstudyingthecreditratingprocessforstructuredproductsandtheconflictsofinterestassociatedwiththeissuerpayandsubscriberpayratingagencymodels. WealsowereinstructedtoexaminethefeasibilityofestablishinganassignedratingssystemandalternatemeanstocompensateNRSROs. Whenreportingto Congress,wewererequiredtosubmitrecommendationsforregulatoryorstatutory changesthatwouldbeneeded to implementourfindings. TheCommissionrequestedpubliccommentand,inpreparingthereport,theCommission'sstaffcarefullyreviewedeachofthecommentlettersreceivedaswellasstudies,articles,andtestimonyregardingpotentialconflictsofinterestandalternatecompensationmodels. WealsometwithseveralNRSROs,proponentsofalternativemodels,andothermarketparticipants. Relyingontheinformationgatheredfromtheseefforts,thestaffreportdescribedpotentialbenefitsandconcernswiththesystemsproposed,andidentifiedpotentialregulatoryorstatutorychangesthatcouldbeundertakenwithrespect to eachproposal. ThestaffreportwasfiledwithCongressinDecember2012. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

35. P age |35 Giventhecomplexissuesthestudybrought to ourattentionandthevaryingandsometimesconflictingviewpointsexpressed,theCommission'sstaffrecommendedconveningaroundtablededicated tothesetopicsduringwhichallsidescoulddiscusstheissuesandthepotentialactionsthestudyaddressed. Todayisthedayforthatdiscussion. AsIsaid,Iamverymuchlookingforward to hearingtheexchangeofideasbytoday'sspeakersandpanelists,andusingwhatwelearntodayasweconsiderapproachesandappropriateresponses. BeforeIturnthefloorbacktoTomButler(directoroftheSEC'sOfficeofCreditRatings),Iwouldlike tothankhimandallofthestafffromacrosstheCommissionwhoprovidedhelpandassistanceinorganizingthisroundtable. Itwastheirtirelesseffortandcoordinatedactivitiesthatmadetoday'sextremelyimpressiveassemblageofspeakersandpanelistspossible. Thankyouall. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

36. P age |36 AddressingConflictsofInterestIntheCreditRatings Industry By Commissioner LuisA.Aguilar U.S. SecuritiesandExchangeCommissionRemarksattheCreditRatings RoundtableWashington,D.C. Goodmorning.IamverypleasedtobehereattheRoundtableonCreditRatings. IstronglysupporttheCommission’sefforttoevaluatewaystoimproveourcreditratingssystem. EffectiveoversightofNationallyRecognizedStatisticalRatingOrganizations(“NRSROs”)iscriticaltoensuringaccurateratingsand promoting investorconfidence. BeforeIbegin,however,letmeissuethestandarddisclaimerthattheviewsIexpresstodayaremyown,anddonotnecessarilyreflecttheviewsoftheU.S.SecuritiesandExchangeCommission(“SEC”or “Commission”),myfellowCommissioners,ormembersofthestaff. AsanSECCommissioner,IhavefocusedsingularlyonhowtheSECcan bestservetheneedsofinvestors. Itisclearthattheroleplayedbycreditratingagenciescanhaveanimpactontheintegrityofourmarketsandinvestorconfidence. Today’sroundtableandtheCommission’sDecember2012ReporttoCongressonAssignedCreditRatingsaredirectoutgrowthsofindustrypracticesthatpermittedinaccurateratings to underminethesecuritiesmarketandtheintegrityofthecreditratingsindustry. Anumberofstudieshaveconcludedthatinflatedcreditratings,amongotherfactors,contributed to thefinancialcrisisbymaskingthetrueriskofmanymortgage-relatedsecurities. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

37. P age |37 Forexample,priortothefinancialcrisis,NRSROsissuedcreditratingsfortensofthousandsofU.S residentialmortgagebackedsecurities(“RMBS”)andcollateralizeddebtobligations(“CDO”). AmajorityoftheproductsreceivedAAAandother investment-gradecreditratingsdespitetheirriskyfeatures. AlthoughAAA-ratedsecuritieshavehistoricallyhadlessthan1%probabilityof incurringdefaults,over90%oftheAAAratingsgiven tosubprimeRMBSsecuritiesthatoriginatedin 2006and2007werelaterdowngradedbytheNRSROstojunkstatus. Theselargenumbersofdowngradesresultedin greatharmandrequiresthatwemakesuretheydon’treflectafaultysystemicprocess. Toothatend,oneofthekeyconcernsraisedbycommentatorsregardingthecurrentstructureofthecreditratingsprocessistheissueofconflictsofinterestassociatedwiththe“issuer-pays”model. ThismodelallowsthepartyplanningonissuingafinancialinstrumenttopayanNRSROforassigningtherating. Anumberofcommentatorshavearguedthatthisbusinessmodelencouragesratingsshoppingbytheissuersandinvestmentbankssellingthesecurities,andresultsinunduepressureforNRSROstogivefavorableratingstoattractbusiness. Investorsusecreditratingstomakeinvestmentdecisions,generallyoptingfor“investment-grade”products– thoseratedasAAAtoBBB- Productsthatcarryagreaterriskarelabeled“belowinvestmentgrade.” Obviously,productsthatreceiveaninvestmentgraderatinghaveamuchbroadermarketinwhich to sell. Asaresult,therecanbeagreatdealofincentivetohaveaproductratedatinvestmentgradelevel. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

38. P age |38 Therefore,itisimportant to establishprocessestoensurethataproductreceivetheappropriateratinglevel. Afaultysystemofassigningcreditratingscandevastatethebestfinancial planninganddestroyfinancialsecurity,particularlyfor investorsthatareretiredornearingretirement. Giventheimportanceofcreditratings,itiscriticalthatcreditratingsbeissuedwithintegrityandtransparency. Itisclearthatthepastcannotberepeated.ThefinancialcrisiscostAmericans$3.4trillionin retirementsavingsandittriggeredtheworstcrisissincetheGreatDepression. The FinancialCrisisInquiryCommitteeconcludedthat“thefailuresofthecreditratingagencieswereessentialcogsinthewheeloffinancialdestruction…[and]werekeyenablersofthefinancialmeltdown.” Iwanttothankallofthepanelistsforbeingheretoday toshareyourviews. Allofyouhaveimportantinformationtosharewithusaboutthecreditratingssystem,andIappreciatethatyou’vetakenthetimetobewithus. Astoday’sdiscussionunfolds,weshouldremembertheneedsofinvestors,whodeserveacreditratingssystemthatistransparent,orderly,andthatisnotderailedbyconflictsofinterest. Thankyou. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

39. P age |39 Raisingthebarforthenext phaseofgrowthanddevelopment–sustainingtransformativemomentum WelcomingaddressbyDrZetiAkhtarAziz,GovernoroftheCentralBankofMalaysia,atthe10thIFSB(IslamicFinancialServicesBoard)Summit2013“ThefutureoftheIslamicfinancial servicesindustry– resilience,stabilityandinclusivegrowth”,SasanaKijang,KualaLumpur. Itisagreatpleasureto welcomeyou tothis10thIFSBSummit,onthe“The FutureoftheIslamicFinancialServicesIndustry:Resilience,StabilityandInclusiveGrowth”. BankNegaraMalaysiaismosthonoredtohostthisyear’ssummit,whichisheldin conjunctionwiththe10thanniversaryoftheIslamic FinancialServicesBoard(IFSB). Itwasherein KualaLumpur10yearsagothatwewitnessedthemomentousoccasionoftheIFSBinauguration,thatwastheculminationofinternationalcollaborationamongthefoundingmembercountrieswiththesupportofseveralkeyinternationaland multilateralinstitutions. Itslandmarkestablishmentin2002astheinternationalprudentialstandardsettingbodyfortheIslamicfinancemarkedamajormilestoneintheeffort to strengthentheinternationalinfrastructurefortheIslamicfinancialsystem,steeringthepathforitssuccessfulintegrationasaviablecomponentoftheglobalfinancialsystem. Adecadeon,theworkoftheIFSBinensuringacohesivecross-borderregulatoryframeworkandtheinternationalbestpracticesthatareattunedtotheintrinsiccharacteristicsandpeculiaritiesofIslamicfinancialintermediation,haveserved tounderpinthedevelopmentofasoundand InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

40. P age |40 stableIslamicfinancialsystem,usheringinaphaseofrapidgrowthandgreater internationalizationoftheindustry. Indeed,10yearssincethefoundingoftheIFSBhavebeenaperiodofsignificance,duringwhichtheIslamicfinancialservicesindustryhasgrownimpressivelywithitslandscapedramaticallyevolved. Thisgrowth accelerationhasbeen accompaniedbythewideningofitsgeographicalreachtranscendingitstraditionalbordersinMuslimmajoritycountriestothemoreestablishedfinancialcentres. In addition,Islamicfinancehasevolvedasacomprehensivesystemofintermediationservicingallsegmentsofsociety,includinggovernments,businessesandhouseholdsregardlessofscaleofbusinessesandincomelevels. In thisdecade,Islamicfinancehasalsoevolvedfrombeingdomestic-centrictobecomeincreasinglyinternationalized, intermediatingfundsacrossbordersandbecominganewvehiclethatbridgeseconomiesandfosteringcloserfinanciallinkages,particularlyamongemerginganddevelopingmarkets. Asaformoffinancialintermediationthatiswellanchoredtoservetherealeconomy,Islamicfinanceoffersdistinctpotentialtoachievethegoalsofinclusivegrowthandfinancialstability. ItsfoundationshavebeenstrengthenedwiththesettingupoftheIFSBandbeforethat,theAccountingandAuditingOrganisationforIslamicFinancialInstitutions(AAOIFI),havetakentheleadin settingtheprudentialand accountingstandardsfortheindustry. Combinedwithcontinuous capacitybuildinginitiativesandinstitutionaldevelopment,ithasresultedintheopportunity to achievescaleandhasallowedtheIslamicfinancialservicesindustrytotransitionintoadynamic,fastgrowingandcompetitiveformoffinancialintermediationfortheglobalcommunity. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

41. P age |41 TheIFSBtodayiscelebratingits tenthanniversary inaworldwhichischangingprofoundly. Anewgrowthanddevelopmentagendaisunfoldingbeforeus. Giventheseveredamageanddevastation causedbytheglobalfinancialcrisisandtheensuingeconomicdownturns,theroadtoanenduringrecoveryandlastingprosperitydemandsaglobal policy responsethatbringsaboutaneweconomictrajectorybuiltonastrong,moreinclusiveandmoresustainablegrowthpath. Commonchallengesthathavealsocometo theforefront,suchaspoverty,increasinginequalityandtheimperativeforgreatersocialcohesion,havealsocalledfortheconstructionofpolicy objectivesandstrategiesthat canenhancestability,socialwellbeingandenvironmentalsustainability. In thewakeoftheglobalfinancialcrisis,thereisconsensusontheneedforareturntofinancialsystemsthatservetherealeconomy,andthedemandsformoreresponsiblefinancialpracticesfromthefinancialsector,thatalsoincludesthecommitmentto achievesocio-economicgoals. Inresponse,theinternationalcommunityisprioritizingfinancialstabilitybystrengtheningfinancialregulation. Thisincludesfinancialreformsaimedatprotectingdepositorsfromexcessiverisk-taking,over-leveragingandunfetteredinnovation. Thereforminitiativeshavealsofocusedonenhancingcapitalandliquiditystandards,reinforcedbymovestostrengthenthe macro-prudentialorientationofregulation to complement micro-prudentialsupervision tomanagetherisksarisingfromtheinterdependencieswithinthefinancialsystem. Whilstthebreadthofregulatorychangesbeingconsideredcollectivelyendeavortostrengthenfinancialsystemresilience,thekeychallengefor InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

42. P age |42 policymakersandregulatorsgoingforwardisalsotoachieveinclusiveandmoresustainablegrowth,whilstensuringfinancialstability. WhilstIslamicfinancehasbenefitedfromawell-developed,morecompetitiveandwellregulatedeco-system,itneeds tobuildonandreinforcethesolidfoundationsthathasbeen achievedinthisdecade. Astheindustrytransitionsintoaneweraofgrowthanddevelopmentinthispost-crisisworld,thecompetitivefinanciallandscapeisbeingredrawnbytheevolving internationalregulatoryreforms,changingoperatingmodels,risingconsumerexpectationsandincreasedcompetition. In thismorechallengingenvironment,thesuccessofsustainingthemomentumofIslamicfinanceasatransformativeagentfortheeconomy,willhingeontheability to keepraisingthebarinthepursuitofaneffectivefunctioningandsoundIslamicfinancialsystem. Post-crisis,theincreasedemphasisforinclusiveandsustainableproductsaswellasresponsiblecorporatebehaviorprovidesclearpotentialforIslamicfinancialplayers todemonstrateleadershipby capitalizingoncorevaluepropositionsofIslamicfinancialintermediation. Thereisalsoscopeforgreaterleverageontheadvancesoftechnologyand newinstitutionalarrangementsthatcanenhanceoperationalexcellence,particularly distributionchannelsforextendingoutreachtotherangeof usersfromhouseholds tomicroenterprisesandsmallandmediumscaleenterprises. In addition,innovationsinIslamicfinancialsolutionswillneedtotakeintoaccountthehigherregulatoryexpectationsformoretransparency,andtheneedfortheeffectivemanagementofrisksand capital. ThisinvolvesstrengtheningtheresilienceoftheIslamicfinancialsystemin alignmentwiththeevolvinginternationalregulatorydevelopmentsthusraisingthebarof industryperformance. TheIFSBhasmadesignificantadvancementsinleadingtheefforts to InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

43. P age |43 reviewspecificmeasuresputforwardbytheBaselCommitteeforpossibleadoptioninIslamicfinance. Furthertothisistheimperative tocultivateastrongrisk culturewithininstitutions. Reinforcedbyarobustshariahgovernanceframework,itwillensurethatinnovationforfurtheringthedevelopmentofIslamicfinanceisharnessedwithintheboundariesoftheShariah,whichwouldavertoverzealousinnovative activitiesthatcouldunderminefinancialstability. Letmeconcludemyremarks. Muchhasbeenachieved,bothintermsoftheroleandcontributionoftheIFSB,andtheadvancementmadebyIslamicfinanceinthisrecentdecade. Thishasbeenanoutcomeofcumulativeefforts to strengthenthefoundationsoftheIslamicfinancialsystem. Astheindustrygearsitselfforthenextphaseofgrowthinthemorechallengingenvironment,ourcommitmentandstrategies tokeepraisingthebartobringIslamicfinancetoanewlevelwillenhanceitsprospecttocontribute to achievingoursharedvisionofinclusivegrowthin anenvironmentoffinancialstability. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

44. P age |44 ChangesintheLargeExposureRegime CONSULTATIONPAPERGUERNSEY FINANCIALSERVICESCOMMISSION 1:Executive Summary 1.1Overview ThispapercontainsfulldetailsoftheproposalstosubstantiallyaltertheLargeExposureprinciplesandguidancethatapply to licenseddeposittakersthatareincorporatedinGuernsey. Itisproposedthatthenewregimewouldtakeeffectfrom1January2014. TheseproposalsincludechangestoenhancethequarterlyprudentialreportingtotheCommissionandthiswouldaffectnotonlylicensed deposittakersincorporatedintheBailiwick,butalsothoselicenseddeposittakerswhoseprincipal place ofbusinessisoutsidetheBailiwick. ThecontextforthereviewisthattheexistingPrinciple1/1994/24“PrinciplesandGuidancetobefollowedbyalocallyincorporatedlicenseddeposittakinginstitutionenteringintoalargeexposure”paperpublishedbytheCommissionin1994nolongeradequatelyaddressestherisksassociatedwithlargeexposures,particularlythosearisingfromthesystemicandmarketrisksthatbecameevidentasaresultofthe2007/2008financialcrisis. In respectoflargeexposures,theCommissionhas tendedtobea“pragmatic”supervisorratherthanarigidstandardbasedsupervisor,and,ithas fromtime to timeallowedsuitablycollateralisedlargeexposuresinexcessof25%ofnetcapitalbase. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

45. P age |45 • GiventhatanychangetoamorerestrictiveapproachmayhaveabusinessimpactonlicenseestheCommissionfeelsthatitisappropriatetoseektheviewsofindustry. • TheCommissionisproposingto retainseveralelementsofitspragmaticapproachandin seekingtheviewsofindustryitwillbeopen tobilateraldiscussionswithlicenseesaboutparticulartypesofexposures. • Whatisproposed? • Thesubstantivechangesbeingproposedinupdatedguidanceareasfollows: • Exposurestocentralgovernmentsandmarketloansoflessthan12months’maturity,whichareexemptfromthecurrentlargeexposureregime,willbedeemedtobelargeexposuresunderthenewregime. • Thecurrentupstreamingregimewillchange to expressagreed exposurelimitstoparent/groupbanksasaproportion(i.e.%)ofcapital baseratherthanaproportionofassets.Theupstreamingregimewillincludeonbalancesheetandoffbalancesheetexposures. • Exposurestothirdpartybankswillnormallybelimitedtoamaximumof100%ofnet capitalbaseandwillcomprisecashplacements,holdingofdebtinstrumentsandoffbalancesheetexposures.Themaximumproportion(%)ofexposurewillbedeterminedaccordingtotheratingofthethirdpartybank,althoughlimitedflexibilitywillbepermittedinthe caseofexceptionalshort-termexcesses. • In relation to exposures to sovereigns,theconceptofZoneAandZoneBcountrieswillbereplacedwithtwo differentOECD-basedgroupings -HighIncomeOECDcountriesandothercountries. • Exposureswillbe cappedatamaximumof1000%ofnetcapitalbaseandwillbedeterminedaccordingto theratingofthesovereign. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

46. P age |46 • Exposurestoclientsorgroupsofconnectedclientswillbecappedatamaximumof25%ofnetcapitalbase,unlesstheexposureissecured bycashand/orHighIncomeOECDgovernmentsecurities,ortheexposureissubjecttoaparentalguarantee(whichinitselfwouldneedtobeincludedinanyupstreaminglimit). • Sub-participationagreementsthattransfercreditrisk offthebalancesheetoftheGuernseybankwillalsobeconsidered. • Betterdefinitionofwhatconstitutes“connectedclients”willbeprovided. • Theprudentialreportingformswillbechangedtobettercapturelargeexposuresthathavenotpreviouslybeenreported;e.g. holdingsofdebtthatequatetomorethan10%ofabank’snet capitalbase. • In accordancewithexpectedinternationaldevelopments,theCommissionalsoproposesto capture thetoptwenty,ratherthanthecurrent topten,largestexposures. • Brancheswillbeaskedto reportsimilardetails,butintermsoftheirparentalcapital,sothatdataonanysignificantcreditconcentrationrisk inabranchin Guernseythatmayimpactonaheadofficeelsewherecanbecollected. • Breachesoflargeexposurelimitswillbeareportableevent.TheCommissionisproposingastagedapproachtodealingwithexposuresthat cannotberegularised. • The800%aggregatelimitonexposureswouldberetained,butexposurestoGroup,to thirdpartybanksandtosovereignswouldbeexcludedfromthisaggregate. • Largeexposuresexistingpriortotheintendedeffectivedateforthenewregimeof1January2014wouldbegrandfatheredin. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

47. P age |47 1.3Rationaleforchange Thelargeexposureregimeisallaboutcapturingconcentrationriskanditiscoveredbys24ofTheBankingSupervision(Bailiwick ofGuernsey)Law,1994. Conventionalwisdom,asdictatedbytheCapitalRequirementsDirectiveandtheBaselCorePrinciplesforEffectiveBankingSupervision,statesthatnoexposuretoaclientorconnectedgroupofclientsshouldequatetomorethan25%ofnet capital. Shortterminterbankexposureshavehistoricallybeenexemptfromthisrequirement. Ourcurrentenvironmentreflectstheseexemptionsandalsopermitsexposurestoclientstoexceedthe25%limit. Whilstpureconcentrationrisk to singleobligorcounterpartieswasnotseenasamajordirectcontributortothe2008financialcrisis,nonethelesselementsofconcentrationrisk wereseenasindirectcontributors. Interconnectednesswithinandbetweengroupswereseenasmagnifiersofsomeexposuresandconcentrationsthroughsectoralexposurestoparticulareconomicsectors(e.g.theIrishpropertydevelopmentsector)affectedcreditassessmentsofmanyorganisations. Thatsaid,theguidanceonlargeexposuresremainshistoricinnature;theBaselCommitteeguidanceonmeasuringandcontrollinglargeexposuresdatesback to 1991,andourownlocalregimehasnotbeensignificantlyupdatedsince1994. However,therehavebeensubstantialchangestotheEUlargeexposureregime. Thesesubstantialchangeshavetheiroriginin late2007andearly2008,whentheCommitteeofEuropeanBankingSupervisors(CEBS),which hassincebecometheEuropeanBankingAuthority,reportedtothe InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

48. P age |48 EuropeanCommissionontheeffectivenessofthelargeexposureprovisionsoftheCapitalRequirementsDirective. Thereportconcludedthatmarketfailuresassociatedwithsystemicriskandmoralhazardappliedtointerbankexposuresregardlessofmaturity. Accordingly,thelargeexposureregimeforEUmemberstateswasrevisedwitheffectfromDecember2010totightenlargeexposurelimits,particularlyin relation to interbankandintra-grouplending,whichtheEuropeanCommissionagreedwasamajorsystemicrisk inthewakeofthefinancialcrisis. UndertherevisedEUregime,shorttermloanstobanks arenolongerexemptandwhilstlimitednationaldiscretionisavailabletomemberstatesinrelation tointra-grouplending,loanstothirdpartybanks arenow cappedat25%ofnetcapital,unlessthelendingbankisverysmall. In reality,bythetimethechangestotheEUregimecamealong,marketpracticehadalreadychangedtoreflectthismorecautiousapproach tointerbanklending. ItisworthnotingthattheCEBSconclusionswerealsoreflectedintheUKGovernment’sresponsetothereportonbankingreformbytheIndependentCommissiononBanking(“theVickersReport”). TheHMTreasurywhitepaper“BankingReform– deliveringstabilityandsupportingastableeconomy”publishedinJune2012envisagesthelimitingofaring-fencedbank’sexposuretofinancialinstitutionsinordertopreventsystemicshocks. ClearlyGuernseyisnotintheEU,butneverthelesswewouldnotwishtobeacompleteoutlierinrespectoflargeexposures. TheBaselCorePrinciplesforEffectiveBankingSupervisiondogivethesupervisorsomelatitudeinpermitting“minordeviations”fromthe25%limit,buttheeconomicclimatethathasprevailedforallbutthelastfewyearscombinedwiththeCommission’swishtobeapragmaticregulator hasmeantthatthese“minordeviations”havebeenpermittedmore InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

49. P age |49 frequentlyinthepastthanisarguablynowprudentinthecurrenteconomicandregulatoryclimate. Theguidancehowever,remainsthesameandachangeisneeded tomanageexpectationsandformaliseaprudentapproach. IndevelopingproposalsforanewlargeexposureregimetheCommissionhashadregardtoanumberofotherregimes,includingthoseoperatingintheUKandthe otherCrownDependencies. Noneoftheseareagoodfitintheirentiretyforthetypeofbankingbusinessdonein andfromwithintheBailiwick. TheCommissionhasthereforetriedtobalancetherequirementsofotherregimesagainstthetypeofbankingbusinessthatexistsintheBailiwick,recognisingalsotheintra-groupfundingthatmanylicenseesprovide. 1.4Whowouldbeaffected? LicenseddeposittakersthatareincorporatedinGuernseywouldbethoseprincipallyaffected,giventhatlimitsonexposuresarebeingproposedinrelationto capital. However,theproposedrevisions tothelargeexposureregimeincludeenhancedquarterlyprudentialreportingforalllicenseesandbrancheswouldthereforebeaffectedbythesechangestotheBSL/2reports. TheCommission TheGuernseyFinancialServicesCommissionistheregulatorybodyforthefinancesectorintheBailiwickofGuernsey.TheCommission’sprimaryobjectiveistoregulateandsupervisefinancialservicesinGuernsey,withintegrityandefficiency,andinsodoing helptoupholdtheinternationalreputationofGuernseyasafinancecentre. Tolearnmore:http://www.gfsc.gg/Banking/News/Documents/Consultation%20paper%20for%20Commission%20website.pdf InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com

50. P age |50 GovernorSarahBloomRaskin AttheSocietyofGovernmentEconomistsandtheNationalEconomistsClub,Washington,D.C. ProspectsforaStrongerRecovery Thankyou. Iamverypleased tobehere amonganaudienceof professionaleconomists,whichiscertainlypreferabletoappearingbeforeanaudienceofunprofessionaleconomists. Ilike yourkind!Yourtalentsareneedednowmorethaneveraswetrytoputthe toolsoftheeconomicprofessiontoworkforthecommongood. It'seasy tobeaneconomistwholooksbackoncrisesandcrashesandtriestoexplainwhytheyhappened,butmuchhardertobeaneconomistwhoseeffortsmanagetohelpstopthemfromhappeninginthefirstplace. Economicpolicymaking,atitsbest,reflectsacontinuousstruggle tomakesurethatdataandexplanationsofsuchdataareconsistentwithrealexperience. Ifwe'reto engageinthisstrugglehonestly,it'snoeasytask.Itinvolvesunderstandingnotjustthereliabilityandsignalinvariousdata,butalsoquestioningwhetherthedataaccordswithourunderstandingofactualexperience. So,to getthisrightrequiresmanydifferentperspectives,notjustonthedatabutontheunderlyingrealitiesthedataaretryingto capture. InternationalAssociationofRiskandComplianceProfessionals(IARCP)www.risk-compliance-association.com