Monday May 7 2012 - Top 10 risk and compliance management related news stories and world events

P a g e | 1

_____________________________________________________________ International Association of Risk and Compliance Professionals (IARCP)

www.risk-compliance-association.com

International Association of Risk and Compliance Professionals (IARCP)

1200 G Street NW Suite 800 Washington, DC 20005-6705 USA Tel: 202-449-9750 www.risk-compliance-association.com

Top 10 risk and compliance management related news stories and world events that (for better or for worse) shaped the week's

agenda, and what is next

George Lekatis President of the IARCP

Dear Member, To celebrate the launch of the Lifetime Membership opportunity, the International Association of Risk and Compliance Professionals (IARCP) is offering $100 discount until Thursday, May 10, 2012. The value of the amazing benefits far exceeds the cost of the lifetime membership. The all-inclusive discounted cost is $373 until Thursday, May 10, 2012 (after May 10 the cost will be $473). This is a one-time fee. Read the amazing benefits at: http://www.risk-compliance-association.com/Lifetime_Membership_Launch_Discount_USD100.htm Time to go to our Top 10 list I was between flights, when I read the alert: NSA responsible for the supervision of the banks. What???

http://www.risk-compliance-association.com/

http://www.risk-compliance-association.com/Lifetime_Membership_Launch_Discount_USD100.htm

http://www.risk-compliance-association.com/Lifetime_Membership_Launch_Discount_USD100.htm

P a g e | 2



In my life, NSA stands for Not Such Agency (some say it is about the National Security Agency, home to America's codemakers and codebreakers). And they are going to supervise banks??? I was dead wrong. It was about the NSA (National Supervisory Authority, another European acronym), not the NSA. Read more in No 6 of our list. Oh, no. It is possible to happen again. What else could NSA mean? After a Google search I found: - National Speakers Association - National Society of Accountants - National Scrabble Association - National Sunflower Association - National Smokers Alliance - National Storytelling Association - Nebraska Soybean Association

The moral of the story: 1. If you see an acronym, you cannot be sure you know what they are talking about 2. Don’t study too hard between flights Welcome to the Top 10 list.

P a g e | 3



We have a very interesting paper from the Bank of international Settlements that clarifies issues of the Basel ii / iii frameworks. Fundamental review of the trading book, consultative document, May 2012

FSB enhances its process for ongoing monitoring of compensation practices Good progress has been made in implementing the FSB Principles and Standards on Sound Compensation Practices (“Principles and Standards”), but that more work is necessary to overcome constraints to full implementation by individual national authorities and to address concerns by firms of an uneven playing field.

More Long-term Investing Can Be Severely Distorted by Inaccurate, Short-term Focus Kai Bucher, Associate Director, Inaccurate measurement of investment values, returns, risks and liabilities can create substantial distortions to long-term investment strategies and drive long-term investors to adopt a short-term orientation, according to the Measurement, Governance and Long-term Investing report, released by the World Economic Forum.

P a g e | 4



Basel III – the big issues Speech by Andrew Bailey, Director of UK Banks & Building Socieities at the Seventh City of London Swiss Financial Roundtable

Remarks by Secretary Geithner at the Opening Ceremony of the 2012 Strategic and Economic Dialogue (S&ED)

30 April 2012 Report on the fulfilment of the EBA Recommendation following the 2011 EU-wide stress test

Social Media and Investing – Tips for Seniors The SEC’s Office of Investor Education and Advocacy is issuing this Investor Bulletin to provide seniors who use social media with a few tips to help them do so more safely and to help them avoid investment fraud.

P a g e | 5



A Perspective on the Economic Outlook Presented by Charles I. Plosser, President and Chief Executive Officer, Federal Reserve Bank of Philadelphia, CFA Society of San Diego, May 1, 2012

Very Interesting NEW CODE OF CORPORATE GOVERNANCE Singapore, 2 MAY 2012

Testimony on The Collapse of MF Global: Lessons Learned and Policy Implications Robert Cook, Director, Division of Trading and Markets, U.S. Securities and Exchange Commission - Before the Committee on Banking, Housing, and Urban Affairs, United States Senate

P a g e | 6



We have a very interesting paper from the Bank of international Settlements that clarifies issues of the Basel ii / iii frameworks.

Fundamental review of the trading book - consultative document May 2012 This consultative document sets out a revised market risk framework and proposes a number of specific measures to improve trading book capital requirements. These proposals reflect the Committee's increased focus on achieving a regulatory framework that can be implemented consistently by supervisors and which achieves comparable levels of capital across jurisdictions. Key elements of the proposals include:

A more objective boundary between the trading book and the banking book that materially reduces the scope for regulatory arbitrage - feedback is sought on two alternative approaches;

Moving from value-at-risk to expected shortfall, a risk measure that better captures "tail risk";

Calibrating the revised framework in both the standardised and internal models-based approaches to a period of significant financial stress, consistent with the stressed value-at-risk approach adopted in Basel 2.5;

Comprehensively incorporating the risk of market illiquidity, again consistent with the direction taken in Basel 2.5;

P a g e | 7



Measures to reduce model risk in the internal models-based approach, including a more granular models approval process and constraints on diversification; and

A revised standardised approach that is intended to be more risk-sensitive and act as a credible fallback to internal models.

The Committee is also proposing to strengthen the relationship between the models-based and standardised approaches by establishing a closer link between the calibration of the two approaches, requiring mandatory calculation of the standardised approach by all banks, and considering the merits of introducing the standardised approach as a floor or surcharge to the models-based approach.

Furthermore, the treatment of hedging and diversification will be more closely aligned between the two approaches.

Comments on this consultative document should be submitted by Friday 7 September 2012 by e-mail to [email protected].

Alternatively, comments may be sent by post to the Secretariat of the Basel Committee on Banking Supervision, Bank for International Settlements, CH-4002 Basel, Switzerland.

All comments will be published on the Bank for International Settlements's website unless a commenter specifically requests confidential treatment.

Once the Committee has reviewed responses, it intends to release for comment a more detailed set of proposals to amend the Basel III framework.

In line with its normal process, the Committee will also subject such proposals to a thorough Quantitative Impact Study.

mailto:[email protected]

P a g e | 8



Abbreviations CDS Credit default swap CRM Comprehensive risk measure CTP Correlation trading portfolio CVA Credit valuation adjustment ES Expected shortfall GAAP Generally Accepted Accounting Principles IFRS International Financial Reporting Standards IRC Incremental risk charge MTM Mark-to-market OTC Over-the-counter P&L Profit and loss PVBP Present value of a basis point RWA Risk-weighted assets SDR Special drawing rights SMM Standardised measurement method VaR Value-at-risk

Fundamental review of the trading book Executive summary This consultative document presents the initial policy proposals emerging from the Basel Committee’s (“the Committee”) fundamental review of trading book capital requirements. These proposals will strengthen capital standards for market risk, and thereby contribute to a more resilient banking sector. The policy directions set out in this paper form part of the Committee’s broader agenda of reforming bank regulatory standards to address the lessons of the financial crisis. These initial proposals build on the series of important reforms that the Committee has already delivered through Basel III and set out the key approaches under consideration by the Committee to revise the market risk framework.

P a g e | 9



These proposals also reflect the Committee’s increased focus on achieving a regulatory framework that can be implemented consistently by supervisors and which achieves comparable levels of capital across jurisdictions. The Committee’s policy orientations with regard to the trading book are a vital element of the objective to achieve comparability of capital outcomes across banks, particularly those which are most systemically important.

Background The financial crisis exposed material weaknesses in the overall design of the framework for capitalising trading activities and the level of capital requirements for trading activities proved insufficient to absorb losses. As an important response to the crisis, the Committee introduced a set of revisions to the market risk framework in July 2009 (part of the “Basel 2.5” rules). These sought to reduce the cyclicality of the market risk framework and increase the overall level of capital, with particular focus on instruments exposed to credit risk (including securitisations), where the previous regime had been found especially lacking. However, the Committee recognised at the time that the Basel 2.5 revisions did not fully address the shortcomings of the framework. As a result, the Committee initiated a fundamental review of the trading book regime, beginning with an assessment of “what went wrong”. The fundamental review seeks to address shortcomings in the overall design of the regime as well as weaknesses in risk measurement under both the internal models-based and standardised approaches. This consultative paper sets out the direction the Committee intends to take in tackling the structural weaknesses of the regime, in order to solicit stakeholders’ comments before proposing more concrete revisions to the

P a g e | 10



market risk capital framework.

Key areas of Committee focus The Committee has focused on the following key areas in its review:

The trading book/banking book boundary The Committee believes that its definition of the regulatory boundary has been a source of weakness in the design of the current regime. A key determinant of the boundary is banks’ intent to trade, an inherently subjective criterion that has proved difficult to police and insufficiently restrictive from a prudential perspective in some jurisdictions. Coupled with large differences in capital requirements against similar types of risk on either side of the boundary, the overall capital framework proved susceptible to arbitrage. While the Committee considered the possibility of removing the boundary altogether, it concluded that a boundary will likely have to be retained for practical reasons. The Committee is now putting forth for consideration two alternative boundary definitions:

“Trading evidence”- based boundary:

Under this approach the boundary would be defined not only by banks’ intent, but also by evidence of their ability to trade and risk manage the instrument on a trading desk. Any item included in the regulatory trading book would need to be marked to market daily with changes in fair value recognised in earnings. Stricter, more objective requirements would be used to ensure robust and consistent enforcement.

P a g e | 11



Tight limits to banks’ ability to shift instruments across the boundary following initial classification would also be introduced. Fundamental to this proposal is a view that a bank’s intention to trade – backed up by evidence of this intent and a regulatory requirement to keep items in the regulatory trading book once they are placed there – is the relevant characteristic for determining capital requirements. In some jurisdictions, application of this type of definition of the boundary could result in regulatory trading books that are considerably narrower than at present.

Valuation-based boundary:

This proposal would move away from the concept of “trading intent” and construct a boundary that seeks to align the design and structure of regulatory capital requirements with the risks posed to a bank’s regulatory capital resources. Fundamental to this proposal is a view that capital requirements for market risk should apply when changes in the fair value of financial instruments, whether recognised in earnings or flowing directly to equity, pose risks to the regulatory and accounting solvency of banks. This definition of the boundary would likely result in a larger regulatory trading book, but not necessarily in a much wider scope of application for market risk models or necessarily lower capital requirements.

Stressed calibration The Committee recognises the importance of ensuring that regulatory capital is sufficient in periods of significant market stress. As the crisis showed, it is precisely during stress periods that capital is most critical to absorb losses. Furthermore, a reduction in the cyclicality of market risk capital charges remains a key objective of the Committee.

P a g e | 12



Consistent with the direction taken in Basel 2.5, the Committee intends to address both issues by moving to a capital framework that is calibrated to a period of significant financial stress in both the internal models-based and standardised approaches.

Moving from value-at-risk to expected shortfall A number of weaknesses have been identified with using value-at-risk (VaR) for determining regulatory capital requirements, including its inability to capture “tail risk”. For this reason, the Committee has considered alternative risk metrics, in particular expected shortfall (ES). ES measures the riskiness of a position by considering both the size and the likelihood of losses above a certain confidence level. In other words, it is the expected value of those losses beyond a given confidence level. The Committee recognises that moving to ES could entail certain operational challenges; nonetheless it believes that these are outweighed by the benefits of replacing VaR with a measure that better captures tail risk. Accordingly, the Committee is proposing the use of ES for the internal models-based approach and also intends to determine risk weights for the standardised approach using an ES methodology.

A comprehensive incorporation of the risk of market illiquidity The Committee recognises the importance of incorporating the risk of market illiquidity as a key consideration in banks’ regulatory capital requirements for trading portfolios. Before the introduction of the Basel 2.5 changes, the entire market risk framework was based on an assumption that trading book risk positions

P a g e | 13



were liquid, ie that banks could exit or hedge these positions over a 10-day horizon. The recent crisis proved this assumption to be false. As liquidity conditions deteriorated during the crisis, banks were forced to hold risk positions for much longer than originally expected and incurred large losses due to fluctuations in liquidity premia and associated changes in market prices. Basel 2.5 partly incorporated the risk of market illiquidity into modelling requirements for default and credit migration risk through the incremental risk charge (IRC) and the comprehensive risk measure (CRM). The Committee’s proposed approach to factor in market liquidity risk comprehensively in the revised market risk regime consists of three elements: - First, operationalising an assessment of market liquidity for

regulatory capital purposes. The Committee proposes that this assessment be based on the concept of “liquidity horizons”, defined as the time required to exit or hedge a risk position in a stressed market environment without materially affecting market prices. Banks’ exposures would be assigned into five liquidity horizon categories, ranging from 10 days to one year.

- Second, incorporating varying liquidity horizons in the regulatory market risk metric to capitalise the risk that banks might be unable to exit or hedge risk positions over a short time period (the assumption embedded in the 10-day VaR treatment for market risk).

- Third, incorporating capital add-ons for jumps in liquidity premia, which would apply only if certain criteria were met.

P a g e | 14



These criteria would seek to identify the set of instruments that could become particularly illiquid, but where the market risk metric, even with extended liquidity horizons, would not sufficiently capture the risk to solvency from large fluctuations in liquidity premia.

Additionally, the Committee is consulting on two possible options for incorporating the “endogenous” aspect of market liquidity. Endogenous liquidity is the component that relates to bank-specific portfolio characteristics, such as particularly large or concentrated exposures relative to the market. The main approach under consideration by the Committee to incorporate this risk would be further extension of liquidity horizons; an alternative could be application of prudent valuation adjustments specifically targeted to account for endogenous liquidity.

Treatment of hedging and diversification Hedging and diversification are intrinsic to the active management of trading portfolios. Hedging, while generally risk reducing, also gives rise to basis risk that must be measured and capitalised. In addition, portfolio diversification benefits, whilst seemingly risk-reducing, can disappear in times of stress. Currently, banks using the internal models-based approach are allowed large latitude to recognise the risk-reducing benefits of hedging and diversification, while recognition of such benefits is strictly limited under the standardized approach. The Committee is proposing to more closely align the treatment of hedging and diversification between the two approaches.

P a g e | 15



In part, this will be achieved by constraining diversification benefits in the internal models-based approach to address the Committee’s concerns that such models may significantly overestimate portfolio diversification benefits that do not materialise in times of stress.

Relationship between internal models-based and standardised approaches The Committee considers the current regulatory capital framework for the trading book to have become too reliant on banks’ internal models that reflect a private view of risk. In addition, the potential for very large differences between standardised and internal models based capital requirements for a given portfolio is a major level playing field concern and can also leave supervisors without a credible option of removing model permission when model performance is poor. To strengthen the relationship between the models-based and standardised approaches the Committee is consulting on three proposals: - First, establishing a closer link between the calibration of the two

approaches;

- Second, requiring mandatory calculation of the standardised approach by all banks;

- Third, considering the merits of introducing the standardised

approach as a floor or surcharge to the models-based approach.

Revised models-based approach The Committee has identified a number of weaknesses with risk measurement under the models-based approach. In seeking to address these problems, the Committee intends to

P a g e | 16



(i) Strengthen requirements for defining the scope of portfolios that will be eligible for internal models treatment; and (ii) Strengthen the internal model standards to ensure that the output of such models reflects the full extent of trading book risk that is relevant from a regulatory capital perspective. To strengthen the criteria that banks must meet before regulatory capital can be calculated using internal models, the Committee is proposing to break the model approval process into smaller, more discrete steps, including at the trading desk level. This will allow ***model approval to be “turned-off” more easily*** than at present for specific trading desks that do not meet the requirements. At the trading desk level, where the bank naturally has an internal profit and loss (P&L) available, model performance can be verified more robustly. The Committee is considering two quantitative tools to measure the performance of models. First, a P&L attribution process that provides an assessment of how well a desk’s risk management model captures risk factors that drive its P&L. Second, an enhanced daily backtesting framework for reconciling forecasted losses from the market risk metric with actual losses. Although the market risk regime has always required backtesting of model performance, the Committee is proposing to apply it at a more granular trading desk level in the future. Where a trading desk does not achieve acceptable P&L attribution or backtesting results, the bank would be required to calculate capital requirements for that desk using the standardised approach.

P a g e | 17



To strengthen model standards, the Committee is consulting on limiting diversification benefits, moving to an expected shortfall metric and calibrating to a period of market stress. In addition, it is consulting on introducing a more robust process for assessing whether individual risk factors would be deemed as “modellable” by a particular bank. This would be a systematic process for identifying, recording and calculating regulatory capital against risk factors deemed not to be amenable to market risk modelling.

Revised standardised approach The Committee has identified a number of important shortcomings with the current standardised approach. A standardised approach serves two main purposes. Firstly, it provides a method for calculating capital requirements for banks with business models that do not require sophisticated measurement of market risk. This is especially relevant to smaller banks with limited trading activities. Secondly, it provides a fallback in the event that a bank’s internal market risk model is deemed inadequate as a whole or for specific trading desks or risk factors. This second purpose is of particular importance for larger or more systemically important banks. In addition, the standardised approach could allow for a harmonised reporting of risk positions in a format that is consistent across banks and jurisdictions.

P a g e | 18



Apart from allowing for greater comparability across banks and jurisdictions, this could also allow for aggregation of risk positions across the banking system to obtain a macroprudential view of market risks. With those objectives in mind the Committee has adopted the following principles for the design of the revised standardised approach: simplicity, transparency and consistency, as well as improved risk sensitivity; a credible calibration; limited model reliance; and a credible fallback to internal models. In seeking to meet these objectives, the Committee proposes a “partial risk factor” approach as a revised standardised approach. The Committee also invites feedback on a “fuller risk factor” approach as an alternative. More specifically:

(a) Partial risk factor approach:

Instruments that exhibit similar risk characteristics would be grouped in buckets and Committee-specified risk weights would be applied to their market value. The number of buckets would be approximately 20 across five broad classes of instruments, though the exact number would be determined empirically. Hedging and diversification benefits would be better captured than at present by using regulatory correlation parameters. To improve risk sensitivity, instruments exposed to “cross-cutting” risk factors that are pervasive across the trading book (eg FX and interest rate risk) would be assigned to more than one bucket. For example, a foreign-currency equity would be assigned to the appropriate quity bucket and to a cross-cutting FX bucket.

P a g e | 19



(b) Fuller risk factor approach:

This alternative approach would map instruments to a set of prescribed regulatory risk factors to which shocks would be applied to calculate a capital charge for the individual risk factors. The bank would have to use a pricing model (likely its own) to determine the size of the risk positions for each instrument with respect to the applicable risk factors. Hedging would be recognized for more “systematic” risk factors at the risk factor level. The capital charge would be generated by subjecting the overall risk positions to a simplified regulatory aggregation algorithm.

The appropriate treatment of credit A particular area of Committee focus has been the treatment of positions subject to credit risk in the trading book. Credit risk has continuous (credit spread) and discrete (default and migration) components. This has implications for the types of models that are appropriate for capturing credit risk. In practice, including default and migration risk within an integrated market risk framework introduces particular challenges and potentially makes consistent capital charges for credit risk in the banking and trading books more difficult to achieve. The Committee is therefore considering whether, under a future framework, there should continue to be a separate model for default and migration risk in the trading book.

P a g e | 20



Areas outside the scope of these proposals The Committee thinks it is important to note that there are two particular areas that it has considered, but are not subject to any detailed proposals in this consultative document.

Interest rate risk in the banking book Although the Committee has determined that removing the boundary between the banking book and the trading book may be impractical, it is concerned about the possibility of arbitrage across the banking book / trading book boundary. A major contributor to arbitrage opportunities are different capital treatments for the same risks on either side of the boundary. One example is interest rate risk, which is explicitly captured in the trading book under a Pillar 1 capital regime, but subject to Pillar 2 requirements in the banking book. The Committee has therefore undertaken some preliminary work on the key issues that would be associated with applying a Pillar 1 capital charge for interest rate risk in the banking book. The Committee intends to consider the timing and scope of further work in this area later in 2012.

Interaction of market and counterparty risk Basel III introduced a new set of capital charges to capture the risk of changes to credit valuation adjustments (CVA). This is known as the CVA risk capital charge and will be implemented as a “stand alone” capital charge under Basel III, with a coordinated start date of 1 January 2013.

P a g e | 21



The Committee is aware that some industry participants believe that CVA risk, as the market component of credit risk, should be captured in an integrated fashion with other forms of market risk within the market risk framework. The Committee has agreed to consider this question, but remains cautious of the degree to which these risks can be effectively captured in a single integrated modelling approach. It observes that there is no clear market standard for the treatment of CVA risk in banks’ internal capital. Occasionally, even within individual banks, different treatments for CVA risk seem to exist. For the time being, the Committee anticipates that open questions regarding the practicality of integrated modelling of CVA and market risk could constrain moving towards such integration. In the meantime, the industry should focus on ensuring a high-quality implementation of the new stand-alone charge on 1 January 2013. This is consistent with the Committee’s broader concerns over the degree of reliance on internal models and the over-estimation of diversification benefits. For this reason, this consultative document sets out initial proposals on revisions to the capital framework for capturing market risk and does not offer specific proposals for dealing with CVA risk. Nonetheless, stakeholders may wish to provide their views on whether CVA risk should be incorporated into the market risk framework and, if so, how this could be achieved in the context of the emerging revisions to the market risk framework presented in this paper.

P a g e | 22



Next steps The Committee welcomes comments from the public on all aspects of this consultative document and in particular on the questions in the text (summarised at the end of this document) by 7 September 2012 by e-mail to [email protected]. Alternatively, comments may be sent by post to: Basel Committee on Banking Supervision, Bank for International Settlements, Centralbahnplatz 2, CH-4002 Basel, Switzerland All comments will be published on the Bank for International Settlements’ website unless a commenter specifically requests confidential treatment. Once the Committee has reviewed responses, it intends to release for comment a more detailed set of proposals to amend the Basel III framework. As is its normal process, the Committee will subject such proposals to a thorough Quantitative Impact Study.

P a g e | 23



Annex Lessons from the academic literature and banks’ risk management practices In its deliberations on revising the prudential regime for trading activities, the Trading Book Group has drawn on lessons both from the academic literature and banks’ current and emerging risk management practices.

1. Messages from the academic literature on risk measurement in the trading book Selected lessons on VaR implementation: (a) There is no unique solution to the problem of the appropriate time horizon for risk measurement. The horizon depends on characteristics of the portfolio and the economic purpose of measuring its risk. (b) Commonly used square-root-of-time VaR scaling rules (which ignore future changes in the portfolio) have been found to be an inaccurate approximation in many studies. That said, no widely accepted alternative has emerged. (c) There are limitations of VaR models that rely on the use of continuous stochastic processes with only deterministic volatility assumptions. Introducing either stochastic volatility assumptions or stochastic jump process into modelling of risk factors will help to overcome these shortcomings. (d) Backtesting procedures that only focus on the number of VaR violations are insufficient to determine the appropriateness of the model assumptions.

P a g e | 24



The use of conditional backtesting procedures or other techniques (like the timing of violations or the magnitude of the VaR exceptions) can improve the backtesting process. (e) No consensus has yet emerged on the relative benefits of using actual or hypothetical results (ie P&L) to conduct backtesting exercises.

Incorporating market liquidity risk:

The literature distinguishes, first, between exogenous and endogenous market liquidity risks; and, second, between normal (or current) liquidity risk and extreme (or stressed) liquidity risk. Portfolios may be subject to significant endogenous liquidity costs under all market conditions, depending on their size or on the risk positions of other market participants. According to accounting standards, endogenous liquidity costs are not taken into account in the valuation of the trading books. A first step to incorporating this risk in a VaR measure would be to take it into account in the valuation method. In practice, the time it takes to liquidate a risk position varies, depending on its transaction costs, the size of the risk position in the market, the trade execution strategy, and market conditions. Some studies suggest that, for some portfolios, this aspect of liquidity risk could also be addressed by extending the VaR risk measurement horizon.

Risk measures:

VaR has been criticised in the literature for lacking subadditivity. A prominent alternative to VaR is ES, which is subadditive. Despite criticism focused on the complexity, computational burden, and backtesting issues associated with ES, the recent literature suggests that

P a g e | 25



many issues have been resolved or have been identified as less severe than originally expected. Spectral risk measures are a promising generalisation of ES that is cited in the literature.

Stress testing practices for market risk: Stress testing often was implemented as an ad hoc exercise without any estimate of scenario probability or use of a bank’s VaR risk measurement framework. More recent research advocates the integration of stress testing into the risk modelling framework. This would overcome the drawbacks of reconciling standalone stress test results with standard VaR model output. Progress has also been achieved in theoretical research on the selection of stress scenarios. The regulatory stressed VaR approach has not been analysed in the academic literature.

Unified versus compartmentalised risk measurement:

Recently, attention has shifted towards unified approaches to risk measurement that consider all risk categories jointly. Theoretically, an integrated approach is needed to capture potential compounding effects that are ignored in traditional compartmentalised risk measurement approaches (eg separate measures for interest rate, market, credit and operational risk). These might underestimate risk if a portfolio cannot be cleanly divided into sub-portfolios along risk categories. Irrespective of the separation of assets into “books”, it is not always true that calculating different risks for the same portfolio in a

P a g e | 26



compartmentalised fashion and adding up the compartmentalised measures will be a conservative estimate of the true risk. This insight is particularly important for “back-fitting packages”, such as the IRC.

Risk management and VaR in a systemic context:

A number of studies criticise VaRbased capital rules as being procyclical in nature. This may induce cyclical lending behavior by banks and exacerbate the business cycle. Another criticism of VaR-based capital rules is that banks may fail to consider system-wide endogeneity in their internal decisions. If all banks do this, they may act uniformly in booms and busts leading to instabilities in asset markets. Unfortunately, the literature does not offer convincing alternatives.

2. Key findings from a survey of industry practices The Trading Book Group conducted a survey of industry practices in risk management, capital allocation and other measures for the trading book that could be used to inform the development of regulatory capital standards. The key findings are as follows.

Length of holding period for risk assessment:

For day-to-day risk management the use of one-day VaR is universal among banks surveyed. However, for internal capital adequacy and strategic risk management, banks are generally moving beyond short-horizon models (eg one-day and 10-day VaR).

P a g e | 27



It is now acknowledged that, to determine the level of capital necessary to remain in business after sustaining a large loss, risk must be assessed over a longer holding period. Shorter horizons do not address the liquidity risk for all exposures and do not capture tail events that are important for capital adequacy. Some banks are developing risk models with varying holding periods for risk assessment across products and conditional on the market liquidity of the exposure, though validation will be difficult.

Alternatives to traditional VaR models:

Many banks see the need for a measure of risk for exposures that are hard to capture in traditional VaR models. Stress tests are utilised but most view that risk needs to be assessed over a range of possible scenarios because the nature of the next crisis cannot be predicted. Consequently, more ambitious comprehensive statistical models of stress scenarios are used. Such models allow systematic assessment of risk across multiple stress scenarios beyond those present in historical data sets. These approaches are similar to reverse stress tests in that they are sensitive to the scenario to which the bank is most exposed. Alternatively, some banks recommend the use of risk sensitive add-ons to risk model outputs for exposures whose risks cannot be reliably measured with VaR. These banks believe that use of add-ons where complexity and model uncertainty exist would be preferable to blunt risk-insensitive standardised measures.

P a g e | 28



The same complexity and measurement issues that are challenges for VaR models are likely to affect the robustness of standardised risk weights.

Model validation:

The emerging modelling approaches for assessment of exposure to stress events will present a challenge for model validation because of the paucity of relevant historical data. In addition, models that assess risk over long holding periods such as in the IRC model present a validation challenge because some products have less than 10 years of historical data. In cases where historical data are not sufficient for traditional backtesting, several banks suggested using benchmark portfolios to discover which models were outliers in underestimating of risk.

Scaling of VaR and nonlinearities:

Nonlinearities in exposures are captured in most banks’ models to some degree albeit imperfectly. Almost all banks’ VaR models capture nonlinearities at a local level (small price changes) for much of their market risk exposure, but many banks’ VaR models fail to capture non-linearity at a global level (large price changes). A common weakness in the capture of non-linearity is the use of scaling of oneday VaR to estimate exposures at longer holding periods. Such scaling only captures local non-linearity in the range of one-day price changes and can underestimate non-linear exposure over longer horizons, even when full revaluation is used. To learn more: www.bis.org/publ/bcbs219.htm

http://www.bis.org/publ/bcbs219.htm

P a g e | 29



P a g e | 30



P a g e | 31



FSB enhances its process for ongoing monitoring of compensation practices

The 2011 FSB peer review on compensation indicated that good progress has been made in implementing the FSB Principles and Standards on Sound Compensation Practices (“Principles and Standards”), but that more work is necessary to overcome constraints to full implementation by individual national authorities and to address concerns by firms of an uneven playing field.

Following the completion of the peer review, the Financial Stability Board (FSB) was tasked by the G20 to undertake ongoing monitoring and public reporting on further progress in compensation practices.

In order to strengthen its monitoring in this area, the FSB has recently established the Compensation Monitoring Contact Group (CMCG), a network of national experts from member jurisdictions with regulatory or supervisory responsibility on compensation practices.

The CMCG is responsible for monitoring and reporting to the FSB on national implementation of the Principles and Standards.

In addition, the FSB has established a mechanism for national supervisors from FSB member jurisdictions to bilaterally report, verify and, if necessary, address specific compensation-related complaints by financial institutions that give rise to level playing field concerns.

The objectives of the Bilateral Complaint Handling Process (BCHP) are to:

- Address evidence-based complaints raised by firms to their home supervisors that document a competitive disadvantage as a result of

P a g e | 32



the inconsistent implementation of the Principles and Standards by firms headquartered in other jurisdictions.

- Produce and report information to the FSB on the nature and outcomes of such complaints so as to inform the scope and intensity of the ongoing monitoring.

The BCHP is intended to complement and reinforce normal bilateral or multilateral supervisory channels that may be used by supervisors to address compensation issues.

The outcomes of the BCHP will be reported by the CMCG to the FSB as part of its ongoing monitoring process.

Information on the FSB’s implementation monitoring activities of compensation practices is available on a dedicated page of the FSB website that can be accessed at the following link:

www.financialstabilityboard.org/activities/compensation/cm.htm

What exactly is happening ?

The G20 Leaders in the November 2011 Cannes Summit Declaration, called on the FSB to "undertake an ongoing monitoring and public reporting on compensation practices focused on remaining gaps and impediments to full implementation of these standards and carry out an ongoing bilateral complaint handling process to address level playing field concerns of individual firms". Compensation practices is one of the designated priority areas under the FSB's Coordination Framework for Implementation Monitoring(CFIM). All priority areas undergo more intensive monitoring and detailed reporting via periodic progress reports and peer reviews. The Compensation Monitoring Contact Group (CMCG) under the FSB Standing Committee on Standards Implementation (SCSI) is responsible for monitoring and reporting on national implementation in this area and on the results of the bilateral complaint handling process, a mechanism

http://www.financialstabilityboard.org/activities/compensation/cm.htm

P a g e | 33



by which national supervisors from the FSB member jurisdictions work together to verify and, as needed, address specific compensation-related complaints by financial institutions that give rise to level playing field concerns.

It is good to see the G20 Cannes Summit final declaration "BUILDING OUR COMMON FUTURE: RENEWED COLLECTIVE ACTION FOR THE BENEFIT OF ALL"

1. Since our last meeting, global recovery has weakened, particularly in advanced countries, leaving unemployment at unacceptable levels. Tensions in the financial markets have increased due mostly to sovereign risks in Europe. Signs of vulnerabilities are appearing in emerging markets. Increased commodity prices have harmed growth and hit the most vulnerable. Exchange rate volatility creates a risk to growth and financial stability. Global imbalances persist. Today, we reaffirm our commitment to work together and we have taken decisions to reinvigorate economic growth, create jobs, ensure financial stability, promote social inclusion and make globalization serve the needs of our people.

A global strategy for growth and jobs

2. To address the immediate challenges faced by the global economy, we commit to coordinate our actions and policies.

We have agreed on an Action plan for Growth and Jobs. Each of us will play their part.

P a g e | 34



Fostering Employment and Social Protection

3. We firmly believe that employment must be at the heart of the actions and policies to restore growth and confidence that we undertake under the Framework for strong, sustainable and balanced growth.

We are committed to renew our efforts to combat unemployment and promote decent jobs, especially for youth and others who have been most affected by the economic crisis.

We therefore decide to set up a G20 Task-Force on Employment, with a focus on youth employment, that will provide input to the G20 Labour and Employment Ministerial Meeting to be held under the Mexican Presidency in 2012.

We have tasked International organizations (IMF, OECD, ILO, World Bank) to report to Finance Ministers on a global employment outlook and how our economic reform agenda under the G20 Framework will contribute to job creation.

4. We recognize the importance of investing in nationally determined social protection floors in each of our countries, such as access to health care, income security for the elderly and persons with disabilities, child benefits and income security for the unemployed and assistance for the working poor.

They will foster growth resilience, social justice and cohesion.

In this respect, we note the report of the Social Protection Floor Advisory Group, chaired by Ms Michelle Bachelet.

5. We commit to promote and ensure full respect of the fundamental principles and rights at work.

We welcome and encourage the ILO to continue promoting ratification and implementation of the eight ILO Fundamental Conventions.

P a g e | 35



6. We are determined to strengthen the social dimension of globalisation. Social and employment issues, alongside economic, monetary and financial issues, will remain an integral part of the G20 agenda.

We call on international organisations to intensify their coordination and make it more effective.

In view of a greater coherence of multilateral action, we encourage the WTO, the ILO, the OECD, the World Bank and the IMF to enhance their dialogue and cooperation.

7. We are convinced of the essential role of social dialogue.

In this regard we welcome the B20 and L20 Meetings that took place under the French presidency and the willingness of these fora to work together as witnessed in their joint statement.

8. Our Labour and Employment Ministers met in Paris on September 26-27, 2011 to tackle these issues.

We endorse their conclusions, annexed to this Declaration. We ask our Ministers to meet again next year to review progress made on this agenda.

Building a more stable and resilient International Monetary System

9. In 2010, the G20 committed to working towards a more stable and resilient IMS and to ensure systemic stability in the global economy, improve the global economic adjustment, as well as an appropriate transition towards an IMS which better reflects the increased weight of emerging market economies.

In 2011, we are taking concrete steps to achieve these goals.

Increasing the benefits from financial integration and resilience against volatile capital flows to foster growth and development

P a g e | 36



10. We agreed on coherent conclusions to guide us in the management of capital flows drawing on country experiences, in order to reap the benefits from financial globalization, while preventing and managing risks that could undermine financial stability and sustainable growth at the national and global levels.

11. To pursue these objectives, we adopted an action plan to support the development and deepening of local currency bond markets, scaling up technical assistance from different international institutions, improving the data base and preparing joint annual progress reports to the G20.

We call on the World Bank, Regional Development Banks, IMF, UNCTAD, OECD, BIS and FSB to work together to support the delivery of this plan and to report back by the time of our next meeting about progress made.

Reflecting the changing economic equilibrium and the emergence of new international currencies

12. We affirm our commitment to move more rapidly toward more market-determined exchange rate systems and enhance exchange rate flexibility to reflect underlying economic fundamentals, avoid persistent exchange rate misalignments and refrain from competitive devaluation of currencies.

We are determined to act on our commitments to exchange rate reform articulated in our Action plan for Growth and Jobs to address short term vulnerabilities, restore financial stability and strengthen the medium-term foundations for growth.

Our actions will help address the challenges created by developments in global liquidity and capital flows volatility, thus facilitating further progress on exchange rate reforms and reducing excessive accumulation of reserves.

13. We agreed that the SDR basket composition should continue to reflect the role of currencies in the global trading and financial system and be adjusted over time to reflect currencies' changing role and characteristics.

P a g e | 37



The SDR composition assessment should be based on existing criteria, and we ask the IMF to further clarify them.

A broader SDR basket will be an important determinant of its attractiveness, and in turn influence its role as a global reserve asset.

This will serve as a reference for appropriate reforms.

We look forward to reviewing the composition of the SDR basket in 2015, and earlier if warranted, as currencies meet the criteria, and call for further analytical work of the IMF in this regard, including on potential evolution.

We will continue our work on the role of the SDR.

Strengthening our capacity to cope with crises

14. As a contribution to a more structured approach, we agreed to further strengthen global financial safety nets in which national governments, central banks, regional financial arrangements and international financial institutions will each play a role according to and within their respective mandate.

We agreed to continue these efforts to this end.

We recognize that central banks play a major role in addressing liquidity shocks at a global and regional level, as shown by the recent improvements in regional swap lines such as in East Asia.

We agreed on common principles for cooperation between the IMF and Regional Financial Arrangements, which will strengthen crisis prevention and resolution efforts.

15. As a contribution to this structured approach and building on existing instruments and facilities, we support the IMF in putting forward the new Precautionary and Liquidity Line (PLL).

This would enable the provision, on a case by case basis, of increased and more flexible short-term liquidity to countries with strong policies and fundamentals facing exogenous, including systemic, shocks.

P a g e | 38



We also support the IMF in putting forward a single emergency facility to provide non-concessional financing for emergency needs such as natural disasters, emergency situations in fragile and post-conflict states, and also other disruptive events.

We call on the IMF to expeditiously discuss and finalize both proposals.

16. We welcome the euro area's comprehensive plan and urge rapid elaboration and implementation, including of country reforms.

We welcome the euro area's determination to bring its full resources and entire institutional capacity to bear in restoring confidence and financial stability, and in ensuring the proper functioning of money and financial markets.

We will ensure the IMF continues to have resources to play its systemic role to the benefit of its whole membership, building on the substantial resources we have already mobilized since London in 2009.

We stand ready to ensure additional resources could be mobilised in a timely manner and ask our finance ministers by their next meeting to work on deploying a range of various options including bilateral contributions to the IMF, SDRs, and voluntary contributions to an IMF special structure such as an administered account.

We will expeditiously implement in full the 2010 quota and governance reform of the IMF.

Strengthening IMF surveillance

17. We agreed that effective and strengthened IMF surveillance will be crucial to the efficiency and stability of the IMS.

In this context, a strengthening of multilateral surveillance and a better integration with bilateral surveillance will be important, as well as enhanced monitoring of interlinkages across sectors, countries and regions.

P a g e | 39



Against this background, we welcome the recent improvements to the IMF surveillance toolkit including the consolidated multilateral surveillance report and spillover reports and ask the IMF to continue to improve upon these exercises and methodology.

18. We call on the IMF to make further progress towards a more integrated, even-handed and effective IMF surveillance, taking into account the Independent Evaluation Office report on surveillance, covering in particular financial sector, fiscal, monetary, exchange rate policies and an enhanced analysis of their impact on external stability.

We call on the IMF to regularly monitor cross-border capital flows and their transmission channels and update capital flow management measures applied by countries.

We also call on the IMF to continue its work on drivers and metrics of reserve accumulation taking into account country circumstances, and, along with the BIS, their work on global liquidity indicators, with a view to future incorporation in the IMF surveillance and other monitoring processes, on the basis of reliable indicators.

We will avoid persistent exchange rate misalignments and we asked the IMF to continue to improve its assessment of exchange rates and to publish its assessments as appropriate.

19. While continuing with our efforts to strengthen surveillance, we recognize the need for better integration of bilateral and multilateral surveillance, and we look forward to IMF proposals for a new integrated decision on surveillance early next year.

20. We agreed on the need to increase the ownership and traction of IMF surveillance, which are key components of its effectiveness.

We agreed to ensure greater involvement of Ministers and Governors, by providing greater strategic guidance through the IMFC.

To increase the transparency of IMF surveillance, we reaffirm the importance of all IMF members to contribute to improve data availability, support the Managing Director's proposal to publish multilateral

P a g e | 40



assessments of external balances, and we recommend timely publication of surveillance reports.

We welcome the publication of Art. IV reports by most members of the G20 and look forward to further progress.

Next steps

21. Building a more stable and resilient IMS is a long-term endeavor.

We commit to continue working to ensure systemic stability in the global economy and an appropriate transition towards an IMS which better reflects the increased weight of emerging market economies.

In 2012, we will continue to take concrete steps in this direction.

Implementing and deepening Financial sector reforms

22. We are determined to fulfill the commitment we made in Washington in November 2008 to ensure that all financial markets, products and participants are regulated or subject to oversight as appropriate to their circumstances in an internationally consistent and non-discriminatory way.

Meeting our commitments notably on banks, OTC derivatives, compensation practices and credit rating agencies, and intensifying our monitoring to track deficiencies

23. We are committed to improve banks' resilience to financial and economic shocks.

Building on progress made to date, we call on jurisdictions to meet their commitment to implement fully and consistently the Basel II risk-based framework as well as the Basel II-5 additional requirements on market activities and securitization by end 2011 and the Basel III capital and liquidity standards, while respecting observation periods and review clauses, starting in 2013 and completing full implementation by 1 January 2019.

P a g e | 41



24. Reforming the over the counter derivatives markets is crucial to build a more resilient financial system.

All standardized over-the-counter derivatives contracts should be traded on exchanges or electronic trading platforms, where appropriate, and centrally cleared, by the end of 2012; OTC derivatives contracts should be reported to trade repositories, and non-centrally cleared contracts should be subject to higher capital requirements.

We agree to cooperate further to avoid loopholes and overlapping regulations.

A coordination group is being established by the FSB to address some of these issues, complementing the existing OTC derivatives working group.

We endorse the FSB progress report on implementation and ask the CPSS and IOSCO to work with FSB to carry forward work on identifying data that could be provided by and to trade repositories, and to define principles or guidance on regulators' and supervisors' access to data held by trade repositories.

We call on the Basel Committee on Banking Supervision (BCBS), the International Organization for Securities Commission (IOSCO) together with other relevant organizations to develop for consultation standards on margining for non-centrally cleared OTC derivatives by June 2012, and on the FSB to continue to report on progress towards meeting our commitments on OTC derivatives.

25. We reaffirm our commitment to discourage compensation practices that lead to excessive risk taking by implementing the agreed FSB principles and standards on compensation.

While good progress has been made, impediments to full implementation remain in some jurisdictions.

We therefore call on the FSB to undertake an ongoing monitoring and public reporting on compensation practices focused on remaining gaps and impediments to full implementation of these standards and carry out

P a g e | 42



an on-going bilateral complaint handling process to address level playing field concerns of individual firms.

Based on the findings of this ongoing monitoring, we call on the FSB to consider any additional guidance on the definition of material risk takers and the scope and timing of peer review process.

26. We reaffirm our commitment to reduce authorities' and financial institutions' reliance on external credit ratings, and call on standard setters, market participants, supervisors and central banks to implement the agreed FSB principles and end practices that rely mechanistically on these ratings.

We ask the FSB to report to our Finance Ministers and Central Bank Governors at their February meeting on progress made in this area by standard setters and jurisdictions against these principles.

27. We agree to intensify our monitoring of financial regulatory reforms, report on our progress and track our deficiencies.

To do so, we endorse the FSB coordination framework for implementation monitoring, notably on key areas such as the Basel capital and liquidity frameworks, OTC derivatives reforms, compensation practices, G-SIFI policies, resolution frameworks, and shadow banking.

This work will build on the monitoring activities conducted by standard setting bodies to the extent possible.

We stress the need to report the results of this monitoring to the public including on an annual basis through a traffic lights scoreboard prepared by the FSB.

We welcome its first publication today and commit to take all necessary actions to progress in the areas where deficiencies have been identified.

Addressing the too big to fail issue

28. We are determined to make sure that no financial firm is "too big to fail" and that taxpayers should not bear the costs of resolution.

P a g e | 43



To this end, we endorse the FSB comprehensive policy framework, comprising a new international standard for resolution regimes, more intensive and effective supervision, and requirements for cross-border cooperation and recovery and resolution planning as well as, from 2016, additional loss absorbency for those banks determined as global systemically important financial institutions (G-SIFIs).

The FSB publishes today an initial list of G-SIFIs, to be updated each year in November.

We will implement the FSB standards and recommendations within the agreed timelines and commit to undertake the necessary legislative changes, step up cooperation amongst authorities and strengthen supervisory mandates and powers.

29. We ask the FSB in consultation with the BCBS, to deliver a progress report by the G20 April Finance meeting on the definition of the modalities to extend expeditiously the G SIFI framework to domestic systemically important banks.

We also ask the IAIS to continue its work on a common framework for the supervision of internationally active insurance groups, call on CPSS and IOSCO to continue their work on systemically important market infrastructures and the FSB in consultation with IOSCO to prepare methodologies to identify systemically important non-bank financial entities by end-2012.

Filling in the gaps in the regulation and supervision of the financial sector

30. Bank-like activities.

The shadow banking system can create opportunities for regulatory arbitrage and cause the build-up of systemic risk outside the scope of the regulated banking sector.

To this end, we agree to strengthen the regulation and oversight of the shadow banking system and endorse the FSB initial eleven recommendations with a work-plan to further develop them in the course

P a g e | 44



of 2012, building on a balanced approach between indirect regulation of shadow banking through banks and direct regulation of shadow banking activities, including money markets funds, securitization, securities lending and repo activities, and other shadow banking entities.

We ask Finance Ministers and Central Bank Governors to review the progress made in this area at their April meeting.

31. Markets.

We must ensure that markets serve efficient allocation of investments and savings in our economies and do not pose risks to financial stability.

To this end, we commit to implement initial recommendations by IOSCO on market integrity and efficiency, including measures to address the risks posed by high frequency trading and dark liquidity, and call for further work by mid-2012.

We also call on IOSCO to assess the functioning of credit default swap (CDS) markets and the role of those markets in price formation of underlying assets by our next Summit.

We support the creation of a global legal entity identifier (LEI) which uniquely identifies parties to financial transactions.

We call on the FSB to take the lead in helping coordinate work among the regulatory community to prepare recommendations for the appropriate governance framework, representing the public interest, for such a global LEI by our next Summit.

32. Commodity markets.

We welcome the G20 study group report on commodities and endorse IOSCO's report and its common principles for the regulation and supervision of commodity derivatives markets.

We need to ensure enhanced market transparency, both on cash and financial commodity markets, including OTC, and achieve appropriate regulation and supervision of participants in these markets.

P a g e | 45



Market regulators and authorities should be granted effective intervention powers to address disorderly markets and prevent market abuses.

In particular, market regulators should have, and use formal position management powers, including the power to set ex-ante position limits, particularly in the delivery month where appropriate, among other powers of intervention.

We call on IOSCO to report on the implementation of its recommendations by the end of 2012.

33. Consumer protection.

We agree that integration of financial consumer protection policies into regulatory and supervisory frameworks contributes to strengthening financial stability, endorse the FSB report on consumer finance protection and the high level principles on financial consumer protection prepared by the OECD together with the FSB.

We will pursue the full application of these principles in our jurisdictions and ask the FSB and OECD along with other relevant bodies, to report on progress on their implementation to the upcoming Summits and develop further guidelines if appropriate.

34. Other regulatory issues.

We are developing macro-prudential policy frameworks and tools to limit the build-up of risks in the financial sector, building on the ongoing work of the FSB-BIS-IMF on this subject.

We endorse the joint report by FSB, IMF and World Bank on issues of particular interest to emerging market and developing economies and call international bodies to take into account emerging market and developing economies' specific considerations and concerns in designing new international financial standards and policies where appropriate.

We reaffirm our objective to achieve a single set of high quality global accounting standards and meet the objectives set at the London summit in April 2009, notably as regards the improvement of standards for the valuation of financial instruments.

P a g e | 46



We call on the IASB and the FASB to complete their convergence project and look forward to a progress report at the Finance Ministers and Central Bank governors meeting in April 2012.

We look forward to the completion of proposals to reform the IASB governance framework.

Tackling tax havens and non-cooperative jurisdictions

35. We are committed to protect our public finances and the global financial system from the risks posed by tax havens and non cooperative jurisdictions.

The damage caused is particularly important for the least developed countries.

Today we reviewed progress made in the three following areas:

- In the tax area, the Global Forum has now 105 members.

More than 700 information exchange agreements have been signed and the Global Forum is leading an extensive peer review process of the legal framework (phase 1) and implementation of standards (phase 2).

We ask the Global Forum to complete the first round of phase 1 reviews and substantially advance the phase 2 reviews by the end of next year.

We will review progress at our next Summit.

Many of the 59 jurisdictions which have been reviewed by the Global Forum are fully or largely compliant or are making progress through the implementation of the 379 relevant recommendations.

We urge all the jurisdictions to take the necessary action to tackle the deficiencies identified in the course of their reviews, in particular the 11 jurisdictions whose framework does not allow them at this stage to qualify to phase 2.

P a g e | 47



We underline in particular the importance of comprehensive tax information exchange and encourage competent authorities to continue their work in the Global Forum to assess and better define the means to improve it.

We welcome the commitment made by all of us to sign the Multilateral Convention on Mutual Administrative Assistance in Tax Matters and strongly encourage other jurisdictions to join this Convention.

In this context, we will consider exchanging information automatically on a voluntary basis as appropriate and as provided for in the convention;

- In the prudential area, the FSB has led a process and published a statement to evaluate adherence to internationally agreed information exchange and cooperation standards.

Out of 61 jurisdictions selected for their importance on several economic and financial indicators, we note with satisfaction that 41 jurisdictions have already demonstrated sufficiently strong adherence to these standards and that 18 others are committing to join them.

We urge the identified non-cooperative jurisdictions to take the actions requested by the FSB;

- In the anti-money laundering and combating the financing of terrorism area, the FATF has recently published an updated list of jurisdictions with strategic deficiencies.

We urge all jurisdictions and in particular those identified as not complying or making sufficient progress to strengthen their AML/CFT systems in cooperation with the FATF.

36. We urge all jurisdictions to adhere to the international standards in the tax, prudential and AML/CFT areas.

We stand ready, if needed, to use our existing countermeasures to deal with jurisdictions which fail to meet these standards.

P a g e | 48



The FATF, the Global Forum and other international organizations should work closely together to enhance transparency and facilitate cooperation between tax and law enforcement agencies in the implementation of these standards.

We also call on FATF and OECD to do further work to prevent misuse of corporate vehicles.

Strengthening the FSB capacity resources and governance

37. The FSB has played a key role in promoting development and implementation of regulation of the financial sector.

38. To keep pace with this growing role, we agreed to strengthen FSB's capacity, resources and governance, building on its Chair's proposals.

These include:

- the establishment of the FSB on an enduring organizational footing: we have given the FSB a strong political mandate and need to give it a corresponding institutional standing, with legal personality and greater financial autonomy, while preserving the existing and well-functioning strong links with the BIS;

- the reconstitution of the steering committee: as we move into a phase of policy development and implementation that in many cases will require significant legislative changes, we agree that the upcoming changes to the FSB steering committee should include the executive branch of governments of the G20 Chair and the larger financial systems as well as the geographic regions and financial centers not currently represented, in a balanced manner consistent with the FSB Charter;

- the strengthening of its coordination role vis-à-vis other standard setting bodies (SSB) on policy development and implementation monitoring, avoiding any functional overlaps and recognizing the independence of the SSBs.

39. We call for first steps to be implemented by the end of this year and will review the implementation of the reform at our next Summit.

P a g e | 49



Addressing Food Price Volatility and Increasing Agriculture Production and Productivity

40. Increasing agricultural production and productivity is essential to promote food security and foster sustainable economic growth.

A more stable, predictable, distortion free, open and transparent trading system allows more investment in agriculture and has a critical role to play in this regard.

Mitigating excessive food and agricultural commodity price volatility is also an important endeavour.

These are necessary conditions for stable access to sufficient, safe and nutritious food for everyone.

We agreed to mobilize the G20 capacities to address these key challenges, in close cooperation with all relevant international organisations and in consultation with producers, civil society and the private sector.

41. Our Agriculture Ministers met for the first time in Paris on 22-23 June 2011 and adopted the Action Plan on Food Price Volatility and Agriculture.

We welcome this Action Plan, annexed to this Declaration.

42. We have decided to act on the five objectives of this Action Plan:

(i) Improving agricultural production and productivity,

(ii) Increasing market information and transparency,

(iii) Reducing the effects of price volatility for the most vulnerable,

(iv) Strengthening international policy coordination and

(v) Improving the functioning of agricultural commodity derivatives' markets.

P a g e | 50



43. We commit to sustainably increase agricultural production and productivity.

To feed a world population expected to reach more than 9 billion people by 2050, it is estimated that agricultural production will have to increase by 70% over the same period.

We agree to further invest in agriculture, in particular in the poorest countries, and bearing in mind the importance of smallholders, through responsible public and private investment. In this regard, we decide to:

- Urge multilateral development banks to finalise their joint action plan on water, food and agriculture and provide an update on its implementation by our next Summit;

- Invest in research and development of agricultural productivity. As a first step, we support the "International Research Initiative for Wheat Improvement" (Wheat Initiative), launched in Paris on September 15, 2011 and we welcome the G20 Seminar on Agricultural Productivity held in Brussels on 13 October 2011 and the first G20 Conference on Agricultural Research for Development, held in Montpellier on 12-13 September 2011, designed to foster innovation-sharing with and among developing countries.

44. We commit to improve market information and transparency in order to make international markets for agricultural commodities more effective.

To that end, we launched:

- The "Agricultural Market Information System" (AMIS) in Rome on September 15, 2011, to improve information on markets.

It will enhance the quality, reliability, accuracy, timeliness and comparability of food market outlook information.

As a first step, AMIS will focus its work on four major crops: wheat, maize, rice and soybeans. AMIS involves G20 countries and, at this stage, Egypt, Vietnam, Thailand, the Philippines, Nigeria, Ukraine and Kazakhstan.

P a g e | 51



It will be managed by a secretariat located in FAO;

- The "Global Agricultural Geo-monitoring Initiative" in Geneva on September 22-23, 2011.

This initiative will coordinate satellite monitoring observation systems in different regions of the world in order to enhance crop production projections and weather forecasting data.

45. We recognize that appropriately regulated and transparent agricultural financial markets are a key for well-functioning physical markets and risk management.

We welcome IOSCO recommendations on commodity derivatives endorsed by our Finance Ministers.

46. We commit to mitigate the adverse effects of excessive price volatility for the most vulnerable through the development of appropriate risk-management instruments.

These actions are detailed in the development section of this final Declaration.

47. According to the Action Plan, we agree to remove food export restrictions or extraordinary taxes for food purchased for non-commercial humanitarian purposes by the World Food Program and agree not to impose them in the future.

In this regard, we encourage the adoption of a declaration by the WTO for the Ministerial Conference in December 2011.

48. We have launched a "Rapid Response Forum" in Rome on September 16, 2011 to improve the international community's capacity to coordinate policies and develop common responses in time of market crises.

49. We welcome the production of a report by the international organizations on how water scarcity and related issues could be addressed in the appropriate fora.

P a g e | 52



50. We commend the joint work undertaken by FAO, OECD, The World Bank Group, IFAD, UNCTAD, WFP, WTO, IMF, IFPRI and the UN HLTF to support our agenda and we request that they continue working closely together.

51. We will keep progress on the implementation of the Action Plan on Food Price Volatility and Agriculture.

Improving the functioning of Energy Markets

52. We stress the importance of well-functioning and transparent physical and financial energy markets, reduced excessive price volatility, improved energy efficiency and better access to clean technologies, to achieve strong growth that is both sustainable and inclusive.

We are committed to promote sustainable development and green growth and to continue our efforts to face the challenge of climate change.

53. We commit to more transparent physical and financial energy markets. Commodity derivatives are being addressed as part of our financial regulation reform agenda.

We have made progress and reaffirm our commitment to improve the timeliness, completeness and reliability of the JODI-Oil database as soon as possible.

We also commit to support the IEF -- JODI work in order to improve the reliability of JODI-Oil and look forward to receiving their recommendations.

We will regularly review and assess progress made on this front.

54. We welcome the IEF Charter's commitment to improve dialogue between oil producer and consumer countries, as well as the holding on January 24, 2011 of the Riyadh Symposium on short, medium and long term outlook and forecasts for oil markets.

P a g e | 53



We call for those meetings to be held on an annual basis and for the IEF, the IEA and OPEC to release a joint communiqué and a report highlighting their outcomes.

55. We note the new JODI-Gas database and commit to work on contributing to it on the basis of the same principles as the JODI-Oil database.

We also call for annual symposiums and communiqués on short, medium and long term outlook and forecasts for gas and coal.

We call for further work on gas and coal market transparency and ask the IEA, IEF and OPEC, to provide recommendations in this field by mid-2012.

56. Recognizing the role of Price Reporting Agencies for the proper functioning of oil markets, we ask IOSCO, in collaboration with the IEF, the IEA and OPEC, to prepare recommendations to improve their functioning and oversight to our Finance Ministers by mid-2012.

57. We reaffirm our commitment to rationalise and phase-out over the medium term inefficient fossil fuel subsidies that encourage wasteful consumption, while providing targeted support for the poorest.

We welcome the country progress reports on implementing strategies for rationalizing and phasing out inefficient fossil fuel subsidies, as well as the joint report from the IEA, OPEC, OECD and the World Bank on fossil fuels and other energy support measures.

We ask our Finance Ministers and other relevant officials to press ahead with reforms and report back next year.

Protecting Marine Environment

58. We decide to take further action to protect the marine environment, in particular to prevent accidents related to offshore oil and gas exploration and development, as well as marine transportation, and to deal with their consequences.

P a g e | 54



We welcome the establishment of a mechanism to share best practices and information on legal frameworks, experiences in preventing and managing accidents and disasters relating to offshore oil and gas drilling, production and maritime transportation.

We ask the Global Marine Environment Protection working group, in cooperation with the OECD, the International Regulators Forum and OPEC, to report next year on progress made and to establish this mechanism in order to disseminate these best practices by mid-2012, at which point it will be reviewed.

We also commit to foster dialogue with international organisations and relevant stakeholders.

Fostering Clean energy, Green Growth and Sustainable Development

59. We will promote low-carbon development strategies in order to optimize the potential for green growth and ensure sustainable development in our countries and beyond.

We commit to encouraging effective policies that overcome barriers to efficiency, or otherwise spur innovation and deployment of clean and efficient energy technologies.

We welcome the UN Secretary General's "Sustainable Energy for All" initiative. We support the development and deployment of clean energy and energy efficiency (C3E) technologies.

We welcome the assessment of the countries' current situation regarding the deployment of these technologies as well as the on-going exercise of sharing best practices, as a basis for better policy making.

60. We are committed to the success of the United Nations Conference on Sustainable Development in Rio de Janeiro in 2012.

"Rio + 20" will be an opportunity to mobilize the political will needed to reinsert sustainable development at the heart of the international agenda,

P a g e | 55



as a long term solution to growth, job creation, poverty reduction and environment protection.

A green and inclusive growth will create a broad spectrum of opportunities in new industries and in areas such as environmental services, renewable energy and new ways to provide basic services to the poor.

Pursuing the Fight against Climate Change

61. We are committed to the success of the upcoming Durban Conference on Climate Change on 28 November - 9 December 2011.

We support South Africa as the incoming President of the Conference.

We call for the implementation of the Cancun agreements and further progress in all areas of negotiation in Durban.

62. We stand ready to work towards operationalization of the Green Climate Fund as part of a balanced outcome in Durban, building upon the report of the Transitional Committee.

63. Financing the fight against climate change is one of our main priorities.

In Copenhagen, developed countries have committed to the goal of mobilizing jointly USD 100 billion per year from all sources by 2020 to assist developing countries to mitigate and adapt to the impact of climate change, in the context of meaningful mitigation actions and transparency.

We discussed the World Bank -- IMF -- OECD -- regional development banks report on climate finance and call for continued work taking into account the objectives, provisions and principles of the UNFCCC by international financial institutions and the relevant UN organizations.

We ask our Finance Ministers to report to us at our next Summit on progress made on climate finance.

P a g e | 56



64. We reaffirm that climate finance will come from a wide variety of sources, public and private, bilateral and multilateral, including innovative sources of finance.

We recognize the role of public finance and public policy in supporting climate-related investments in developing countries.

We underline the role of the private sector in supporting climate-related investments globally, particularly through various market-based mechanisms and also call on the MDBs to develop new and innovative financial instruments to increase their leveraging effect on private flows.

Avoiding protectionism and reinforcing the Multilateral Trading System

65. At this critical time for the global economy, it is important to underscore the merits of the multilateral trading system as a way to avoid protectionism and not turn inward.

We reaffirm our standstill commitments until the end of 2013, as agreed in Toronto, commit to roll back any new protectionist measure that may have risen, including new export restrictions and WTO-inconsistent measures to stimulate exports and ask the WTO, OECD and UNCTAD to continue monitoring the situation and to report publicly on a semi-annual basis.

66. We stand by the Doha Development Agenda (DDA) mandate.

However, it is clear that we will not complete the DDA if we continue to conduct negotiations as we have in the past.

We recognize the progress achieved so far.

To contribute to confidence, we need to pursue in 2012 fresh, credible approaches to furthering negotiations, including the issues of concern for Least Developed Countries and, where they can bear fruit, the remaining elements of the DDA mandate.

P a g e | 57



We direct our Ministers to work on such approaches at the upcoming Ministerial meeting in Geneva and also to engage into discussions on challenges and opportunities to the multilateral trading system in a globalised economy and to report back by the Mexico Summit.

67. Furthermore, as a contribution to a more effective, rules-based trading system, we support a strengthening of the WTO, which should play a more active role in improving transparency on trade relations and policies and enhancing the functioning of the dispute settlement mechanism.

68. We look forward to welcoming Russia as a WTO member by the end of the year.

Development: Investing for Global Growth

69. As part of our overall objective for growth and jobs, we commit to maximise growth potential and economic resilience in developing countries, in particular in Low-Income Countries (LICs).

Development is a key element of our agenda for global recovery and investment for future growth.

It is also critical to creating the jobs needed to improve people's living standards worldwide.

Recognizing that development is a concern and duty to all G20 countries, our Ministers met for the first time on Development in Washington on September 23, 2011.

70. We support the report of the Development Working Group, annexed to this Declaration, implementing the G20's Seoul Development Consensus for Shared Growth, and call for prompt implementation of our Multi-Year Action Plan.

71. We take actions to overcome the most critical bottlenecks and constraints hampering growth in developing countries.

In this regard, we decided to focus on two priorities, food security and infrastructure, and to address the issue of financing for development.

P a g e | 58



72. The humanitarian crisis in the Horn of Africa underscores the urgent need to strengthen emergency and long-term responses to food insecurity.

In accordance with our Multi-Year "Action Plan on Food Price Volatility and Agriculture", we:

welcome the initiative of the Economic Community of Western African States (ECOWAS) to set up a targeted regional emergency humanitarian food reserve system, as a pilot project, and the "ASEAN+3" emergency rice reserve initiative;

Urge multilateral development banks to finalise their joint action plan on water, food and agriculture and provide an update on its implementation by our next Summit;

Support, for those involved, the implementation of the L'Aquila Food Security Initiative and other initiatives, including the Global Agriculture and Food Security Program;

Launch a platform for tropical agriculture to enhance capacity-building and knowledge sharing to improve agricultural production and productivity;

Foster smallholder sensitive investments in agriculture and explore opportunities for market inclusion and empowerment of small producers in value chains;

Support risk-management instruments, such as commodity hedging instruments, weather index insurances and contingent financing tools, to protect the most vulnerable against excessive price volatility, including the expansion of the Agricultural Price Risk-Management Product developed by the World Bank Group (IFC). We ask international organisations to work together to provide expertise and advice to low-income countries on risk-management and we welcome the NEPAD initiative to integrate risk management in agricultural policies in Africa;

P a g e | 59



Encourage all countries to support the Principles of Responsible Agricultural Investment (PRAI) to ensure sustained investment in agriculture;

Confirm our commitment to scaling-up nutrition through a combination of direct nutrition interventions and the incorporation of nutrition in all relevant policies.

73. Investing in infrastructure in developing countries, especially in LICs and, whilst not exclusively, with a special emphasis on sub-Saharan Africa, will unlock new sources of growth, contribute to the achievement of the Millennium Development Goals and sustainable development. We support efforts to improve capacities and facilitate the mobilization of resources for infrastructure projects initiated by public and private sectors.

74. We commissioned a High Level Panel (HLP), chaired by Mr Tidjane Thiam, to identify measures to scale-up and diversify sources of financing for infrastructure and we requested the MDBs to develop a joint action plan to address bottlenecks.

We welcome both the HLP's report and the MDB Action Plan. In this regard, we support the following recommendations to :

- Support the development of local capacities to improve supply and quality of projects and make them bankable and enhance knowledge sharing on skills for employment in low income countries. In this regard, we welcome the High Level Panel fellowship program and MDB's efforts to develop and strengthen regional public-private partnerships practitioner's networks;

- Increase quality of information available to investors, through the establishment of online regional marketplace platforms to better link project sponsors and financiers, such as the "Sokoni Africa Infrastructure Marketplace", and the extension of the Africa Infrastructure Country Diagnosis, which aim at benchmarking infrastructure data;

P a g e | 60



- Prioritize project preparation financing, encouraging the MDBs to dedicate a greater share of their funds to preparation facilities that can operate on a revolving basis and call on MDBs to improve effectiveness of the existing preparation facilities;

- Contribute to building an enabling environment for private and public infrastructure financing, especially for regional projects. We support increased transparency in the construction sector, the review of the Debt Sustainability Framework taking into account the investment-growth nexus. We call on MDBs to harmonize their procurement rules and practices and we support move towards mutual recognition of procedures and eligibility rules;

- Improve access to funding, notably through the strengthening of local intermediaries and financial markets, more effective use of MDBs capital, including through use of credit enhancement and guarantee instruments.

75. We commissioned the HLP to establish criteria to identify exemplary investment projects in cooperation with multilateral development banks.

We highlight the 11 projects mentioned in the HLP report annexed to this Declaration, which have the potential to have a transformational regional impact by leading to increased integration and access to global markets, with due consideration to environmental sustainability.

We call on the MDBs, working with countries involved and in accordance with regional priorities (in particular the Program for Infrastructure Development in Africa), to pursue the implementation of such projects that meet the HLP criteria and to prioritize project preparation financing, notably the NEPAD Infrastructure Projects Preparation Facility.

76. We stress the importance of following-up on these concrete actions and invite MDBs to provide regular updates on the progress achieved.

77. Recognizing that economic shocks affect disproportionately the most vulnerable, we commit to ensure a more inclusive and resilient growth. We therefore decide to support the implementation and expansion of

P a g e | 61



nationally-designed social protection floors in developing countries, especially low income countries.

We will work to reduce the average cost of transferring remittances from 10% to 5% by 2014, contributing to release an additional 15 billion USD per year for recipient families.

78. Recognizing that 2.5 billion people and millions of Small and Medium Enterprises (SMEs) throughout the world lack access to formal financial services, and the crucial importance for developing countries to overcome this challenge, we launched in Seoul an ambitious Global Partnership for Financial Inclusion (GPFI). We commend the ongoing work by the GPFI to foster the development of SME finance and to include financial inclusion principles in international financial standards.

We endorse the five recommendations put forward in its report, annexed to this Declaration, and commit to pursue our efforts under the Mexican Presidency.

79. We welcome the presentation of the report by Mr Bill Gates on financing for development.

We recognize the importance of the involvement of all actors, both public and private, and the mobilisation of domestic, external and innovative sources of finance.

80. Consistent with the Multi-Year Action Plan agreed in Seoul, we strongly support developing countries' mobilization of domestic resources and their effective management as the main driver for development.

This includes technical assistance and capacity building for designing and efficient managing of tax administrations and revenue systems and greater transparency, particularly in mineral and natural resource investment.

We urge multinational enterprises to improve transparency and full compliance with applicable tax laws.

P a g e | 62



We welcome initiatives to assist developing countries, on a demand-led basis, in the drafting and implementation of their transfer pricing legislation.

We encourage all countries to join the Global Forum on Transparency and exchange of information in tax purposes.

81. We stress the pivotal role of ODA.

Aid commitments made by developed countries should be met. Emerging G20 countries will engage or continue to extend their level of support to other developing countries.

We welcome the emphasis on ensuring that poor countries benefit rapidly from innovation and technological advances, and agree to encourage triangular partnerships to drive priority innovations forward.

We commit to raise the quality and efficiency of aid by concentrating on the highest impact interventions and increase the focus on concrete results and overall impact on development.

82. We agree that, over time, new sources of funding need to be found to address development needs.

We discussed a set of options for innovative financing highlighted by Mr Bill Gates, such as Advance Market Commitments, Diaspora Bonds, taxation regime for bunker fuels, tobacco taxes, and a range of different financial taxes.

Some of us have implemented or are prepared to explore some of these options.

We acknowledge the initiatives in some of our countries to tax the financial sector for various purposes, including a financial transaction tax, inter alia to support development.

83. We welcome the upcoming 4th High-Level Forum on aid effectiveness to be held in Busan, Korea (29 November-1st December 2011).

P a g e | 63



The Forum will be an opportunity to establish a more inclusive partnership to address development effectiveness.

84. We look forward to a successful replenishment of the Asian Development Fund and of the International Fund for Agriculture Development.

Intensifying our Fight against Corruption

85. Corruption is a major impediment to economic growth and development. We have made significant progress to implement the G20 Anti-Corruption Action Plan.

We endorse our experts' report, annexed to this Declaration, which outlines the major steps taken both by individual countries and the G20 collectively, and sets out further actions required to ensure that G20 countries continue to make positive progress against the Action Plan.

86. In this context:

- We welcome the ratification by India of the United Nations Convention against Corruption (UNCAC).

We also welcome the decision made by Russia to join the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

We commit to accelerate the ratification and implementation of UNCAC and to have a more active engagement within the OECD Working Group on Bribery on a voluntary basis.

We further commend the member countries which are taking steps in the spirit of the Action Plan;

- We commend the first reviews on the implementation of UNCAC.

We commit to lead by example in ensuring the transparency and inclusivity of UNCAC reviews by considering the voluntary options in accordance with the Terms of Reference of the Mechanism, notably with regards to the participation of civil society and transparency;

P a g e | 64



- We support the work of the Financial Action Task Force (FATF) to continue to identify and engage those jurisdictions with strategic Anti-Money Laundering/Counter-Financing of Terrorism (AML/CFT) deficiencies and update and implement the FATF standards calling for transparency of cross-border wires, beneficial ownership, customer due diligence and enhanced due diligence;

- We agree on a work program which includes a framework for asset recovery, building on the World Bank's Stolen Asset Recovery (StAR) Initiative, whistle-blowers' protection, denial of entry to corrupt officials and public sector transparency, including fair and transparent public procurement, with concrete results by the end of 2012.

87. We welcome initiatives aimed at increasing transparency in the relationship between private sector and government, including voluntary participation in the Extractive Industries Transparency Initiative (EITI).

We also acknowledge the steps taken by some of us to request companies in the extractive industry to publish what they pay in countries of operation and to support the Construction Sector Transparency Initiative (CoST).

88. We commend the enhanced engagement of the private sector to fight against corruption. We welcome the commitments by the B20 to build on our Action Plan and urge them to take concrete action.

89. We hold ourselves accountable for our commitments and will review progress at our next Summit.

Governance

90. We welcome the report of UK Prime Minister David Cameron on global governance.

91. As our premier Forum for international economic cooperation, the G20 is unique in bringing together the major economies, advanced and emerging alike, to coordinate their policies and generate the political

P a g e | 65



agreement necessary to tackle the challenges of global economic interdependence.

It is a Leader-led and informal group and it should remain so. The G20 is part of the overall framework of international governance.

92. We agree that, in order to strengthen its ability to build and sustain the political consensus needed to respond to challenges, the G20 must remain efficient, transparent and accountable.

To achieve this, we decide to:

- Maintain our focus on the broad global economic challenges;

- Bolster our ability to deliver our agenda and work program effectively.

We decide to formalise the Troika, made of past, present and future Presidencies to steer the work of the G20 in consultation with its members. We ask our Sherpas to develop working practices for the G20 under the Mexican Presidency;

- Pursue consistent and effective engagement with non-members, regional and international organisations, including the United Nations, and other actors, and we welcome their contribution to our work as appropriate. We also encourage engagement with civil society. We request our Sherpas to make us proposals for the next meeting.

93. We reaffirm that the G20's founding spirit of bringing together the major economies on an equal footing to catalyse action is fundamental and therefore agree to put our collective political will behind our economic and financial agenda, and the reform and more effective working of relevant international institutions. 94. On December 1st. 2011, Mexico will start chairing the G20. We will convene in Los Cabos, Baja California, in June 2012, under the Chairmanship of Mexico. Russia will chair the G20 in 2013, Australia in 2014 and Turkey in 2015.

P a g e | 66



We have also agreed, as part of our reforms to the G20, that after 2015, annual presidencies of the G20 will be chosen from rotating regional groups, starting with the Asian grouping comprising of China, Indonesia, Japan and Korea. 95. We thank France for its G20 Presidency and for hosting the successful Cannes Summit.

P a g e | 67



Long-term Investing Can Be Severely Distorted by Inaccurate, Short-term Focus Kai Bucher, Associate Director, Inaccurate measurement of investment values, returns, risks and liabilities can create substantial distortions to long-term investment strategies and drive long-term investors to adopt a short-term orientation, according to the Measurement, Governance and Long-term Investing report, released by the World Economic Forum. Since long-term capital can play an important role in helping to drive economic growth, stabilize financial markets, and provide financial returns to fund pensions, education and other social goods, the report focuses on the often overlooked, yet increasing number of measurement - related challenges that can hinder long-term investing.

Among such challenges:

Mark-to-market rules require long-term illiquid portfolios to be evaluated relative to a public market benchmark, however, short-term variations in the value of assets held for the long term can lead to shifts in investment policy or execution that hinder success in long-term investing.

Poor risk measurements or an inadequate understanding of risk can lead institutions to hold riskier (or less risky) assets than they should otherwise.

Staff evaluation and compensation schemes may create a framework that rewards staff for acting against the stated long-term interests of the institution.

The report argues that without effective governance, measurement schemes can distort decisions regarding the choice of investments and the time frame over which they are held.

P a g e | 68



And the lack of meaningful, intuitive measurements for performance and risk over long-time horizons adds more complexity to long-term investing and the governance of such efforts. “Long-term patient capital is vital to promote sustainable growth, create jobs and solve problems plaguing the global economy today. Yet, as this important paper highlights, a short-term orientation in terms of performance measurement, leadership, media focus and regulatory constraints threatens to obstruct long-term investment and deprive society of the critical benefits it can provide,” stated Scott Kalb, Chief Investment Officer, Korea Investment Corporation (KIC), and Chair of the World Economic Forum’s Global Agenda Council on Long-term Investing. The central conclusion and recommendation of this study is that governing bodies and other external stakeholders need to act on the understanding that the performance of long-term investments unfolds over time periods longer than the quarter or the year, even when short-term measurements are used. Such metrics should be placed in context, lest long-term strategies be abruptly and unfortunately revised. “In this report, we consider the impact of different types of measurements and how, combined with thoughtful governance approaches, institutions can think more carefully about measuring and supporting their long-term strategies,” observed Josh Lerner, Jacob H. Schiff Professor of Investment Banking, Harvard Business School, and the lead researcher for the report. “Having a long horizon accentuates the importance of governance models, and long-term investors can play a critical role in fostering leading governance practices, both within their own institutions and for the companies that they invest in,” remarked Mark Wiseman, Executive Vice-President, Investments, Canada Pension Plan Investment Board.

P a g e | 69



“For long-term investors, good governance that includes a qualified board with a solid long-term orientation and commitment is integral to ensuring that they are able to stay the course through economic and investment cycles. This report makes the case that without appropriate board oversight on risk assessment, valuation metrics or compensation structures, investors can easily lose sight of long-term gains and focus instead on short-term metrics.” “Although there are numerous metrics for the short-term assessment of long-term investments, none are without limitations. Good governance therefore is critical to ensure sound decision-making around which investments are chosen and for how long they are held,” said Michael Drexler, Senior Director, Head of Investors Industries, World Economic Forum USA. The report was developed by the World Economic Forum in collaboration with a research team led by Josh Lerner of Harvard Business School. Guidance was provided by the World Economic Forum’s Global Agenda Council on Long-term Investing. Leadn more: www3.weforum.org/docs/WEF_FutureLongTermInvesting_Report_2011.pdf

http://www3.weforum.org/docs/WEF_FutureLongTermInvesting_Report_2011.pdf

http://www3.weforum.org/docs/WEF_FutureLongTermInvesting_Report_2011.pdf

P a g e | 70



Basel III – the big issues Speech by Andrew Bailey, Director of UK Banks & Building Socieities at the Seventh City of London Swiss Financial Roundtable

Thank you for inviting me to speak this morning.

Firstly I do want to take this opportunity to mark the stalwart service that Angela has given to the British Bankers’ Association (BBA) over the last five years.

None of your predecessors can have faced such a difficult task, which you have carried out with great fortitude.

I want to spend my time this morning on the big issues that lie behind the

subject of Basel III and national finishes.

Why are we undertaking such wide-ranging reforms?

The simple answer, because we have had a major crisis, is not good

enough as an explanation – it explains the timing of the reforms, but the

substance of them requires more explanation.

Let me put forward a number of principles on which I want to focus this

morning.

First, achieving a stable financial system will in turn enable the

development of a strong, competitive system, and likewise will foster the

strength of financial centres.

Financial stability and competitiveness are not fundamentally in conflict;

rather, the former is a necessary but not sufficient condition of the latter,

P a g e | 71



much as stable low inflation is a condition of sustainable economic

growth.

The key point here is that our respective objectives of stability and

competitiveness are fundamentally not at odds.

Second, the other key objective of the reforms is to achieve the stability of

the financial system without recourse to public money as the buttress –

both implicit dependence and in bad states of the world explicit

dependence.

This objective has a number of profound consequences, including

placing the resolution of banks and its planning at the heart of bank

supervision.

Again, I think this objective of resolvability is fundamentally consistent

with the objective of having a competitive financial system.

The reason I believe this strongly is that with well-established resolution

tools and plans, the incentives for governments to want to intervene in the

operations of banks will be reduced.

Likewise, as supervisors we should be less interventionist for a bank that

can be resolved.

Of course, resolution is never costless, and this should guide our

interventions, but other things equal we will be less intrusive where we are

more assured of resolvability.

As an example of that approach, I think that with a robust resolution plan

in place – which can be quite simple for small banks – we should be more

open to allowing new entrants to start-up, and then sink or swim.

This is important because we will only foster more competition if we

enable banks to leave the scene if their business model does not work.

So, again, an objective of resolvability for banks does support the

objective of competitiveness.

The third principle on which I want to focus concerns clarity in the

objectives of supervision.

P a g e | 72



Put simply, it does not support an effective regime to create unnecessary

uncertainty on the ultimate objectives of prudential supervision – ie how

large should the capital and funding buffers held by banks eventually be.

Lack of clarity in this respect is not in my view conducive to a

well-functioning market economy.

There are at least two complications here.

First, quite sensibly we want supervision to be judgemental, in other

words to embody sensible flexibility.

Likewise, we think that exercising judgement is in large part about

applying the Basel III framework on a forward-looking basis in order to

assess the vulnerability of institutions to big risks.

Indeed, the big switch here was arguably from the Basel I to Basel II

frameworks, which introduced judgement into the capital adequacy

framework by allowing firms to use approved models to measure risk.

These models are by their nature inherently judgemental tools for both

firms and supervisors – the question is not whether the model is right in

an absolute sense (it won’t be) but whether it helps to form an acceptable

view of prudent capital requirements.

But, the use of judgement in this way inevitably creates uncertainty on

how it will be applied in the future.

The second complication in terms of clarity around the objectives of

supervision is that we are applying the Basel III changes as a transition

over a number of years.

This is wise in terms of the consequences of the change and their impact

on the real economy, but it prompts uncertainty over how Augustinian

authorities may be in their approach to transition.

Clearly, I think it is fair enough to say that the UK and Switzerland do not

look to be particularly Augustinian in their approaches.

I think the key point here for me is to minimise uncertainty and thus to

support a functioning market economy.

P a g e | 73



I am not a supporter of a system which leaves people guessing what we

will eventually want from banks.

Looking at the UK arrangements, it is in my view helpful that a consensus

is building around the Independent Commission on Banking’s

recommendations of 17% primary loss-absorbing capacity measured on a

risk-weighted assets basis, with a core tier one capital or common equity

component within that of 10%.

All of this should be measured on a Basel III basis, and supported by a

leverage ratio, as the ICB recommended.

And, there should be clear liquidity standards.

Switching to the Basel III capital standard will require a transition where

banks do restructure their balance sheets and retain more earnings while

they transition.

Providing the objectives are well understood, I believe the banks can

make this transition.

But I do accept the challenge that the process needs to be well

understood – markets are more likely to give banks credit for their

prudential buffers of capital and liquid assets if they understand the

end-points and the ways in which we as supervisors will exercise our

judgement.

An important example of this use of judgement is that when we ask banks

to hold prudential buffers we treat them just like that – ie as protection

which can be used, and where the response of the supervisor to a firm

going into a buffer is to require a sensible plan to correct the use of a

buffer over a reasonable period of time.

To conclude, supervision needs to support banks operating in a market

economy.

This means earning a sensible rate of return calculated on a basis that

appropriately factors in the amount of risk taken.

I do believe that Basel III is correct to raise prudential requirements; that

is the crucial lesson of the crisis.

P a g e | 74



We are also right in my view to end the dependence on public money

through effective resolution techniques.

Here, by the way, we should thank a Swiss bank, Credit Suisse, for

providing much of the early thinking to support the notion of bail-in as

the way to end the dependence on public money.

But, as policymakers, we need to enable our judgements and standards to

be understood and appropriately predicted so that we support the

operation of banks in a market economy.

P a g e | 75



Remarks by Secretary Geithner at the Opening Ceremony of the 2012 Strategic and Economic Dialogue (S&ED)

BEIJING, CHINA - I would like to express our appreciation to President Hu, Vice Premier Wang, Councilor Dai, and their colleagues for welcoming us to Beijing. I would particularly like to thank Vice Premier Wang. The Vice Premier combines a broad strategic perspective with a well-deserved reputation as a highly effective problem solver -- a rare combination. He is a fierce defender of China’s interests and dedicated to building a positive, cooperative, and comprehensive bilateral economic relationship with the United States. We convened the first Strategic & Economic Dialogue three years ago in the depth of the most serious threat to the global economy and financial system in decades. We worked together to put out the fires of the global financial crisis, and today the world is better for it. We have worked to address the inevitable problems in our economic relationship in a constructive manner and with mutual respect. And both of our nations are better for it.

P a g e | 76



The diversity of the economic issues we address in this Dialogue reflects the breadth and importance of our relationship. We don’t always agree, but we share strong common interests, and we recognize that promoting these common interests requires cooperation and commitment from both sides. As two of the world’s largest trading nations, we both depend on an open global trading system in which workers and companies compete on a level playing field. We have a common interest in promoting productivity growth through research and innovation, by protecting intellectual property and open markets. We have a mutual interest in building a global financial system that is more stable and less prone to crisis. Because of the size and importance of our two economies, we also have a shared responsibility for the global economy. As we have worked to promote economic reforms in the United States and China, we have worked together to strengthen and reform the IMF and the World Bank and to mobilize more resources to support development in the world’s poorest countries. We have worked together to support Europe’s efforts to better manage its financial crisis. We have worked to build new mechanisms for cooperation on international economic and financial issues in the G-20 and the Financial Stability Board. We meet at a time of risk and challenge in the global economy, and we both face considerable economic challenges at home.

P a g e | 77



In the United States, we are making progress in repairing the damage from the financial crisis and putting in place a stronger foundation for future economic growth. We are putting in place a comprehensive program of economic reforms to improve education, increase investments in scientific research and innovation, improve incentives for private investment, and reform the financial system. And we are working to legislate a comprehensive program of reforms to restore fiscal sustainability, building on tough, 10-year spending cuts we put in place last summer. While there is still a long way to go to recover from the financial crisis, the economic expansion in the United States is now more broad based and resilient, and we are significantly more advanced than are the other major developed economies in addressing the imbalances that helped cause our crisis. In China, you are in the process of exploring the next frontier of economic reforms, recognizing as your predecessors did more than 30 years ago, that future economic growth will require another fundamental shift in economic policy. These new reforms recognize the new reality that China must rely more on domestic consumption rather than exports, and more on innovation by private companies rather than capacity expansion by state owned enterprises, with an economy more open to competition from foreign firms, and with a more modern financial system. The United States has a strong interest in the success of these reforms, as does the rest of the world. As we begin this next round of our Strategic and Economic Dialogue, I want to reaffirm our commitment to continue to work closely with China to build a stronger economic relationship and to build a stronger framework for cooperation on global economic issues that can balance the interests of the two largest economies in the world.

P a g e | 78



China and the United States are both now sources of strength for the global economy, and we are moving toward the more balanced, and complementary growth strategies that are so important for the world. I hope we are able to make progress during these next two days on the range of issues before us. As President Obama made clear at our first meeting in Washington three years ago, we are nations with different political values and traditions, different political and economic systems, and as we recognize those differences, it is important that we are able to talk to each other openly and make progress on issues that benefit both the Chinese and American people. We will approach these issues with appreciation for the challenges you face in China and with confidence that China is strong enough to embrace the reforms we seek.

P a g e | 79



EBA BS 2012 048 final 30 April 2012 Report on the fulfilment of the EBA Recommendation following the 2011 EU-wide stress test

Executive summary Following the publication of the 2011 EU-wide stress test results in July 2011, the EBA issued a Recommendation to national supervisory authorities (NSAs) to ensure that appropriate mitigating actions were put in place with respect to (i) Banks with a Core Tier 1 capital (CT1) ratio below 5% in the adverse scenario and (ii) To banks with a CT1 ratio close to 5% in the adverse scenario and with sizeable exposures to sovereigns under stress. Forward looking mitigating measures were identified in the publication templates for relevant banks to address weaknesses. The EBA, as a part of its ongoing monitoring activities, has continued to assess the implementation of these mitigating measures against the requirements of the EBA Recommendation. NSAs responsible for the supervision of the banks falling under the scope of the EBA Recommendation have provided the details of the mitigating

P a g e | 80



measures taken for the respective banks and of their close monitoring of banks as a part of ongoing supervisory activities. In total, eight banks of the 90 participating in the EBA 2011 stress test exercise had a CT1 ratio under the adverse scenario below the set 5% benchmark. According to the information provided to the EBA, mitigating measures have been put in place for all banks with a post stress capital ratio below 5%, and were deemed sufficient by the EBA to comply with its Recommendation. Following a deterioration of the external environment, in many cases, additional measures have been put in place by NSAs which the EBA notes and supports. In some cases, these actions are ongoing and NSAs have confirmed to the EBA that the mitigating actions are being closely followed under national initiatives and will be finalised within reasonable timelines agreed between banks and their respective NSAs. Most of the banks with a CT1 ratio above 5% and with sizeable exposures to sovereigns under stress will be addressed under the monitoring of the December 2011 Recommendation following the results of the 2011 EU Capital exercise, where they have been included in the sample of 71 banks. The EBA is, in general, satisfied with progress in the fulfilment of the July 2011 Recommendation noting the actions that have been taken that include capital strengthening and adequate recognition of losses. In addition, those banks identified as having weaknesses have subsequently undergone restructuring processes and will no longer exist in the same form as at the moment of the stress test. Some of the banks falling under the scope of the July 2011 Recommendation and the December 2011 Recommendation are subject to the implementation of more stringent measures under the pre-agreed

P a g e | 81



EU/IMF assistance programmes and to a separate monitoring by the so called “Troika” authorities (EU Commission, ECB, IMF).

Background and introduction The results of the second EU-wide stress tests conducted by the European Banking Authority (EBA) in cooperation with the EU Commission, European Systemic Risk Board (ESRB), European Central Bank (ECB) and national supervisory authorities (NSAs) were published in July 20111. The aim of the stress test was to assess the resilience of 91 participating banks from 21 EEA countries against an adverse but plausible scenario. The aggregate Core Tier 1 (CT1) ratio of the 90 banks that published information in the 2011 EBA stress test decreased from 8.9% to 7.7% after two years of stress. The largest driver of the decrease is impairment charges which led to CT1 decrease of 3.6 percentage points. As a result of the application of the adverse macro-economic scenario and common constraining assumptions applied in the exercise, the post stress capital ratios of eight banks fell below the capital threshold set at the level of 5% CT1 with the overall capital shortfall of EUR 2.5 bn based on the EBA definition of CT1. In addition, 16 banks displayed post stress CT1 ratios between 5 and 6% after the application of the adverse scenario over the two-year time horizon. On the basis of the results of the stress test, the EBA issued its first formal Recommendation addressed to NSAs and requiring remedial actions. In particular, pursuant to Article 21.2(b) of the EBA Regulation, the Recommendation published as a part of the EBA Aggregate report, states the following:

P a g e | 82



a. NSAs to request banks whose CT1 ratio falls below the 5% threshold under the adverse scenario defined in the stress test exercise to promptly remedy this capital shortfall. In particular, national supervisors should ensure that these banks are requested to present within three months (i.e. by 15 October 2011) to their competent authorities a plan to restore the capital position to a level at least equal to the 5% CT1 benchmark based on this analysis. The remedial measures agreed with the competent authority had to be fully implemented by end of 2011, with flexibility allowed only if justified by market conditions or required procedures. b. NSAs to request all banks whose CT1 ratio under the adverse scenario is above but close to 5% and which have sizeable exposures to sovereigns under stress to take specific steps to strengthen their capital position, including where necessary restrictions on dividends, deleveraging, issuance of fresh capital or conversion of lower quality instruments into Core Tier 1 capital. These banks were expected to plan remedial action within three months. The plans had to be fully implemented within nine months from the publication of the stress test results. With the publication of these Recommendations, the EBA committed to reviewing their fulfilment and to publishing the outcomes of such review. This report directly addresses the fulfilment of the first part of the July 2011 Recommendation (banks failing to meet the 5% CT1 threshold), whereas the second part will be followed–up under the December 2011 EU Capital exercise Recommendation.

Link to the 2011 Capital exercise Following the further escalation of the sovereign debt crisis, and the announcement of the European coordinated policy package on 26

P a g e | 83



October 2011, the EBA has conducted a Capital exercise amongst 71 banks aimed at assessing banks recapitalisation needs after the prudential revaluation of the sovereign exposures and at applying higher capital threshold set at 9% CT1. It should be noted that the EBA Capital exercise was not a stress test. Against the ongoing developments in the markets and the deterioration of the sovereign debt crisis in Europe, the EBA reviewed banks’ actual capital positions and sovereign exposures as of September 2011 and requested them to set aside additional capital buffers. The capital buffer is designed to provide reassurance to markets about the ability to withstand a range of shocks and still maintain adequate capital. Following the outcomes of the Capital exercise, the EBA has issued its second Recommendation requiring banks failing to meet the capital threshold to ensure that appropriate mitigating measures are put in place and that by 30 June 2012, all 71 banks attain and maintain until such time as this Recommendation has been amended, repealed or cancelled, the temporary capital buffer at a level of 9% CT1 (December 2011 Recommendation). To this end, the NSAs have been recommended to ensure that all banks build a temporary capital buffer to reach a 9% CT1 ratio by 30 June 2012, after the removal of the prudential filters on the sovereign assets in the available-for-sale portfolio and the conservative valuation of sovereign debt exposures in the held-to-maturity and loans and receivables portfolios, reflecting market prices as of 30 September 20113. Pursuant to this Recommendation, the EBA has set up a series of follow-up steps requiring banks with a capital shortfall to present the recapitalisation plans outlining the measures they plan to take in order to meet the 9% CT1 capital threshold by 30 June 2012.

P a g e | 84



Such recapitalisation plans have been scrutinised by the respective consolidating NSAs in close cooperation with the Colleges of Supervisors and the EBA. The December 2011 Recommendation effectively augments the outcomes of the 2011 stress tests. Therefore, the mitigating efforts for banks falling under the second part of the July 2011 Recommendation (banks close to the threshold but with sizable exposures to sovereigns under stress), will be monitored under the December 2011 Recommendation and are not discussed in this report.

Methodology for assessing the fulfilment of the Recommendation The assessment of the fulfilment of the July 2011 Recommendation is based on the information on mitigating measures provided to the EBA by the consolidating NSAs of the banks failing to meet the capital threshold. The assessment is based on recalculating the CT1 ratio under the adverse scenario for 2012 adjusting risk weighted assets (RWA) and CT1 capital according to the mitigating actions reported by NSAs (either in a separate communication or in the stress test disclosure templates). This assessment is based on the information collected during the stress tests as well as on additional information on the mitigating measures provided by the NSAs without recalculating possible impacts of the stress or taking into account actual financial or portfolio information. Some of the banks subject to the July 2011 Recommendation are undergoing deep restructuring as part of the pre-agreed measures under EU/IMF programmes. This directly affects the Greek banks, where quantitative capital targets stemming from the pre-agreed EU/IMF programmes exceed the results of the EBA EU-wide stress tests and the EU Capital exercise.

P a g e | 85



The implementation of EU/IMF measures and fulfilment of capital targets is being closely followed by the respective national authorities together with the EU Commission, ECB and IMF.

Fulfilment of the Recommendation by banks below 5% CT1 threshold In total, eight out of the 90 banks that published the results of the 2011 EU-wide stress test have a CT1 ratio under the adverse scenario that falls below the threshold of 5%. The aggregate CT1 capital shortfall for these banks amounted to EUR 2.5 bn (see Chart 1).

When analysing the impact of the mitigating measures put in place after the stress test, it should be noted that most of the banks with a shortfall have gone or currently are undergoing restructuring processes and will no longer exist in the same form as at the moment of the stress test.

P a g e | 86



Austria The Oesterreichische Volksbanken AG (OeVAG) submitted a detailed restructuring plan to the Austrian NSAs to promptly remedy its capital shortfall and has already completed a major step: the closed sale of its international operations (Volksbank International AG) to the Russian Sberbank. Furthermore, OeVAG currently pursues the implementation of additional restructuring measures - based on a term-sheet agreed on by its shareholders and the Republic of Austria - combining OeVAG and more than 60 local Volksbanks into a single affiliated group according to Article 3 Directive 2006/48/EC by mid of 2012. On 26 April 2012, OeVAG’s general meeting of shareholders decided on a number of milestones in this regard, resulting in a new ownership - structure retroactive as of 31 December 2011, where the local Volksbanks hold the majority of OeVAG and the Republic of Austria is the second largest shareholder. After completion of these fundamental restructuring steps, OeVAG nevertheless will continue to streamline and restructure the group with the final target of becoming a lean central institution serving the local Volksbanks with a clear focus on the Austrian market.

Spain In total, five Spanish institutions have gone or are undergoing significant integration processes which will result in their merger with other banks or their integration within other groups of credit institutions. Each of these processes is at a different stage and is being closely monitored by the Spanish authorities. The timeline for their completion depends on different resolutions and authorisations, and in some cases, it may fall outside the timeframe set by the EBA Recommendation:

P a g e | 87



- Caixa D'Estalvis de Catalunya, Tarragona i Manresa: In this case,

Catalunya Bank, in which the FROB has a stake of 90%, has started the necessary steps for an integration process with another credit institution through a competitive procedure in accordance with Article 9.8 of Royal Decree-Law 9/2009, on bank restructuring and credit institutions equity reinforcement.

- Caixa D'Estalvis Unio de Caixes de Manlleu, Sabadell I Terrassa

(Unnim): In the case of Unnim Banc, S.A. on 7 March 2012 the Government Committee of the FROB, which was its sole owner, drew up the restructuring plan for this bank, envisaging its integration within the Spanish bank BBVA.

- Grupo Caja 3: This bank announced on 29 February 2012 its merger

with Ibercaja Banco. - Caja de Ahorros del Mediterraneo (CAM): On 7 December 2011, the

Government Committee of the FROB drew up restructuring plan for Banco CAM, which envisages that it will be integrated within Banco Sabadell.

- Banco Popular is finalising its takeover of Banco Pastor.

Greece Two Greek banks, EFG Eurobank Ergasias and Agricultural Bank of Greece, have shown a capital shortfall in the stress test. These banks are undergoing deep restructuring as part of the pre-agreed measures under the EU/IMF programme. Quantitative capital targets stemming from the latter exceed the results of the EBA EU-wide stress tests and EU Capital exercise. The implementation of EU/IMF measures and the fulfilment of capital targets are being closely followed by the respective national authorities together with the EU Commission, ECB and IMF.

P a g e | 88



Germany In addition to the eight banks with identified capital shortfall, the EBA has followed up on one bank, which did not publish the EBA 2011 stress test results, namely Landesbank Hessen-Thuringen (Helaba) to understand the actions it has taken since the stress test. Helaba has “hardened” its participation capital in order to comply with the CT1 definition of the EBA. This conversion has led to an increase of CT1 capital by EUR 1.92bn.

Conclusions and further monitoring The EBA is, in general, satisfied with the progress made in the fulfilment of the July 2011 Recommendation noting that the actions taken include capital strengthening and adequate recognition of losses. In addition, the EBA supports the measures undertaken to significantly restructure those banks in difficulty and sees this as an appropriate response to the Recommendation. Generally, the EBA July 2011 Recommendation has been strengthened by the EBA December 2011 Recommendation. The 71 banks participating in the 2011 Capital exercise are being monitored by the EBA in order to check whether they adhere to the CT1 ratio of 9% by the end of June 2012. Some Spanish banks subject to the July 2011 Recommendation are not represented in the sample for the December 2011 Capital exercise and therefore do not fall under the scope of the December 2011 Recommendation. Those banks remain under close scrutiny by their respective national supervisory authorities, and are also subject to the wide-ranging

P a g e | 89



restructuring programmes undertaken under the aegis of the national measures put forward by the Spanish Government. The EBA will continue to monitor and assess risks and vulnerabilities from a micro-prudential perspective in the EU banking sector employing a wide range of tools, including analyses of key risk indicators, bottom-up risk questionnaires to the supervisors of the largest cross-border banking groups, and joint risk assessments done by the colleges of supervisors. The EBA is currently developing its approach to the next EU-wide stress test exercise, which will take place in 2013.

P a g e | 90



Social Media and Investing - Tips for Seniors

The SEC’s Office of Investor Education and Advocacy is issuing this Investor Bulletin to provide seniors who use social media with a few tips to help them do so more safely and to help them avoid investment fraud.

More and more older Americans are using social media every day, including to help guide investment decisions. Whether it is to research particular stocks, to find background information on financial professionals, to gather up-to-date news, or to discuss the markets with others, social media – web-based platforms that allow interactive communication, such as Facebook, YouTube, Twitter, LinkedIn, bulletin boards, and chat rooms – has become an important investing tool. While social media can provide many benefits, it also presents opportunities for fraudsters targeting older Americans. As a result, seniors need to proceed with caution when using social media as part of their investment process. The following tips can help.

P a g e | 91



Tips to Help Avoid Investment Fraud Online The key to avoiding investment scams on the Internet is to be an educated investor. Below are five tips to help seniors avoid securities fraud

1. Look out for “Red Flags”

Wherever you come across a recommendation for an investment on the Internet, the following “red flags” should cause you to use caution in making an investment decision: It sounds too good to be true. Any investment that sounds too good to be true probably is. Be extremely wary of claims on the Internet that an investment will make “INCREDIBLE GAINS” or is a “BREAKOUT STOCK PICK.” Claims like these are hallmarks of extreme risk or outright fraud. The promise of “guaranteed” returns with little or no risk. Every investment entails some level of risk, which is reflected in the rate of return you can expect to receive. Most fraudsters spend a lot of time trying to convince investors that extremely high returns are “guaranteed” or that the investment “can’t miss.” Don’t believe it. Offers to invest outside the United States. You should carefully examine any unsolicited offer to invest outside of the United States.

P a g e | 92



Many fraudsters set up operations outside the United States to make it more difficult for regulators to stop their fraudulent activity and recover their victims’ money. Pressure to buy RIGHT NOW. Don’t be pressured or rushed into buying an investment before you have a chance to think about – and investigate – the “opportunity.” Be especially skeptical of investments that are pitched as “once-in-a-lifetime” opportunities.

2. Be Wary of Unsolicited Offers

Investment fraud criminals look for victims, including seniors, on the Internet. If you see a new post on your wall, a tweet mentioning you, a direct message, an e-mail, or any other unsolicited – meaning you didn’t ask for it and don’t know the sender – communication regarding a so-called investment opportunity, you should exercise extreme caution. An unsolicited sales pitch may be part of a fraudulent investment scheme

3. Look out for “Affinity Fraud”

An investment pitch made through an online group of which you are a member, or on a chat room or bulletin board catering to an interest you have, may be an affinity fraud. Affinity fraud refers to investment scams that prey upon members of identifiable groups, often seniors, religious or ethnic communities, professional groups, or combinations of those groups. Even if you know the person making the investment offer, be sure to check out everything – no matter how trustworthy the person seems who brings the investment to your attention.

P a g e | 93



Remember, the person making you the offer may not know that the investment is a scam.

4. Be Thoughtful About Privacy and Security Settings

Seniors who use social media as a tool for investing should be mindful of the various features on these websites that can help protect privacy. Understand that unless you guard personal information, it may be available not only to your friends, but for anyone with access to the Internet – including fraudsters. For more information on privacy and security settings, as well as other guidance regarding setting up on-line accounts with an eye toward avoiding investment fraud, see our Investor Bulletin Social Media and Investing: Understanding Your Accounts.

5. Ask Questions and Check Out the Answers

Be skeptical. Never judge a person’s integrity, or the merits of an investment, without doing thorough research on both the person selling the investment and the investment itself. Investigate the investment thoroughly and check the truth of every statement you are told about the investment. You can check out many investments using the SEC’s EDGAR filing system or through your state’s securities regulator. You can check out registered brokers at the Financial Industry Regulatory Authority’s (FINRA) BrokerCheck website and registered investment advisers at the SEC’s Investment Adviser Public Disclosure website. See our publication Ask Questions for more about information you should gather before making an investment.

P a g e | 94



A Few Common Investment Scams Using Social Media and the Internet

While fraudsters are constantly changing the way they approach victims on the Internet, there are a number of common scams of which you should be aware. Here are a few examples of the types of schemes you should be on the lookout for when using social media: “Pump-and-Dumps” and Market Manipulations “Pump-and-dump” schemes involve the promoting of a company’s stock (typically small, so-called “microcap” companies) through false and misleading statements to the marketplace, in order to sell the cheaply purchased stock at a higher price. These false claims could be made on social media such as Facebook and Twitter, as well as on bulletin boards and chat rooms. Fraud Using “Research Opinions,” Online Investment Newsletters, and Spam Blasts While legitimate online newsletters may contain useful information about investing, others are merely tools for fraud. Some companies pay online newsletters to “tout” or recommend their stocks. Touting isn’t illegal as long as the newsletters disclose who paid them, how much they’re getting paid, and the form of the payment, usually cash or stock. But fraudsters often lie about the payments they receive and their track records in recommending stocks. To learn more, read our tips for checking out newsletters.

P a g e | 95



High Yield Investment Programs The Internet is awash in so-called “high-yield investment programs” or “HYIPs.” These are unregistered investments typically run by unlicensed individuals – and they are often frauds. The hallmark of an HYIP scam is the promise of incredible returns (30 or 40 percent – or more) at little or no risk to the investor. Internet-Based Offerings Offering frauds come in many different forms. Generally speaking, an offering fraud involves a security of some sort that is offered to the public, where the terms of the offer, such as the likelihood of a return, are materially misrepresented. What Seniors Should Know About Professional Designations Some financial professionals use social media to attract new clients. These financial professionals may use designations such as “senior specialist” or “retirement advisor” to imply that they are experts at helping seniors with financial issues. Seniors should be aware that some of these titles require little or no training or education. In some cases, a financial professional may need to study and pass several rigorous exams—after working in a designated field for several years—to receive a particular designation. In other cases, it may be relatively easy in terms of time and effort to receive a “senior” designation, even for an individual with no relevant experience.

P a g e | 96



If you want to find out more about a particular professional designation, check out the “Understanding Investment Professional Designations” page on FINRA’s website. Please keep in mind that the SEC does not endorse any professional designation. Furthermore, we encourage you to always look beyond a financial professional’s designation and determine whether he or she can provide the type of financial services or product you need. You should thoroughly evaluate the background of anyone with whom you intend to do business-before you hand over your hard-earned cash.

P a g e | 97



A Perspective on the Economic Outlook Presented by Charles I. Plosser, President and Chief Executive Officer, Federal Reserve Bank of Philadelphia, CFA Society of San Diego, May 1, 2012 Introduction Thank you for inviting me to speak to the CFA Society of San Diego today. I have addressed chartered financial analysts in Philadelphia on a number of occasions, and I am pleased that travels to California this week afforded me the opportunity to accept your invitation to present my views on the economic outlook and monetary policy. Last week, I attended the most recent meeting of the Federal Open Market Committee, or the FOMC, which is the body within the Federal Reserve responsible for determining monetary policy. As many of you know, according to the Committee’s structure, there are 12 voting members on the FOMC — the seven members of the Board of Governors in Washington always have a vote; currently only five of the seven seats are filled. The other voters include five of the 12 Reserve Bank presidents: the president of the New York Fed, who is a permanent voting member, and four other presidents, who serve one-year terms on a rotating basis. This year happens to be one in which my colleague John Williams, president of the Federal Reserve Bank of San Francisco, is a voting member, as I was last year. Whether we vote or not, all Reserve Bank presidents attend the FOMC meetings, participate in the discussions, and contribute to the Committee’s assessment of the economy and policy options.

P a g e | 98



Each of us prepares for the meetings by gathering information throughout our Districts, around the nation, and, in some cases, internationally. The federated structure draws on the strong roots of decentralized government that our country was founded on and ensures that our national monetary policy has its roots not just in Washington or on Wall Street but also on Main Street and across our diverse nation. So conversations like the ones I’ve had with some of you today and with other individuals from business and community organizations help me gather and share timely information on the economy. This leads to more informed decisions as the Committee seeks to achieve the goals of monetary policy that Congress has set for us in the Federal Reserve Act. Specifically, Congress has mandated that the Fed should conduct policy to “promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.” Since moderate long-term interest rates generally result when prices are stable and the economy is operating at full employment, it is often said that Congress has given the Fed a dual mandate. I believe the diversity of opinion around the FOMC table is one of its great strengths and serves to improve the quality of our decision-making. Yet, it requires me to note that I speak for myself and not the Federal Reserve System or my colleagues on the Federal Open Market Committee.

Economic Outlook Now let me turn to the state of our economy. We have now seen 11 consecutive quarters of expansion since mid-2009, when the recession officially ended.

P a g e | 99



In the third quarter of 2011 we finally surpassed the previous peak in real GDP, which occurred in the fourth quarter of 2007. The expansion, as you read about every day and most likely experience in your businesses, has not been particularly robust. To many, it occasionally feels like we take two steps forward only to take one step back. We finished 2011 with GDP growth of just 1.6 percent, compared to 3.1 percent in the prior year. Unexpected shocks early in the year, ranging from the disasters in Japan that led to supply chain disruptions in many industries, to flare-ups in the Middle East and North Africa that led to a steep rise in oil prices, and the re-emergence of the sovereign debt crisis in Europe held GDP growth to less than 1 percent in the first half of the year. Yet, the economy persevered, even through our own debt-ceiling crisis, and grew at an annual rate of 2.4 percent in the second half of the year. In fact, growth accelerated across each of the four quarters, from less than half of a percent in the first quarter to 3 percent in the fourth quarter. The first estimate of first-quarter GDP growth was reported last week as 2.2 percent. This number was slightly less than many forecasters anticipated, but it was in line with my forecast of moderate growth that will strengthen over time. I anticipate that we will see moderate year-over-year growth of about 3 percent in 2012 and 2013. That outlook puts me in a slightly more optimistic camp than some forecasters. For example, my forecast is at the top of the central tendency of the FOMC participants’ forecasts that were submitted last week.

P a g e | 100



And the Philadelphia Fed’s first-quarter Survey of Professional Forecasters reported average estimates of real GDP growing 2.3 percent in 2012 and 2.7 percent in 2013. Our second-quarter survey won’t be released until later this month; however, many private-sector forecasters have marked up their outlook slightly since the early part of the year based on the somewhat better than expected first-quarter performance, particularly on the consumption and employment fronts. Growth in manufacturing has proven to be a bright spot for the economy over the last six to nine months, and it continues to be a reason for optimism going forward. The Philadelphia Fed’s monthly Business Outlook Survey of manufacturers has been a useful barometer of national trends in manufacturing over many years. The survey’s general activity index tracked with last year’s summer lull, posting a few negative readings during the late spring and summer, but since then, the survey has reported seven months of positive numbers — indicating a moderate but steady expansion. Moreover, the survey’s indicators of activity six months ahead have remained strong, suggesting that manufacturers are optimistic about the future. Another upbeat indicator can be found in the Philadelphia Fed’s coincident indexes for all 50 states. We produce these indexes monthly to create a state-by-state view of the economy. Our latest readings indicate growth in every state for the three months ending in March. A similar set of leading indicators also shows that growth is expected to continue over the next six months in nearly all states, including here in California.

P a g e | 101



Consumer spending, which accounts for about 70 percent of the nation’s GDP, also continues to improve, as the drag from household deleveraging lessens. Despite modest wage growth, retail sales in March grew 0.8 percent from the previous month and 6.5 percent above March 2011. The Bureau of Economic Analysis also reported that first-quarter personal consumption expenditures (PCE) increased at a 2.9 percent annual rate in the first quarter — up from 2.1 percent in the fourth quarter and the most rapid rate of consumption growth since the last quarter of 2010. On the housing front, I expect to see stabilization and maybe slight improvement in 2012. Yet, as the old real estate saying goes: “Location, location, location!” Whereas some regions saw a tremendous build-up in residential real estate, followed by a sharp decline, other areas, including many parts of my region back east, saw neither the dramatic boom nor the tragic bust. At a national level, though, we must acknowledge that we entered the recession over-invested in residential real estate, and we are not likely to see a strong housing recovery until the surplus inventory of foreclosed and distressed properties declines. Yet we must realize that even as the economy rebalances, housing and related sectors are not likely to return to those heady pre-recession highs, nor should we expect them to do so. Those highs were unsustainable, and the housing crash that ensued destroyed a great deal of wealth for consumers and the economy as a whole. The losses are real and the consequences severe for many individuals and many businesses.

P a g e | 102



Moreover, monetary policy does not create real wealth so it cannot eliminate or offset these losses, nor should it try to do so. Nevertheless, households and businesses continue to make progress on restoring the health of their balance sheets by paying down debt and increasing savings. This is a rational reaction and a healthy trend. Most economists, including me, believe that this trend will continue into 2012. Conditions in the labor markets continue to improve modestly, though monthly numbers do bounce around a bit. For example, strong job growth from December through February may have partially reflected the effect of unseasonably mild weather this winter, and the modest pullback in March may represent some payback. Indeed, March’s gain of 120,000 nonfarm jobs came after three months of solid growth of more than 200,000 a month. I prefer to average the quarter’s monthly numbers to infer the underlying trend. Doing so, we see that average monthly gains in the first quarter outpaced those in the fourth quarter by nearly 50,000 jobs per month. So, we continue to make slow, steady progress, as evidenced by an unemployment rate that fell to 8.2 percent in March, down almost a full percentage point from the 9.1 percent in August. I expect further gradual declines in the unemployment rate, with the rate falling to about 7.8 percent by the end of this year. Despite this gradual improvement, we cannot ignore the fact that there are still too many people unemployed. The U.S. lost 8.8 million jobs from the peak of employment in January 2008 to the trough in employment in February 2010.

P a g e | 103



We have gained back 3.5 million lost jobs, or 40 percent, but it will take some time before we, once again, see a truly vibrant labor market. Any forecast is subject to some risks, and today I will discuss two risks on the horizon. The first is the potential effects of the continuing sovereign debt crisis in Europe, and the second is a lesser risk from rising energy costs. Over the past year, U.S. financial markets have been roiled by worries about the European sovereign debt situation. We have often seen good news on the U.S. economy drowned out by the news from Europe. The crisis was a long time in the making and continues despite the efforts of European leaders. Many who thought that preventing sovereign default by a euro country would prevent the crisis from spreading have been proven wrong. A number of the peripheral countries in Europe are unquestionably on fiscal paths that are unsustainable and that must be addressed. I might add that the U.S. is also on an unsustainable fiscal path that must be addressed. Let me stress that these are fiscal issues, not monetary issues. Thus, we should look to the fiscal authorities for solutions, not our central banks. I have come to believe that the European governments and their economies will muddle through this near-term crisis but at significant cost to the taxpayers all across the euro zone. Nevertheless, the turmoil has resulted in an economic slowdown in the euro zone that will likely cause a small drag on U.S. exports.

P a g e | 104



The other risk facing the U.S. economy has been the rising cost of oil and gasoline. Oil prices have fallen from their recent highs, but they remain over $100 a barrel and gasoline is about $4 a gallon. However, unless the price of oil rises substantially from current levels, this is not likely to derail our recovery. I come to this assessment, in part, because the U.S. economy is less vulnerable to oil price shocks than it was in the 1970s and 1980s, in part because we use about half as much energy to make a dollar of real GDP than we used to in the 1970s. In addition, while oil prices have risen, natural gas prices have been falling, and they are now at their lowest level since 1999. This is a result of both increased production in places like Pennsylvania’s Marcellus Shale areas, as well as reduced demand because of the mild winter. Thus, while energy is still an important factor of production, our economy is less dependent on oil than it used to be. The larger risk from higher energy prices is not to growth but to inflation and expectations of inflation. The Fed recently set its long-term inflation target at 2 percent, as measured by the year-over-year change in the personal consumption expenditures chain-weighted price index. By that measure, prices rose at a 2.3 percent annual rate over the year ended in the first quarter, which is above our target. While this may prove to be temporary as oil prices stabilize, there is a risk that the oil price increases we’ve seen so far this year will not reverse as anticipated, which could put additional pressure on prices and inflation expectations.

P a g e | 105



Thus, we must continue to monitor these inflation trends with some care and be prepared to take appropriate action as necessary. The public has the right to expect the central bank to keep inflation near its target of 2 percent over the medium to longer term. Inflation often develops gradually, and if monetary policy waits too long to respond, it can be very costly to correct. Measures of slack such as the unemployment rate are often thought to prevent inflation from rising. But the lessons of the 1970s show that is not the case. As you may recall, we ended up with both high unemployment and high inflation, and the sum of those two statistics became known as the misery index. More recently, I note that for nearly three years, the Bank of England has been forecasting that inflation will return to its 2 percent target, but it has failed to do so, even though England’s economy has contracted over the past two quarters and many perceive the level of slack in the British economy as large and increasing. That is not a place we want to find ourselves.

Monetary Policy Before discussing where monetary policy might go as economic conditions evolve in the coming quarters, it might be helpful to review just how much accommodation we currently have in place. As you know, the Fed has kept the federal funds rate near zero for more than three years to support the recovery. We have also conducted two rounds of asset purchases that have more than tripled the size of our balance sheet.

P a g e | 106



We continue to implement our maturity extension program, which is lengthening the maturity of our holdings of Treasury securities and the composition of the portfolio has changed from mainly short-term Treasuries before the crisis to longer-term Treasuries and housing-related securities, mostly mortgage-backed securities, today. Many of these actions were taken at the height of the financial crisis and the ensuing deep recession. Yet, since then, as I have indicated, the economy has been healing, if somewhat more slowly than we would like, and the financial crisis has substantially abated. Of course, problems remain, but things are not nearly as bad or as gloomy as they were in 2009 and early 2010. At its latest meeting in April, the Federal Open Market Committee continued to hold to its statement that economic conditions were “likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.” That follows a structure for forward guidance that the Committee first began last August, when it said conditions were likely to warrant exceptionally low rates through mid 2013. Then in January, it pushed back that calendar date another 18 months to late 2014. The FOMC has also announced that the Fed intends to complete the maturity extension program, or “operation twist,” first launched last September and set to end in June. In this program, the Fed is buying $400 billion of longer-term Treasuries and selling an equal amount of shorter-term Treasuries, in an effort to reduce long-term yields from already historically low levels. The FOMC is also continuing to reinvest principal payments from its holdings of agency debt and MBS into MBS in an effort to help mortgage markets.

P a g e | 107



You may know that I dissented from the FOMC decisions in August and September because it was not clear to me that increasing monetary policy accommodation was appropriate then. After all, inflation was higher and unemployment was lower relative to the previous year, as we have been discussing. Since that time, unemployment has decreased further, and inflation is above target. While I believe monetary accommodation is still called for, in the absence of some shock that derails the recovery, we may well need to begin to gradually scale back the level of accommodation well before the end of 2014. Another reason I dissented last year was that I did not favor providing forward guidance in terms of a calendar date. Monetary policy should be responsive to economic conditions, and I believe that we should be providing information on the economic factors that will influence our monetary policy decisions rather than trying to forecast when that time will be. In January, the Committee took a step to enhance the information it includes in its economic projections, which are summarized four times a year in the Survey of Economic Projections, or SEP. I believe such information will prove to be useful in conveying the relationship between changes in economic conditions and monetary policy decisions. In particular, the Committee now summarizes the monetary policy assessments that underlie the economic projections of output, inflation, and unemployment. These assessments are what the individual policymakers view as the policy path that is appropriate in achieving the Fed’s longer-term goals.

P a g e | 108



This additional information has two benefits. First, having more information on the underlying paths should help the public better understand the projections. For example, they will have a better understanding of whether inflation is expected to return to the long-term goal as shocks work their way through the economy or whether policymakers anticipate that further monetary policy actions will be needed to achieve the Committee’s objective. Second, as views of appropriate policy evolve over time as economic and financial conditions change, the public will be able to draw better inferences about the relation between current economic conditions, the economic outlook, and appropriate policy. This then informs the public about how policy is likely to react in the future to changes in the economy. For example, in April, the SEP indicated that only four participants now expect the first increase in the federal funds rate will occur after 2014, compared to six in the January projections. These projections of the policy path have changed as the central tendencies of the 2012 projections of growth and inflation were revised up and projections of unemployment were revised down. We know that when monetary policy is conducted in a systematic way — that is, with a systematic relationship between changes in economic conditions and the policy actions taken by the central bank — policy becomes more transparent and easier to communicate. And the better the public and the markets understand how policy is likely to be adjusted as the economy changes, the more predictable policy becomes, which promotes price stability and better economic outcomes. In addition, policy transparency can increase the public’s ability to hold the central bank accountable for its policy decisions.

P a g e | 109



I believe, and have argued for some time, that the FOMC should strive to provide information about the factors that will influence our policy decisions. Some call this a policy rule or reaction function. This will not only enhance transparency but also impose an important discipline on policymaking. If policymakers choose to deviate from the guidelines, they are forced to explain why and when they anticipate returning to more normal operating practices. Requiring this type of transparency raises the bar policymakers face to engage in discretionary policies in the first place. I suspect that the FOMC participants may not be quite ready to agree on a specific policy rule or reaction function because they use different models and have different loss functions. However, I do believe it will be possible to provide assessments of the evolution of the key variables influencing our policy choices and then communicate our policy decisions in terms of the changes in these key variables. If policy was changed, then we would explain that change in terms of how the variables in our response function changed. If we choose a consistent set of variables and systematically use them to describe our policy choices, the public will form more accurate judgments about the likely course of policy — reducing uncertainty and promoting stability.

Conclusion In summary, the U.S. economy is continuing to grow at a moderate pace. I expect annual growth of around 3 percent in 2012 and 2013. Prospects for labor markets will continue to improve, with job growth strengthening and the unemployment rate falling gradually over time.

P a g e | 110



I believe inflation expectations will be relatively stable and inflation will remain at moderate levels in the near term. However, with the very accommodative stance of monetary policy that has now been in place for more than three years, we must guard against the medium- and longer-term risks of inflation and further distortions such accommodation can create. Monetary policy should be determined by economic conditions and not by a calendar date. I believe the FOMC should continue to work toward increasing the public’s understanding of how policy will systematically react to changes in economic conditions. Improving the transparency of our monetary policy decision-making process will help to improve the effectiveness of monetary policy and the Fed’s accountability with the public.

P a g e | 111



Very Interesting NEW CODE OF CORPORATE GOVERNANCE Singapore, 2 MAY 2012 Principle: 1 Every company should be headed by an effective Board to lead and control the company. The Board is collectively responsible for the long-term success of the company. The Board works with Management to achieve this objective and Management remains accountable to the Board.

Guidelines: 1.1 The Board's role is to: (a) Provide entrepreneurial leadership, set strategic objectives, and ensure that the necessary financial and human resources are in place for the company to meet its objectives; (b) Establish a framework of prudent and effective controls which enables risks to be assessed and managed, including safeguarding of shareholders' interests and the company's assets; (c) Review management performance; (d) Identify the key stakeholder groups and recognise that their perceptions affect the company's reputation;

P a g e | 112



(e) Set the company's values and standards (including ethical standards), and ensure that obligations to shareholders and other stakeholders are understood and met; and (f) Consider sustainability issues, e.g. environmental and social factors, as part of its strategic formulation. 1.2 All directors must objectively discharge their duties and responsibilities at all times as fiduciaries in the interests of the company. 1.3 The Board may delegate the authority to make decisions to any board committee but without abdicating its responsibility. Any such delegation should be disclosed. 1.4 The Board should meet regularly and as warranted by particular circumstances, as deemed appropriate by the board members. Companies are encouraged to amend their Articles of Association (or other constitutive documents) to provide for telephonic and video-conference meetings. The number of meetings of the Board and board committees held in the year, as well as the attendance of every board member at these meetings, should be disclosed in the company's Annual Report. 1.5 Every company should prepare a document with guidelines setting forth: (a) The matters reserved for the Board's decision; and (b) Clear directions to Management on matters that must be approved by the Board. The types of material transactions that require board approval under such guidelines should be disclosed in the company's Annual Report. 1.6 Incoming directors should receive comprehensive and tailored induction on joining the Board.

P a g e | 113



This should include his duties as a director and how to discharge those duties, and an orientation program to ensure that they are familiar with the company's business and governance practices. The company should provide training for first-time director1 in areas such as accounting, legal and industry-specific knowledge as appropriate. It is equally important that all directors should receive regular training, particularly on relevant new laws, regulations and changing commercial risks, from time to time. The company should be responsible for arranging and funding the training of directors. The Board should also disclose in the company's Annual Report the induction, orientation and training provided to new and existing directors. 1.7 Upon appointment of each director, the company should provide a formal letter to the director, setting out the director's duties and obligations.

Principle: 2 There should be a strong and independent element on the Board, which is able to exercise objective judgement on corporate affairs independently, in particular, from Management and 10% shareholders. No individual or small group of individuals should be allowed to dominate the Board's decision making.

Guidelines: 2.1 There should be a strong and independent element on the Board, with independent directors making up at least one-third of the Board.

P a g e | 114



2.2 The independent directors should make up at least half of the Board where: (a) The Chairman of the Board (the "Chairman") and the chief executive officer (or equivalent) (the "CEO") is the same person; (b) The Chairman and the CEO are immediate family members; (c) The Chairman is part of the management team; or (d) The Chairman is not an independent director. 2.3 An "independent" director is one who has no relationship with the company, its related corporations, its 10% shareholders or its officers that could interfere, or be reasonably perceived to interfere, with the exercise of the director's independent business judgement with a view to the best interests of the company. The Board should identify in the company's Annual Report each director it considers to be independent. The Board should determine, taking into account the views of the Nominating Committee ("NC"), whether the director is independent in character and judgement and whether there are relationships or circumstances which are likely to affect, or could appear to affect, the director's judgement. Directors should disclose to the Board any such relationship as and when it arises. The Board should state its reasons if it determines that a director is independent notwithstanding the existence of relationships or circumstances which may appear relevant to its determination, including the following: (a) A director being employed by the company or any of its related corporations for the current or any of the past three financial years;

P a g e | 115



(b) A director who has an immediate family member who is, or has been in any of the past three financial years, employed by the company or any of its related corporations and whose remuneration is determined by the remuneration committee; (c) A director, or an immediate family member, accepting any significant compensation from the company or any of its related corporations for the provision of services, for the current or immediate past financial year, other than compensation for board service; (d) A director: (i) Who, in the current or immediate past financial year, is or was; or (ii) Whose immediate family member, in the current or immediate past financial year, is or was, a 10% shareholder of, or a partner in (with 10% or more stake), or an executive officer of, or a director of, any organisation to which the company or any of its subsidiaries made, or from which the company or any of its subsidiaries received, significant payments or material services (which may include auditing, banking, consulting and legal services), in the current or immediate past financial year. As a guide, payments aggregated over any financial year in excess of S$200,000 should generally be deemed significant; (e) A director who is a 10% shareholder or an immediate family member of a 10% shareholder of the company; or (f) A director who is or has been directly associated with a 10% shareholder of the company, in the current or immediate past financial year. The relationships set out above are not intended to be exhaustive, and are examples of situations which would deem a director to be not independent. If the Board wishes, in spite of the existence of one or more of these relationships, to consider the director as independent, it should disclose

P a g e | 116



in full the nature of the director's relationship and bear responsibility for explaining why he should be considered independent. 2.4 The independence of any director who has served on the Board beyond nine years from the date of his first appointment should be subject to particularly rigorous review. In doing so, the Board should also take into account the need for progressive refreshing of the Board. The Board should also explain why any such director should be considered independent. 2.5 The Board should examine its size and, with a view to determining the impact of the number upon effectiveness, decide on what it considers an appropriate size for the Board, which facilitates effective decision making. The Board should take into account the scope and nature of the operations of the company, the requirements of the business and the need to avoid undue disruptions from changes to the composition of the Board and board committees. The Board should not be so large as to be unwieldy. 2.6 The Board and its board committees should comprise directors who as a group provide an appropriate balance and diversity of skills, experience, gender and knowledge of the company. They should also provide core competencies such as accounting or finance, business or management experience, industry knowledge, strategic planning experience and customer-based experience or knowledge. 2.7 Non-executive directors should: (a) Constructively challenge and help develop proposals on strategy; and

P a g e | 117



(b) Review the performance of Management in meeting agreed goals and objectives and monitor the reporting of performance. 2.8 To facilitate a more effective check on Management, non-executive directors are encouraged to meet regularly without the presence of Management.

Principle: 3 There should be a clear division of responsibilities between the leadership of the Board and the executives responsible for managing the company's business. No one individual should represent a considerable concentration of power.

Guidelines: 3.1 The Chairman and the CEO should in principle be separate persons, to ensure an appropriate balance of power, increased accountability and greater capacity of the Board for independent decision making. The division of responsibilities between the Chairman and the CEO should be clearly established, set out in writing and agreed by the Board. In addition, the Board should disclose the relationship between the Chairman and the CEO if they are immediate family members. 3.2 The Chairman should: (a) Lead the Board to ensure its effectiveness on all aspects of its role; (b) Set the agenda and ensure that adequate time is available for discussion of all agenda items, in particular strategic issues; (c) Promote a culture of openness and debate at the Board;

P a g e | 118



(d) Ensure that the directors receive complete, adequate and timely information; (e) Ensure effective communication with shareholders; (f) Encourage constructive relations within the Board and between the Board and Management; (g) Facilitate the effective contribution of non-executive directors in particular; and (h) Promote high standards of corporate governance. The responsibilities set out above provide guidance and should not be taken as a comprehensive list of all the duties and responsibilities of a Chairman. 3.3 Every company should appoint an independent director to be the lead independent director where: (a) The Chairman and the CEO is the same person; (b) The Chairman and the CEO are immediate family members; (c) The Chairman is part of the management team; or (d) The Chairman is not an independent director. The lead independent director (if appointed) should be available to shareholders where they have concerns and for which contact through the normal channels of the Chairman, the CEO or the chief financial officer (or equivalent) (the "CFO") has failed to resolve or is inappropriate. 3.4 Led by the lead independent director, the independent directors should meet periodically without the presence of the other directors, and the lead independent director should provide feedback to the Chairman after such meetings.

P a g e | 119



BOARD MEMBERSHIP Principle: 4 There should be a formal and transparent process for the appointment and re-appointment of directors to the Board.

Guidelines: 4.1 The Board should establish a NC to make recommendations to the Board on all board appointments, with written terms of reference which clearly set out its authority and duties. The NC should comprise at least three directors, the majority of whom, including the NC Chairman, should be independent. The lead independent director, if any, should be a member of the NC. The Board should disclose in the company's Annual Report the names of the members of the NC and the key terms of reference of the NC, explaining its role and the authority delegated to it by the Board. 4.2 The NC should make recommendations to the Board on relevant matters relating to: (a) The review of board succession plans for directors, in particular, the Chairman and for the CEO; (b) The development of a process for evaluation of the performance of the Board, its board committees and directors; (c) The review of training and professional development programs for the Board; and (d) The appointment and re-appointment of directors (including alternate directors, if applicable).

P a g e | 120



Important issues to be considered as part of the process for the selection, appointment and re-appointment of directors include composition and progressive renewal of the Board and each director's competencies, commitment, contribution and performance (e.g. attendance, preparedness, participation and candour) including, if applicable, as an independent director. All directors should be required to submit themselves for re-nomination and re-appointment at regular intervals and at least once every three years. 4.3 The NC is charged with the responsibility of determining annually, and as and when circumstances require, if a director is independent, bearing in mind the circumstances set forth in Guidelines 2.3 and 2.4 and any other salient factors. If the NC considers that a director who has one or more of the relationships mentioned therein can be considered independent, it shall provide its views to the Board for the Board's consideration. Conversely, the NC has the discretion to consider that a director is not independent even if he does not fall under the circumstances set forth in Guideline 2.3 or Guideline 2.4, and should similarly provide its views to the Board for the Board's consideration. 4.4 When a director has multiple board representations, he must ensure that sufficient time and attention is given to the affairs of each company. The NC should decide if a director is able to and has been adequately carrying out his duties as a director of the company, taking into consideration the director's number of listed company board representations and other principal commitments. Guidelines should be adopted that address the competing time commitments that are faced when directors serve on multiple boards.

P a g e | 121



The Board should determine the maximum number of listed company board representations which any director may hold, and disclose this in the company's Annual Report. 4.5 Boards should generally avoid approving the appointment of alternate directors. Alternate directors should only be appointed for limited periods in exceptional cases such as when a director has a medical emergency. If an alternate director is appointed, the alternate director should be familiar with the company affairs, and be appropriately qualified. If a person is proposed to be appointed as an alternate director to an independent director, the NC and the Board should review and conclude that the person would similarly qualify as an independent director, before his appointment as an alternate director. Alternate directors bear all the duties and responsibilities of a director. 4.6 A description of the process for the selection, appointment and re-appointment of directors to the Board should be disclosed in the company's Annual Report. This should include disclosure on the search and nomination process. 4.7 Key information regarding directors, such as academic and professional qualifications, shareholding in the company and its related corporations, board committees served on (as a member or chairman), date of first appointment as a director, date of last re-appointment as a director, directorships or chairmanships both present and those held over the preceding three years in other listed companies, and other principal commitments, should be disclosed in the company's Annual Report. In addition, the company's annual disclosure on corporate governance should indicate which directors are executive, non-executive or considered by the NC to be independent.

P a g e | 122



The names of the directors submitted for appointment or re-appointment should also be accompanied by details and information to enable shareholders to make informed decisions. Such information, which should also accompany the relevant resolution, would include: (a) Any relationships including immediate family relationships between the candidate and the directors, the company or its 10% shareholders; (b) A separate list of all current directorships in other listed companies; and (c) Details of other principal commitments.

BOARD PERFORMANCE Principle: 5 There should be a formal annual assessment of the effectiveness of the Board as a whole and its board committees and the contribution by each director to the effectiveness of the Board.

Guidelines: 5.1 Every Board should implement a process to be carried out by the NC for assessing the effectiveness of the Board as a whole and its board committees and for assessing the contribution by the Chairman and each individual director to the effectiveness of the Board. The Board should state in the company's Annual Report how the assessment of the Board, its board committees and each director has been conducted. If an external facilitator has been used, the Board should disclose in the company's Annual Report whether the external facilitator has any other connection with the company or any of its directors.

P a g e | 123



This assessment process should be disclosed in the company's Annual Report. 5.2 The NC should decide how the Board's performance may be evaluated and propose objective performance criteria. Such performance criteria, which allow for comparison with industry peers, should be approved by the Board and address how the Board has enhanced long-term shareholder value. These performance criteria should not be changed from year to year, and where circumstances deem it necessary for any of the criteria to be changed, the onus should be on the Board to justify this decision. 5.3 Individual evaluation should aim to assess whether each director continues to contribute effectively and demonstrate commitment to the role (including commitment of time for meetings of the Board and board committees, and any other duties). The Chairman should act on the results of the performance evaluation, and, in consultation with the NC, propose, where appropriate, new members to be appointed to the Board or seek the resignation of directors.

ACCESS TO INFORMATION Principle: 6 In order to fulfil their responsibilities, directors should be provided with complete, adequate and timely information prior to board meetings and on an on-going basis so as to enable them to make informed decisions to discharge their duties and responsibilities.

Guidelines: 6.1 Management has an obligation to supply the Board with complete, adequate information in a timely manner.

P a g e | 124



Relying purely on what is volunteered by Management is unlikely to be enough in all circumstances and further enquiries may be required if the particular director is to fulfil his duties properly. Hence, the Board should have separate and independent access to Management. Directors are entitled to request from Management and should be provided with such additional information as needed to make informed decisions. Management shall provide the same in a timely manner. 6.2 Information provided should include board papers and related materials, background or explanatory information relating to matters to be brought before the Board, and copies of disclosure documents, budgets, forecasts and monthly internal financial statements. In respect of budgets, any material variance between the projections and actual results should also be disclosed and explained. 6.3 Directors should have separate and independent access to the company secretary. The role of the company secretary should be clearly defined and should include responsibility for ensuring that board procedures are followed and that applicable rules and regulations are complied with. Under the direction of the Chairman, the company secretary's responsibilities include ensuring good information flows within the Board and its board committees and between Management and non-executive directors, advising the Board on all governance matters, as well as facilitating orientation and assisting with professional development as required. The company secretary should attend all board meetings.

P a g e | 125



6.4 The appointment and the removal of the company secretary should be a matter for the Board as a whole. 6.5 The Board should have a procedure for directors, either individually or as a group, in the furtherance of their duties, to take independent professional advice, if necessary, and at the company's expense.

REMUNERATION MATTERS PROCEDURES FOR DEVELOPING REMUNERATION POLICIES Principle: 7 There should be a formal and transparent procedure for developing policy on executive remuneration and for fixing the remuneration packages of individual directors. No director should be involved in deciding his own remuneration.

Guidelines: 7.1 The Board should establish a Remuneration Committee ("RC") with written terms of reference which clearly set out its authority and duties. The RC should comprise at least three directors, the majority of whom, including the RC Chairman, should be independent. All of the members of the RC should be non-executive directors. This is to minimise the risk of any potential conflict of interest. The Board should disclose in the company's Annual Report the names of the members of the RC and the key terms of reference of the RC, explaining its role and the authority delegated to it by the Board.

P a g e | 126



7.2 The RC should review and recommend to the Board a general framework of remuneration for the Board and key management personnel. The RC should also review and recommend to the Board the specific remuneration packages for each director as well as for the key management personnel. The RC's recommendations should be submitted for endorsement by the entire Board. The RC should cover all aspects of remuneration, including but not limited to director's fees, salaries, allowances, bonuses, options, share-based incentives and awards, and benefits in kind. 7.3 If necessary, the RC should seek expert advice inside and/or outside the company on remuneration of all directors. The RC should ensure that existing relationships, if any, between the company and its appointed remuneration consultants will not affect the independence and objectivity of the remuneration consultants. The company should also disclose the names and firms of the remuneration consultants in the annual remuneration report, and include a statement on whether the remuneration consultants have any such relationships with the company. 7.4 The RC should review the company's obligations arising in the event of termination of the executive directors’ and key management personnel's contracts of service, to ensure that such contracts of service contain fair and reasonable termination clauses which are not overly generous. The RC should aim to be fair and avoid rewarding poor performance.

P a g e | 127



LEVEL AND MIX OF REMUNERATION Principle: 8 The level and structure of remuneration should be aligned with the long-term interest and risk policies of the company, and should be appropriate to attract, retain and motivate (a) The directors to provide good stewardship of the company, and (b) Key management personnel to successfully manage the company. However, companies should avoid paying more than is necessary for this purpose.

Guidelines: 8.1 A significant and appropriate proportion of executive directors’ and key management personnel's remuneration should be structured so as to link rewards to corporate and individual performance. Such performance-related remuneration should be aligned with the interests of shareholders and promote the long-term success of the company. It should take account of the risk policies of the company, be symmetric with risk outcomes and be sensitive to the time horizon of risks. There should be appropriate and meaningful measures for the purpose of assessing executive directors’ and key management personnel's performance. 8.2 Long-term incentive schemes are generally encouraged for executive directors and key management personnel. The RC should review whether executive directors and key management personnel should be eligible for benefits under long-term incentive schemes.

P a g e | 128



The costs and benefits of long-term incentive schemes should be carefully evaluated. In normal circumstances, offers of shares or grants of options or other forms of deferred remuneration should vest over a period of time. The use of vesting schedules, whereby only a portion of the benefits can be exercised each year, is also strongly encouraged. Executive directors and key management personnel should be encouraged to hold their shares beyond the vesting period, subject to the need to finance any cost of acquiring the shares and associated tax liability. 8.3 The remuneration of non-executive directors should be appropriate to the level of contribution, taking into account factors such as effort and time spent, and responsibilities of the directors. Non-executive directors should not be over-compensated to the extent that their independence may be compromised. The RC should also consider implementing schemes to encourage non-executive directors to hold shares in the company so as to better align the interests of such non-executive directors with the interests of shareholders. 8.4 Companies are encouraged to consider the use of contractual provisions to allow the company to reclaim incentive components of remuneration from executive directors and key management personnel in exceptional circumstances of misstatement of financial results, or of misconduct resulting in financial loss to the company.

DISCLOSURE ON REMUNERATION Principle: 9 Every company should provide clear disclosure of its remuneration

P a g e | 129



policies, level and mix of remuneration, and the procedure for setting remuneration, in the company's Annual Report. It should provide disclosure in relation to its remuneration policies to enable investors to understand the link between remuneration paid to directors and key management personnel, and performance.

Guidelines: 9.1 The company should report to the shareholders each year on the remuneration of directors, the CEO and at least the top five key management personnel (who are not also directors or the CEO) of the company. This annual remuneration report should form part of, or be annexed to the company's annual report of its directors. It should be the main means through which the company reports to shareholders on remuneration matters. The annual remuneration report should include the aggregate amount of any termination, retirement and post-employment benefits that may be granted to directors, the CEO and the top five key management personnel (who are not directors or the CEO). 9.2 The company should fully disclose the remuneration of each individual director and the CEO on a named basis. For administrative convenience, the company may round off the disclosed figures to the nearest thousand dollars. There should be a breakdown (in percentage or dollar terms) of each director's and the CEO's remuneration earned through base/fixed salary, variable or performance-related income/bonuses, benefits in kind, stock options granted, share-based incentives and awards, and other long-term incentives.

P a g e | 130



9.3 The company should name and disclose the remuneration of at least the top five key management personnel (who are not directors or the CEO) in bands of S$250,000. Companies need only show the applicable bands. There should be a breakdown (in percentage or dollar terms) of each key management personnel's remuneration earned through base/fixed salary, variable or performance-related income/bonuses, benefits in kind, stock options granted, share-based incentives and awards, and other long-term incentives. In addition, the company should disclose in aggregate the total remuneration paid to the top five key management personnel (who are not directors or the CEO). As best practice, companies are also encouraged to fully disclose the remuneration of the said top five key management personnel. 9.4 For transparency, the annual remuneration report should disclose the details of the remuneration of employees who are immediate family members of a director or the CEO, and whose remuneration exceeds S$50,000 during the year. This will be done on a named basis with clear indication of the employee's relationship with the relevant director or the CEO. Disclosure of remuneration should be in incremental bands of S$50,000. The company need only show the applicable bands. 9.5 The annual remuneration report should also contain details of employee share schemes to enable their shareholders to assess the benefits and potential cost to the companies. The important terms of the share schemes should be disclosed, including the potential size of grants, methodology of valuing stock options, exercise price of options that were granted as well as outstanding, whether the exercise price was at the market or otherwise on the date of

P a g e | 131



grant, market price on the date of exercise, the vesting schedule, and the justifications for the terms adopted. 9.6 For greater transparency, companies should disclose more information on the link between remuneration paid to the executive directors and key management personnel, and performance. The annual remuneration report should set out a description of performance conditions to which entitlement to short-term and long-term incentive schemes are subject, an explanation on why such performance conditions were chosen, and a statement of whether such performance conditions are met.

ACCOUNTABILITY AND AUDIT ACCOUNTABILITY Principle: 10 The Board should present a balanced and understandable assessment of the company's performance, position and prospects.

Guidelines: 10.1 The Board's responsibility to provide a balanced and understandable assessment of the company's performance, position and prospects extends to interim and other price sensitive public reports, and reports to regulators (if required). 10.2 The Board should take adequate steps to ensure compliance with legislative and regulatory requirements, including requirements under the listing rules of the securities exchange, for instance, by establishing written policies where appropriate. 10.3 Management should provide all members of the Board with management accounts and such explanation and information on a monthly basis and as the Board may require from time to time to enable

P a g e | 132



the Board to make a balanced and informed assessment of the company's performance, position and prospects.

RISK MANAGEMENT AND INTERNAL CONTROLS Principle: 11 The Board is responsible for the governance of risk. The Board should ensure that Management maintains a sound system of risk management and internal controls to safeguard shareholders' interests and the company's assets, and should determine the nature and extent of the significant risks which the Board is willing to take in achieving its strategic objectives.

Guidelines: 11.1 The Board should determine the company's levels of risk tolerance and risk policies, and oversee Management in the design, implementation and monitoring of the risk management and internal control systems. 11.2 The Board should, at least annually, review the adequacy and effectiveness of the company's risk management and internal control systems, including financial, operational, compliance and information technology controls. Such review can be carried out internally or with the assistance of any competent third parties. 11.3 The Board should comment on the adequacy and effectiveness of the internal controls, including financial, operational, compliance and information technology controls, and risk management systems, in the company's Annual Report.

P a g e | 133



The Board's commentary should include information needed by stakeholders to make an informed assessment of the company's internal control and risk management systems. The Board should also comment in the company's Annual Report on whether it has received assurance from the CEO and the CFO: (a) That the financial records have been properly maintained and the financial statements give a true and fair view of the company's operations and finances; and (b) Regarding the effectiveness of the company's risk management and internal control systems. 11.4 The Board may establish a separate board risk committee or otherwise assess appropriate means to assist it in carrying out its responsibility of overseeing the company's risk management framework and policies.

AUDIT COMMITTEE Principle: 12 The Board should establish an Audit Committee ("AC") with written terms of reference which clearly set out its authority and duties.

Guidelines: 12.1 The AC should comprise at least three directors, the majority of whom, including the AC Chairman, should be independent. All of the members of the AC should be non-executive directors. The Board should disclose in the company's Annual Report the names of the members of the AC and the key terms of reference of the AC, explaining its role and the authority delegated to it by the Board.

P a g e | 134



12.2 The Board should ensure that the members of the AC are appropriately qualified to discharge their responsibilities. At least two members, including the AC Chairman, should have recent and relevant accounting or related financial management expertise or experience, as the Board interprets such qualification in its business judgement. 12.3 The AC should have explicit authority to investigate any matter within its terms of reference, full access to and co-operation by Management and full discretion to invite any director or executive officer to attend its meetings, and reasonable resources to enable it to discharge its functions properly. 12.4 The duties of the AC should include: (a) Reviewing the significant financial reporting issues and judgements so as to ensure the integrity of the financial statements of the company and any announcements relating to the company's financial performance; (b) Reviewing and reporting to the Board at least annually the adequacy and effectiveness of the company's internal controls, including financial, operational, compliance and information technology controls (such review can be carried out internally or with the assistance of any competent third parties); (c) Reviewing the effectiveness of the company's internal audit function; (d) Reviewing the scope and results of the external audit, and the independence and objectivity of the external auditors; and (e) Making recommendations to the Board on the proposals to the shareholders on the appointment, re-appointment and removal of the external auditors, and approving the remuneration and terms of engagement of the external auditors. 12.5 The AC should meet

P a g e | 135



(a) With the external auditors, and (b) With the internal auditors, in each case without the presence of Management, at least annually. 12.6 The AC should review the independence of the external auditors annually and should state (a) The aggregate amount of fees paid to the external auditors for that financial year, and (b) A breakdown of the fees paid in total for audit and non-audit services respectively, or an appropriate negative statement, in the company's Annual Report. Where the external auditors also supply a substantial volume of non-audit services to the company, the AC should keep the nature and extent of such services under review, seeking to maintain objectivity. 12.7 The AC should review the policy and arrangements by which staff of the company and any other persons may, in confidence, raise concerns about possible improprieties in matters of financial reporting or other matters. The AC's objective should be to ensure that arrangements are in place for such concerns to be raised and independently investigated, and for appropriate follow-up action to be taken. The existence of a whistle-blowing policy should be disclosed in the company's Annual Report, and procedures for raising such concerns should be publicly disclosed as appropriate. 12.8 The Board should disclose a summary of all the AC's activities in the company's Annual Report. The Board should also disclose in the company's Annual Report measures taken by the AC members to keep abreast of changes to

P a g e | 136



accounting standards and issues which have a direct impact on financial statements. 12.9 A former partner or director of the company's existing auditing firm or auditing corporation should not act as a member of the company's AC: (a) Within a period of 12 months commencing on the date of his ceasing to be a partner of the auditing firm or director of the auditing corporation; and in any case (b) For as long as he has any financial interest in the auditing firm or auditing corporation.

INTERNAL AUDIT Principle: 13 The company should establish an effective internal audit function that is adequately resourced and independent of the activities it audits.

Guidelines: 13.1 The Internal Auditor's primary line of reporting should be to the AC Chairman although the Internal Auditor would also report administratively to the CEO. The AC approves the hiring, removal, evaluation and compensation of the head of the internal audit function, or the accounting / auditing firm or corporation to which the internal audit function is outsourced. The Internal Auditor should have unfettered access to all the company's documents, records, properties and personnel, including access to the AC. 13.2 The AC should ensure that the internal audit function is adequately resourced and has appropriate standing within the company.

P a g e | 137



For the avoidance of doubt, the internal audit function can be in-house, outsourced to a reputable accounting/auditing firm or corporation, or performed by a major shareholder, holding company or controlling enterprise with an internal audit staff. 13.3 The internal audit function should be staffed with persons with the relevant qualifications and experience. 13.4 The Internal Auditor should carry out its function according to the standards set by nationally or internationally recognised professional bodies including the Standards for the Professional Practice of Internal Auditing set by The Institute of Internal Auditors. 13.5 The AC should, at least annually, review the adequacy and effectiveness of the internal audit function.

SHAREHOLDER RIGHTS AND RESPONSIBILITIES SHAREHOLDER RIGHTS Principle: 14 Companies should treat all shareholders fairly and equitably, and should recognise, protect and facilitate the exercise of shareholders' rights, and continually review and update such governance arrangements.

Guidelines: 14.1 Companies should facilitate the exercise of ownership rights by all shareholders. In particular, shareholders have the right to be sufficiently informed of changes in the company or its business which would be likely to materially affect the price or value of the company's shares. 14.2 Companies should ensure that shareholders have the opportunity to participate effectively in and vote at general meetings of shareholders.

P a g e | 138



Shareholders should be informed of the rules, including voting procedures, that govern general meetings of shareholders. 14.3 Companies should allow corporations which provide nominee or custodial services to appoint more than two proxies so that shareholders who hold shares through such corporations can attend and participate in general meetings as proxies.

COMMUNICATION WITH SHAREHOLDERS Principle: 15 Companies should actively engage their shareholders and put in place an investor relations policy to promote regular, effective and fair communication with shareholders.

Guidelines: 15.1 Companies should devise an effective investor relations policy to regularly convey pertinent information to shareholders. In disclosing information, companies should be as descriptive, detailed and forthcoming as possible, and avoid boilerplate disclosures. 15.2 Companies should disclose information on a timely basis through SGXNET and other information channels, including a well-maintained and updated corporate website. Where there is inadvertent disclosure made to a select group, companies should make the same disclosure publicly to all others as promptly as possible 15.3 The Board should establish and maintain regular dialogue with shareholders, to gather views or inputs, and address shareholders' concerns.

P a g e | 139



15.4 The Board should state in the company's Annual Report the steps it has taken to solicit and understand the views of the shareholders e.g. through analyst briefings, investor roadshows or Investors' Day briefings. 15.5 Companies are encouraged to have a policy on payment of dividends and should communicate it to shareholders. Where dividends are not paid, companies should disclose their reasons.

CONDUCT OF SHAREHOLDER MEETINGS Principle: 16 Companies should encourage greater shareholder participation at general meetings of shareholders, and allow shareholders the opportunity to communicate their views on various matters affecting the company.

Guidelines: 16.1 Shareholders should have the opportunity to participate effectively in and to vote at general meetings of shareholders. Companies should make the appropriate provisions in their Articles of Association (or other constitutive documents) to allow for absentia voting at general meetings of shareholders. 16.2 There should be separate resolutions at general meetings on each substantially separate issue. Companies should avoid "bundling" resolutions unless the resolutions are interdependent and linked so as to form one significant proposal. 16.3 All directors should attend general meetings of shareholders. In particular, the Chairman of the Board and the respective Chairman of the AC, NC and RC should be present and available to address shareholders' queries at these meetings.

P a g e | 140



The external auditors should also be present to address shareholders' queries about the conduct of audit and the preparation and content of the auditors' report. 16.4 Companies should prepare minutes of general meetings that include substantial and relevant comments or queries from shareholders relating to the agenda of the meeting, and responses from the Board and Management, and to make these minutes available to shareholders upon their request. 16.5 Companies should put all resolutions to vote by poll and make an announcement of the detailed results showing the number of votes cast for and against each resolution and the respective percentages. Companies are encouraged to employ electronic polling.

THE ROLE OF SHAREHOLDERS IN ENGAGING WITH COMPANIES IN WHICH THEY INVEST The Code on Corporate Governance focuses on providing principles and guidelines to listed companies and their Boards to spur them towards a high standard of corporate governance. To ensure that these standards are achieved and sustained in practice, active and constructive shareholder relations is crucial. Bearing in mind the diversity of shareholders in a listed company and their differing investment objectives, this statement sets out certain broad views on the role of shareholders. The objective of creating sustainable and financially sound enterprises that offer long-term value to shareholders is best served through a constructive relationship between shareholders and the Boards of companies. Shareholder inputs on governance matters are useful to strengthen the overall environment for good governance policies and practices, and convey shareholders' expectations to the Board.

P a g e | 141



By constructively engaging with the Board, shareholders can help to set the tone and expectation for governance of the company. A shareholder's vote at general meetings is a direct way of expressing views and expectations to the Board. Hence, shareholders should exercise their right to attend general meetings and vote responsibly. Where relevant, shareholders should communicate to the Board their reasons for disagreeing with any proposal tabled at a general meeting. Where appropriate, specific shareholder groups and their associations are encouraged to consider adopting international best practices. Initiatives by relevant industry associations or organisations to develop guidelines on their roles as shareholders of listed companies will be welcomed. For the avoidance of doubt, this statement does not form part of the Code of Corporate Governance. It is aimed at enhancing the quality of engagement between shareholders and companies, so as to help drive higher standards of corporate governance and improve long-term returns to shareholders.

GLOSSARY The following terms, unless the context requires otherwise, have the following meanings: "AC": Audit Committee "Board": The board of directors of the company "CEO": Chief executive officer or equivalent "CFO": Chief financial officer or equivalent

P a g e | 142



"Chairman": Chairman of the Board "Directly associated": A director will be considered "directly associated" to a 10% shareholder when the director is accustomed or under an obligation, whether formal or informal, to act in accordance with the directions, instructions or wishes of the 10% shareholder in relation to the corporate affairs of the corporation. A director will not be considered "directly associated" to a 10% shareholder by reason only of his appointment having been proposed by that 10% shareholder "Immediate family": As currently defined in the Listing Manual, to mean the person's spouse, child, adopted child, step-child, brother, sister and parent "Key management personnel": The CEO and other persons having authority and responsibility for planning, directing and controlling the activities of the company "NC": Nominating Committee "Principal commitments": Includes all commitments which involve significant time commitment such as full-time occupation, consultancy work, committee work, non-listed company board representations and directorships and involvement in non-profit organisations. Where a director sits on the Boards of non-active related corporations, those appointments should not normally be considered principal commitments "Related corporation": In relation to the company, as currently defined in the Companies Act, to mean a corporation that is the company's holding company, subsidiary or fellow subsidiary "RC": Remuneration Committee

P a g e | 143



"10% shareholder": A person who has an interest or interests in one or more voting shares in the company; and the total votes attached to that share, or those shares, is not less than 10% of the total votes attached to all the voting shares in the company. "Voting shares": exclude treasury shares Reference to any gender shall include reference to any other gender, unless the context otherwise requires.

P a g e | 144



Testimony on The Collapse of MF Global: Lessons Learned and Policy Implications Robert Cook, Director, Division of Trading and Markets, U.S. Securities and Exchange Commission - Before the Committee on Banking, Housing, and Urban Affairs, United States Senate Chairman Johnson, Ranking Member Shelby, members of the Committee: My name is Robert Cook, and I am the Director of the Division of Trading and Markets at the Securities and Exchange Commission ("SEC"). Thank you for the opportunity to testify on behalf of the SEC concerning the collapse of MF Global. The bankruptcy of MF Global has resulted in serious hardship for many of its customers, who have experienced significant delays and uncertainty with respect to their ability to access their own assets. More broadly, the firm's collapse and the apparent shortfall in customer assets highlight the need for financial firms and regulators to remain vigilant in ensuring that customer assets are appropriately protected and made readily available to customers whenever they may be needed. To that end, the SEC and its staff are working with the trustee, our fellow financial regulators, and other authorities to facilitate the orderly liquidation of MF Global and the return of MF Global customer assets. While the examination and review of the causes and implications of the collapse of MF Global are ongoing, my testimony provides an overview of the regulation of MF Global's SEC-registered broker-dealer subsidiary

P a g e | 145



prior to the bankruptcy, the key events leading up to the bankruptcy, the status of approximately 318 securities accounts in the liquidation proceedings, and the securities customer protection regime. My testimony also describes some implications of MF Global's bankruptcy for market oversight, as well as a summary of recent efforts by the SEC to promote sharing of information among regulators, a proposal by the SEC to further strengthen the rules that affect the protection of customer assets, and self-regulatory organization ("SRO") initiatives to enhance the financial responsibility regime for broker-dealers. Regulation of MF Global Prior to its Bankruptcy MF Global Holdings Ltd. (together with its subsidiaries, "MF Global") was a publicly traded holding company that conducted financial activities through a number of subsidiaries located in various countries. MF Global Inc. ("MFGI"), an indirect subsidiary of the holding company, was dually registered with the Commodity Futures Trading Commission ("CFTC") as a futures commission merchant ("FCM") and with the SEC as a broker-dealer. As of October 31, 2011, MFGI had approximately 36,000 futures customers and approximately 318 custodial accounts for non-affiliated securities customers. MFGI also was authorized by the Federal Reserve Bank of New York to act as a primary dealer in the U.S. Treasury markets. Another affiliate, MF Global UK Limited, was regulated by the U.K. Financial Services Authority ("FSA"). There was no consolidated supervisor of MF Global at the holding company level. The "front-line" supervisory function for the securities activities of broker-dealers is performed by the SROs, including the Financial Industry Regulatory Authority ("FINRA") and the various securities exchanges.

P a g e | 146



When a broker-dealer is a member of multiple SROs, one SRO functions as the "designated examining authority" ("DEA") responsible in the first instance for examining the securities component of the firm's financial and operational programs, including its compliance with the SEC's capital and customer protection requirements. In the case of MFGI, the DEA was the Chicago Board Options Exchange ("CBOE"), although FINRA was also closely involved in the oversight of MFGI's broker-dealer activities. The futures activities of financial firms, including related segregation requirements, are overseen by the CFTC and the futures SROs, including the National Futures Association and the Chicago Mercantile Exchange. The SEC oversees the regulatory functions of securities SROs and regularly communicates and coordinates with them on examinations and other matters. In its SRO role, CBOE conducted examinations of MFGI for compliance with financial responsibility rules. FINRA conducted examinations for compliance with other rules, such as sales practice requirements. In addition, the SEC's national examination program conducts its own risk-based examinations of SEC-registered broker-dealers. Unlike some other regulators of financial firms, the SEC does not have an "on site" presence at any broker-dealer and generally does not have examination staff dedicated solely to particular broker-dealers. Key Events Leading Up to the Bankruptcy Although the investigation of the causes of MFGI's collapse is ongoing, we can highlight our current understanding of several key events leading up to its failure.

P a g e | 147



Capital Treatment of Repo-to-Maturity Transactions During 2010, MFGI started acquiring significant proprietary positions in European sovereign debt, which were financed using an instrument called a "repo-to-maturity" ("RTM"). As of March 31, 2011, MFGI had accumulated several billion dollars of European sovereign debt positions using RTM transactions. In the summer of 2011, based on an analysis of MFGI's financial statements, FINRA and CBOE staffs questioned MFGI about whether the firm was properly recognizing its RTM positions for purposes of its regulatory net capital computations. The SEC's net capital rules (which are similar to those of the CFTC in important respects) require broker-dealers, including MFGI, to maintain certain minimum amounts of liquid capital based on their business activities. After consulting with SEC staff, SRO staff informed MFGI that under the SEC's rules it must take capital charges for the European sovereign positions as if they were on the firm's balance sheet, notwithstanding the fact that the bonds had been "sold" pursuant to the RTM transactions. In August 2011, representatives of MFGI contacted SEC staff in Washington, D.C., to request a meeting to present the firm's view that the RTM positions should be subject to lesser capital charges than those determined by staff from the SROs and SEC. On August 15, 2011, SEC staff met with representatives of MF Global, including its Chief Executive Officer, Jon S. Corzine, to discuss this issue. After further consultations among the regulators, FINRA staff informed MFGI on or around August 24 that the regulators' collective view that a capital charge was required for the RTM positions had not changed. Following the resolution of that issue, the regulators also discussed with MFGI:

P a g e | 148



(1) whether MFGI needed to provide a formal net capital deficiency notice under SEC Rule 17a-11, which generally requires broker-dealers to provide a "hindsight notice" of any deficiency in their compliance with the SEC's financial responsibility rules; and (2) whether MFGI needed to restate and refile its monthly "FOCUS" report (containing capital and certain other financial information) for July 2011, which could result in the net capital deficiency becoming public. Pursuant to Rule 17a-11, once the deficiency was identified, the firm was required to file the "hindsight notice" and, on August 25, it did so. After consulting with SEC staff, SRO staff also required the firm to file an amended FOCUS report for July 2011. On August 31, MFGI amended its FOCUS report for July 2011 to reflect the required capital charges, reporting a "hindsight" capital deficiency of approximately $150 million as of July 31, 2011. At the holding company level, MF Global disclosed the net capital issue regarding the RTM positions at MFGI in an amendment to MF Global's public filings on September 1.7 Bankruptcy of MF Global During the week of October 17, 2011, press reports noted that regulators had directed MF Global to increase capital at MFGI due to concerns about MFGI's capital treatment of its RTM positions. On Tuesday, October 25, 2011, MF Global announced quarterly earnings, reporting a net loss of $192 million for the three months ending September 30, 2011. Its stock price declined almost 50 percent that day and continued to decline over the week. During this same week, certain credit rating agencies downgraded the firm's credit rating or put it on negative watch.

P a g e | 149



MF Global informed SEC staff during this week that certain counterparties and customers were reducing their exposures to MFGI, and MFGI was undertaking significant efforts to reduce the size of its balance sheet. SEC staff commenced a continuous on-site presence at MFGI's New York office beginning on October 27 to monitor the firm's condition, and to engage with senior management regarding the steps that were being taken by the firm. On Friday, October 28, MF Global management reported on developments to Chairman Mary Schapiro and SEC staff, including myself. According to the firm, it was in discussions with various parties regarding potential strategic transactions, such as the sale of the firm, the sale of the RTM positions, and the sale of the firm's customer business. We continued to receive updates from our on-site staff and from calls with firm management on Saturday and Sunday, and we continued to consult closely with other regulators, including the CFTC, FINRA and the FSA. By Sunday afternoon, MF Global reported that the firm was close to concluding a strategic transaction with a potential purchaser of the customer business of MFGI, which could provide customers with continued access to their accounts. SEC staff worked closely with the CFTC and FSA to review and comment on the key transaction terms to determine that they provided adequate customer protection. However, MF Global subsequently reported in the early morning hours of Monday, October 31, that MFGI had identified a significant deficiency in its segregated accounts for futures customers, and that the acquisition negotiations had terminated. At that point, after considering MFGI's financial condition and available alternatives, SEC staff determined, in consultation with the CFTC, that

P a g e | 150



the safest and most prudent course of action to protect customer accounts and assets was to initiate a liquidation proceeding under the Securities Investor Protection Act ("SIPA"). A referral was made to the Securities Investor Protection Corporation ("SIPC") early in the morning on Monday, October 31. On that same day, the U.S. District Court for the Southern District of New York entered an order granting the application of SIPC to commence a liquidation of MFGI under SIPA and appointing James W. Giddens as trustee for the liquidation. The case was then removed to the U.S. Bankruptcy Court for the Southern District of New York ("Bankruptcy Court"). Also on October 31, MF Global Holdings Ltd. separately filed a voluntary bankruptcy petition in the Bankruptcy Court, and MF Global U.K. Limited entered administration proceedings in the United Kingdom. MFGI Liquidation and the Impact on Securities Customers The preferred method of returning securities customer assets in a SIPA liquidation generally is to transfer those assets in bulk to another solvent broker-dealer. This approach typically provides customers with access to their securities and funds more quickly than the claims process. Accordingly, shortly after the initiation of the SIPA proceeding, the trustee solicited from other broker-dealers interest in taking over MFGI's securities customer accounts. Based on the available expressions of interest, on November 30, 2011, the trustee filed an expedited motion seeking authorization to sell and transfer substantially all securities custody accounts to another broker-dealer. This sale and transfer applied to approximately 318 accounts held for non-affiliated securities customers of MFGI.

P a g e | 151



The transaction was approved by the Bankruptcy Court on December 9, 2011. Securities customers are able to trade their securities and use their funds upon completion of the transfer of their accounts. Moreover, each customer is given the option of maintaining the customer's securities account at the receiving broker-dealer or moving the account to a different broker-dealer selected by the customer. According to the trustee, of all former MFGI securities customers, nearly all have received 60 percent or more of their account value, and 194 have received the entirety of their account balances, after giving effect to the protection afforded by SIPC (up to $500,000). Customers who do not ultimately receive 100 percent of their net equity through this initial transfer may be able to receive additional funds, up to the aggregate amount of their net equity, if the trustee determines that there is customer property available for that purpose. Although the claims submission deadline was January 31, 2012, for former MFGI commodities customers and former MFGI securities customers seeking the maximum protection under SIPA, securities customers and all general claimants may still submit claims to the trustee through June 2, 2012. Throughout this process, SEC staff has been working closely with the trustee and SIPC, seeking to expedite the return of assets to customers of MFGI. To that end, SEC staff has been in frequent communication with the trustee with respect to the status of the transfers and claims made by securities customers. Securities Customer Protection Regime MFGI acted as a "carrying" firm for a small number of securities customers, meaning that it held their funds and securities.

P a g e | 152



MFGI also had additional securities customers for which it executed purchases and sales of securities but did not hold funds and securities — rather, such securities were held at other custodians that settled transactions executed through MFGI on a "delivery versus payment" basis. As a broker-dealer registered with the SEC, MFGI was subject to the SEC's customer protection rule. This rule requires that each broker-dealer that holds securities or cash for customers take two primary steps to safeguard customer property. These steps are designed to protect customer property by prohibiting broker-dealers from using customer funds and securities to support their proprietary positions or expenses. Together with the applicable SEC capital requirements, this regime also is meant to make it more likely that, if the broker-dealer fails, segregated securities and funds will be readily available to be returned to the customers. The first step required under the customer protection rule is that the broker-dealer must maintain physical possession or control over securities that customers have paid for in full. This means that if a customer has fully paid for his or her securities, they cannot be used by the broker-dealer in its business — for example, they cannot be pledged as collateral to finance the firm's own trades or to raise funds for the firm to invest. Further, if a customer has a margin loan, the customer protection rule strictly limits the amount of securities that can be used by the broker-dealer for financing purposes. The goal in both cases is to require broker-dealers to hold customer securities in a manner that allows those securities to be readily available to customers, either on demand or upon the liquidation of the firm.

P a g e | 153



The second step required under the customer protection rule is that the broker-dealer must maintain a reserve in an account at a bank for the benefit of customers in an amount that exceeds the net funds attributable to customer positions. These funds cannot be invested in any instrument that is not guaranteed, as to principal and interest, by the full faith and credit of the U.S. government. The amount owed to customers must be computed pursuant to a prescribed formula, normally on a weekly basis. A broker-dealer cannot make a withdrawal from the reserve account until the next computation, and then only if the computation indicates that there is an excess amount in reserve — greater than what is required to be maintained under the rule. In essence, this requirement complements the protection afforded to securities held at a broker-dealer by requiring the firm to maintain a reserve of funds or U.S. government guaranteed securities equal to its net cash obligations attributable to customer positions. A broker-dealer that complies with the customer protection rule — isolating customer funds and securities through these steps and separating them from the firm's proprietary business — should be in a position to return all the securities and funds it owes to customers if it falls into financial difficulty. If a broker-dealer cannot return all the securities and funds owed to customers, SIPC has the responsibility to institute a proceeding under SIPA to liquidate the broker-dealer. Under SIPA, all securities customers share pro rata in the available securities customer property before any other types of creditors of the broker-dealer. If the available securities customer property is insufficient to return 100 percent of the amount owed to securities customers, SIPC may advance

P a g e | 154



up to $500,000 per customer (of which $250,000 can be used to make up a cash shortfall). Implications for Market Oversight While our near term focus has been on working with SIPC and the trustee to facilitate the return of securities and funds to customers of MFGI, the SEC will continue to strive to identify further enhancements to its customer protection regime that may be appropriate. The events leading up to the bankruptcy of MF Global and its aftermath reinforce the importance of close and ongoing coordination and information sharing among regulators and other interested parties. In this case, these parties included not only the SEC and CFTC and other federal regulators, but also the SROs, the FSA, SIPC and, following the bankruptcy filing, the trustee. Protection of Customer Assets While our experience with addressing MF Global's failure highlights the importance of domestic and international regulatory coordination, it also underscores the paramount importance of the rules governing protection of customer assets and the controls that are crucial for compliance with those rules. In general, the rules governing protection of customer funds and securities that apply to registered broker-dealers, described above, have worked well over time, but we are considering whether there are ways that they could be strengthened. In particular, in June 2011, the SEC proposed rule changes that are meant to clarify and strengthen the rules governing audits of broker-dealers, including an auditor's examination of broker-dealer controls relating to the custody of customer assets, as well as to enhance the SEC's oversight of broker-dealers that hold customer securities and funds. Specifically, the proposal would:

P a g e | 155



- Enhance the current requirement that a broker-dealer undergo an annual audit by a public accounting firm registered with the Public Company Accounting Oversight Board by strengthening the standards that govern the auditor's examination of the broker-dealer's compliance, and internal controls over compliance, with SEC net capital and custody requirements.

- Require that broker-dealers that maintain custody of customer assets

file with the SEC a new "Form Custody" every quarter. This form would contain more detailed information about how broker-dealers maintain custody of customer assets in order to further facilitate verification by examiners that customer assets are being properly protected. SEC staff has evaluated comments received in response to this proposal and is working to finalize a recommendation to the Commission. More broadly, the staff is evaluating other possible rule changes to the financial responsibility requirements, including some previously considered by the Commission that could strengthen customer protection. For example, one change under consideration would be to limit, for purposes of the customer reserve fund required by Rule 15c3-3, the amount of cash a broker-dealer could maintain in any one bank, as a percentage of capital of the broker-dealer or the bank. The SEC also continues to work with the SROs to help strengthen broker-dealer financial responsibility requirements. For example, in June 2011, the SEC approved a FINRA rule filing to establish registration, qualification, examination, and continuing education requirements for certain operations — or "back office" — personnel, including those who handle customer assets. This rule should help to better ensure that those responsible for operations functions are fully versed in all the relevant rules and their

P a g e | 156



obligations, including those relating to the segregation and protection of customer assets. In addition, in February 2012, the SEC approved a FINRA proposal to require each member firm to file certain additional financial or operational schedules or reports to supplement existing requirements to file FOCUS reports with FINRA pursuant to SEC Rule 17a-5. This rule allows FINRA to receive more granular data pertinent to income and expense items, and therefore to better identify firms that warrant heightened scrutiny and to evaluate industry-wide trends. In February of this year, the SIPC Modernization Task Force, which was established by SIPC for the purpose of undertaking a comprehensive review of its operations and policies and to propose reforms to modernize SIPA and SIPC, issued a number of recommendations, including proposed statutory changes. SEC staff is evaluating these recommendations, several of which are directed to the scope and dollar limit of protection for individual customers in SIPC liquidations. Although SIPC has not itself yet responded to the recommendations, we look forward to discussing them with SIPC as part of our review. Finally, with regard to accounting standards, in March 2012, the Chairman of the Financial Accounting Standards Board ("FASB") added a project to the FASB's agenda to reconsider the accounting and disclosure requirements for repurchase agreements and similar transactions. The FASB Chairman cited the need to revisit the accounting requirements to address application issues as a result of changes in the marketplace and to ensure that investors obtain useful information about these transactions. As part of the project, the FASB is expected to reconsider the accounting and disclosures requirements related to RTM transactions.

P a g e | 157



There is ongoing communication between SEC staff and the FASB regarding their standard-setting efforts. Regulatory Cooperation Given the pace of developments in the financial markets generally and, in particular, how quickly the financial condition of a financial firm that is in distress can deteriorate, the SEC is engaged in a number of efforts — both domestic and international — to share more and better data and qualitative assessments of firms and markets, and to do so in a timely way. Some of these efforts involve coordination with the SROs, in recognition of their importance as "front-line" supervisors. For example, examination staff in the SEC's Office of Compliance Inspections and Examinations ("OCIE") recently initiated quarterly meetings with FINRA and CBOE and semi-annual meetings with the Chicago Stock Exchange ("CHX"), in each case in respect of the SRO's capacity as a DEA. Further, OCIE recently has sought to enhance its inter-regulator Summit of Securities Regulators, increasing the frequency with which it convenes and expanding the group of regulators such that it now includes FINRA, CBOE, CHX, the Municipal Securities Rulemaking Board, the North American Securities Administrators Association, the Federal Reserve Board, various Federal Reserve Banks, and the CFTC. The first meeting of the expanded group will take place this month and will provide an opportunity for this diverse gathering of regulators to discuss issues and concerns regarding registrants, current regulatory developments, and to identify common risks and collaboration opportunities. In addition to these recent initiatives, the Commission has been a key participant in the Intermarket Surveillance Group ("ISG") since its formation in the 1980s. The ISG provides a critical venue for sharing investigative information and surveillance data among domestic and foreign market centers,

P a g e | 158



market regulators, and exchanges, including both securities and futures exchanges. For many years, the SEC has been engaged in numerous and ongoing efforts to increase cooperation and the flow of information relevant to market oversight among international regulators, through various means, including cooperative arrangements, such as memoranda of understanding ("MOU"), informal and formal bilateral discussions, and participation in multilateral organizations. In the international sphere, the SEC works closely with both banking and securities regulators through various venues, including the Financial Stability Board, IOSCO, the Council of Securities Regulators of the Americas, the Cross-border Crisis Management Working Group, and the Senior Supervisors Group. The SEC also has ongoing bilateral dialogues with key international regulatory counterparts, including the United Kingdom, India, China, Korea and Turkey. Furthermore, the SEC participates alongside the Department of the Treasury and the Federal Reserve Board in the Financial Markets Regulatory Dialogue with the European Union. Conclusion The SEC and its staff are working with our fellow financial regulators and other authorities to facilitate the identification and return of customer assets. We also are engaged in ongoing efforts to increase the exchange among regulators of information that is relevant to oversight of markets and market intermediaries, and are considering measures to further strengthen the existing customer protection regime. I would be pleased to answer any questions you may have.

P a g e | 159



Certified Risk and Compliance Management Professional (CRCMP) Distance learning and online certification program. Companies like IBM, Accenture etc. consider the CRCMP a preferred certificate. You may find more if you search (CRCMP preferred certificate) using any search engine. The all-inclusive cost is $297. What is included in the price:

A. The official presentations we use in our instructor-led classes (3285 slides) The 2309 slides are needed for the exam, as all the questions are based on these slides. The remaining 976 slides are for reference. You can find the course synopsis at: www.risk-compliance-association.com/Certified_Risk_Compliance_Training.htm

B. Up to 3 Online Exams You have to pass one exam. If you fail, you must study the official presentations and try again, but you do not need to spend money. Up to 3 exams are included in the price. To learn more you may visit: www.risk-compliance-association.com/Questions_About_The_Certification_And_The_Exams_1.pdf www.risk-compliance-association.com/CRCMP_Certification_Steps_1.pdf

http://www.risk-compliance-association.com/Certified_Risk_Compliance_Training.htm

http://www.risk-compliance-association.com/Certified_Risk_Compliance_Training.htm

http://www.risk-compliance-association.com/Questions_About_The_Certification_And_The_Exams_1.pdf

http://www.risk-compliance-association.com/Questions_About_The_Certification_And_The_Exams_1.pdf

http://www.risk-compliance-association.com/CRCMP_Certification_Steps_1.pdf

http://www.risk-compliance-association.com/CRCMP_Certification_Steps_1.pdf

P a g e | 160



C. Personalized Certificate printed in full color. Processing, printing, packing and posting to your office or home.

D. The Dodd Frank Act and the new Risk Management Standards (976 slides, included in the 3285 slides) The US Dodd-Frank Wall Street Reform and Consumer Protection Act is the most significant piece of legislation concerning the financial services industry in about 80 years. What does it mean for risk and compliance management professionals? It means new challenges, new jobs, new careers, and new opportunities. The bill establishes new risk management and corporate governance principles, sets up an early warning system to protect the economy from future threats, and brings more transparency and accountability. It also amends important sections of the Sarbanes Oxley Act. For example, it significantly expands whistleblower protections under the Sarbanes Oxley Act and creates additional anti-retaliation requirements.

You will find more information at:

www.risk-compliance-association.com/Distance_Learning_and_Certification.htm

http://www.risk-compliance-association.com/Distance_Learning_and_Certification.htm

http://www.risk-compliance-association.com/Distance_Learning_and_Certification.htm

P a g e | 161



Visit our Risk and Compliance Management Speakers Bureau The International Association of Risk and Compliance Professionals (IARCP) has established the Speakers Bureau for firms and organizations that want to access the expertise of Certified Risk and Compliance Management Professionals (CRCPMs) and Certified Information Systems Risk and Compliance Professionals (CISRCPs). The IARCP will be the liaison between our certified professionals and these organizations, at no cost. We strongly believe that this can be a great opportunity for both, our certified professionals and the organizers. To learn more: www.risk-compliance-association.com/Risk_Management_Compliance_Speakers_Bureau.html

www.risk-compliance-association.com/Risk_Management_Compliance_Speakers_Bureau.html

www.risk-compliance-association.com/Risk_Management_Compliance_Speakers_Bureau.html

http://www.risk-compliance-association.com/

P a g e | 162



http://www.risk-compliance-association.com/New_Member_Orientation_Newsletters.html

Career

Monday May 7 2012 - Top 10 risk and compliance management related news stories and world events