Internal Control BA Financial Services & Investment Analysis

The Regulator Financial Services Firms – The Central Bank of Ireland Headed up by Matthew Elderfield Introduced in Dec 2011 the new approach being adopted by the CBI in supervising the financial services industry

PRISM Probability Risk and Impact SysteM Grading firms based on their Impact on the financial system Using various measures came up with a score for each firm Focus resources on those firms PRISMLow impact Medium- low impact Medium- high impact High impact

Difference with the Past… Previously the approach was to “rely excessively on a regulatory philosophy that emphasises process over outcomes, supervisory practice focused on verifying governance and risk management models rather than attempting an independent assessment of risk, whether on a line-by-line or whole-of-institution basis. This approach involved a degree of complacency about the likely performance of well-governed banks that proved unwarranted.”

Approach Outcome focused supervision Problems identified at an earlier stage Meaningful engagement to resolve the issue before it becomes a crisis

Engagement Return of the Site visits to regulated firms High impact firms every quarter Review their processes and procedures Governance risk Review their management structures Operational risk Review how the Board engages with the Operational activities Review and Assess their business models and business strategies Liquidity Risk Underwriting Risk Credit Risk

Reporting Periodic reports from regulated firms will be analysed Assessed against peers in sector on key indicators Items will be flagged as key risk indicators Provide assistance to Regulator in identifying where issues may arise

Risk Mitigation Programme Once a matter is deemed serious by the Regulator a full supervisory visit is conducted Where deficiencies are uncovered, a comprehensive report will be issued Firm has 10 days to respond to factually incorrect material in the report and to suggest other means of reducing the risk Final decision regarding the level of Acceptable Risk lies with the Regulator Refusal to comply with the final Risk Mitigation Programme recommendations will result in regulatory and/or legal sanctions

Low Impact Firms Majority of these will be small firms mainly operating in the retail consumer sector of the market Huge impact on consumer confidence and behaviour Use information from their regular reports to highlight when changes are afoot and where issues may arise Not expected to have site visits unless absolutely necessary

Low Impact Firms What is Regulator looking for? Compliance with… Market Conduct rules – Investment Intermediaries Act 1995 Market Abuse Regulations Consumer Protection Consumer Protection Code Anti-Money Laundering Criminal Justice Act 2010 Client Asset Rules

Low Impact Firms Themed Inspections Issue comes to light perhaps through the Financial Ombudsman Look at firms operating in that sector Pick the larger ones and few others Site visit and investigate particular matter to uncover the practices involved and the attitude throughout the sector

6 Key Areas for Governance and Risk Management 2.Systems and Controls 3.Controls around Charging Issues 4.Compliance with Mortgage Arrears Code 5.Compliance with Client Money Requirements 6.Timeliness & Accuracy of Central Bank reporting by Firms