Regulatory Compliance

Everything I am aware of, I am in control of…

Serge Andezian, CISA, LACPA Beirut, 09/09/09
Senior Internal Auditor, IT Auditor
sandezian@bankofbeirut.com.lb

Who am I?

2 Wednesday, September 16,
Everything I am aware of, I am in control of… 2009

Who am I?

Serge A. Andezian is a Senior
Internal Auditor / IT Auditor
working at
Bank of Beirut s.a.l.
www.bankofbeirut.com.lb


Who am I?

He holds Masters Degree in
Business Administration from
the Lebanese American
University LAU, Beirut with
Audit specialization


Who am I?

He is member of:
The Institute of Internal Auditors IIA
Information Systems Audit & Control
Association ISACA
and
Lebanese Association of Certified
Public Accountants LACPA


Who are you?


Who are you?

The financial crisis is forcing companies to make tough
decisions!!
There is a risk that we might need to lay off Moussa

Why I am here?


Why I am here?

Regulations:

Abandon Hope
all ye who enter
here >


What's the importance of
Regulations?


Why are you into regulations?

Why are you into
Regulations?


1- Objectives of Banking Regulation

1. Prudential (protect depositors)

2. Systemic risk reduction

3. Avoid misuse of banks

4. Protect banking confidentiality

5. Credit allocation


2 - Principles of Banking Regulation

1. Minimum requirements

2. Supervisory review

3. Market discipline


3 - Instruments and requirements

1. Capital requirements

2. Reserve requirements

3. Corporate governance

4. Credit rating requirements…


Break


Case Study- Morti Bianche

”


4 - Compliance Risk

Compliance Risk is --

“…the risk of regulatory sanctions,
financial loss, or damage to reputation
and franchise value that arises when a
banking organization fails to comply with
laws, regulations, or the standards or
codes of conduct of self-regulatory
organizations applicable to the banking
organization’s business activities and
functions”

4.1 - Components of Compliance Risk

Regulatory Risk

Operational Risk

Legal Risk

Reputational Risk


4.2 - Control Your Compliance Risks

•Identify, manage, monitor, and control your Risk

•Effectiveness of controls in place to mitigate Risk


5 – Lessons Learned

What made Lebanon avoid the
eye of the Storm ?


5 – Lessons Learned (Reasons)

1. Policies & Prudential Measures set by BDL

2. Effective role of the Supervisory Authority


5.1 – Policies & Prudential Measures

Investments in real estate

•Banks are prohibited from investment in real estate
except to acquire their premises (BDL Circular Nov. 1999)

•Real estate acquired in settlement of bad loans
should be liquidated within max 2 years (CMC Art. 154; BDL
Circular Dec. 2000)


5.1 – Policies & Prudential Measures (cont’d )

Investments in loans

•Loans against financial instruments (BDL Circular October
1998)
•Limited to 50%of the portfolio
•Margin call at 25%decline in the value of portfolio

•Real Estate loans (BDL Circular July 2008)
•Limited to 60%of real estate value


5.1 – Policies & Prudential Measures (cont’d )

Adoption of Basel II

•In April 1st 2006, BDL decided to adopt Basel II
(Standardized Approach) effective 1/1/2008

•Capital Adequacy Ratio (CAR) Basel II is around
12% today


5.2 – Role of Supervisory Authorities

•BCC off site supervision carried out on a monthly
basis monitoring of financial statements

• BCC on site supervision extends beyond review &
assessment of banks internal systems, policies &
procedures & review credit files


5.2 – Role of Supervisory Authorities

This ensured:

• Early capture of new risks

•Adequate provisioning levels

•Proper safe lending & sound investment


What Happens If Compliance
Risk Is Not Effectively Managed?


6 – Cost of non-compliance

•In 2004 the Bank of America lost unencrypted
tapes
with account information on 1.2 million US federal
employee credit cards, including 60 US senators. The
tapes went missing during shipment to a remote site.

•April 2005: Details of 3500 Australian customers from
18 banks, including names and account numbers,
lost on a USB stick by a representative of the
Australian High Tech Crime Centre during transit to an
international meeting on computer crime.

6 – Cost of non-compliance (cont’d)


Q&A


Thank You


Regulatory Compliance

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