Compliance Project Management -- Presentation at PMI Switzerland

Serge Garazi –
Interim Project Leader “Bank Compliance”
FATCA/AEoI…:
A journey inside Bank Compliance Project
Management
PMI (Switzerland) - Zurich - 01 Nov 2016

2
FATCA/AEoI…:
A journey inside Bank Compliance projects
W
World Wildlife Fund
Today:
Why
What
How
The 2008 Crisis
The (some) Regulatory Responses
Management of Compliance Projects
W
W
F
W
H

3
Intro
About me
• French-speaking Swiss
• Now, in the Greater Zurich Area
• Education:
Information
Technology
Finance
(Project-)
Management
A presentation, based on the combination of IT, Finance and Project-Management.

4
Intro
My professional Experience
• Professional Experience:
• Currently:
o Board member, VP Operations at Project Management Institute PMI (Switzerland)
o Interim Project/Program Leader «Bank Regulatory»
ABN Amro
T-SystemsDeutsche
Telekom
Rothschild
Bank
Detecon
Consulting
AMSComit
UBSCredit SuisseJulius BaerBNP Paribas
Project
Management
Institute

5
Intro
Project Organization of a Compliance project
On the Business side, Business Consultants are key to bring the information about the
regulation to the Bank Management and requirements to the Project Team.
The Project Team then implements the new regulation in the Bank.
Head Compliance /
General Counsel /
COO / …
Project Sponsor
Business
Consultant(s)
Business
Representative(s)
Project Leader
Business
Analyst(s)
IT Team
(Programmers, Testers,
Infrastructure, Rollout…)
Business Project
Or

6
Welcome on board!
1. W – Why: Review of the financial crisis
2. W – What: Regulatory Responses to the Crisis
3. H – How: Management of Compliance Projects

7
1. Short Review of the Financial Crisis 2008
1.1 The Housing Bubble
1990s
2000s
A journey inside Bank Compliance projects
Why

8
1.2 The Fall
2006
2008
XA journey inside Bank Compliance projects
Why

9
1.3 The Causes
Deregulation Poor economic policy
Moral hazard
Over-reliance on quantitative models
Excessive leverage
Availability of cheap credit
Dangerous assumptions regarding
market dynamics
Undisclosed conflicts of interest
Failure of regulators
Failure of credit rating agencies
Failure of the market
High risk, complex financial products
Lack of transparency
Failures in financial supervision
Failures of corporate governance
Inconsistent action by government
Systemic breakdown in accountability
and ethics
Deregulation of OTC Derivatives
High debt
Collapsing mortgage lending standards
Excessive risk-taking
Compensation schemes encouraged gambling
Deregulation
Why

10
1.4 About Deregulation

2008
“Financial
Tsunami”
Why
68%
100%
1946

11
2. Regulatory Responses
How
Why
What
How
The 2008 Crisis
W
W
H


12
2.1 Towards Transparency in OTC Derivatives
What

13
Warren Buffet
“derivatives are financial weapons of mass
destruction, carrying dangers that, while now
latent, are potentially lethal.” (2003)
What

14
• Situation:
o OTC (over-the-counter) Derivatives were not regulated
• Problems:
o No Transparency
o Excessive risk-taking
• Solutions (simplified):
o Trade standardized OTC Derivatives on exchanges
• Involved regulations:
o USA: Wall Street Reform and Consumer Protection Act (Dodd-Frank Act)
o EU:
 European Market Infrastructure Regulation (EMIR)
 Markets in Financial Instruments Directive 2 (MiFID2)
o CH: Financial Markets Infrastructure Act FMIA (DE: FinfraG, FR: LFIM)
What

15
IMPORTANT: This book is a very niche
and specific piece relevant to a small
target audience of potential clients of the
Affinity business. Please consider
whether it is relevant to you before
buying it.
Despite of the seriousness of the subject, … keep having humor!
What

16
2.2 Towards Client Protection & Market Efficiency
• Problems:
o Loans were given to persons who could not afford them
o Conflict of interest between banks’ interests & their Clients’ interests
o Banks didn’t understand the products they sold
• Solution:
o Rules of conduct for financial intermediaries (e.g. with inducements)
o Info requirements about financial institutes and their products and services
o Suitability and appropriateness tests
o USA: Dodd-Frank Act
o EU: MiFID2
o CH:
 Financial Institution Act FinIA (DE: FINIG, FR: LEFIN)
 Federal Financial Services Act FFSA (DE: FIDLEG, FR: LSFIN)
What

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2.3 Towards Bank Resilience
• Problems:
o Capital cushion was depleted by moving items off-balance sheet
o Liquidity was insufficiently taken care of
o Banks grew so large that they threatened existence of states
• Solutions:
o Increase of required capital
o Liquidity requirements
o Too big to fail
o USA: Dodd-Frank Act, etc.
o EU:
 Capital Requirement Directive CRD IV/CRR
 Bank Recovery & Resolution Directive (BRRD)
o World: Basel III
o CH: Too big to Fail (TBTF)
What

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2.4 Towards international Tax Compliance
Problem
Solution
Consequence Swiss
Banking
Secrecy
(For outside CH)
(UK-FATCA)
FATCA and AEoI cause the death of the Swiss Banking Secrecy, except for people
who are non-US persons and tax-resident only in Switzerland.
What

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• FATCA:
– «Foreign Account Tax Compliance Act», a US legislation
– FATCA requires that banks around the world report their American Clients (and accounts) to
the Internal Revenue Service (IRS), in the US.
– Based on Nationality++
• Automatic Exchange of Information (AEoI):
– OECD-triggered, targeting the whole world, except USA
– Based on bilateral agreements, reciprocal
– Based on Tax Residence
What

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What
• Information Exchange:
o Between countries, it‘s Exchange of Information
o For Bank: it‘s Export of Information
• For Individual Clients and Legal Entities (incl. trusts!)
• Transferred data (yearly, automatic)
o KYC (Know-your-Client) data: name, birthdate, …
o Financial data: account balance, transactions, …
Tax Authority of
other country
Tax Authority of
own country
FATCA:
- IGA2
- Final regulations
FATCA:
- IGA1 (most countries)
AEoI
1
2

21
2.5 Recap
• Regulatory Responses targeting causes of the crisis
– 2.1 Towards transparency in OTC Derivatives
– 2.2 Towards Client protection
– 2.3 Towards Bank resilience
• Regulatory Response targeting a consequence of the crisis
– 2.4 Towards international Tax Compliance (FATCA, Automatic Exchange of Information)
What
Questions?

22
3. Management of Compliance Projects
How
Why
What
How
The 2008 Crisis
W
W
H



23
1. A regulatory project is a safe place to be: it‘s regulatory,
therefore it‘s a must!
How
X or
X or
X or
2. Once a regulation exists, it remains.
3. Regulatory projects are usually complex and require
flexibility and speed
?
?
?
3.1 True or False?
( )
X


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3.2 Agile Project Management?
How
• Managing a compliance project in an agile way?

25
3.2 Agile Project Management?
• A definition:
– an iterative, incremental method of managing the design and build activities (…) that aims to provide
new product or service development in a highly flexible and interactive manner …
https://en.wikipedia.org/wiki/Agile_management
How
• Development driven by a
representative of those who
want the product
• Based on User-stories,
prioritized by the value
they bring
• Even if project is stopped
before the end, end-users
have some value
• Have Regulators drive your
product development?
• Want the Regulators to define
your User-stories?
Compliance project
• Implement only 1/2 of the
regulation? Or 2/3?
• Some key characteristics:
no
no
no
But… be agile!

26
3.3 An Analysis (1/2)
• Regulators
How
• Consultancies
• Local authorities
• Bank Management
• Consultancies
• Project Management
• What makes a compliance project particular?
– No incentive for simple/cost-effective regulation
– Many Stakeholders

27
3.3 An Analysis (2/2)
• What makes a compliance project particular (cont.)?
How
No control Time
Scope
Resources
Cost
• Short time to implement
• Manage delays
• Increased complexity
• Work based on working assumptions
• Difficult to forecast
• High variability in the
project
• Difficult to plan, allocate
and retain
Decision
• When a new regulation is decided
• Possibility to delay introduction
– No upside potential
– No control of key input
– Costs are not supported by decision-makers

28
3.4 Recap
• Agile project management:
– not suitable for bank regulatory projects
• Project Management is at the end of the chain;
– it inherits all the problems that were created (or not solved) before
• Strong external control
– on Time Management, Scope Management and, therefore, strong dependencies on Cost
Management and HR Management
How

29
FATCA/AEoI…:
Serge Garazi
Zug, Switzerland
Interim Project Leader “Bank Compliance”
www.xing.com/profile/Serge_Garazi
ch.linkedin.com/in/sergegarazi
Why: Review of the Financial Crisis of 2008
What: Regulatory Responses to Crisis
How: Management of Bank Compliance Projects
Thank you for flying “Regulatory Airlines”!
www.garazi.netWeb:

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FATCA/AEoI…:
Appendix

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FATCA/AEoI…:

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FATCA/AEoI…:
Switzerland signed bilaterally the AEoI with …

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