1 / 82

P a g e | 1

P a g e | 1 Internat i o n al As s o c ia t ion of R i s k a n d Co m p l ian ce Pr o f e s s iona l s ( I A RCP) 1200 G St r e et N W S u it e 8 0 0 Wa s h i n g t o n , D C 2000 5 - 6705 U S A T el: 202 - 44 9 - 9 750 w ww.ris k - c o m p l ia n c e - ass o c iat i on . c o m.

leora
Download Presentation

P a g e | 1

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. P age |1 InternationalAssociationofRiskandComplianceProfessionals(IARCP) 1200GStreetNWSuite800Washington,DC20005-6705USATel:202-449-9750www.risk-compliance-association.com Top10riskandcompliancemanagementrelatednewsstoriesandworldeventsthat(forbetterorforworse)shapedtheweek's agenda,andwhatisnext GeorgeLekatisPresidentoftheIARCP DearMember, “Wewilllookathowfirmsmaketheirmoney,howtheypay theirstaffandwhethertheyaredesigning,andsellingproductswithcustomersinmind. Thisisachangefromthetraditionalregulatorymodel,whichinvolvedsettingstandardsandthenlookingbackatwhatfirmshavedone.” Whosaidthat? MartinWheatley,ManagingDirector,FSA,UK(speakingaboutthe“incentivisationofsalesstaff”). Areallyinterestingchangeintheregulatorymodel.ReadmoreatNumber8ofourlist. TodaywecanalsoenjoythespeechbyJaimeCaruana,GeneralManager,BankforInternationalSettlements(attheFederalReserveBankofKansasCity’s36thEconomicPolicySymposium). Hesaidthat“Thereislittledoubtthat,sincethecrisis,wehavehadthewidest,deepestandmostfar-reachingregulatorycooperationinhistory. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  2. P age |2 Participationhasbroadened,coordinationhasintensified,andimplementationwillbepeer-reviewed. Institutionally,allG20membershavejoinedtheBCBS. Similarly,theFinancialStabilityBoard’smembershiphasbecomemoreinclusive. Emergingmarketrepresentativesbringusefulmacroprudentialexperiencetothetable. Andattentionisbeingpaidtovulnerabilitiesintheshadowbanking system,outsidethenarrowscopeoftheregulatedsector. CooperationhasintensifiedwithBaselIII’srequirementformoreandbettercapital,backstoppedbyasimpleleverageratioandinternationaloversightofweightsandimplementation. Cooperationhasalsowidenedwiththeinclusionofinternationalstandardsonliquiditymanagement.” Buthecontinued:“Iamacutelyawarethat,evenasintendedregulatorycooperationhasreachedanall-timehigh,therisksoffragmentingbankingalongnationallineshavegrown.” ReadmoreatNumber1ofourlist. WelcometotheTop10. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  3. P age |3 Policymakinginaninterconnectedworld LuncheonspeechbyJaimeCaruana GeneralManager,BankforInternationalSettlements-TheFederalReserveBankofKansasCity’s36th EconomicPolicySymposiumon“Thechangingpolicylandscape” JacksonHole GabrielBernardino,ChairmanofEIOPACreatingaglobalinsurancesupervisoryLanguageConferenceonGlobalInsuranceSupervision QuarterlyBankingDigest,Q2ImportantpartsandHighlights 10September2012GovernmentlaysnewMoney LaunderingregulationsbeforeParliament On10SeptembertheGovernmentintroducedlegislationtoParliamenttoimplementimportantchangestotheMoneyLaunderingRegulations2007. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  4. P age |4 ForaEuropeanPublicSpace RemarksbyMarioDraghi,PresidentoftheECBonreceivingtheM100MediaAward2012,Potsdam BaselIIIJobs Averagesalary%changeyear-on-year+12.50% (Source:http://www.itjobswatch.co.uk/jobs/uk/basel%20iii.do) SpeechbytheChancelloroftheExchequer,RtHonGeorgeOsborneMPatScotlandCBI Theincentivisationofsalesstaff–areconsumersgettingafairdeal? SpeechbyMartinWheatley–ManagingDirector,FSA InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  5. P age |5 InterestingcommentsfortheComFrame Acompilationofcommentsonacommonframeworkforthesupervisionofinternationallyactiveinsurancegroups,knownasComFramebytheInternationalAssociationofInsuranceSupervisors(IAIS) JumpstartOurBusinessStartupsActFrequentlyAskedQuestions IntheseFrequentlyAskedQuestions(“FAQs”),theDivisionofTradingandMarketsisprovidingguidanceoncertainprovisionsoftheJumpstartOurBusinessStartups Act(“JOBSAct”)astheyaffectfirmsandtheirobligationswithrespecttosecuritiesanalysts(“analysts”)andresearchreports. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  6. P age |6 NUMBER1 Policymakinginaninterconnectedworld LuncheonspeechbyJaimeCaruanaGeneralManager,BankforInternational Settlements TheFederalReserveBankofKansasCity’s36thEconomicPolicySymposiumon“Thechangingpolicylandscape” JacksonHole LetmeextendmythankstoPresidentGeorgeandtheorganisersfortheopportunitytoaddressthisgathering–ataneventthatismorekeenlyanticipatedby policymakersandjournalistswitheverypassingyear. Myquestiontodayis:Istherescopeformoreinternationalcooperationinmonetarypolicy? Afterall,weseeinternationalcooperationasessentialforfinancialregulation. Whydowerejectkeepingone’sownhouseinorderasapreceptforfinancialregulationbutacceptitformonetarypolicy? Thequestionisnotanewone.InhisfamousCriticalessaysonmonetarytheory,SirJohnHicksarguedthatindividualcentralbankshaveonlylimitedinfluencebecause: “…theyhavebeennationalcentralbanks.Onlyinanationaleconomythatislargelyself-contained,cananationalcentralbankbeatruecentralbank;withthedevelopmentofworldmarkets,and(especially)ofworld financialmarkets,nationalcentralbankstakeastepdown,becoming singlebanksinaworld-widesystem….Thustheproblemthatwas(partially)solvedbytheinstitutionofnationalcentralbankshasreappeared….ontheworldlevel”. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  7. P age |7 Thatwasin1967,duringthewaningdaysofBretton-Woods. Andfinancialintegrationoverthepast45yearshasmadetheproblemthatHicksidentifiedevenmoreintractable. Theburdenofmyremarkstodayisthatcentralbanksneedtotakeamoreinternationalperspective,recognisetheircollectiveinfluenceandtakeintoaccountmonetarypolicyspillovers. Monetarypolicythatcontributestofinancialstabilityneedsmoreofthecooperationthatwealreadypractiseinfinancialregulation. Letmebreakmymainquestionintofourquestionsandthenturntoeach: Whatwasthestateofcooperationin financialregulationandmonetarypolicybeforethecrisis? Wheredoescooperationstandafterthe crisis? Whyisthescopeforinternationalcooperationinmonetarypolicyoften underestimated? Doweneedtoimprovetheinstitutionalframeworkformonetarypolicycooperation? Q1.Whatwasthestateof internationalcooperationinfinancialregulationandmonetarypolicybeforethecrisis? Sincethefinancialliberalisationofthe1970s,thecooperationonregulatorystandardsforlargeinternationalbanksasembodiedinBaselIandIIextendedwellbeyondanycooperationinmonetarypolicyoutsidetheeuroarea. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  8. P age |8 Thiscooperationinvolved: Exchangeofinformation; Information-sharingbasedonacommonunderstandingofhowtheworldworks; Jointdecision-making;and Standardssetbyaninternationalcommittee. TheveryfirstpaperscirculatedtotheBaselCommitteeonBankingSupervision(BCBS)in1975surveyedthe“Rulesandpracticestoprotectthebanks’solvencyandliquidity”. Itturnedoutthatthesevariedagreatdeal. Subsequently,regulatorsevolvedacommonintellectualframeworkandcametospeakacommonlanguage. In1988,BaselIwentonestepfurther,tojointdecision-making.Itsetdefinitionsofcapital,riskweightsforassets,and,crucially,aminimumratioofcapitaltoassets. Theseformulationswerebasedonconsensus,notenshrinedinatreatyorininternationallaw. Instead,theoriginalBaselaccordwasenactedinnationallawandenforcedbynationalregulators. Infact,marketpressurequicklymadeBaselIthestandardevenforbanksincountriesnotrepresentedontheBCBS. Thedrivingforcesforthiscooperationarewellknown. Ascountriesliberalisedtheircapitalaccountsandmovedtofloatingexchangerates,banksseizedtheopportunitytointermediateinternationalcapitalflows. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  9. P age |9 Soonafter,BankhausHerstattandFranklinNationalcollapsed. Thesebankswerenotgloballysystemicallyimportantfinancialinstitutions,intoday’sparlance,buttheirmessyfailuresdidhelptodriveforwardinternationalcooperationonbankregulation. When,inAugust1982,thebigbankssuddenlystoppedlendingtoLatinAmerica,CongressincreasedtheIMF’sresourcesbutdemandedhighercapitallevelsforbigUSbanks. ConcernsaboutcompetitiveneutralitythenpromptedtheFederalReservetopursuejointactioninwhatbecameBaselI. BaselIII,tobediscussedinamoment,hasmarkedanevenmoreexplicitshifttowardsinternalisingtheexternalitiesimposedbybigbanksandbanks’collectivebehaviour. Bycontrast,monetarypolicyremainedmainlynationalafterthebreakdownofBrettonWoods. Attemptsatcooperationwereepisodic,mainlyrelatingtoexchangerates.Thisgavemonetarycooperationabadname–especiallyincountrieswith currentaccountsurpluses,whichcameunderpressuretoexpand demand. Attheleveloftheory,monetarypolicyshiftedfromthe1930sfocusoncompetitivedevaluation,firsttothepost-wartreatmentofmonetarypolicyasjustoneinstrumentinoverallmacroeconomicstabilitypolicy,andtheninthepast25yearstotheguardianofdomesticpricestability. Flexibleexchangerates,itwasthought,wouldprovidebuffersagainstexternalshockswhilepolicymakerskepttheirownhouseinorder. Infact,thelargesteconomiesnotonlyremainedrelativelyclosedbutalsohadbankingsystemswithverylowproportionsofforeigncurrencyassets. Tobesure,thequalityofglobalmonetarypolicydiscussionshasadvancedoverthepastgeneration,asacommonintellectualframeworkevolved. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  10. P age |10 Indeed,onecouldarguethatmonetarypolicymakerssharedamorethoroughlyelaboratedintellectualframeworkthandidtheircounterpartsinfinancialregulation. Evenso,thissharedframeworkcouldbeindifferent(orevenhostile)tocooperationinmonetarypolicy. Q2.Wheredoescooperationstandafterthefinancialcrisis? Theshortansweristhatwehaveagreedtocooperatemoredeeplyontheregulatory/financialstabilityfront. Butonthemonetarypolicyfront,thepre-crisisconvergenceofviewshasbecomestrained. Thereislittledoubtthat,sincethecrisis,wehavehadthewidest,deepestandmostfar-reachingregulatorycooperationinhistory. Participationhasbroadened,coordinationhasintensified,andimplementationwillbepeer-reviewed. Institutionally,allG20membershavejoinedtheBCBS. Similarly,theFinancialStabilityBoard’smembershiphasbecomemoreinclusive. Emergingmarketrepresentativesbringusefulmacroprudentialexperiencetothetable. Andattentionisbeingpaidtovulnerabilitiesintheshadowbanking system,outsidethenarrowscopeoftheregulatedsector. CooperationhasintensifiedwithBaselIII’srequirementformoreandbettercapital,backstoppedbyasimpleleverageratioandinternationaloversightofweightsandimplementation. Cooperationhasalsowidenedwiththeinclusionofinternationalstandardsonliquiditymanagement. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  11. P age |11 Recognitionofpotentialprocyclicalityintheoperationofcapitalstandardshasledtotheadoptionofmutualrecognitioninthenewcountercyclicalcapitalrequirement,whichempowershostcountryauthorities. Toughersolvencystandardshavebeensetforbankswhosefailurecould havesystem-wideeffects. Weshouldnotminimisethechallengesahead. Iamacutelyawarethat,evenasintendedregulatorycooperationhasreachedanall-timehigh,therisksoffragmentingbankingalongnationallineshavegrown. Whiletherearelong-standingdifferencesinthetaxtreatmentofloan-lossprovisions,nationalbankbonustaxeshavebeenimposedandnowfinancialtransactiontaxesarebeingdiscussedregionally. WhileDodd-FrankisimprovingthefundingmodelofUS-charteredbanks,otherbanksthatrelyonwholesalefundinghavegainedmarketsshareindollarintermediation. Whileimportantadvanceshavebeenmade,seriousobstaclesremaininconcertingresolutionregimesgivendifferentbankruptcylaws. Aparticularlytroublingsourceoffragmentationalongcountrylinesisthe inclinationtoputupnationalbarriersagainstcontagion. AsMarioDraghihassaid,“eventhougheachofthemmayberight,collectivelytheyhavebeenwrong”. Whileregulatorycooperationistheprerequisiteforopenfinancialmarketsandthefreeflowoffunds,capitalcontrolsseemtobegainingacceptanceasaresponsetothechallengeofmanagingcurrencieswhen yieldsarezeroinmostmajormoneymarkets. Thesedevelopmentsthreatentosegmentfinancialmarkets,notonlyin theeuroareabutaroundtheworld. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  12. P age |12 Nevertheless,Iremainhopefulthatthemovementtowardsglobalconsistencyandmoreharmonisationwillprevailovertheforcesworkingtofragmentinternationalbankingregulationandsupervision. Onmonetarypolicycooperation,therewerenotablestepsduringthe crisis. Widespread,andultimatelyinsomecases,open-ended,cooperationinforeign-currencyfundingthroughcentralbankswapshadboththemonetarygoalofcontrollingtherelevantmarketrateslikeLiborandthefinancial-stabilitygoalofprovidingemergencyfunding. Sucharrangementsaretemporary. Butthewillingnessofcentralbanks–notleasttheFederalReserve–toactquicklyandmassivelyavertedwhatcouldhavebeenameltdown. Theglobalnatureofthecrisisalsosawepisodiccooperationinpolicyratesetting. Forinstance,on8October2008,interestratesweresimultaneouslycutbytheBankofCanada,theBankofEngland,theECB,theFederalReserve,theRiksbank,theSwissNationalBankandthePeople’sBankofChina,inaconcertedmovethatwasstronglybackedbytheBankofJapan. Butanumberofissueshavestrainedthepre-crisisconvergenceofviewsonmonetarypolicy. Whatcanmonetarypolicycontributetofinancialstability?Andhowdoesmonetarypolicyworkalongsidemacroprudentialaction? Q3.Whyisthescopeforinternationalcooperationinmonetarypolicyoftenunderestimated? Thisquestionraisesthreemore. First,doflexibleexchangeratesinsulateeconomiesassometheorysuggests? InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  13. P age |13 Second,arebondmarketssogloballyintegratedthatpoliciesaffectingyieldsinmajorcountriesnowhaveabiggerimpactonyieldsinother countriesthantheyoncedid,possiblyexertinganevenlargereffectthanlocalpoliciesandconditions? Andthird,cancentralbanksproperlyassesstheaggregateimpactoftheiractionsonglobaloutcomes,ordotheysufferfromafallacyofcomposition? Startingwithexchangerates,flexibleratesdoofcoursehelptoinsulatea countryfrominflationaryordeflationaryshockscomingfromabroad.Buttheydoitimperfectly. First,sincemajorcurrenciesareusedinternationally,thepolicyratessetbytheirissuersdirectlyaffectmonetaryconditionselsewhere. Borrowinginforeigncurrenciesmayberareinthebiggesteconomies,butitcanbesignificantelsewhere. Andcommonmonetaryandriskfactorsaffecttheflowofinternationalbankcreditandportfoliocapital. Sincethecrisis,whilecredittoUShouseholdsandbusinesseshasbarely resumeditsgrowth,dollarloanstosuchborrowersintherestoftheworld hasgrownatupto20%andhasreachedabout$7trillion. Second,theforeignexchangemarket’sbehaviourdoesnotalwayssatisfythetextbookinterestrateorpurchasingpowerparityconditions. Exchangeratemovementsdonotmerelycompensateforinterestorinflationdifferentials. Instead,mostofthetime,currencieswithaninterestrateadvantageactuallyappreciateagainstloweryieldingcurrenciesandcandosofor sometime,makingthedomesticindustrylesscompetitive. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  14. P age |14 Thedepreciationofhigher-yieldingcurrenciestendstohappenfastduringepisodesofstressinglobalassetmarkets,andmanyemergingmarketeconomieshavefoundthisdestabilising. Next,thereistheissueofinternationalbondmarkets. Aspolicyinterestratesandofficialbondpurchasesaffectbondyields,theireffectsrippleacrossgloballyintegratedbondmarkets. Thishappensevenwithindependentsettingofpolicyratesandfloatingexchangerates. Large-scalebondpurchasescanhaveglobaleffectswhethertheyarepartofanexplicitmonetarypolicyoraside-effectofcurrencyintervention. ThereisevidencethatthelargeJapaneseinterventionsof2003–04loweredglobalbondyields,asdollarspurchasedintheforeignexchangemarketwereinvestedinbonds. ThereisalsoevidencethattheFederalReserve’srecentlarge-scalebond-buyinghasalsoreducedglobalbondyields. Sotheintegrationofglobalbondmarketsmakesforaglobalinterestinpoliciesthat,intentionallyornot,affectbondyieldsinmajormarkets. Turningtothepossibilityofafallacyofcomposition,Ibelievethataninternationalperspectiveisessentialifwearetocorrectlyassesstheimpactofcentralbankpoliciesonglobaloutcomes. Thepricedynamicsincommoditymarkets–whichareincreasinglysimilartothoseinfinancialmarkets–couldbetakenasasignalofglobaldemandpressureratherthanbeingconsideredbycentralbanksasasupplyshockforeachofthem. Similarly,eachemergingmarketcentralbankmighthesitatetoraiseinterestratesoutofconcernforcapitalinflows,giventheverylowinterestratesprevailinginmajorcurrencies. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  15. P age |15 Indeed,ifcentralbanksweretotakeaninternationalperspective,theymightdiscoverthattheywouldallbebetteroffbyraisingrates,therebysettingglobalaverageinterestratesmoreappropriately. Thesequestionsarenoteasytoanswer. Howcanwecopewiththesespillovers:theinterconnectionsarisingfromthebehaviourofexchangerates,theglobalisationofbondmarkets,andthecollectiveimpactofpolicies? JohnHicksknewthattheonesimpleanswertothelimitationsheidentified–aglobalcentralbank–wouldbetotallyunrealistic. Nationalcentralbankshavenationalmandates,andmeetingtheseisalreadydifficultenough. Weknowlessabouttheworkingsofinternationallinkagesthanwedoaboutdomesticlinkages. Howinterestrateswillaffectthemajorcentresinothercountriesdependsinpartonthosecountries’ownpoliciesandinstitutions. Anditwouldnotbedifficulttoaddtothislist. Anumberoffactorscombinetomakenationstateslessthanwillingtocooperateonmonetarypolicy. Forinstance,monetarypolicycanberedistributional,shiftingwealthandincomebetweencreditorsanddebtors. Thismakesitevenmorepoliticallychargedthanregulatorypolicy–ifthatispossible. Nevertheless,Idonotbelievethatmonetarypolicycanberestrictedtokeepingone’s“houseinorder”atalltimes. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  16. P age |16 Whilesuchhouse-keepingisnecessary,monetarypolicydoesrequireinternationalperspectiveandcooperation,particularlywhenitprovidesthebackingforfinancialstability. Q4.Doweneedtoimprovetheinstitutionalsettingformonetary cooperation? Wehopethatthestructuraltrendthatdeepensinterdependence,namelytheglobalisationoffinancialmarkets,continues. Ifitdoes,therewillbeperiods,ingoodtimesandbad,wheninternationalspilloverswillbesubstantialandhighlyrelevantformonetarypolicy. Ifthisnotionandtheunderlyinganalysisareaccepted,thenthequestionarisesofhowtostrengthencooperationinmonetarypolicy. Thisdoesnotnecessarilymeanmonetarypolicycoordinationatthegloballevel,butitdoesrequirecentralbankstobetterappreciate,internaliseandsharethesideeffectsthatarisefromindividualmonetarypolicies. Thiswillrequireashifttoamoreglobalanalyticalapproach,onethatseekstofactorincollectivebehaviour,interactionsandfeedbackeffects. Thiswouldalsohelpustobetterframeinternationalcooperation. Ithereforetendtoagreewiththerecentcallfromprominentacademicsandpractitionersforglobalconsiderationstoplayamoreexplicitroleinmonetarypolicyframeworks. ButIammorescepticalabouttheirproposaltoformalisecooperativearrangements. Themajorcentralbankswouldnotbeabletopubliclyoutlinethemutualconsistencyoftheirpolicies. Drawingattentiontoareasofinconsistencyanddissentwouldprobablyundermineeffectivecooperation. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  17. P age |17 Traditionally,theBISandthevariousBaselcommitteeshavealways soughttocomplementthedomesticanalysisatcentralbankswithamoreglobalperspective. TheinformalbutstructurednatureofthemeetingsthattakeplaceattheBIShasoftenfacilitatedanalysisanddiscussionofthemanyinternationaldimensionsofmonetarypolicies. Forexample,afterprovidingsupporttoacentralbankreviewofgloballiquidityweareworkingonregularindicatorsthatseektocaptureglobalfinancialconditions. TheseandotherglobalmeasuresalsoserveasinputstovulnerabilityanalysisandtheearlywarningexerciseconductedbytheFinancialStabilityBoardandtheIMF. TheIMFisplayingaroleaswell,withitsspilloverreportsandmacroeconomicpoliciesconsistencyanalysis Letmeconcludebysayingthatmuchneedstobedone. Movingtowardsamorecooperativeapproachmakesmoresensethanreversingtheinternationalisationofmarketsandsegmentingthosemarketsinthehopeofprotectingthemagainstspillovers. WeneedmoreresearchonthesequestionsandIhopethatsomeofthepowerfulanalytictalentsrepresentedhereatJacksonHolewillbebroughttobearonthem. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  18. P age |18 NUMBER2 GabrielBernardino,ChairmanofEIOPACreatingaglobalinsurancesupervisoryLanguage ConferenceonGlobalInsuranceSupervision Goodevening,ladiesandgentlemen, OnbehalfofEIOPAIwouldliketothanktheInternationalCenterforInsuranceRegulationfor thecooperationandeffortsinorganisingtogetherwithusthisConferenceonGlobalInsuranceSupervision. Iamveryhappytoseetodaysomanycolleaguesfromthesupervisoryauthoritiesaswellasprominentexpertsandexecutiveofficersoftheinsuranceindustry. OurpurposewiththisConferenceistocreateaplatformofdiscussion andexchangeofviewsabouttheinternationalcontextofinsurancesupervision. Yourpresenceandcontributiontothiseventiskeytoitssuccessandwillcertainlycontributetoabetterunderstandingofthedifferentregimesandwillfosterfurtherconvergenceofpracticesofinsurancesupervisionworldwide. Insurancemarketsareincreasinglyglobal. Manyinsurancegroupshavenowadaysahugepartoftheirrevenuescomingfrombusinessoutsidetheirhomecountries. Thiscreatesnewopportunitiesbutalsonewchallengesforinsurers,butalsoforsupervisors. Thepromotionofsoundandstableinsurancemarketscallsformoreinternationalcooperation. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  19. P age |19 Wefirmlybelievethatthebestwaytoreinforcefinancialstabilityandconsumerprotectionistodevelopstrongglobalregulatoryandsupervisorystandards. Thiswillcreatealevelplayingfieldforinternationalplayers,fosteracommonlanguagebetweensupervisorsandimproveinternationalcooperationandinformationexchange. Iwouldliketosharewithyousomeviewsonthewaysofimprovingtheefficiencyofsupervisionfromaglobalperspective. ComFrame(CommonFrameworkfortheSupervisionofInternationallyActive InsuranceGroups(IAIGs)-ComFrameisanintegrated,multilateraland multidisciplinaryframeworkforthegroup(widesupervisionofinternationallyactiveinsurancegroups. ComFramewasinitiatedinresponsetotherecognitionthat,despitethegrowingrelevanceofIAIGsintheglobalinsurancemarketplace,nointernationallycoherentframeworkexistsforthesupervisionofsuchlarge,globalgroups. IwouldliketostressthatEIOPAishighlycommittedtocontributetotheestablishmentofsuchstandardsand,inthisregard,weconsiderourparticipationintheIAISveryimportant.EIOPAisactivelycontributingtotheworkofComFrame. Weconsideritnecessarytoenhanceregulatorycapitalrequirementsinordertoachieveadequateconsumerprotectiononagloballevel. Ofcourse,whilecallingforthismeasure,wetakeintoaccountdifferentperspectivesanddevelopmentsworldwide. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  20. P age |20 Seenhistorically,theEUhadexperiencedcomparablediscussionsadecadeago. Wefullysupportthemovetoenhancedgroup-widesupervision.Cooperationbetweensupervisorsincollegesisessentialfortheproper supervisoryapproachtoInternationallyActiveInsuranceGroups. Webelievethatinformationsharingandsupervisorycooperationunder conditionsofprofessionalsecrecyisakey,determinativeelementofeffectivesupervision. Weneedmoresharedsupervision. Furthermore,Comframeshouldcompriseacapitalelement,establishingstrongprinciplesforgroupcapitalcalculationsconcerningtherisksincluded,themetricsusedtoassessthemandtheoveralllevelofconfidence. Withoutthisconsistency,thereisnolevelplayingfieldinternationally. Itisnotaboutoneuniquesystem,butaboutasetofstrongprinciplesthat woulddeliverarangeofcloserandcompatiblesystems. Comframeshouldnotbeanotherregimeontopofthealreadyexistentones. ThelocalregimesshouldevolvetocomplywithComframe. Thisismyvision.Irecognizethatwecannotdeliverthisimmediately,butattheIAISweneedtosetatimetableandconcretemilestonestodevelopthisconceptinastepbystepapproach. Weneedtobecourageousandopen-minded. Weneedtobeopentochangeandevolutionbecausetheindustryrealityisalsoevolvingandchanging. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  21. P age |21 AnextraeffortneedstobedonebyallofusbecauselikeCharlesKettering(afamousAmericaninventor)saidoneday:“Peopleareveryopenmindedaboutnewthingsaslongasthey'reexactlyliketheoldones.” Systemicriskininsurance Thecrisispromptedanewlookatsystemicrisk,includingintheinsurancesector. TheidentificationandregulationofGloballySystemicallyImportantInsurersiscurrentlybeingdiscussedundertheumbrellaoftheFinancialStabilityBoardandtheIAIS. EIOPAiskeentocontributetoarobustidentificationprocessofG-SIIsandtodevelopappropriateregulatoryandsupervisorytoolstodealwiththeircharacteristics. Traditionally,systemicriskwasabankingconcept. However,therecentcrisisshowedusthatcertainactivitiesdevelopedundertheinsurancesectorcanalsoposesystemicrisk. Insurancecompaniesorgroupsthatengageinnon-traditional,ornon-insurance,activities(forexample:CDS,financialguaranteesorleveragingassetstoenhanceinvestmentreturnsthroughsecuritieslendingaremorevulnerabletofinancialmarketdevelopmentsand,importantly,morelikelytoamplify,orcontributeto,systemicrisk. Ofcourse,thisassessmentmaychangeovertime,dependingontheinnovationsandchangesininsurancebusinessmodels,especiallyinlifeinsurance,aswellasinthecomplexinteractionsbetweeninsurancegroupsandfinancialmarkets. Weshouldbeespeciallyattentivetoanykindofmaturitytransformationandleveragingoccurringintheinsurancesector. Asaconsequence,theidentificationofasystemicallyimportantinsurerassuch,shouldbeadirectreflectionofitssourceofsystemicimportance. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  22. P age |22 Whilethesizeoftraditionalinsuranceactivityisstillanimportantfactor,itshouldnotbethedominantfactorintheidentificationprocess. Clearly,thenon-traditionalandnon-insuranceactivitiesandthedegreeofinterconnectednesswithothercomponentsofthefinancialsystemaremorerelevantfromasystemicpointofview. Consequently,thedifferencesbetweeninsurersandbanksintheimpact offailuressuggestthatrequirementsforlossabsorbencyandresolutionregimesforinsurersshouldacceptthesesalientdifferencesandproposesolutionsthatdifferentiateaccordingly. AsaconclusionIwouldliketounderlinethatweshouldhavenoillusions:thecreationofglobalinsurancesupervisorystandardsisaverylongprocessthatiscomplicatedbythedifferenceofculturesanduneven developmentofsupervisorysystemsindifferentcountries. Butitisimportantthattheregulatorsallovertheworldarewillingtoreachmutualunderstandingandtodevelopacommonsupervisorylanguage,whichwillhelpustopromotestabilityofthefinancialmarkets,toenhancetheirtransparencyandtofosterconsumerprotection. Togetherwecanachievetheseobjectives. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  23. P age |23 • NUMBER3 • QuarterlyBankingDigest,Q2ImportantpartsandHighlights • Capitalisationimprovedslightlyassystem-wideleveragedeclines. • Theaggregateriskassetratio(RAR)increasedto22.1%duringthequarterduetoadeclineinrisk-weightedassets(down0.7%)andanincreaseincapital(up0.6%). • Somebankscontinuetoexperiencesignificantassetqualitychallengesdrivenbytherecessionaryenvironment.Although • non-performingloans(NPLs)relativetototalloansdeclinedfrom • 8.3%to8.1%,largeexposurestotherealestatesectorhaveledtoariseinspecificprovisioningandcharge-offs,whichhasaffectedthebanks’earningscapacity. • Sectorearningshavebeenimpactedbyhigherprovisions.ProvisionstoNPLsincreasedfrom16.2%to26.2%inQ22012asaresultofprudenteffortsaimedatmitigatingtheimpactoffutureassetimpairments.Asaresult,theannualisedRoEdeclinedfrom8.9%inQ12012to1.2%inQ22012,andtheannualisedRoAfellfrom1.0%inQ12012to0.1%inQ22012. • TheBermudadollarfundinggapwidensfurther.TheBD$ • loan-to-depositratioincreasedto154.0%(upfrom151.0%inQ12012and142.0%ayearearlier)asBD$-denominatedcustomerdepositsdeclined(down1.3%).However,thelargeFX-denominateddeposits,whichdeclinedby5.1%duringthequarter,continuestosupplement theBD$fundinggap. • Lowerinvestmentactivityandinterbanklendinghavemitigatednegativeeffectsondomesticcreditsupplythusfar.Lendingremainedstabledespitede-leveragingduringthequarterresultingfrom decreasesininvestmentactivityanddepositswithotherfinancialinstitutions. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  24. P age |24 InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  25. P age |25 InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  26. P age |26 InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  27. P age |27 TableVshowstheliquidityconditionofthebankingsectoroverthelastfivequarters. Profitability Quarterlyreturnsdeclinedsharplyasbanksstartabsorbingnon-performingloanbalancesaggressively. Despitestablenetinterestincomeoverthequarter,increasesinprovisionsresultedinlowerprofitabilityinthesectoronaverage.AnnualisedRoEandRoAdecreasedto1.2%(Q12012:8.9%)and0.1%(Q1 2012:1.0%),respectively. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  28. P age |28 NUMBER4 10September2012GovernmentlaysnewMoney LaunderingregulationsbeforeParliament On10SeptembertheGovernmentintroducedlegislationtoParliamenttoimplementimportantchangestotheMoneyLaunderingRegulations2007. Thechangeswillreducetheregulatoryburdenimposedbythecurrentregulations,whilestrengtheningtheoverallanti-moneylaunderingregime.TheseproposalsweresetoutinJuly2012followingextensiveconsultationandareexpectedtosavefirmsaround£3millionayear.ThechangestotheRegulationswillcomeintoforceon1October. Notes TheGovernmentannouncedthechangesitwasbringingforwardtoMoneyLaunderingregulationsinJuly2012.The MoneyLaunderingRegulations2007requireregulatedbusinessestohaveappropriatesystemsandcontrolsinplacetoidentifyandverifytheidentityoftheircustomersandcarryoutongoingmonitoringasappropriate,basedontheirownassessmentoftheriskfrommoneylaunderingandterroristfinance. TheGovernment’sapproachtomoneylaunderingregulationisdesignedtomaketheUKfinancialsystemahostileenvironmentformoneylaunderingandterroristfinance,whileminimisingtheregulatoryburdenimposedonUKbusinesses. ChangestoMoneyLaunderingRegulationstoreduceburdenonBritishbusinesses On17July2012theGovernmentpublisheditsresponsetoaconsultationonchangestotheMoneyLaunderingRegulations2007andtheimpactassessmentoftheproposedchanges. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  29. P age |29 FollowingtheconsultationtheGovernmentwillnowtakeforwardproposalstoreducetheregulatoryburdenimposedbythecurrentregulations,whilestrengtheningtheoverallanti-moneylaunderingregime. Theproposedchangestotheregulationswillapplytobusinessesthatareatlowriskofmoneylaunderingandterroristfinancingandarethereforenotrequiredtoberegulatedtothesameextentasotherinstitutions,undercurrentglobalstandards. TheaimofthechangesistomaketheUK’smoneylaunderingregimemoreeffectiveandproportionate,withtheproposedchangessavingfirmsaround£3millionayear. TheGovernmentcommittedtoperformingapost-implementationreviewofthe2007Regulations,whichimplementtheEuropeanUnionThirdMoneyLaunderingDirective,twoyearsaftertheycameintoforce. Thisreviewwasundertakenin2009-10,inconjunctionwiththeBetterRegulationExecutive,andentailedanextensivecallforevidence,meetings,conferencesandinterviews. TheGovernment’sresponsetothereviewwaspublishedinJune2011andcontainedaconsultationonseventeenproposalstoimprovetheregime,reducingtheimpactoftheregulations. ThechangestotheRegulationsareintendedtocomeintoforceon1October. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  30. P age |30 NUMBER5 ForaEuropeanPublicSpace RemarksbyMarioDraghi,PresidentoftheECBonreceivingtheM100MediaAward2012,Potsdam Importantparts ItisnosecretthatthecourseofEuropeanintegrationiscurrentlydifficult.Theglobaleconomyisfacingseriouschallenges. ThesechallengesarenotallofEurope’smaking,assomeobserverswouldhaveusbelieve.ButEuropeisperhapsexperiencingthemmoreacutelythanothers. Thereasonsforthisarecomplex.Butonepartoftheexplanationisclear:theoriginal institutionaldesignoftheeuroareadidnotmeetexpectations. Intheeuroareawehaveasinglemonetarypolicy,butoureconomicand financialpoliciesareonlylooselycoordinated. Thisisbecausetheeuroareaisaunionofnation-stateswithstrongnationaltraditionsandpreferences. Whiletherewassufficientconsensustoshareacurrency,economicand financialpoliciesremainedorganisedlargelyatthenationallevel. Theglobalcrisishasrevealedthevulnerabilitiesinthisarrangement.Loosecoordinationofpoliciesneitherensuresstabilitynordoesit facilitateeffectivecrisismanagement. Theinstitutionaldesignoftheeuroareathereforehastobereviewedtoputoureconomicandmonetaryunion(EMU)onamoresecurefooting. Buthowshouldthisbedone?Therearetwopossiblepaths. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  31. P age |31 Thefirstistogo“backtothepast”,tomaketheoriginaldesignworkbetter. Thesecondistodevelopanewarchitecturethatproperlyreflectslessonsofthecrisis. Inmyview,thefirstpathisnotviable.Wehaveseenthattheeuroareaistoointerconnectedforeconomicandfinancialpoliciestobeapurelynationalresponsibility. Wemustfindwaystoguaranteethatnationaldecisionsdonotharmothermembersofthemonetaryunion. Intheeventofacrisis,thereshouldbeeffectivemechanismsforcrisismanagement. Andwherenecessary,thismeansgoingbeyondcoordination,becausethisisamatterofeuropäischeInnenpolitik. Wehavealsoseenthatmaintainingstabilityrequirescommoninstitutionsthatcanreacttoevents. Theeuroistheworld’ssecondmostimportantcurrency.Itmakesup25%oftheworld’sforeignexchangereserves. 1.5trillioneurosaretradeddailyontheworld’sforeignexchangemarkets. Anditisuseddailybythe330millioncitizensoftheeuroarea. Acurrencythatplaysacentralroleinthelivesofsomanypeoplehastobemanagedwitheffectivedecision-making. Thesecondpath,designinganewarchitecture,isthereforetheonlyway forward. ThekeychallengetodayistopresentavisiontoEurope’scitizensofwhatthiswouldentail–whichispreciselythethemeofthisconference. TogetherwiththePresidentsoftheEuropeanCouncil,theEuropeanCommissionandtheEurogroup,Ihavebeengiventhetaskofworkingonsuchavisionforthenextdecade. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  32. P age |32 Wehaveaimedtobeaspragmaticaspossible:toestablishwhataretheminimumrequirementstomaketheeurofunctiontoitsfullpotential. Andourconclusionsarebothrealisticandattainable. MemberStateswillhavetopoolmoresovereigntyinselectedpolicyareas. Thisisaclearlessonofthecrisis.ButwewillnotneedtocedeallpowerstoBrussels. Sovereigntywillonlybepooledwhereitisessentialtoensureastableand prosperousmonetaryunion. Thiswillbeaccompaniedbybroaddemocraticparticipationandlegitimation. OurvisionforEMUhasfourpillars–fiscalunion,financialunion,economicunionandpoliticalunion. Progressonallfourshouldbemadesimultaneously. Thefirstthreepillarswillhelptosteerfiscal,financialandeconomicpoliciesinasustainableway. Theywillalsohelptocreateinstitutionscommensuratewiththedegreeofmonetaryintegrationintheeuroarea. ButtodayIwouldliketofocusbrieflyonthefourthpillar,politicalunion. Thispillarisessentialforengagingeuroareacitizensmoredeeplyandmakingtheotherthreepillarslegitimate. Someobserversarguethatbecauseofthecommondecision-makingimpliedbytheotherthreepillars,politicalunionhastocomefirst.Idonotagree. Politicalintegrationcanandwilldevelopinparallelwitheconomicintegration. Overthepast60yearsofEuropeanintegration,thishasalwaysbeenthesequence. Forexample,publicengagementwitheuroareaissueshasnaturallydeepenedthroughrespondingtothecrisis. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  33. P age |33 TocommitmoneyviatheEuropeanStabilityMechanism,MemberStateshavehadtoexplaintheresponsibilitiesofeuromembershiptotheircitizens. ParliamentsarenowtakingasharperinterestinEuropeanaffairs.Closereconomicintegrationhasdefactostrengtheneddemocratic engagement. ButthisdoesnotmeanthatweshouldnotstrivetostrengthendemocraticparticipationinEuropefurther. DemocraticengagementalreadytakesplacethroughtheCouncilofMinisters–wherecitizensarerepresentedbyelectedministers–andtheEuropeanParliament–wherecitizenselecttheirMEPsdirectly. ButmorehastobedonetomakethevoiceofEurope’scitizensheard.WeneedwhatinGermanyiscalleddemokratischeTeilhabe. Andthisiswhereyouareneeded.Iwouldliketoaskallofyou–journalistsandpublishersbutalsopolicymakersandacademics–tohelptodevelopagenuineEuropeanpublicspace,eineeuropäischeÖffentlichkeit. MostofusinEuropeareexposedmainlytoournationalmediainournationallanguages. Thesemedianaturallydefineourperspective:oursenseofthe“public”tendstostopatnationalborders. Butthisnolongerdescribesreality. WhatishappeninginotherMemberStatesmatterstoallofus.Problemsthatcrossbordersrequirecitizenstofindconsensusaroundcommonsolutions. Again,thecrisisisitselfhavinganeffect. Forexample,newspapersinsomecountriesnowtakeakeeninterestinthewelfaresystemsofothercountries. Citizenscloselyfollowtheelectionsofministerstheywouldpreviouslyhaveneverheardof. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  34. P age |34 Certainly,thereisanunwelcomesidetothisrelatedtothepotentialfor revivingoutdatednationalstereotypes. Butthereisalsoapositivesideinsofarasitleadscitizensintheeuroareatodevelopasenseofbelongingtogetherandtocareaboutdecisionsinotherregions. Onewaytostrengthenthistrendwouldbetoexchangemoremediabetweencountries.AndhereIwouldliketoinviteyourcontribution. Couldyouconsider,forexample,publishingwhatwemightcall“importedpages”fromforeignnewspapers? Thiswouldallowcitizenstogetabettersenseofhowissuesareseeninothercountries;itwouldincreaseculturalsensitivity;anditcouldgenerateEurope-widedebatesthatdividealongpolicylinesratherthan nationallines. Overtime,suchdebatewouldhelptoputEuropeandecision-makingonamorelegitimatefooting. “Importedpages”arebutoneidea,astartingpoint.Itiswithyourdedicationandcreativitythatmoresuchideascanbedeveloped. ItisaprivilegetobepartoftheEuropeanproject,forcitizensandjournalistsalike. Butitisalsocomeswithresponsibilities,forcitizensandjournalistsalike.Ultimately,agenuineEuropeanpublicspaceisessentialforsupporting thelong-termvisionoftheeuroarea. Citizensneedtobeinbasicagreementthat,withinamonetaryunion,certaineconomicmodelsarenolongerpossible. Theymustunderstandthattherearelimitstonationaldiscretionineconomicpoliciesthataffecttheareaasawhole. Inotherwords,thereneedstobeanewconsensusoneconomicpoliciesthatwillreinvigoratetheEuropeansocialmodelandmakeitfitforthe21stcentury. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  35. P age |35 Thisisadiscussionwemustbegintoday.SettingEMUonapathtowardsstabilityisessentialsothatwecanmovepermanentlybeyondthecrisis. Itwillsendaclearsignaltocitizensandfinancialmarketsthattheeuroareaiscommittedtostayingthecourse. Anditwillremoveanygroundsfordoubtingtheeuro’sfuture. TherearemanyreasonstobeoptimisticthatEuropewillfindthispath.Thepatternoverrecentdecadeshasalwaysbeentomoveforward towardsastrongerandmoreunitedEurope. Whenwehavefacedchallenges,wehaveinvariablyfoundsolutions.Thosewhohavepredictedtheworsthaveturnedouttobemistaken.What’smore,thesolutionsweneeddonotrequireextremeapproachesor impossiblechoices.TheyrequireastructuredandachievablepathtowardscompletingEMU.Thisisfullywithinourreachtoday. IamconfidentthatonedayIcanreturntothisbeautifulhistoricalsettingsanssouci. Inthemeantime,Iammostgratefulforyoursupport. Thankyouonceagainforthisawardandyourkindwordstonightandthankyouverymuchforyourattention. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  36. P age |36 NUMBER6 BaselIIIJobs Averagesalary%changeyear-on-year +12.50% (Source:http://www.itjobswatch.co.uk/jobs/uk/basel%20iii.do) ThefirstpartofthetablebelowlooksatthedemandforBaselIIIskillsinITjobsadvertisedacrosstheUK. IncludedisaguidetotheaveragesalariesofferedinITjobsthathavecitedBaselIIIoverthe3monthsto11September2012withacomparisontothesameperiodintheprevious2years. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  37. P age |37 Note: ITJobsWatchprovidesauniqueperspectiveontoday'sinformationtechnologyjobmarket.TheypresentaconciseandaccuratemapoftheprevailingUKITjobmarketconditions.Oneofourfavouritewebsites.http://www.itjobswatch.co.uk InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  38. P age |38 NUMBER7 SpeechbytheChancelloroftheExchequer, RtHonGeorgeOsborneMP atScotlandCBI ThankyouNosheena,foryourintroductionandmayIsayit’sarealpleasuretobehere. IwouldliketobeginbycongratulatingtheCBIandtheScottishbusinesscommunity. Overthelastfewyearsyouhaveachievedamazingthingsindifficulteconomictimes. Ofthe900,000newprivatesectorjobscreatedintheUKoverthelast2 years,85,000havebeenhereinScotland. Ofthe15,000netnewmanufacturingjobscreatedintheUKoverthelastyear,4,000–almostonethird–havebeenhereinScotland. ThatisthefastestincreaseinthenumberofScottishmanufacturingjobssincerecordsbegan. PoliticiansoftenclaimthattheirGovernmenthas“created”thousandsofjobs. ButIknowthat’snottrue. Governmentsdon’tcreatejobs–youdo. Thepeopleinthisroomandbeyond,whotakerisks,havetheambitionanddrivetobuildbusinesses. Andourjobistocreatetheconditionstohelpyoudoit. That’swhythemessageofallthechangeswehavemadethisweekissimple:thisGovernmentmeansbusiness. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  39. P age |39 InmyowndepartmentI’mparticularlydelightedthatPaulDeighton,themanwhodeliveredthebestOlympicGamesever,hasagreedtojointheGovernmentastheMinisterresponsiblefordeliveringtheeconomicinfrastructurethatthewholeUnitedKingdomneedsifwearetoremaincompetitive. Theeconomicoutlookremainsuncertainbuttherearesomepositive signs. Oureconomyishealing–jobsarebeingcreated,manufacturingandexportshavegrownasashareofoureconomy,ourtradewiththeemergingworldissoaring,inflationisdown,muchofthenecessarydeleveraginginourbankingsystemhasbeenachieved,andtheworldisonceagaininvestinginBritain. Butthescaleofthechallengeissogreatthattherearenoquickfixesoreasyroutestorecovery. Thedebtsbuiltupinoureconomyoverthelastdecadewilltaketimetounwind. Addedtothatwasasteadydeclineincompetitiveness,thefullextentofwhichwasmaskedbythetideoftheborrowingboombutwhichhasbeenexposedoncethattidereceded. Noneofthishasbeenmadeeasierbytheeurozonecrisis,whichfirstflareduptheweekendbeforethisCoalitionGovernmentwasformedand hascastalongshadowofuncertaintyoveroureconomyeversince. OurstrategyremainsthesameonesetoutatthebeginningofthisGovernment. Fiscalresponsibilitytoshowtheworldthatwewilldealwithourdebtsandkeepinterestrateslow. Monetaryactivismtosupportdemandandspreadthebenefitsofthoselowinterestratesthroughtheeconomy. Andafar-reachingprogrammeofsupplysidereformtorestoreourlost InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  40. P age |40 competitivenessanddeliverrealprosperityforthefutureinsteadoftheillusionofprosperitybuiltondebt. Despitestrongheadwindsthatstrategyisalreadydeliveringresults.Thedeficitisdownbyaquarterinjusttwoyears,andthesafehavenstatusthatourcredibilityhasearnedisdeliveringrecordlowinterestrates. Thatisadirectbenefittothetaxpayer,ourprivatesectorandourindebtedbankingsector–andwithoutitoureconomicfuturewouldbebleak. ImaginewhatasharpriseininterestrateswoulddonowtoScottish businessesandScottishfamilies. Monetarypolicyhassupporteddemandandsteeredasteadypaththroughaseriesofexternalpriceshockssothatinflationiscomingbacktowardstarget. Butmonetaryactivismmeansmuchmorethanthis. LastmonththeTreasuryandBankofEnglandlaunchedthemulti-billion poundFundingforLendingScheme. ItisalreadyhavinganimpactthroughreducingthepriceofmortgagesandbusinesslendinganditisaperfectexampleofthefirepowerthattheUKasawholeisabletodeploy. AndthisweekweareintroducinganewBillintheWestminsterParliamentthatwillallowustouseourhard-wonfiscalcredibilitytoprovideguaranteesfornewinfrastructureprojectsrightacrosstheUK. Thefullbenefitsofourprogrammeofsupplysidereformwillonlycomeinthemediumtermbutitisalreadyhavinganimpact. YesterdaytheWorldEconomicForumconfirmedthattheUKhasimproveditsglobalcompetitivenessrankingforthesecondyearinarow,from11thto10thandnowto8thintheworld. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  41. P age |41 Astheyputit,“TheUnitedKingdomcontinuestomakeuplostgroundintherankingsthisyear,risingbytwomoreplacesandnowsettlingfirmlybackinthetop10.” Wehavealreadyembarkedonradicalreformsrightacrossgovernment,notleastinwelfarewherewearetacklingdeeplyentrenchedproblemstoensurethatworkalwayspays. Wehavealreadymadeourcorporatetaxsystemoneofthemostcompetitiveintheworldwithacommitmenttogettoa22pheadlinerate –thelowestofanymajorwesterneconomy–andaclearambitiontogofurther. SomuchsothatglobalcompanieslikeWPP,wholefttheUKonlyafewyearsago,arenowreturningtoourshores. AndthechangesthisyeartothetaxationregimeintheNorthSea,with newcertaintyondecommissioningcostsandanewgasfieldallowance, areforecastbytheindustrytogeneratebillionsofpoundsofnewinvestment. IwillbemakingnewannouncementsabouttheNorthSeataxregimetomorrowthatshouldbringmoreinvestmentandmorejobshereinScotland. Wearealreadyreducingregulatoryburdensandreformingemploymentlaw,withanextensionofthequalifyingperiodforunfairdismissalfromoneyeartotwoyearsandtheintroductionoffeesforemployment tribunals. Butnow,inalltheseareasandmore,Iamdeterminedthatwewillgofurther,delivermoreandmakeourcompetitiveedgeevensharper.ThatispreciselywhattheScottisheconomyneedsinordertodeliverprosperityfortheScottishpeople. NowIknowtherearethoseonbothsideswhocallforachangeofcourse.Somesaycutmore;otherssay“no”,spendmore. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  42. P age |42 Wearepushingformoreeconomicreformandfasterdelivery. Butnobodyisofferingacredibleorconvincingalternativeeconomicstrategy. Thereisnoeasypathtorecoveryandprosperity. WeinBritainhavetoconfrontourproblemsheadon,behonestaboutthescaleofthechallenge,andbeconsistentinourdeterminationtosucceed. Ofcoursethechallengeswefacearenotsimplyeconomicandfinancial.LastyeartheScottishGovernmentwonamandatetoholdan independencereferendum. AsaresultScotlandisfacingitsbiggestdecisionforthreecenturies. MysenseisthatpeoplewantthereferendumprocesssettledquicklysowecanmoveontotherealdebateaboutScotland’sfuture. Scotsrightlywanttoknowwheretheystandonawholehostofissues– businessprospects,jobs,pensions,publicservices… That’swhytheUKGovernmentiscommittedtofacilitatingtheprocessandendingtheuncertaintythatisdisruptiveforUKandScottishbusinessalike. There’sadealtobedone.We’rereadytodoit. Andwecandoit–iftheScottishGovernmentisseriousabouthonouringitselectionpromisetolettheScottishpeoplehavetheirsay. RespectfortherightoftheScottishGovernmenttoholdanindependencereferendumshouldnotbemisinterpretedasindifferenceabouttheoutcome. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  43. P age |43 ThisGovernmentpassionatelybelievesthatScotlandisstrongeraspartoftheUKandtheUKisstrongerwithScotlandinit. AsthePrimeMinisterhasalreadysaid,ourargumentisnotthatScotlandcan’tgoitaloneasaseparatecountryshouldScotschoosetodoso. It’swhywouldyouwantto? Whywouldyouwantto,whenasaUnitedKingdomwe’vealreadyachievedsomuch? Andwhen-bypoolingourtalentsandresourcesacrosstheUK-wecan achievesomuchmore. Ispokeearlierabouttheunprecedentedeconomicchallengesweface.I’vespentmany,manyhoursdiscussingwithmyfellowFinance MinisterswithintheEuropeanUnionhowbesttorespondtothe continuinghangoverfromthefinancialcrisisandthedecadeofdebt. AsthemembersoftheEurozonestrivetocomeclosertogether,theworldwouldberightlypuzzledifBritain’sresponsewastobreakapartoneofthemostsuccessfulpoliticalandeconomicunionstherehaseverbeen. TheBritishunion–anditssuccess-isasmuchaScottishcreationasitisthecreationofanyotherpartoftheUK. Scotswereamongthefirst–andmostsuccessful–intakingadvantageofthenewtradingopportunitiesopenedupbyunion. Glanceatanyatlasandyou’llfindScottishplacenamesoneverycontinent. TheinfluenceofScotshasbeenfeltineconomicdevelopmentacrosstheglobe. DavidDunbarBuick-borninArbroath-whofoundedthefamousDetroitcarcompany. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  44. P age |44 ThomasGlover-animportantfigureinMitsubishi’shistory-whomadeanimmensecontributiontothemodernisationandindustrialisationofJapan. AndWilliamMcKinnonwhosebusinesses-forerunnersofInchcape-spannedtheshoresoftheIndianOcean,fromthecoastofEastAfricatothenewlandsofAustralia. TodaytheadvocatesofindependencearguethatBritain’svaluetoScotlandisspent. ThatunionisnolongerinScotland’seconomicinterests. AndthatthosewhocontinuetobelieveinBritainarewallowinginnostalgia. Iwanttotakethisargumenthead-on. ImakenoapologyforsharingalloftheinstinctiveemotionalattachmenttoScotland’splacewithintheUK. Oursharedhistoryandculture.Distinctyetintertwinedidentities. Awholegreaterthanthesumofitsindividualparts. AndIrejecttheideathatwhileBritainhasaglorioushistory,ithaslittlerelevanceintacklingthechallengesandgraspingtheopportunitiesofthemodernworld. 300yearsofworkingtogethermeansthattodaythehard-headedeconomicinterestsofScotlandandtherestoftheUKareinextricablybounduptogether. Oureconomicintegrationandinterdependencerunswideanddeep.Workingpeople,investment,goodsandservicesallmovefreelyacrosstheUK. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  45. P age |45 Therearemorethan800,000ScotswholiveandworkinotherpartsoftheUKandhalfamillionpeoplefromotherpartsoftheUKwholiveand workinScotland. Eachyeararound50,000peoplemovetoScotlandfromtherestoftheUK,andnearlyasmanypeoplemovetheotherway. HighlevelsofinvestmentcomefromtherestoftheUKintoScotland,withUKfirmsemployingoneinfiveScottishworkersandcontributing aroundaquarterofScottishturnoverin2010. JustasthereareScottishfirms,likeScottishandSouthernEnergy,FirstGroupandRBSwhoaresignificantemployersinotherpartsoftheUK. Thisdeepintegrationmeans,forexample,thatScottishmanufacturerscanproducegoodsinfactoriesfinancedthroughcapitalintheCityofLondonandbuiltbyScottishengineers. GoodsthatcombinerawmaterialsfromWalesandcomponentsbuiltinEngland,poweredbyelectricityfromScotland’soffshorewindindustry.AndgoodswhicharesoldtotherestoftheUKandacrosstheworldthroughtheUK’sroad,railandportinfrastructure. EachyearScotlandexportsaround£45bnworthofgoodsandservicestotherestoftheUK-equivalentto40percentofScotland’stotaloutput. ThisismorethantwiceasmuchasScotlandexportstotherestoftheworldputtogether. AndwhatbetterillustrationofoursharedeconomicinterestsandmutualdependencecouldtherebethantwoofScotland’smostimportantsectors –renewableenergyandfinancialservices. TheenergythatScotlandgenerateshelpsustomeetdemandacrossthewholeoftheUK. ItisthelargerUKconsumerbasethatensuresthesignificantinvestmentcostsrequiredforthisinfrastructurearewidelyspreadanddonotfallon InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  46. P age |46 Scotsalone. AndthenthereisScotland’s90,000strongfinancialservicesindustrywithitsdistinctcontributiontotheoverallstrengthoftheUK’sworld-leadingfinancialservicessector. Scotlandisrenownedfortheexpertiseofitsinvestmentmanagersandlifecompanies–theAllianceTrust,BaillieGiffordandStandardLifetonamebutafew. ThoseworkingintheindustrywouldbethefirsttoacknowledgethebenefitstheyderivefromtheclosetieswiththerestoftheUKindustryand,inparticulartheCityofLondon. JustasthoseintheCitywillrecognisethehistoricroleandexpertisewithinthefinancialcentresofEdinburgh,Glasgow,AberdeenandDundee. It’slittlewonderthattheeconomicfundamentalsoftheScottisheconomyaresoalignedwiththerestoftheUK,andthatitsstructureandmovementsaresimilar. ProductivityinScotlandis99percentoftheUKaverage,theclosestofanynationorregionwithintheUKtotheoverallUKaverage. TheemploymentrateinScotlandis101percentoftheUKaverage,againtheclosestofanynationorregion. Andearningsarenow97percentoftheUKaverage,risinginrecentyears. Thesefactsreflectthehardwork–includingbymanyofyouinthisroom –whohavestrengthenedtheScottisheconomyandfosteredenterprise. SoIamclear:fullpoliticalandeconomicunionacrosstheUK-asourceofmanyofourpastsuccesses-continuestounderpintheUK’sandScotland’sstrengthandcredibilitytodayandintothefuture. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  47. P age |47 AttheheartoftheUK’sstrengtharetheinstitutionsandframeworksweshare. It’stheseinstitutionsthatsupportourfullyintegrateddomesticmarket–moredeeplyintegratedthananysinglemarketbetweenseparatestatescouldeverbe–andhelptodriveourprosperity. NowIknowthattheproponentsofindependence-applyingthemostreassuringbed-sidemanner-saythatanindependentScotlandwouldretaineverythingfromthepoundandtheBankofEnglandtoUKfinancialservicesregulation. However,Isimplydon’tthinkit’scredibletosuggestsimultaneouslythatinanindependentScotlandeverythingwillchangeandnothingwillchange. Foronething,althoughScotlandhasalwayssharedthebenefitoftheUK’sinterestrates,whicharenowatrecordlows,it’sveryunlikelythatthegovernmentofanindependentScotlandcouldborrowascheaply.Andit’stheinterestrateongovernmentbondsthatisoneofthekeydeterminantsunderpinningthecostofallcreditintheeconomy. Sotherewouldbehigherinterestrates:asoberingthoughtforallScottishhouseholdswithmortgagesandallScottishbusinesses. Andlet’sbeclear:independencewouldchangetheUK’scurrentinstitutionalarrangementsforever. ScotlandandtherestoftheUKwouldbecomeseparate,foreigncountries. What’sthepointotherwise? Letmetakeoneofouroldestinstitutions,oursingleUKcurrency,thepoundSterling. Asinglecurrencythathassupportedmorethanthreecenturiesofeconomicandsocialintegration. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  48. P age |48 Howcanweforeseewhateffectabandoningthis300year-oldcommitment–oreventalkofabandoningit–couldhaveonconfidenceandprosperity? AfterflirtingwiththeEuroandfloatingotherpossiblearrangements,theScottishGovernment’slatestpositionisthatanindependentScotlandwouldseektoenteraformalmonetaryunionwithinasterlingzone. ButtheconundrumoftheEurozonecrisisishowdifficultitistocombinecurrencyunionwithfullfiscalandpoliticalindependence. ThemembersoftheEurozonearenowfacedwithwhatI’vedescribedasthe“remorselesslogic”–theverylessonoftheEurozonecrisis–thatyoucan’thavemonetaryunionwithoutgreaterfiscalandpoliticalintegration.Greaterfiscalintegration–becausemembershipofamonetaryunionmeansgreaterinterdependence,notgreaterindependence. That’swhytheeurozonearedevelopingplanstocontrolthefiscalpositionsofindividualmemberstatessothattheycanavoidtherisksofcontagionforallmembersoftheunion. Greaterpoliticalintegration–becausesharingacurrency–andperhapsacentralbank–meanspoliciesthatareconsistentnotdivergent. Membersmustbepreparedtoforgoindividualinterestsandcircumstancesfortheinterestsoftheunionasawhole. Soit’sdifficulttoargueforestablishingamonetaryunionwhilepursuingfiscalandpoliticalseparation. Inaworldinwhichaseparate,independentScotlandwishedtopursuedivergenteconomicpolicies,whatmechanismcouldtherebefortheBankofEnglandtosetmonetarypolicy,asitdoesnow,tosuitconditionsinbothScotlandandtherestoftheUK? AsChancelloroftheExchequer,Ihaveseennosuchcrediblemechanismsproposedbythoseadvocatingindependence. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  49. P age |49 Iamnotcleartheyexist. IftheScottishGovernmentcannotprovideanswerstothesebasicquestionsaboutScotland’scurrencythentheScottishpeopleareentitledtoaskthisbasicquestioninreturn:whatpathistheScottishGovernmentleadingthemdown? We’rebettertogether. Andwhataboutregulationofkeysectorsoftheeconomysuchasfinancialservicesorenergy? Dotheseparatistsproposetodismantleestablishedregulatoryregimes formarketsthatarehighlyintegratedonaUK-widebasis? OraretheysayingthatthepointofachievingindependenceistosurrenderregulatoryauthorityoverkeysectorsintheScottisheconomytowhatwouldbecomeaforeignsovereignauthority? Thesearechoicesindependenceforcesuponyou,withconsequencesthatareunknown-andunknowable-atthetimeyoumakethem. Again,iftheScottishGovernmentcannotprovideanswerstothesequestions,thentheScottishpeopleareentitledtoquestionwhatpaththeScottishGovernmentisleadingthemdown. BycontrastdevolutionwithintheUKprovidesScotlandwiththebestofbothworlds. Substantialcontroloveritsownnationalaffairscombinedwiththestrengththatflowsfrombeinganimportantpartofamuchlargerentity.InaglobalisedeconomytheUK’sscalematters. FarfromholdingScotlandback,theUKprovidesScotlandwithastrong,stableandsecureplatform. TheUKhasbroadshoulders. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

  50. P age |50 WhenAlistairDarlingwasdoingmyjob,UKtaxpayersspent£45bnrecapitalisingRBS–andthebankalsoreceived£275bnofstatesupportintheformofguaranteesandfunding. ThissupportisequivalenttoaroundtwoyearsofScotland’stotaloutputonanymeasure. AdisorderlycollapseofScotland’sbankswouldhavebeendevastatingfordepositors,jobsandgrowthinScotland. That’swhyIarguethatthewholeoftheUKbenefitsfromhavingaGovernmentwiththenecessaryfiscalfirepower,backedbyacrediblecentralbank,whichcandeliveraneffectiveco-ordinatedresponsetoamajorbankfailure. TheUKhasalargeanddiversifiedeconomysupportedbyabroadtaxbaseof30millionindividualtaxpayersandnearly2millionregisteredbusinesses. We’rebettertogether. Andtogetherourvoiceisheardabroad. Howeverbroadourshoulders,futureprosperitydepends-asithasalwaysdone–onoursuccessasatradingnation. IparticularlywanttothanktheCBIforalltheworktheyaredoingtopushScottishexports. Scotshaveneverbeenparochialintheirviewoftheworld.Youhavealwaysliftedyourgazebeyondthehorizon. Atatimewhentheglobalcommunityisstrivingtoremovebarrierstotrade,Idon’tbelieveit’sinanyone’sinterestshereathometoerectnewbordersandbarrierstoScotland’sabilitytocompeteintheworldmarket.BeingpartoftheUKopensdoorsforScotlandandScottishbusiness. InternationalAssociationofRiskandComplianceProfessionals(IARCP) www.risk-compliance-association.com

More Related