Presentation to XYZ Company
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Transcript Presentation to XYZ Company
April 10, 2008
FIRMA
National Risk Management Training Conference
A New Look at Conflicts of Interest
By
Regina D. Stover
Senior Vice President
Pittsburgh, PA
Contact Information
Regina D. Stover
[email protected]
412-234-1572
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© 2008 The Bank of New York Mellon Corporation, Proprietary & Confidential
Conflicts of Interest
Overview of BNYMellon
Regulations governing Conflicts of Interest
Types of Conflicts of Interest
Current Conflicts of Interest Concerns – Large Asset
Manager Perspective
Future Challenges and Pressures
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© 2008 The Bank of New York Mellon Corporation, Proprietary & Confidential
Overview of BNYMellon
One of the largest global assets managers with more
than $1 trillion in assets under management
The world’s leading asset servicer with $23 trillion in
assets under custody and administration
The leading provider of corporate trust, depositary
receipts and shareowner services
The leading provider of clearing services
A leading provider of wealth management services with
approximately $170 billion in private client assets
A leading provider of U.S. cash management and global
payments
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© 2008 The Bank of New York Mellon Corporation, Proprietary & Confidential
Overview of BNYMellon (continued)
Diverse Group of Clients:
Financial Institutions
Corporate Pensions
U.S. Public Funds
Mutual Funds and ETFs
Foundations and Endowments
Government Entities
Broker-Dealers
Investment Advisors
High Net-Worth Individuals and Families
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© 2008 The Bank of New York Mellon Corporation, Proprietary & Confidential
Regulations Governing Conflicts of Interest
Regulation 9 – Self-Dealing and Conflicts of Interest
Regulation 12 – Personal Securities Trading Policies
State Fiduciary Laws and Regulations – Highest
Standards as a Fiduciary
ERISA – Prohibited Transactions
Investment Advisors Act – Personal Securities Trading
FINRA – Personal Securities Trading
Regulation W/23a and 23b
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© 2008 The Bank of New York Mellon Corporation, Proprietary & Confidential
Types of Conflicts of Interest
Insider and Related Party Transactions
Investing in stock of companies controlled by insiders
Acquiring insider property/selling property to insiders
Lending trust assets to insiders
Managing bank stock in fiduciary accounts
Purchase of services from related parties
Purchase from affiliated underwriting syndicates
Use of Material Non-Public Information
Securities Firewall – lending, cash management, relationship
information
Insider Trading
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© 2008 The Bank of New York Mellon Corporation, Proprietary & Confidential
Types of Conflicts of Interest (continued)
Fiduciary Compensation
Sweep Fees
ERISA Float Disclosure
Special Fee Disclosure
Reasonableness Test
Employee Fee Concessions – Consistency
Fee Methodology
Employee Unethical Conduct
Code of Ethics
Personal Securities Trading Requirements
Tone from the top
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© 2008 The Bank of New York Mellon Corporation, Proprietary & Confidential
Current Conflicts of Interest Concerns – Large
Asset Manager Perspective
Activist Hedge Fund Management
Performance drives fee compensation
Manager bonus program
Serving on public/non-public company Board of Directors
Accepting compensation for serving on Board
Voting proxies
Use of Soft Dollars
Documenting best execution
Evaluating how soft dollars are used
Getting comfortable with mixed use
Requests for reports on account specific soft dollar generation
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© 2008 The Bank of New York Mellon Corporation, Proprietary & Confidential
Current Conflicts of Interest Concerns – Large
Asset Manager Perspective (continued)
Personal Securities Trading
Pre-clearance requirements
Independent review of trading activity versus pre-clearance requests
Special approval for investment in private placements
Managing family/relative accounts
Proxy Voting
Independent from commercial bank activities
Confidentiality required
Fiduciary responsibility for economic interest
Social issues
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© 2008 The Bank of New York Mellon Corporation, Proprietary & Confidential
Current Conflicts of Interest Concerns – Large
Asset Manager Perspective (continued)
Use of Affiliated Mutual Funds
Fee disclosures
Performance monitoring
Strategic fit – breadth of product offering\
Serving as Personal Fiduciary/Executor
Immediate family only
Management approval required
Ongoing oversight needed
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© 2008 The Bank of New York Mellon Corporation, Proprietary & Confidential
Current Conflicts of Interest Concerns – Large
Asset Manager Perspective (continued)
Use of Affiliates (Regulation W)
Purchases of securities underwritten by an affiliate – Board approval
required
Use of affiliated broker/dealer for trade execution – positive consent
Use of affiliated clearing broker by unaffiliated broker/dealer disclosure
Affiliated company Service Level Agreements
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© 2008 The Bank of New York Mellon Corporation, Proprietary & Confidential
Future Challenges and Pressures
Tainted with scandals of others in the industry
Inappropriate gifts and entertainment
Investment banking research
Mutual fund late trading and market timing
Integrating acquired companies
Investment managers becoming part of a bank
Different regulatory environment (in some cases no previous regulator)
Personal securities trading requirements
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© 2008 The Bank of New York Mellon Corporation, Proprietary & Confidential
Future Challenges and Pressures (continued)
Myth of the “shared culture”
Ethics subject to interpretation
Generational differences – e.g., respect for authority
Very difficult to implement
Tension between “entrepreneur” goals and need for corporate
control
Incompatible geographic cultures
Japanese approach – personal accountability
American approach – “not my problem”
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© 2008 The Bank of New York Mellon Corporation, Proprietary & Confidential
Conclusion
A financial institution’s ability to achieve
profitability while maintaining its reputation is
directly related to its ability to manage conflicts
of interest. Every employee must be committed
to understanding how conflicts of interest can
occur and how they must be avoided or
resolved.
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© 2008 The Bank of New York Mellon Corporation, Proprietary & Confidential