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