8. Briefly explain the 3 lines of defense!

1st line: Business units -> is involved in day-to day risk management, follows a risk process, applies internal controls and risk responses

2nd line: Risk and compliance -> oversees the challenge risk management, provides guidance and direction, develops risk management framework

3rd line: Audit -> reviews 1st and 2nd lines, provides an independent perspective and challenge the process, objectives and offers assurance

9. Briefly explain the role of Compliance within a bank:

a) How is the compliance function organized in banks?


b) Main tasks and responsibilities of compliance function! 


a) In the context of financial services businesses compliance operates at two levels.

• Level 1 - compliance with the external rules that are imposed upon an organization as a whole 


• Level 2 - compliance with internal systems of control that are imposed to achieve compliance with the externally imposed rules. 


Level 1: External rules

• Regulations

  • Securities Supervision Act (Werpapieraufsichtsgesetz/WAG)

  • Compliance relevant regulations in the Stock Exchange Act

  • Regulations set up by the regulator (FMA)

  • Basel Committee Publication 113 „Compliance and the Compliance function in banks“

• Standard Compliance Code

  • See Question Nr. 10

Level 2: Internal Rules

• Compliance manual

b) Main Tasks/Responsibilities:

Compliance is generally understood to mean acting in accordance with applicable laws, regulations and regulatory rules as well as national and international standards (Best Practice) and the extra- and intra- company rules.

Responsibilities

• Managing Board (BoM)

o Managerial responsibility

o Set up appropriate compliance organization

o Entire managing board is responsible

• Supervisory Board

o Monitoring responsibility

o Quarterly reports from Chief Compliance Officer and Managing Board

• Chief Compliance Officer

o Head of Compliance office, appointed for minimum 2 years, annual reports to board of managers

o Central responsibility for all compliance relevant topics and communication with authorities (FMA)

10. Briefly explain the Standard Compliance Code!

Standard Compliance Code

• Voluntary commitment of banking industry 


• Organization and code of conduct 


• No law 


• Best Practice 


• High relevance 


Adherence of SCC means also adherence in law. Content:

• Module 1: Principles (Organizational structure, Processes, Staff training) 


• Module 2: Insider Law and Market Manipulation 


• Module 3: Guidelines for Transactions of Employees 


• Module 4: Conflicts of Interest 


• Module 5: Execution Policy 


• Module 6: Austrian Standards of Financial Analysts 


• Module 7: Special Rules for Investment Management Companies

11. Name essential aspects/topics regulated in the Compliance Manual!

Compliance Manual I

• Code of Conduct

• Compliance Organization

• Money Laundering and Terrorist Financing

• Additional Requirements for Special Cases (e.g. offshore destinations)

• Financial Sanctions (FiSa) and sensitive Business Fields

• Combating Fraud

• Combating Corruption

Compliance Manual II

• Insider Law and Market Manipulation (SCC)

• Employee Transactions (SCC)

• Conflicts of Interest (SCC)

• Execution Policy (SCC)

• Customer Classification, Principles of Investor-Based and Investment-Based Consulting (SCC)

• Principles of Proper Financial Analysis (SCC)