Compliance Oversight of Broker-Dealer & Wealth and

Compliance Oversight of Broker-Dealer & Wealth and Investment Management FIRMA’s 23rd National Risk Management Training Conference New Orleans, April 30, 2009 James Strickland, Chief Auditor, TD Bank

Compliance Oversight of Broker-Dealer & Wealth and Investment Management INTRODUCTION Session Overview ̶ Industry Survey overview ̶ Risk coverage/structure of oversight functions ̶ Resources/tools in independent oversight functions ̶ Coordination/interactions by risk oversight functions ̶ Monitoring/reporting during business as usual and industry/firm “events” ̶ Response to recent market events ̶Q&A 2

Compliance Oversight of Broker-Dealer & Wealth and Investment Management INDUSTRY SURVEY Process ̶ 8 questions, along themes of session overview ̶ MAX CAE Peer Group ̶ FIRMA Members Respondent demographics ̶ Question 1: How would you categorize the size of your bank/financial institution (based on assets under management (AUM), assets under administration (AUA) and/or assets under custody (AUC))? 3

Compliance Oversight of Broker-Dealer & Wealth and Investment Management INDUSTRY SURVEY 4

Compliance Oversight of Broker-Dealer & Wealth and Investment Management RISK COVERAGE/STRUCTURE OF OVERSIGHT FUNCTIONS A. Compliance/Risk/Audit oversight at TD Bank 1. Structure i. Wealth Mgt. Compliance: Chief Risk Officer Vice President TD Wealth Management Compliance Chief Regulatory Officer Vice President Wealth Management Compliance VP – Compliance Manager PIC/PIT VP – CCO (BD/RIA) Manager – Compliance Fin. Planning / Insurance Compliance Manager Private Banking Compliance Manager Retirement Planning BD Compliance Manager RIA Compliance Manager Institutional Trust Compliance Manager AVP - Compliance Associate Compliance Associate (2) Licensing Supervisor Compliance Associate Licensing Associate Compliance Associate 5

Compliance Oversight of Broker-Dealer & Wealth and Investment Management RISK COVERAGE/STRUCTURE OF OVERSIGHT FUNCTIONS A. Compliance/Risk/Audit oversight at TD Bank 1. Structure ii. Wealth Management Risk: Chief Risk Officer Head: Risk Senior Risk Officer 6

Compliance Oversight of Broker-Dealer & Wealth and Investment Management RISK COVERAGE/STRUCTURE OF OVERSIGHT FUNCTIONS A. Compliance/Risk/Audit oversight at TD Bank 1. Structure iii. Internal Audit: SVP, Chief Auditor Commercial & Retail Credit & Credit Services Retail Banking & U.S. Wealth Mgmt and Insurance Audit Regional Ret. Banking, Store Audits U.S. Wealth Mgmt & Insurance Corporate Services Basel Supervisors/Seniors/Steff 7

Compliance Oversight of Broker-Dealer & Wealth and Investment Management RISK COVERAGE/STRUCTURE OF OVERSIGHT FUNCTIONS A. Compliance/Risk/Audit oversight at TD Bank 2. Duties/Mandates i. Wealth Management Compliance Recent realignment w/TDBFG parent (mandates in development) Parent Company Mandates: ̶ Direct legislative & regulatory awareness ̶ Develop & Implement policies & procedures to “equip” line management into compliance 8

Compliance Oversight of Broker-Dealer & Wealth and Investment Management RISK COVERAGE/STRUCTURE OF OVERSIGHT FUNCTIONS A. Compliance/Risk/Audit oversight at TD Bank 2. Duties/Mandates ii. Wealth Management Risk US Wealth Mgt Risk Committee-approved Mandate Develop policies/Best Practices for Operational, Investment, Regulatory, Reputational, Credit Risk Partner with Internal Audit, Legal, Compliance, Group Risk Management 9

Compliance Oversight of Broker-Dealer & Wealth and Investment Management RISK COVERAGE/STRUCTURE OF OVERSIGHT FUNCTIONS A. Compliance/Risk/Audit oversight at TD Bank 2. Duties/Mandates iii. Internal Audit Audit Committee/Board-approved Audit Department Charter Provide independent and objective assurance designed to add value Evaluate the effectiveness of risk management, control and governance processes Defined Objectives, Operating Principles, Authority, Scope of Responsibilities 10

Compliance Oversight of Broker-Dealer & Wealth and Investment Management RISK COVERAGE/STRUCTURE OF OVERSIGHT FUNCTIONS B. Industry Survey Results Reporting Line Question 2: Does the Compliance function for the broker-dealer, investment and wealth areas report directly to the business line, or independently to a separate function. 11

Compliance Oversight of Broker-Dealer & Wealth and Investment Management RISK COVERAGE/STRUCTURE OF OVERSIGHT FUNCTIONS 12

Compliance Oversight of Broker-Dealer & Wealth and Investment Management RESOURCES/TOOLS IN INDEPENDENT OVERSIGHT FUNCTIONS A. Approaches to compliance coverage for testing and monitoring activities 1. Options for aligning people to needs i. Subject Matter Experts (SMEs) or generalists ii. Horizontal or vertical alignment, or mix iii. Dedicated or multiple duties/coverage areas iv. Industry Survey Results Resource Alignment Question 7: Which statement best describes the Risk Oversight structure for the Broker-Dealer, Investment Management and Wealth Management business lines? 13

Compliance Oversight of Broker-Dealer & Wealth and Investment Management RESOURCES/TOOLS IN INDEPENDENT OVERSIGHT FUNCTIONS 14

Compliance Oversight of Broker-Dealer & Wealth and Investment Management RESOURCES/TOOLS IN INDEPENDENT OVERSIGHT FUNCTIONS A. Approaches to compliance coverage for testing and monitoring activities 2. Extent of automated tools utilization i. Definition/examples ii. Degree of reliance iii. Industry Survey Results SME/Tool Reliance Question 4: Structurally, please select the phrase that best describes the approach taken by Compliance and/or Audit. 15

Compliance Oversight of Broker-Dealer & Wealth and Investment Management RESOURCES/TOOLS IN INDEPENDENT OVERSIGHT FUNCTIONS 16

Compliance Oversight of Broker-Dealer & Wealth and Investment Management RESOURCES/TOOLS IN INDEPENDENT OVERSIGHT FUNCTIONS B. Training and Certification Compliance/Risk/Audit: Corporate Training (Corporate Policies, Products, Regulations, AML) Industry Training (SIFMA, FINRA, FIRMA, BAI’s CRP) Industry Certifications (FINRA Licensing: S-7, S-24, mandatory Firm / Regulatory Element CE) PRODUCT! 17

Compliance Oversight of Broker-Dealer & Wealth and Investment Management RESOURCES/TOOLS IN INDEPENDENT OVERSIGHT FUNCTIONS C. TD Bank approach 1. Compliance: SMEs License Monitoring CIP Exception Monitoring 2. Risk: Risk & Control Self Assessment (RCSA) Operational Risk Event Reporting Key Risk Indicators (KRIs) Risk Dashboard 18

Compliance Oversight of Broker-Dealer & Wealth and Investment Management RESOURCES/TOOLS IN INDEPENDENT OVERSIGHT FUNCTIONS C. TD Bank approach 3. Audit: A. SMEs B. ACL – data mining C. Continuous Monitoring 19

Compliance Oversight of Broker-Dealer & Wealth and Investment Management COORDINATION/INTERACTIONS BY RISK OVERSIGHT FUNCTIONS A. Organizational Mandates of Independent Risk Functions 1. Approaches to coordinating mandates i. Coordinated objectives/mandates with clear handoffs/full transparency ii. Coordinated objectives/mandates but on parallel paths with little interactions iii. Not coordinated on objectives, mandates or scheduling 2. Extent of coordination at TD Bank 3. Industry Survey Results Intra-Risk Relationships Question 3: Organizationally, please select the phrase that best describes the relationship between Compliance and Internal Audit at your company? 20

Compliance Oversight of Broker-Dealer & Wealth and Investment Management COORDINATION/INTERACTIONS BY RISK OVERSIGHT FUNCTIONS 21

Compliance Oversight of Broker-Dealer & Wealth and Investment Management COORDINATION/INTERACTIONS BY RISK OVERSIGHT FUNCTIONS B. Interaction with Business Line Management by Independent Risk Functions 1. Corporate culture – timing / scope of Compliance / Risk / Audit involvement in business line initiatives i. Real-time, comprehensive engagement ii. Point-in-time for reviews / exams / audits iii. On request of line of business 2. Examples of interaction at TD Bank 3. Industry Survey Results Inter-Risk Relationships Question 5: Select the phrase the best describes Compliance and Audit interaction with business line management? 22

Compliance Oversight of Broker-Dealer & Wealth and Investment Management COORDINATION/INTERACTIONS BY RISK OVERSIGHT FUNCTIONS 23

Compliance Oversight of Broker-Dealer & Wealth and Investment Management MONITORING/REPORTING A. Reporting on Regulatory Violations/Breaks/Breaches During Business as Usual Activities 1. Corporate requirements – top down required reporting with consistent presentation and content 2. Business line decision - self reporting upwards within business and outwards to broader organization 3. Risk functions reporting of exams / reviews / audits 4. Examples of interaction at TD Bank 5. Industry Survey Results Monitoring and Reporting Protocols Question 6: Select the phrase the best describes the monitoring and reporting functions within the broker and investment/wealth management businesses. 24

Compliance Oversight of Broker-Dealer & Wealth and Investment Management MONITORING/REPORTING 25

Compliance Oversight of Broker-Dealer & Wealth and Investment Management MONITORING/REPORTING B. Involvement and reporting during Market / Industry / Firm ‘events’ 1. Are market events treated with a ‘lessons learned’ or impact analysis within the business or firm? 2. When at what depth are Risk functions involved? 3. Who has the responsibility for reporting results outside of the business? 4. Industry Survey Results Market Events Response Question 8: In response to general market events, which statement best describes your firm? 26

Compliance Oversight of Broker-Dealer & Wealth and Investment Management MONITORING/REPORTING 27

Compliance Oversight of Broker-Dealer & Wealth and Investment Management Recent Market Events A. Auction Rate Securities 1. Market freeze / auction failures 2. Liquidity issues – client impact 3. Marketing sold as cash equivalent? Disclosure of risks? 4. Redemptions When underwritten by firm When underwritten by others 5. Continuing to hold Yield, yield, yield 28

Compliance Oversight of Broker-Dealer & Wealth and Investment Management Recent Market Events A. Brokered CDs 1. Failed banks 2. Exceeding FDIC insurance coverage 3. Monitoring placements 4. Process/parameters to approve banks 5. Disclosure to clients Can they exceed? 29

Compliance Oversight of Broker-Dealer & Wealth and Investment Management Recent Market Events A. Ponzi Schemes 1. “Too often investors are blinded by dreams of untold wealth,” Assistant Director Kenneth W. Kaiser of the FBI’s Criminal Investigative Division. 2. Madoff 65 Billion 4,800 clients 3. 1st 3 months of 2009 1.6 Billion 100,000 clients 4. Can it happen in your firm? 30

Compliance Oversight of Broker-Dealer & Wealth and Investment Management Recent Market Events A. Market Decline / Performance 1. Approved investment list 2. Frequency of updating 3. Client responses/expectations 31

Compliance Oversight of Broker-Dealer & Wealth and Investment Management Q&A 32