Investment Management: Rising to the Risk and Compliance Challenge kpmg.com

Compliance Practice

Investment Management:

Rising to the Risk and Compliance

Challenge

kpmg.com

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© 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. 26730NSS

CONTENTS

New Regulatory Frontiers:

Forging Ahead in a Changing Landscape 1 A Proactive Approach to Regulatory Risk 3 Moving Forward with Strategic Implementation 5 Providing a Holistic View of Compliance Risks 7

The KPMG Difference 9

KPMG: The Right Choice 11

While unprecedented regulatory reform is reshaping the way many industries conduct business, the financial services sector has, by far, felt the greatest impact of new—and increasingly

regulations, not the least of which is the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd- Frank Act), are having wide-ranging implications across the financial services spectrum and changing the regulatory framework, operations, and supervision of the industry.

Forging ahead in this new regulatory environment can be especially

challenging for investment managers and fund sponsors, who will need to make fundamental changes to their business models and operating structures while struggling to manage the rising costs of reform and its impact on growth. Such changes will bring about the need to redesign and implement governance and risk management frameworks that support the still-evolving regulatory

landscape, as well as the business complexities of a dynamic and global marketplace.

At KPMG LLP (KPMG), we can help you strategically address regulatory change.

Our Regulatory Risk and Compliance practice professionals provide you with actionable and relevant advice while also offering valuable insight into how your progress measures against your industry peers. Our experienced professionals, who include former regulators, supervisors, examiners, and compliance practitioners, keep the pulse of both new and existing regulatory requirements and how they may impact your business today and in the future.

Moreover, our broad range of service offerings can help you strengthen enterprise-wide compliance programs, implement effective governance and risk management frameworks, enhance internal controls, prepare for more intense regulatory scrutiny, and help create a culture of risk management and compliance within your organization.

New Regulatory Frontiers:

Forging Ahead in a Changing Landscape

Who we serve

KPMG provides services to more than 80 percent of the 50 leading asset management firms in the United States. Our clients’

fund portfolios range in number from one to more than 600 and encompass a wide variety of product structure and distribution channels. We serve widely known leaders in the investment management industry as well as organizations starting up or spinning out from larger financial institutions. Our Regulatory Risk and Compliance practice provides a comprehensive range of services to a variety of organizations, including:

• Investment managers

• Mutual fund sponsors

• Institutional investment advisers

• Hedge fund managers

• Private equity fund managers

• Real estate managers

• Bank Wealth Managment Platforms

A Proactive Approach to Regulatory Risk

As investment managers and fund sponsors are forced to make fundamental changes to their business models and operating structures, they will need to ensure that they are exercising prudential risk oversight.

KPMG’s Regulatory Risk and Compliance practice can help by providing strategic and technical regulatory and compliance

methodologies to help your firm better anticipate and manage its regulatory risk.

We work hand-in-hand with members

of senior management and fund boards

of directors to help organizations become

more proactive in identifying, measuring,

monitoring, and controlling regulatory

risk. The following table provides a

summary of our support services.

Business Driver and Risk Response Event

Core Services Implementation Strategy

• New/changed regulations

• New products and distribution channels

Regulatory Strategy • Interpret strategic implications of regulatory change

• Assist with the development of enhanced operating environment:

operations, compliance, financial reporting, risk management and governance

• Application of regulatory requirement to the adviser’s unique business model to assess regulatory risks

• Responding to internal and external demands for regulatory and risk assurance

Regulatory Risk

Assessments, Compliance Program Gap Analysis, Forensic Testing, Annual Reviews and Mock Regulatory Examinations, AT 601 Compliance Attestations

• Perform a gap analysis, risk assessments, objective and risk-based annual reviews, and mock regulatory exams

• Perform post-registration compliance program assessments/gap analysis for newly registered advisers

• Perform special investigations and board/investor mandated assessments of specific regulatory risk areas

• Design forensic testing programs, including test procedures, data source identification, and escalation procedures

• Perform Compliance Attestation Examinations: Compliance with requirements of specified laws, regulations, rules, contracts, or the effectiveness of an entity’s internal control over compliance with specified requirements.

• Demand from regulators and investors for thorough oversight and due diligence of service providers and subadvisers

• Merger and acquisition activity

Due Diligence Assistance and Evaluation

• Perform operational due diligence reviews on behalf of the adviser

• Review of the effectiveness of oversight programs adopted by an adviser

• Evaluate transactional opportunities in active M&A environment

• Regulatory inspections and examinations

• Convergence of multiple regulators (SEC, FRB, OCC, CFTC, NFA, state and foreign regulators, and a potential new SRO)

Regulatory Exam Support • Assist in the coordination of regulatory inspections and examinations

• Assist in reducing the business disruption associated with an on-site regulatory presence

• Provide subject matter specialization in response to regulatory inquiries as part of a regulatory exam

• Assist with the implementation of recommended corrective actions

• Mandated registration of previously exempt private advisers

• 38a-1 and 206(4)-7 compliance requirement

Registration and Compliance Program Development

• Assist with SEC/NFA registration process, including assistance with the preparation of Form ADV

• Assist with the development of compliance programs, including drafting of compliance and operations policies, procedures, and codes of ethics

• 12 CFR 9 Fiduciary

Activities of Banks Reg 9 Review Assistance • Perform risk assessment and gap analysis of Reg 9 programs

• Assist in development of Reg 9 reviews

• Demand for knowledge of industry leading practices and the common expectations of regulators

Benchmarking • Perform peer analysis of leading industry trends and leading practices

• Provide comparative guidance on addressing new and emerging regulatory developments

• Need for employee awareness of their obligations in a highly dynamic and regulated environment

Training • Offer customized training programs and materials

• Provide broad subject matter specialization with respect to emerging trends through thought leadership publications, share forums, newsletters, and Webcasts

• Growing demand for standardization of performance metrics

Global Investment Performance Standards (GIPS) Compliance

• Verification and attestation for readiness and composite performance examinations

• Develop and assess an adviser’s GIPS policies and procedures

Moving Forward with Strategic Implementation

Addressing the new regulatory environment will require strategic changes to infrastructure and operational processes. Our regulatory professionals can help you devise an effective

regulatory strategy by offering objective, informed advice while we address new and existing regulatory requirements impacting your firm. At the same time, we will identify compliance challenges in order to provide actionable strategies for implementation.

Governance and Supervisory Framework (Committees, MIS,

Monitoring, and Reporting)

Regulatory Strategy Regulatory Strategy

Ext er nal F

or ces

Int er nal F or ces

Policies and Procedures Development/Enhancement

(Control Environment)

Control Group Enhancements (Finance, Legal, IT, Audit, Risk

Management, Compliance)

Train and Implement

Operations (Systems, Processes and Staff) Moreover, we work in tandem with our

management consulting and operational risk colleagues to bring you an integrated approach to strategic implementation. Such an approach allows us to provide you with in-depth knowledge of industry leading practices in regulatory risk and compliance strategy development, with experience evaluating the external and internal forces impacting compliance programs;

addressing the operational, business, supervisory systems, and governance risks;

and ensuring incorporation of key change management considerations.

Key Operating Environment Considerations

Change Management

• Laws and Rules

• Regulator Interpretations of Existing Regulation

• Litigation and Industry Leading Practices

• Client, Investor and Shareholder Expectations

• Organizational changes (mergers, joint ventures, outsourcing relationships)

• Products

• Distribution

An Integrated Approach

Regulatory risk and compliance collaborates with risk management consulting and operational risk to provide you with a

coordinated approach toward implementation.

Management Consulting

(Business Processes, IT, etc. )

Regulatory Risk &

Compliance Operations Risk

(Operations, Internal Controls,

etc.)

Providing a Holistic View of Compliance Risks

During a time of expanding government oversight and increasing regulatory demands, businesses need to ensure that they have an appropriate risk- based approach to compliance that spans the enterprise. In assessing compliance and operational risks in core business processes, KPMG works with management and compliance to gain a

“total view” of risk, by:

• Employing an interview-based, collaborative approach

• Focusing on key regulatory,

supervisory, and operational gaps and enhancement opportunities

• Identifying key risk areas based on organizational business activities, product offerings, geographic footprint, client profiles, and affiliate structure

• Evaluating compliance program content and design against common exam deficiencies, and regulator assessment techniques, industry challenges, and leading practices

• Providing meaningful feedback based on current industry trends and actionable advice for selected in-scope areas.

Annual Review

Launch and Implement

Documentation

Risk Assessment

Enable the Vision

Governance and Supervisory

Framework

Organize the Effort

Compliance

Requirements

KPMG’s Regulatory Risk and Compliance practice will help you respond to

regulatory change and manage business risks to your strategic advantage.

Our financial service professionals combine their deep industry experience and valuable insights gained from each engagement to deliver services that assist clients with a variety of audit, tax, and advisory needs. As an objective resource, we are able to provide the knowledge, skills, and global reach to help you overcome challenges and seize opportunities to achieve your business goals. The KPMG difference incorporates:

• More partner involvement.

We deploy an actively engaged and seasoned team staffed with leaders who are positioned to provide real- time guidance in an environment that demands responsiveness. To achieve this, our engagement teams bring the resources and strength of the firm’s subject-matter experience to every client.

• Deep experience and knowledge

of regulation and compliance. Our experienced professionals—many of whom are considered luminaries in their fields—include former regulators,

supervisors, examiners, and

compliance practitioners who possess a comprehensive understanding of the regulatory environment. They keep abreast of regulatory shifts and rule changes in areas that affect your business and will proactively share insights with you to help minimize the impacts resulting from such changes.

• Broad service offerings. Never is

a regulatory issue just a regulatory issue. Its impact has rippling effects throughout an organization. As such, our wide range of services provides a holistic response to regulatory changes, which extends far beyond compliance and incorporates operations, risk management, governance, change management, IT, training, and other areas.

• Enterprise wide view –Through our

multidisciplinary practice structure, we are able to provide you relevant and actionable advice and guidance for each facet of your business and corresponding business risk. We demonstrate how to effectively implement change by incorporating an enterprise-wide view in planning and implementation.

The KPMG Difference

Focusing on Reform:

KPMG’s Financial Services Regulatory Reform Center of Excellence –

The impact of regulatory reform on today’s investment management firms extends far beyond the many provisions of the Dodd-Frank Act and includes efforts such as Basel, Solvency, FATCA, and other regulatory initiatives.

KPMG’s Regulatory Center of Excellence is made up of key industry practitioners and regulatory advisers from across KPMG’s global network.

They will work with you to distill the impact of regulatory developments on your businesses and advise about how to adapt business models to better thrive in this dynamic environment.

For more information on how KPMG’s Regulatory Center of Excellence can help provide you with support, visit

industries/financial-services.aspx

Value Proposition

We have assisted with the compliance programs, operations/

business risk, and supervisory systems for over 200 investment and fund sponsors across 6 regulatory schemes.

Our team of experienced professionals possesses extensive experience in regulatory, risk, compliance, and operations as well as deep insight into industry leading practices.

Our holistic approach to regulatory change enables us to provide investment management clients with expert, actionable advice and guidance relating to each aspect of their business and the corresponding business risk.

KPMG’s Regulatory Risk and Compliance practice helps investment managers respond to regulatory change, manage business risk, and instill confidence in clients and investors.

Industry

Knowledge Experienced Professionals

Practical

Advice

KPMG: The Right Choice

As an impartial adviser, KPMG provides objective advice to your organization.

Our Regulatory Risk and Compliance practice provides strategic and technical regulatory and compliance methodologies to help financial services providers anticipate and manage their regulatory risk. We work hand in hand with members of your senior management team to help them make the right choice, at the right time and at the right cost. Our experienced professionals include former regulators, supervisors, examiners, and compliance practitioners, who can help strengthen enterprise-wide compliance programs, implement effective governance and risk management frameworks, enhance internal controls, and help create a culture of risk management and compliance.

Our Professionals, Your Resources

KPMG’s Investment Management practice is one of the fastest- growing sectors of KPMG. It has three segments—Mutual Funds, Investment Advisers, and Alternative Investments—and has more than 700 experienced audit, tax, and advisory professionals serving our clients across the United States and more than 3,000 professionals globally.

Strength in Financial Services

KPMG has dedicated considerable resources to become a leading service provider to the financial services industry.

KPMG’s global Financial Services practice is our largest line of business, representing more than 25 percent of total firm revenue. Globally, this includes more than 21,000 professionals and 1,500 partners. These professionals are deeply experienced in the issues, challenges, trends, and risks relevant to financial services companies.

KPMG’s wide ranges of services enables a holistic response to

regulatory changes, extending beyond

compliance to incorporate operations,

risk management, governance, change

management, IT, training, and other

areas. Our Regulatory Risk and

Compliance practice works closely

with management consulting and

operations risk to provide you with an

integrated, strategic implementation

approach toward regulatory changes.

© 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in the U.S.A.

The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. NDPPS 132800

Daniel Bender

Advisory Services, Managing Director T: 617 988 1013

E: dsbender@kpmg.com

Advisory Services, Director T: 267-256-1704

E: mmckeever@kpmg.com

Advisory Services, Director T: 212-954-8729

E: dreid@kpmg.com

Advisory Services, Director T: 212 954 3042

E: nvarghese@kpmg.com

Advisory Services, Manager T: 212 954 8174

E: dbackofen@kpmg.com

Advisory Services, Manager T: 617 988 5664

E: bethlehman@kpmg.com

Advisory Services, Manager T: 267 256 2762

E: clarosa@kpmg.com

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