KPMG ExpressCyber RisksRegulatory Risks

26 January 2017

Teijo Peltoniemi — Senior Manager

Matej Jurkic — Manager

26 January 2017

Cyber Risks: The Changing LandscapeKPMG Express

Teijo Peltoniemi and Matej Jurkic

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Document Classification: KPMG Public

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20001969: First programmable logic controller

19001870: First assembly line

18001784: First mechanical loom

Tomorrow starts today…

The fourth industrial revolutionFirst Second Third FourthWater and steam powerMechanical production

Division of laborMass productionElectricity

ElectronicsInformation technologyAutomated production

DataficationHyper-connectivityDigital labor and professional augmentation

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Document Classification: KPMG Public

© 2017 KPMG Channel Islands Limited, a Jersey company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Six big bets for disruptive technology

Monetising IoT as servicesInternet of services

Transformationfor customer centricityOmni enterprise

Software developmentat the speed of businessContinuous delivery

Everything in the cloudCloud dominance

Augmentation or replacementof human laborDigital labor

Next gen IT operating model Transforming IT for disruptive technology innovation

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Document Classification: KPMG Public

© 2017 KPMG Channel Islands Limited, a Jersey company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Six big bets for disruptive technology – Channel Islands

Monetising IoT as servicesInternet of services

Transformationfor customer centricityOmni enterprise

Software developmentat the speed of businessContinuous delivery

Everything in the cloudCloud dominance

Augmentation or replacementof human laborDigital labor

Next gen IT operating model Transforming IT for disruptive technology innovation

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Document Classification: KPMG Public

© 2017 KPMG Channel Islands Limited, a Jersey company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Digitalisation will make your life easier…

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Document Classification: KPMG Public

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…but will increase the risks

5.86 million

2014

6.5 million

2015

7.01 million

2016

Average total cost of breach

48 million

67 million

121 million

Total number of compromised records keeps

growing

2013

2014

2015

$138.00

$217.00

$221.00

$- $50.00 $100.00 $150.00 $200.00 $250.00

2006

2015

2016

Cost per compromised record

Risks? What risks?

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Document Classification: KPMG Public

© 2017 KPMG Channel Islands Limited, a Jersey company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

The insider

Investigative journalism

Hacktivism

Crime

The threat actors…

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Document Classification: KPMG Public

© 2017 KPMG Channel Islands Limited, a Jersey company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

…and threat vectors

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Document Classification: KPMG Public

© 2017 KPMG Channel Islands Limited, a Jersey company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

I can’t cope with this, get me out of there!

Document Classification: KPMG Confidential

© 2017 KPMG Channel Islands Limited, a Jersey company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

The KPMG name and logo are registered trademarks or trademarks of KPMG International.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

13© 2017 KPMG Channel Islands Limited, a Jersey company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.

Document Classification: KPMG Confidential

Regulatory Update

KPMG Express

Linda Johnson & Chris Thoume

The EU has released over 40 major pieces of financial services regulation since 2009

15© 2017 KPMG Channel Islands Limited, a Jersey company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.

Document Classification: KPMG Confidential

Current hot topicsMarket Abuse Regulation GDPRFATCA + CRS Beneficial ownershipBasel III PIF EU 4th AML DirectiveVolcker Rule Banking ReformSolvency II BEPS RDR UCITS VSenior Manager Regime MiFIDIIFourth Capital Requirements DirectivePayments Services Directive MLP

16© 2017 KPMG Channel Islands Limited, a Jersey company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.

Document Classification: KPMG Confidential

Pressure on regulation

82%of CEOs are unsure of what’s next in services and products

85%of CEOs are concerned about automation and artificial intelligence

87%of CEOs anticipate regulation could inhibit future growth

Source: KPMG CEOs survey 2016

17© 2017 KPMG Channel Islands Limited, a Jersey company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.

Document Classification: KPMG Confidential

2017 and beyond?

? EU

Brexit

Trump

GFSC

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Document Classification: KPMG Confidential

Question 1

Is current regulation working?

Yes No

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Document Classification: KPMG Confidential

Regulatory risk simplified

Not doing…but should

Doing…but shouldn’t

Partially doing

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Document Classification: KPMG Confidential

Current pressures and challenges

Pressures on Compliance Functions

International regulations

National regulations

Supervision

Commercial pressures

Investors

Other stakeholders

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Document Classification: KPMG Confidential

Question 2What would be your preferred method to deal with these issues if you had to choose?

1 Less regulation / fine-tuning regulation

2 More resources / streamline internal processes

3 Automation / digital solutions

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Document Classification: KPMG Confidential

How we approach this challenge?

Manager Led Product

Private Investment Fund

GIBAGIFAGACO

AML Handbook updates

CI EU Office States We are Guernsey

1 Less regulation / fine-tuning regulation

Less regulation

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Document Classification: KPMG Confidential

How we approach this challenge? (continued)

ExternalMore resources

2 More resources / streamline internal processes

Business Risk Assessment Compliance Monitoring Plan

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Document Classification: KPMG Confidential

How we approach this challenge? (continued)

External

3 Automation / digital solutions

Compliance monitoring

KYC / CDD / EDD

The ID RegisterKPMG Astrus – EDDK-CRC – ongoing client monitoring tool

Continuous monitoringAutomated screeningRisk-based methodology and sampling

Scarce compliance resources

Consistent delivery

Speed

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Document Classification: KPMG Confidential

KPMG Astrus

Online

Efficient use of scarce compliance resources

Documented

âForeign Language Searches

Secure Ongoing Monitoring

Document Classification: KPMG Confidential

© 2017 KPMG Channel Islands Limited, a Jersey company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

The KPMG name and logo are registered trademarks or trademarks of KPMG International.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.