Update

Member Services

	EMP/OMP Standardised Documentation

The FOA’s set of standardised customer documentation for Energy and Oil Market Participants has now been finalised. The documents include:

(i) Market counterparty terms
(ii) Intermediate customer terms (incorporating two-way netting module plus margin provisions)
(iii) Agency module
(iv) Electronic trading module
(v) Electronic order-routing module
(vi) Opt up letter (private to intermediate)
(vii) Opt up letter (intermediate to market counterparty)
(viii) Client acceptance letter
(ix) Money laundering check list
(x) Money laundering process chart (corporate), together with ID evidence schedule for individual director/shareholder etc.
(xi) A user's guide

The joining fee for the EMP/OMP library is £5000+VAT (this is reduced to £2000+VAT if the firm has already joined the FOA’s General FSMA documentation library). Firms wishing to have access to this EMP/OMP library should contact Hugo Jenkins on +44 (0)20 7426 7254.

	Cross-Border Legal / Regulatory Guide

Many firms have highlighted the significant costs they incur when seeking advice on regulatory and legal issues from counsel in overseas jurisdictions. As this advice tends to focus on a number of recurring cross-border issues, the FOA intends to produce a guide that covers a range of these issues in order to help firms reduce their costs in this area. It is not envisaged that the guide’s contents will completely negate the need for counsel opinions but rather allow internal legal/compliance staff to ask much more structured questions and in some circumstances to simply ask for confirmation that their understanding of a particular issue is correct.

The guide will not provide guidance on every legal and regulatory aspect of conducting cross-border business. It will be tailored to focus on only those areas where firms consistently require advice. As a result, initially the scope of the guide will be fairly narrow both in terms of the legal and regulatory issues and the jurisdictional coverage. However, if the guide proves to be successful, its scope can be extended. It is envisaged that this publication will be available at the end of the year.

	Operational Risk

The Basel Committee’s proposed new Capital Accord will be implemented in 2004. The European Commission has stated that it intends to apply the new Accord not only to banks but also investment businesses authorised under the Investment Services Directive. The implications of this new Accord will therefore be far-reaching and will require firms to make decisions in terms of resource allocation across their businesses. While the implementation is not until 2004, changes to systems and processes will need to be made much earlier. This is particularly true of operational risk.

The capital charges associated with operational risk can be reduced by adopting different methods of calculation. In order to move to different methodology and hence a lower capital charge, the firm must adopt a more sophisticated approach that will require investment in systems and the collection of sufficient loss data of appropriate quality and consistency. Even opting for the ‘default’ or ‘basic’ approach associated with the highest capital charge will require firms to introduce new systems and data reporting capabilities.

Given that operational risk charges could lead to significant increases in capital requirements for non-bank investment firms and that many FOA members have limited knowledge of the steps that need to be taken now in order to prepare for these new charges, the FOA intends to do the following:

(i) Hold a workshop/briefing in April in order to raise awareness of the operational risk elements of the new Accord, the timetable going forward and what the implications are for non-bank investment firms; and,

(ii) Conduct a survey of FOA membership to assess the level of awareness and preparedness for dealing with operational risk requirements and compare and contrast against what would be considered to be ‘good practice’. In addition, we will seek views on whether some guidelines or action pointers as to ‘how to prepare for operational risk requirements’ are required.

For further information please contact Hugo Jenkins on +44 (0)20 7426 7254.