new year resolutions

Lets make our New year resolutions outcomes rather than actions...so we can measure what we have achieved rather than just tracking what we have done.

may I borrow your mirror?

The task today is to create a mock case-study that demonstrates the dos and don'ts of monitoring performance...no, let's be more specific, monitoring compliance...we all have compliance obligations.

So what do we need to include in our case-study?

Do we have a clear purpose? Perhaps the protection of investors would be a good example. So how can we do that? Well a stock exchange with regulatory powers granted under statute would be a good robust structure. The governance role of the Board of such an exchange "can be considered in four areas: policy setting; discipline; crisis response; and monitoring and oversight of the [exchange's] performance of its regulatory functions".

What tests could we use to examine the Board's performance? Has it been extensively involved in setting regulatory policy? Is it active in crisis response, and does it demonstrate that action? Has it created an independent body to hear and determine cases of suspected breaches of its conduct rules?

The fourth area, monitoring and oversight of the exchange's executive's performance of their regulatory functions is perhaps a little more complex. We need to test if the exchange board's policy fully recognises the exchange's role under the regulatory framework. As the exchange involves sharebrokers, is the board maintaining appropriate strategic oversight of the sharebroker compliance programme? Are they ensuring they are fully informed on the ongoing performance of that programme against the strategic plan?

So we need a strategic plan, to map the direction the exchange executives need to take to achieve the board's objectives. And we need regular informed monitoring and reporting of both the participant sharebrokers and the monitors themselves.

To carry out its stautory and regulatory obligations the exchange will also need:

• documentation and guidance on inspection procedures;
• record keeping and recording of inspection procedures;
• clearly defined roles for supervisors within the exchange;
• clarity about the the role of the board itself, as this relates to ongoing oversight of the exchange's performance of its regulatory functions;
• rules about the use and security of client's funds; and
• clearly defined obligations in the event of non-performance.

Then there is the capability side:

• the capacity of the exchange to carry out its obligations, defined as sufficient capable people;
• clear internal responsibilities and accountabilities; and
• good internal and external communications.

And finally on the behavioural side:

• exceutive responsibility to address matters referred to them by staff;
• accountability rather than the blame-game; and
• accepting responsibility for failures, then identifying and addressing the causes of that failure.

In essence driving performance rather than following it.

Perhaps we could use a real example for our case-study. Like the NZX (New Zealand Stock Exchange)!

The Securities Commission New Zealand has carried out "An Inquiry Into the Performance by NZX of its Regulatory Functions as a Registered Exchange During 2003 and 2004 Prior to the Collapse of Access Brokerage".

In essence it found that the Board had set policy and had responded directly and quicky to the crisis occassioned by the collapse of Access Brokerage. However the Inquiry found that in all of the other aspects noted above, the NZX fell short of its obligations, in some cases to a significant degree.

How often do we find, as did the Inquiry by Securities Commission New Zealand, that "...there were shortcomings in the development and early operation of the compliance programme. While the broker compliance plan was put to the CEO and Board for approval, implementation of broker inspection procedures was largely left to NZX staff who were relatively inexperienced in broker compliance programmes. We acknowledge that NZX had difficulty finding such experienced staff at that time. Supervision of the compliance team was inadequate. Issues elevated to the team supervisor and other executive management at times received little response".

And who watches the watchers?

The Securities Commission New Zealand states, in its report, "The Commission has not at this time undertaken a detailed review of NZX's current broker compliance programme".

Should we give the Securities Commission New Zealand a mirror of their own?

...beginning our journey...

Welcome to the performance-eye blog...

Our purpose is to enable you to better understand performance issues, triggered by our perspectives, enhanced by expert discussion on and off-line, and realised by developing and implementing proven solutions ...

...and all done with a smile!

Look forward to engaging with you...

Michael Ross

CEO
Performance Resources International Ltd.