NASDAQ GLOBAL COMPLIANCE SURVEY INSIDE THE MIND OF THE COMPLIANCE OFFICER

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In its first year, Nasdaq’s Global Compliance Survey: Inside the Mind of the Compliance Officer collected responses from over 330 participants and found relevant trends between 158 qualified respondents from 131 firms in the financial services industry to provide insight into the everchanging role of the global Compliance Officer. The in-depth analysis focused on four main components of the modern compliance role through a series of 30 detailed questions. In addition, supplementary sections were included for those specific to trade surveillance or buy-side roles, which will be detailed in a later report. The survey results investigate both internal and external challenges affecting compliance officers around the world—from an organization’s compliance culture and resources, to which global trends and regulations are having the greatest impact—as well as the overall evolution of the compliance role in recent and future years.

GENERAL SEGMENTATION

RESPONDENTS’ REGIONAL BREAKDOWN

The 158 survey responses collected represent all regions across the global spectrum – from the Americas and Europe to the Middle East and Africa and Asia Pacific. The largest majority of respondents were based in North America, followed by 2%Asia Pacific, Europe and the Middle East and Africa.

6%

2%

14% Qualified respondents are members of firms in the financial services12% sector with roles pertaining to compliance or trade surveillance. The general survey respondent profile reflected that the majority of respondents were experienced personnel with comprehensive compliance roles, with over 63% of respondents having 6+ years of practice in a compliance or surveillance specific role. In addition to experience level, survey respondents are categorized by the following roles: General Compliance, Trade 72% Surveillance and Monitoring, Front-office Business, AML Compliance, Compliance IT/ Tech, Comprehensive Compliance, and Internal Compliance. As noted in the below graph, the majority of respondents hold a position within the General Compliance or APAC Europe Trade Surveillance/Monitoring categories. Americas MEA

8 14%

12%

37%

23%

26%

72%

APAC

Europe

Americas

MEA

Less than 1 year 1 to 2 years 3 to 5 years

Further echoing the levels of experience and comprehensiveness of roles reported from respondents, two-thirds of answers were provided by director-level respondents or above, including a healthy percentage of C-level executives.

RESPONDENTS’ CAREER LEVEL 6% 6%

6 to 10 years 10 years or more

RESPONDENTS’ ROLES

RESPONDENTS’ EXPERIENCE IN A COMPLIANCE ROLE 8% 8%

8% 8%

General Compliance

46% 16%16%

37%37%

42%42%

23%23%

26%26%

28%

34%34%

6%

Trade Surveillance/Monitoring Trade Surveilla Front‐office business AML Compliance

6% Compliance IT/Tech

5% LessLess thanthan 1 year 1 year

VP or VPDirector or Director

1 to12to years 2 years

C-Level C-Level

3 to35to years 5 years 6 to610 to years 10 years 10 years or more 10 years or more

AVP,AVP, Analyst/Associate Analyst/Associate Executive Director or or Executive Director Managing Director Managing Director

General Compl

46% 28% 6%

AML Complianc

6%

Compliance IT/

5%

Comprehensive Compliance

3% 1% 5%

Front‐office bu

Internal Compliance Other

Comprehensive

3% 1% 5%

NASDAQ GLOBAL COMPLIANCE SURVEY

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Internal Compl Other

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ORGANIZATIONAL STRUCTURE OF RESPONDING FIRMS Upon evaluating the organizational structure in relation to the compliance function of the responding firms, it is evident firms around the world are placing higher General that Compliance importance on compliance standards across the board. This increased focus on the 46% compliance function has also helped lead the way for both increased collaboration Trade Surveillance/Monitoring and visibility across the 28% organization. Compliance has moved from a traditionally back-office function to a high Front‐office priority for business global firms, thus collaboration between 6% the compliance department and the front-office has significantly increased in recent AML Compliance years. Over half of inter-department collaboration is horizontal or advisory in nature, 6% while only 7% is purely vertical.

COLLABORATION BY DEPARTMENT AND FIRM TYPE Front-Office/Business

75% Legal

53% Risk Management

47% Executive Management

44%

Compliance IT/Tech

Of the firms participating 5% in the survey, respective compliance departments were found to collaborate most frequently with theCompliance front-office (75% of respondents), Comprehensive followed by the legal department (53% of respondents) and risk management 3% (47% of respondents). When comparing the collaboration between groups, Internal Compliance 1% significant differences can be found when comparing firm types.

Audit

30% Information Security

28% Internal Control

22%

Other

Survey results, detailed in5% the below graph, showed a strong correlation between investment banks or brokerages collaborating with front-office or business departments, while trading venues and infrastructure firms appeared to collaborate much less frequently with front-office business and information security departments. This is most likely due to trade monitoring being conducted independently by trading desks in nearly three quarters of respondents. However, it is interesting to note that the majority of respondents report that redundancy is employed in the trade monitoring function, with 87% of respondents reporting that both the front-office and compliance teams are involved with the trade surveillance process. Upcoming regulations could significantly impact the correlation of collaboration between departments and will be interesting to monitor throughout the next 12-18 months.

Governance/Corporate

15% Technology & Operations

8% Finance

1% Other

2%

67% 92% Front-Office/Business 76% 42% COLLABORATION BY DEPARTMENT (MULTIPLE SELECTION)

Audit

36% 19% 49% 25%

92%

42%

56% Risk Management

45% 58%

19% 49%

Investment Bank or Brokerage

25%

Information Security

Buyside Firm

33% 23% 42%

Retail Bank or Corporate Trading Venue or Infrastructure Firm

13%

42% 13%

CEO 35% Percentages outlined by squares differ significantly Head of Legal 20% from those outlined by circles for each category

COO 10% CRO

9%

Board of Directors

9%

C-level executive

8%

NASDAQ GLOBAL COMPLIANCE SURVEY

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42%

1%

13%

Other

2%

In addition to relative increases in collaboration between the compliance teams and other departments throughout the organization, compliance departments are 67% also gaining much more visibility on the executive level. Compliance departments 92% are now much more likely to have a seat at the table in executive discussions Front-Office/Business 76% concerning the strategic direction of their respective firms, with 74% of respondents 42% reporting that they frequently collaborate with executive management. Furthermore, Chief Compliance Officers overwhelmingly report directly to high C-level or legal 36% departments, with 35% responding directly to the Chief Executive Officer. 19% Audit

WHO THE HEAD OF COMPLIANCE REPORTS TO: CEO 35% Head of Legal 20% COO 10% CRO

9%

Board of Directors

9%

C-level executive

8%

Committee

4%

Division Leader

4%

49% 25%

Risk Management

56% 45% 58% 25%

Buyside Firm

Investment Among top Bank or Brokerage A large driver for growing focus on the compliance function is the increase in global concerns 33% Retail Bank and regional regulations.23% Among top concerns impacting respondents, regulatory or Corporate Information Security New reporting and administrative consuming requirements were the most heavily cited. Both understanding regulatory impact and 42% requirements detailed by regulation Trading Venue or the ability to meet requirements are a major concern across the board throughout the 13% Infrastructure Firm respondents, next 12 months. Understanding technology capabilities regulatory and implementing at your firm Results also show that new and stricter regulatory action is the biggest driver of requirements evolution in compliance processes during the last two years, according to 80% of Mitigating potentially manipulative or behavior with regard to your responding firms. Some firms additionally reported the increasing importance of new abusive are the most organization’s trading activity CEO 35% data and technology throughout the next 12 months. New data and technology is Head of a Legal heavily cited 20% expected to play bigger role in driving evolution in compliance processes over the next

COMPLIANCE DRIVERS AND REGULATION

Managing your firm's reputation

37%

24%

18%

16%

10% year; however, theCOO regulatory environment remains a major factor, with only 12% of respondents citing CRO that they 9% feel they are completely prepared for upcoming regulatory Mitigating any potential manipulation change. Regulatory concerns or abusive behavior within your 5% Board of Directors 9% differ based on type of firm, detailed in the below graph. organization (gifts, AML, etc.)

C-level executive 8%regulatory concerns, the majority of respondents report that Coinciding with upcoming Committee 4% protecting their firm’s reputation is a top compliance driver. However, despite being a top concern, theLeader time spent Division 4% on regulatory research totals less than one hour per work day for the majority of compliance departments.

TOP COMPLIANCE CONCERNS New reporting and administrative requirements detailed by regulation

REGULATIONS BY FIRM TYPE

37%

Understanding technology capabilities and implementing at your firm

24%

Mitigating potentially manipulative or abusive behavior with regard to your organization’s trading activity

18%

Managing your firm's reputation Mitigating any potential manipulation or abusive behavior within your organization (gifts, AML, etc.)

16%

5%

Dodd-Frank

Market Abuse Directive

UK Anti-Bribery Act Specific National Regulation

33% 42% 58% 31%

33% 58% 31%

43% 16% 17% 11%

16% 17% 11%

14% 19% 2% 2% 3% 3% 10% 10% 0% 0% 2% 2% 0% 0%

19%

43%

Trading Venue or Infrastructure Firm Retail Bank or Corporate Investment Bank or Brokerage6%

15%

Buyside Firm

18%

13% Percentages outlined by squares differ significantly from those outlined by circles for each category 22%

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27%

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3

COMPLIANCE SPENDING Along with an increased focus on compliance standards globally is also an increase in compliance spending at many firms worldwide. Over the past 12 months, nearly half of responding firms have increased their spending up to 25%, while 13% of firms have exceeded 25% increase in spending. This is a notable allocation to compliance in an environment where firms are overwhelmingly looking for ways to cut costs elsewhere.

COMPLIANCE SPENDING OVER LAST 12 MONTHS 6% 15% 18% 13%

There are many significant differences in compliance budget allocations depending on type of firm. In the below graph, multiple notable correlations can be observed. As depicted, investment banks and brokerage firms are most likely to be investing in surveillance technology, while they traditionally spend less on compliance support staff. Meanwhile, retail banks and corporates traditionally spend more on Governance, Risk and Compliance (GRC) technology and support staff.

27%

22%

Decreased No change

With upcoming regulatory implementations, compliance spending is expected to stay strong over the next year, with one third of firms intending to increase spending up to 10%, and one fifth of firms planning to increase spending 10% to 25%. The largest budget allocations will be dedicated to surveillance technology and additional support staff for compliance teams. In the past, staff increases have been slight, indicating that increasing budgets are weighted towards technology spending. However, compliance departments in retail banks or corporates have traditionally leaned more heavily toward staff increases.

Increase of 1-10% Increase of 10-25% Increase of more than 25% I don't know

COMPLIANCE BUDGET SPEND THROUGHOUT NEXT 12 MONTHS Surveillance technology 47% 38% 42% Governance, Risk and Compliance (GRC) technology 33% 29%

47% 68% 38% 42%

68%

33% 29% 59% 21% 59%

21% 33%Additional support staff 39%

33% 39% 66% 46%

66%

Buyside Firm

Investment B or Brokerage

Percentages outlined by squares differ significantly from those outlined by circles for each category

17%

Buyside Firm

AUTOMATION AND POLICIES

3%

22%

Investment Bank or Brokerage

As the trading landscape evolves, it is becoming more essential to implement more explicit policies surrounding 9% or Corporate monitoring as well as automated compliance technologies. Survey results reveal thatRetail mostBank compliance departments do update policies on a regular basis, with most updating more frequently than annual reviews. In regard to 8% Trading Venue or Infrastructure automation, trade surveillance and supervision, AML, and employee compliance are currently the mostFirm automated processes. However, automation differs significantly depending on type of firm throughout nearly every process.

9%

/

13 25%

Ad hoc

NASDAQ GLOBAL COMPLIANCE SURVEY

5%

I don't know

4

FREQUENCY OF CORPORATE POLICY UPDATE 17%

Buyside Firm

3%

22%

Investment Bank or Brokerage 9%

Retail Bank or Corporate

Ad hoc

31%

5%

9%

8%

Trading Venue or Infrastructure Firm

28% 26%

13% 25%

I don't know

5%

28% 8% 1-2 Years

14% 25%

15%

19% 21%

Annually

8%

19%

13%

21%

Semi-Annually

Quarterly

3% 4% Monthly

Percentages outlined by squares differ significantly from those outlined by circles for each category

78% 44% AREAS UTILIZING AUTOMATED PROCESSES AND SPECIALIZED TECHNOLOGY Trade Surveillance

86% 39% 79%

Anti-Money Laundering

33% 60% 65% 29%

Employee/Personal Trade Compliance

39% 60% 32% 29%

KYC Requirements

Trade Supervision

59% 32% 54% 44%

Financial reporting compliance (i.e. SOX or similar)

14% 24% 52% 42%

78% 86%

39% 79%

33%

60% 65%

29%

Case Management

59% 32%

14%

52% 22% 19%

39%

14% 24% 42% 17% 14%

60%

32% 29%

eComms

24%

22% 52% 25% 11% 27% 13% 13%

52% 25% 11% 27%

Buyside Firm

17%

42%Investment Bank or Brokerage

Retail Bank or Corporate

Trading Venue 13%or Infrastructure Firm 13%

Percentages outlined by squares differ significantly from those outlined by circles for each category

CONCLUSION Overall, throughout the past year there has been a large shift in focus on compliance, resulting in large increases in compliance spending, resources and staff worldwide. Compliance budgets are increasing dramatically, with about half of respondents stating that their budgets have increased nearly 25%, in comparison to other budget areas, which increase an average of 10-15% per year. Regulations continue to be a major concern for compliance personnel globally and are a large driver behind these increases, leading to more frequent compliance policy updates and increasingly automated monitoring processes. There is no doubt that the role of the Compliance Officer is evolving rapidly, making it evermore essential to seek educational opportunities to keep pace with the changing regulatory landscape. Those firms that have strong compliance departments moving into the future will find ways to keep up-to-date from both an educational and technological standpoint and efficiently allocate resources where necessary.

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