FIRMA

National Risk Management Training Conference

A New Look at Conflicts of Interest

By

Regina D. Stover

Senior Vice President

Pittsburgh, PA

April 10, 2008

2 © 2008 The Bank of New York Mellon Corporation, Proprietary & Confidential

Contact InformationRegina D. Stover

Regina.stover@bnymellon.com

412-234-1572

3 © 2008 The Bank of New York Mellon Corporation, Proprietary & Confidential

Conflicts of Interest

Overview of BNYMellon

Regulations governing Conflicts of Interest

Types of Conflicts of Interest

Current Conflicts of Interest Concerns – Large Asset Manager Perspective

Future Challenges and Pressures

4 © 2008 The Bank of New York Mellon Corporation, Proprietary & Confidential

Overview of BNYMellon

One of the largest global assets managers with more than $1 trillion in assets under management

The world’s leading asset servicer with $23 trillion in assets under custody and administration

The leading provider of corporate trust, depositary receipts and shareowner services

The leading provider of clearing services

A leading provider of wealth management services with approximately $170 billion in private client assets

A leading provider of U.S. cash management and global payments

5 © 2008 The Bank of New York Mellon Corporation, Proprietary & Confidential

Overview of BNYMellon (continued)

Diverse Group of Clients:

Financial Institutions

Corporate Pensions

U.S. Public Funds

Mutual Funds and ETFs

Foundations and Endowments

Government Entities

Broker-Dealers

Investment Advisors

High Net-Worth Individuals and Families

6 © 2008 The Bank of New York Mellon Corporation, Proprietary & Confidential

Regulations Governing Conflicts of Interest

Regulation 9 – Self-Dealing and Conflicts of Interest

Regulation 12 – Personal Securities Trading Policies

State Fiduciary Laws and Regulations – Highest Standards as a Fiduciary

ERISA – Prohibited Transactions

Investment Advisors Act – Personal Securities Trading

FINRA – Personal Securities Trading

Regulation W/23a and 23b

7 © 2008 The Bank of New York Mellon Corporation, Proprietary & Confidential

Types of Conflicts of Interest

Insider and Related Party Transactions

Investing in stock of companies controlled by insiders

Acquiring insider property/selling property to insiders

Lending trust assets to insiders

Managing bank stock in fiduciary accounts

Purchase of services from related parties

Purchase from affiliated underwriting syndicates

Use of Material Non-Public Information

Securities Firewall – lending, cash management, relationship information

Insider Trading

8 © 2008 The Bank of New York Mellon Corporation, Proprietary & Confidential

Types of Conflicts of Interest (continued)

Fiduciary Compensation

Sweep Fees

ERISA Float Disclosure

Special Fee Disclosure

Reasonableness Test

Employee Fee Concessions – Consistency

Fee Methodology

Employee Unethical Conduct

Code of Ethics

Personal Securities Trading Requirements

Tone from the top

9 © 2008 The Bank of New York Mellon Corporation, Proprietary & Confidential

Current Conflicts of Interest Concerns – Large Asset Manager Perspective

Activist Hedge Fund Management

Performance drives fee compensation

Manager bonus program

Serving on public/non-public company Board of Directors

Accepting compensation for serving on Board

Voting proxies

Use of Soft Dollars

Documenting best execution

Evaluating how soft dollars are used

Getting comfortable with mixed use

Requests for reports on account specific soft dollar generation

10 © 2008 The Bank of New York Mellon Corporation, Proprietary & Confidential

Current Conflicts of Interest Concerns – Large Asset Manager Perspective (continued)

Personal Securities Trading

Pre-clearance requirements

Independent review of trading activity versus pre-clearance requests

Special approval for investment in private placements

Managing family/relative accounts

Proxy Voting

Independent from commercial bank activities

Confidentiality required

Fiduciary responsibility for economic interest

Social issues

11 © 2008 The Bank of New York Mellon Corporation, Proprietary & Confidential

Current Conflicts of Interest Concerns – Large Asset Manager Perspective (continued)

Use of Affiliated Mutual Funds

Fee disclosures

Performance monitoring

Strategic fit – breadth of product offering\

Serving as Personal Fiduciary/Executor

Immediate family only

Management approval required

Ongoing oversight needed

12 © 2008 The Bank of New York Mellon Corporation, Proprietary & Confidential

Current Conflicts of Interest Concerns – Large Asset Manager Perspective (continued)

Use of Affiliates (Regulation W)

Purchases of securities underwritten by an affiliate – Board approval required

Use of affiliated broker/dealer for trade execution – positive consent

Use of affiliated clearing broker by unaffiliated broker/dealer - disclosure

Affiliated company Service Level Agreements

13 © 2008 The Bank of New York Mellon Corporation, Proprietary & Confidential

Future Challenges and Pressures

Tainted with scandals of others in the industry

Inappropriate gifts and entertainment

Investment banking research

Mutual fund late trading and market timing

Integrating acquired companies

Investment managers becoming part of a bank

Different regulatory environment (in some cases no previous regulator)

Personal securities trading requirements

14 © 2008 The Bank of New York Mellon Corporation, Proprietary & Confidential

Future Challenges and Pressures (continued)

Myth of the “shared culture”

Ethics subject to interpretation

Generational differences – e.g., respect for authority

Very difficult to implement

Tension between “entrepreneur” goals and need for corporate control

Incompatible geographic cultures

Japanese approach – personal accountability

American approach – “not my problem”

15 © 2008 The Bank of New York Mellon Corporation, Proprietary & Confidential

Conclusion

A financial institution’s ability to achieve profitability while maintaining its reputation is directly related to its ability to manage conflicts of interest. Every employee must be committed to understanding how conflicts of interest can occur and how they must be avoided or resolved.