Volume 2 — Governance and ControlsGovernance and Controls © Copyright 2002, All rights reserved 12 3.2 Middle Office The middle office is responsible for maintaining the overall control environment and assessing compliance with the risk policy. The middle office provides a significant level of control and policing of the front office’s activities and, therefore, should be independent of the front office, reporting through the CRO or CFO. To maintain independence, incentive compensation for the middle office should not be tied to the business unit’s performance. The middle office’s functions include assuring data integrity through deal validation and executing the risk monitoring requirements authorized by the ROC. In some organizations, the middle office may also perform the role of corporate risk management and/or the credit function discussed in section I-2.4.2 above. Middle Office ― Responsibilities and Duties Risk Control • Confirm all appropriate transactions within established industry standards. • Establish a rigorous process to insure that confirmations are sent and reviewed pursuant to contract terms. Errors should be resolved, and changes should be communicated to appropriate personnel on a timely basis. • Validate all transaction details to the relevant risk management systems. • Foster a cooperative error-resolution effort between front, middle, and back offices. • Maintain appropriate transaction detail and acknowledgement records. • Develop and maintain documentation outlining standard procedures for conducting business. • Routinely check trader authority and reconcile that authority with the appropriate external counterparties, exchanges, brokers, etc. • Lead and/or support risk systems and infrastructure development efforts. • Provide staff support to the ROC. • Maintain risk systems. • Monitor compliance with policies, guidelines, and limits report violations. • Identify weaknesses and opportunities for enhancement in the control environment develop solutions and implementation strategies. • Approve and manage the trading book structure designed to accomplish both front- and back-office objectives. • Monitor and ensure the appropriateness of intra-book trades.