Volume 2 — Governance and ControlsGovernance and Controls © Copyright 2002, CCRO. All rights reserved. Table of Contents I INTRODUCTION ....................................................................................................................................1 1.0 Governance and Controls ................................................................................................................3 2.0 Oversight............................................................................................................................................4 2.1 Board of Directors .........................................................................................................................5 2.2 Risk Oversight Committee ..........................................................................................................5 2.3 Chief Risk Officer ..........................................................................................................................7 2.4 Corporate Risk Management ......................................................................................................8 3.0 Front, Middle, and Back Offices ...................................................................................................10 3.1 Front Office ..................................................................................................................................10 3.2 Middle Office ...............................................................................................................................12 3.3 Back Office ...................................................................................................................................13 4.0 Support Functions ...........................................................................................................................14 4.1 Legal ..............................................................................................................................................14 4.2 Internal Audit ..............................................................................................................................14 4.3 Information Technology ............................................................................................................14 4.4 Treasury........................................................................................................................................14 4.5 Tax .................................................................................................................................................15 II BEST PRACTICE PROCESSES AND CONTROLS .........................................................................16 1.0 Deal Life Cycle.................................................................................................................................16 1.1 Deal Execution.............................................................................................................................17 1.2 Deal Validation............................................................................................................................25 1.3 Risk Management .......................................................................................................................31 1.4 Settlements and Accounting Close ...........................................................................................37 1.5 Reporting......................................................................................................................................41 2.0 Energy Trading Systems ................................................................................................................44 3.0 Inventory of Processes ....................................................................................................................45 III POLICIES AND PROCEDURES .......................................................................................................47 1.0 Risk Policy ........................................................................................................................................47 2.0 Risk Control Operational Procedures ..........................................................................................49