Governance, Risk & Compliance

Uncertainty over resolution regime may hamper loss-absorbency standard for big banks

Uncertainty over resolution regime may hamper loss-absorbency standard for big banks

Even as international standards slowly take shape for total loss absorbency capacity (TLAC) – key element of the regulatory effort to end the perception that major banks are “too-big-to-fail” – pe the end of a consultation period last month left uncertainty lingering over restrictions on many of its provisions, and more importantly, the context in which it would operate.

Many of comment letters on the proposal by the G-20 backed Financial Stability Boardhave argued against these elements of the plan: strict requirements over eligibility for debt instruments — and their related cost — that could be counted as TLAC, the large share attributed to long-term unsecured debt within its TLAC composition, and the authority that national regulators are accorded in issuing additional TLAC standards. (more…)

Breaking the cycle of mistrust

Stock prices displayed on an electronic board are reflected in raindrops on the window of the board outside a brokerage in Tokyo

Instant messaging and chat rooms are essential to business, but they cannot continue to be used if they are not regulated properly. The very systems that are supposed to help businesses run their operations are the ones that are creating the most suspicion.

Over the past few years, we’ve seen it often repeated in the press: Banks are considering shutting down employees’ access to electronic chat rooms in the wake of market manipulation scandals, and even banning the use of instant messaging tools altogether. This is set against a backdrop of headlines dominated with news of misdemeanors and staggering penalties across the financial services industry. Time and again, firms and individuals are implicated, reputations are tarnished and the integrity of the entire industry comes into question.

This is the context in which banks’ use of chat rooms and their role in market abuse has been debated, only for no lasting resolutions to be drawn. In fact, we risk continuing these debates indefinitely, unless proactive steps are taken to address concerns and action is taken to reinforce them.

The immediate call by some banks to shut down chat rooms and instant messaging systems doesn’t address the real problem, and instead creates more problems than it solves. Shutting down chat rooms is undeniably impractical, because such communications are critical to the way the financial industry does business. Although doing so seems as if it would solve the dilemma, in reality, phone calls – the only real alternative – are even harder to monitor for abuse. Added to this is the fact that instant messaging tools help banks do business in the most efficient and timely manner – two traits that cannot be ignored in today’s markets.

However, it is also undeniable that chat rooms cannot continue to be used if they are not regulated properly. There needs to be some way of efficiently monitoring the use of instant messaging and chat rooms that satisfies the twin needs of business and compliance teams. This is no easy task. (more…)

The peak of regulatory change may be some way off

chart-regulatory

The amount of regulatory change tracked by Thomson Reuters for financial firms around the world has doubled in the last two years. The world’s financial regulators issued an average 155 alerts on every business day in 2014 – a total of 40,603 for the year. These alerts relate to updates to their rulebooks, but also other announcements, policy papers, speeches and enforcement notices. In 2013, they issued an average of 103 updates every business day; in 2012 the number was 68.

These numbers provide hard evidence of the extraordinary growth of the compliance culture in the financial services industry worldwide. The figures have been compiled by Thomson Reuters Regulatory Intelligence, which monitors more than 950 regulatory rulebooks worldwide published by more than 550 regulatory bodies.

The number of daily regulatory updates is perhaps as close as we can get to an authoritative measure of the extent of financial regulation growth since the crash. We have been compiling these figures since 2008, as the numbers and extent of rulebooks (and rulemaking bodies) have grown.

We also know that the consequences of failing to comply are becoming ever greater. In 2013, the UK regulator issued fines some 18 times greater than its predecessor had in 2008. Last year our report on the rising costs of non-compliance noted the increased focus among regulators on greater accountability and personal liability for the individuals involved in breaches.  We also noted that every global systemically important bank has been fined in recent years. The cost of compliance is not simply the amount handed over in fines, but also the cost of ending a business line, or perhaps curtailing the provision of certain services. And there is also the risk of enduring reputational damage done to the brand. (more…)

Compliance trends of 2015 – Graphic of the day

Compliance professionals must remain vigilant in keeping up-to-date on regulatory changes that may affect their compliance programs. Today’s graphic shows the key trends that are developing in the compliance landscape for 2015.

compliance trends

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Financial crime in MENA report 2015

Thomson Reuters and Deloitte launched the first financial crime survey in the MENA region this year. It’s the first survey of compliance professionals in this region, so we were very interested to see the results.

We received responses from over 160 executives across the corporate and financial sectors, with approximately 30% from businesses with over 1000 employees and 30% of businesses had a presence in more than five countries. Two thirds of respondents were actively involved in setting financial crime policy or were leading a team of people involved in financial crime policy for their organization.

Analysis of the responses noted a number of interesting trends: (more…)

Not a good start to the year: Goodyear Tire fine and the FCPA lessons

The due diligence that companies must perform before acquiring overseas companies and the anti-bribery controls required of foreign subsidiaries came into clear focus this week when the U.S. Securities and Exchange Commission (SEC) sanctioned Goodyear Tire & Rubber Co. $16.2 million for alleged Foreign Corrupt Practices Act (FCPA) violations.

According to the SEC’s order released on Tuesday instituting an administrative settlement, Goodyear failed to prevent or detect more than $3.2 million in bribes from 2007 to 2011 due to inadequate FCPA compliance controls at its units located in sub-Saharan Africa. (more…)

Growth and investment – the unintended victims of financial crime regulation

Reuters/Kieran Doherty

As a global industry, financial services needs to do a better job of opening bank accounts for people, investors and businesses.

It is perhaps the starkest example of the unintended consequences of regulatory reform – certainly the most visible consequence to customers – that it is now so difficult to open the bank accounts which are the first step in international commerce for any growing business. What began as a challenge to money launderers is now posing a palpable threat to the world’s financial centres, and we can do it much better.

This century has seen a welcome international consensus to ensure the proceeds of crime cannot be rendered invisible simply by being transferred across borders. Banks are now the front line of defense against organized crime and it falls to all financial technology providers to support them in stamping out money laundering and criminal financing.

But this is to agree the end and not the means. It is one thing for policymakers to decree that something has to be done; it is quite another for businesses to carry out that decree. (more…)

Introducing the BoardLink iPhone app

Last week we announced the launch of a new iPhone app for our BoardLink service, a secure board workflow solution designed to further accommodate companies as they operate across borders and have increasingly mobile, global boards.

The BoardLink iPhone app provides boards of directors with access to company and business intelligence information through a secure mobile solution. Directors now are able to respond immediately to urgent action items such as board resolutions, draft documents with a digital signature enabling a digital audit trail, as well as respond to and send secure messages to fellow board members.

BoardlinkAvailable online and offline, the iPhone app is fully compatible with Apple’s iOS 7 and iOS 8 platforms, complementing the already existing iPad app. Documents are encrypted for review online and offline via the app and a calendar enables board members to manage their schedule efficiently through BoardLink.

Our recent board governance survey revealed increased cybersecurity risks to boardroom communications. Over 60% of organizations never or only occasionally encrypt Board communications, and only a quarter indicated they always do so. Cybersecurity information is the least-requested information by the board, with only 32% of boards frequently or very frequently requesting such information. As concerns around data security continue to rise, BoardLink reduces the risk of sending sensitive information over email or other non-secure channels.

Learn more about the evolving role of the global board.

Download the Boardlink iOS app.

 

IA Brief: Six steps to address U.S. SEC cybersecurity focus

IA Brief: Six steps to address U.S. SEC cybersecurity focus

Now that the Securities and Exchange Commission has formally named cybersecurity as a top exam priority, firms must prepare for the impending scrutiny.

The SEC’s annual list of investment adviser examination priorities for 2015, released January 13th, SEC labeled cybersecurity as a market wide risk. Last year’s exam priorities did not specifically point to cybersecurity, but merely highlighted investment adviser technology as an exam priority. (more…)

Basel committee tightens disclosure requirements for banks

Basel committee tightens disclosure requirements for banks

In an effort to streamline banks’ regulatory data through increased transparency, and make them more comparable and consistent across the board, the Basel Committee on Banking Supervision has publishedrevised standards on disclosures.

The standards, building on the committee’s June 2014 consultation document made the disclosure requirements more detailed. It also made changes for securitization exposures, credit risk exposures, and credit risk mitigation techniques. (more…)