Governance, Risk & Compliance

Eight products on FINRA examiners’ watch lists in 2015

Eight products on FINRA examiners' watch lists in 2015

The Financial Industry Regulatory Authority’s 2015 exam priorities letter named eight products that it plans to monitor for risks to investors.

FINRA said shoddy disclosure about the products has made investors vulnerable to major losses when conditions in the market change. (more…)

Back-tested performance – often misleading, but not off-limits with precautions

(Reporting by Julie DiMauro and Jason Wallace of Thomson Reuters Accelus)

In separate actions against a Massachusetts-based exchange-traded funds investment manager, the SEC warned advisers to be careful if they advertise their performance, and to pay particular attention to the distinctions between true actual performance, model performance and back-tested performance.

Both actions were filed on December 22 against F-Squared Investments and its former CEO, with the firm settling for $35 million in disgorgement and penalties and the case against the former CEO just getting underway in U.S. District Court. (more…)

Conduct Risk Report 2014/15

REUTERS/Lucas Jackson

Yesterday we announced the findings of our Conduct Risk Report 2014/15 which revealed that managing and mitigating conduct risk continues to be one of the highest regulatory priorities, yet financial services firms remain unclear about what conduct risk is and how to address it. This lack of clarity, coupled with recent regulatory actions, appear to be driving concern about personal liability consequences.

In 2013, we undertook the first industry-wide survey into conduct risk to understand how financial services firms worldwide were implementing and managing this relatively new regulatory concept. This report seeks to understand in more depth the practical actions that firms have taken and to determine what changes and progress firms have made during the 12 months since the previous survey. More than 200 compliance and risk practitioners from financial services firms were surveyed between September and October 2014. Responses were received from across Africa, the Americas, Asia, Australasia, Europe and the Middle East. They represented banks, brokers, insurers and asset managers. Firms were not only geographically widely spread but also represented a wide range of sizes, from the small to global conglomerates, and included the majority of global systemically important financial institutions (G-SIFIs).

The results from the survey will enable firms to benchmark their views, preparations and expectations against those of their peers. As well as providing deep insight into current industry thinking and practices, this report also seeks to demystify the uncertainty surrounding conduct risk and provide insight into developing regulatory expectations. The results continue to reflect the uncertain approach to managing conduct risk. It is clear, however, that there has been a convergence and sharpening of focus in terms of the main elements that consistently underpin conduct risk across all types of firms and regions. Critically, and in line with the heightened regulatory focus, there has been a marked increase in board and senior manager-level interest and involvement in conduct risk management. Despite the ever-increasing volume of regulatory change and other competing demands which firms continue to face, the fact that conduct risk is now receiving this heightened level of scrutiny from the most senior managers emphasizes that conduct has become one of the highest priorities for financial services firms.

Some highlights from the report: (more…)

SEFs 2015 outlook: industry sees more flexible execution rules; harmonization

REUTERS/Yuriko Nakao

Regulatory efforts to simplify existing swap mandate rules in order to reduce fragmentation between the U.S. and Europe are likely to dominate the focus of participants in the swaps execution facility (SEF) market in 2015.

Indeed, harmonization and cross-border issues appear to be at the top of the agenda for the International Swaps and Derivatives Association (ISDA). In several speeches since becoming head of the industry group last year, Scott O’Malia, a former commissioner at the Commodity Futures Trading Commission (CFTC), has made it clear that for him regulators need to ensure that cross-border oversight is based on risk and not geographic location. (more…)

IA brief: Determine 2015 filing deadlines before it’s too late

It’s never too early to start planning for 2015 regulatory filing deadlines. There are deadlines applicable to all registered investment advisers and some that require a firm to determine applicability, usually based on services offered or types of investments managed by the firm.

For example, all firms will be required to file an annual amendment or determine eligibility when it comes to 13F securities reporting and only advisers to private funds will be required to file a Form PF. Addressing them now will ensure that required filings and the deadlines associated with them will not be missed. (more…)

Reversal of Dodd-Frank swaps rule ignores lessons from financial crisis, ‘London whale’

The decision by U.S. Congress last week reverse the so-called swaps ”pushout” rule for certain derivatives contacts will put a greater responsibility on regulators to demonstrate they have effective oversight over bank activities of the sort that played a role in the 2008 financial crisis and ‘London whale’ trading debacle.

Specifically, certain un-cleared credit default swaps comprised most of the contracts that were included in the push-out rule, or Section 716 of the Dodd-Frank Act. The rule requires banks that wished engaged in this activity to place them in separate affiliates with higher capital requirements. As such, they would not be funded through the deposit gathering activities of banks, seen as an important lesson from the financial crisis.  (more…)

U.S. compliance education expands as demand increases – Part Three: other countries

As companies spend more on compliance to meet regulatory imperatives on financial crime, data privacy, supply-chain management and others, the focus on compliance officers and their skill set has expanded. But when it comes to formal training programs, countries outside the United States have often led the way. (more…)

Exchange Magazine: Open for business


In the new issue of Thomson Reuters Exchange Magazine we turn our focus to an important topic in the financial industry: Open. It is a concept that touches every aspect of the business, whether it is open data, open platforms or open messaging.

Highlights from this issue include Thomson Reuters Tim Baker, Head of Content Strategy and Innovation, and Andrew Fletcher, Senior Manager Data Innovation Lab, on how to transform open data into intelligence; Vincenzo Dimase, FX Market Development Manager, on the growing role of bitcoin and what’s next for the cryptocurrency market; Corey Cherr, Thomson Reuters Head of Agriculture, Weather Research and Forecasts explains why it’s so important to get out in the field to harvest truly valuable agricultural data; and a feature on China, the world’s largest economy.

Also in this issue:

Get your free copy of Exchange on iOS and Android tablet devices in the Apple App Store, Google Play and Amazon Appstore. Or visit the Thomson Reuters Exchange Website to read individual articles.

Compliance education expands as demand rises: Part Two: certification programs

Compliance education expands as demand rises: Part Two: certification programs

This second installment of three-part series on compliance career training explores what a few companies and professional membership groups are offering for future and current compliance professionals and how they help them advance in their careers. It also gives the view of executive recruiters on whether training options are making a difference in terms of hiring patterns. (more…)

INTERVIEW: U.S. Fed’s culture focus will take more dialogue with banks – Wells Fargo’s Callahan

Patricia Callahan is the Chief Administrative Officer for Wells Fargo, responsible for corporate communication and government relations among her numerous duties. A 36-year veteran of the company, Callahan has served as head of Compliance and Enterprise Risk Management, providing regulatory compliance oversight for the company. She spoke recently with Thomson Reuters about banking culture, what it means for Wells Fargo, and how the Federal Reserve might assess culture in its supervisory review process. (more…)