Governance, Risk & Compliance

Canadian banking outlook downgraded over ‘bail-in’ move, adding to recent financial stability concerns

In yet another worrying sign for Canada’s financial sector, Moody’s Investors Service has lowered its outlook for the Canadian banking system from “stable” to “negative” over uncertainty about government willingness to bail out banks during a crisis. It follows a pair of recent warnings issued by the Bank of Canada (BOC) and the Bank for International Settlements (BIS), both of which highlighted the growing risk of stress posed by runaway consumer debt and property prices.Moody’s negative outlook reflected the rating agency’s pessimism over Canada’s plan to implement a “bail-in” regime that would avoid taxpayer-funded bank bailouts by shifting some of the burden to bondholders. It would allow banks to convert some of their debt into to equity during a crisis.  (more…)

BNP’s misuse of ‘satellite banks’ may portend future enforcement over ‘nested’ correspondent accounts

BNP's misuse of 'satellite banks' may portend future enforcement over 'nested' correspondent accounts

One of the methods used by BNP Paribas to help the government of Sudan send and receive billions of dollars worth of oil-related payments is of growing to concern to the U.S. Justice Department, and U.S. banks should consider acting to avoid unwitting involvement in such transactions, sources familiar with the matter said.

Records in BNP’s nearly $9 billion settlement with U.S. authorities on Monday indicate that a compliance officer at the bank had warned in 2005 that the method it was using improperly circumvented U.S. sanctions. (more…)

Closely-held corporations exempt from ACA contraception mandate

© Gary Blakeley -

In a much-anticipated decision, the U.S. Supreme Court ruled on June 30, that for-profit closely held corporations are covered under the Religious Freedom Restoration Act of 1993 (RFRA). The RFRA prohibits the government from “substantially burden[ing] a person’s exercise of religion even if the burden results from a rule of general applicability.” The RFRA provides an exception when the burden is in furtherance of a compelling governmental interest and is the least restrictive means of furthering that compelling interest.


BNP Paribas: Fractured compliance team torn between risks, commercial goals

The U.S. case against BNP Paribas for conspiring to violate sanctions that prohibit transactions with Sudan and other regimes paints a picture of a fractured compliance organization, torn between those warning of the grave risks the bank was taking, and others who aligned themselves with the commercial interests of senior management. Ultimately, the latter group prevailed, leading to years of transactions that were funneled through the U.S. via “satellite banks” in order to avoid detection.

More broadly, the details accompanying the landmark $8.9 billion settlement with U.S. authorities highlight the conflicts and challenges that compliance officers face with clients that are highly profitable, and the limitations they subsequently encounter with senior management. (more…)

Canada’s financial system vulnerable to overheated housing market, central bank says

Canada’s overheated housing market represents a significant risk to the stability of its financial system, the country’s central bank has warned.

In its recently released Financial System Review (FSR) (PDF), the Bank of Canada (BOC) warned that while the system was stable overall, it remained vulnerable to several risks that could trigger a disorderly market correction. The economic and financial consequences of such a correction would be severe, the BOC predicted.  (more…)

Who is responsible for managing compliance risk? You are, say regulators

High profile scandals and enforcement actions around the world have elevated the stature and scale of the compliance function across our industry.  This could be seen as, perhaps, one of the few good outcomes of the financial crisis.  Yet compliance is moving into unchartered waters.  The focus on personal liability as an enforcement priority is sending a chilling message to boardrooms and compliance teams alike, just as regulators are also shifting focus from rules-based compliance to concepts which are harder to measure, none more so than culture and conduct risk.

But measure is exactly what we must do.  This week at our 10th annual Compliance & Risk Summit in London, the UK’s Financial Conduct Authority (FCA) enforcement director Tracey McDermott spoke to a packed house of 500 compliance professionals.  Ms McDermott’s message is that conduct and culture will be key indicators used to assess if the customer is being treated fairly.

Conduct risk was not even on the radar of most compliance officers three years ago and its exact meaning is still not strictly defined.  What we do know is that conduct risk is not market, credit, liquidity or operational risk; it is more about the way that firms and their staff conduct themselves. For compliance teams this means traditional quantitative-based analysis around the compliance of rules won’t suffice in assuring boards and regulators that their firms have done the right thing by the customer. (more…)

Medicaid Expansion by Executive Order

REUTERS/Molly Riley

After months of fighting for Medicaid expansion, Virginia Gov. Terry McAuliffe (D) lost the battle when a Democratic state senator, Phillip Puckett, announced his retirement on June 9. His retirement, which was effective immediately, gave control of the Virginia Senate to Republicans by a one-vote margin. After Sen. Puckett retired, the Senate passed a two-year budget without the governor’s proposed Medicaid expansion plan.

With a state government shut down looming on July 1, Gov. McAuliffe has said he will carefully evaluate the budget when it reaches his desk. However, he has also said his fight for Medicaid expansion that would cover an additional 400,000 Virginians is not over. (more…)

Dark-pool, speed-trading debate at CFTC panel focuses on new rules vs. effectiveness

The U.S. futures regulator CFTC should force dark pools to disclose information about customers’ orders and ban the fees that exchanges pay some brokers to execute their orders, a critic of the dark pools told the commission.

Joseph Saluzzi, the co-head of equity trading at Themis Trading, said the SEC and the CFTC lacked the surveillance systems to police high frequency traders. He said that forcing dark pools to disclose information about orders would inform regulators about the practices of the HFT firms who use dark pools.  (more…)

IA brief: Recent tech survey highlights text message risk

A recently released survey has exposed a possible compliance gap for many firms that allow their representatives to communicate with clients via text message.

Text messages are books and records that are regulated by Rule 204-2 under the Investment Advisers Act of 1940, which requires the maintenance of multiple adviser records, with communication between clients being one of them.  (more…)

Canadian regulators propose reduced disclosure requirements for smaller issuers

Smaller public companies in Canada may soon benefit from relaxed disclosure requirements. The Canadian Securities Administrators (CSA), the country’s securities standard-setter, recently proposed several amendments that address continuous disclosures, prospectus disclosures, and certain governance obligations.

In particular, the proposed amendments for the smaller companies, or “venture issuers” would: (more…)