Welcome back to the Risk Queue,

This week a lot to cover as Financial Firms deal with market adjustments, regulators, and guidance on AI risk.

Lets get to it,

Naeem Qasim

CEO & Founder, Risk On Q

Risk Headlines

Fed Pauses on Rate Hikes, Will Rate Increases Be The December Gift - Source Wall Street Journal.com

Key Points:

• While the Fed left interest rates unchanged, marking the second straight meeting without a hike, inflation may not be cooling as much as indicated. Firms and consumers are likely experiencing persistent inflationary pressures not yet reflected in the data. The increases in longer-term rates are already raising borrowing costs for businesses, mortgages, and auto loans, tightening financial conditions. The Fed may be underappreciating the risks of entrenched inflation taking hold with this pause. There is the need to closely monitor forward-looking inflation indicators and prepare for the potential risks of resumed aggressive tightening if inflation fails to moderate meaningfully. Though the Fed seeks to balance tightening risks against letting inflation become entrenched, there are signals rising prices may be stickier than anticipated.

• Powell refrained from committing to a pause in rate hikes, as the Fed will conduct further data-dependent analysis before its December 12th decision. Expect the Fed to closely monitor inflation expectations and wage growth trajectories. If these data remain elevated, it could spur a December rate hike that catches markets off-guard. Many experts may be underestimating the risk of persistently hot inflation readings that could compel abrupt tightening. Firms should prepare scenarios and contingency plans for an unforeseen hawkish shift. While a December pause appears likely, conditions could force the Fed's hand. Firms will need to identify market assumptions around a pause and model potential risks if the Fed surprises with tightening amid unrelenting inflation. Stress testing Firm’s exposures across asset classes will be key.

You can read the full story at WSJ.com here. 

A. I. Risk / Technology Risk

U.S. President Issues Executive Order on Safe, Secure, and Trustworthy AI - Source WhiteHouse.gov

UK Publishes Set of Principles to Manage Risk of Artificial Intelligence - Source Reuters.com

Fines, Losses, & Rules

RBC to Pay $6 mln to SEC for Internal Accounting Control Violations - Source SEC.gov

CFTC Total Penalties Exceeded $4.3Billion, Enforcement Results for 2023- source CFTC.com

The Commodity Futures Trading Commission released its enforcement results for 2023, including a record number of digital asset cases (47), actions holding registrants accountable, manipulation and spoofing cases, and litigation victories.

SEC Adopts Rules for the Registration and Regulation of Security-Based Swap Execution Facilities- Source Sec.gov

The Commission has sought to harmonize as closely as practicable with parallel rules of the CFTC that govern swap execution facilities (SEFs) and swap execution generally.

Emerging Risk

SIFI Banks Selling Risk to Reduce Regulatory Capital Charges  - Source WSJ.com

Citigroup Looking to Perform Deep Job Cuts, at least 10% - Source CNBC.com

Citigroup plan emphasize removing unnecessary layers to better serve clients and aims to increase returns to at least 11% in the coming years. As Citi cuts costs, vigilant risk management will be key to avoiding new and existing vulnerabilities that Regulators are focused on.

Risk Data to Geek Out On

The Power of Unconventional Thinking by David McWilliams - Source Ted.com

The Risk Function is an exciting role that provides variety, influence, complexity and unpredictability, making it demanding but also fascinating. The below video by David McWilliams is must see for those whose job is to think unconventionally.

The U.S. Financial Regulators: A Look at SEC: Securities & Exchange - Source Google.com

Last week we are taking a look the US financial regulatory bodies and their key responsibilities, regulations, and some of the the larger fines they have imposed, below are the images from last week. This week are taking a look at the SEC specifically and some the key stats for your knowledge. Below is the SEC 2023 Organization Chart.

• The SEC consists of five divisions and 23 offices. Their goals are to interpret and take enforcement actions on securities laws, issue new rules, provide oversight of securities institutions, and coordinate regulation among different levels of government.

• The SEC oversees more than 40,000 public companies, 7,000 broker-dealers, and 11,000 investment advisers.

• The U.S. securities markets are the largest in the world, with a total market capitalization of over $60 trillion.

• In 2022, the SEC filed over 400 enforcement actions and returned over $1 billion to investors.

• Oversee 24 national securities exchanges, 9 credit rating agencies, 7 active registered clearing agencies, the Public Company Accounting Oversight Board (PCAOB), the Financial Industry Regulatory Authority (FINRA), the Municipal Securities Rulemaking Board (MSRB), the Securities Investor Protection Corporation (SIPC), and the Financial Accounting Standards Board (FASB);

• In 2022, the SEC received over 10,000 tips from whistleblowers, which resulted in over $100 million in awards to whistleblowers.

• The SEC's Investor.gov website received over 100 million visitors in 2022.

Your Input 

Thanks for reading.

Until next time!

Naeem

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