Risk Headlines

JPMorgan CEO says AI is not just hype- ‘This is real’- source cnbc.com

Key Points:

AI is a transformative technology that banks cannot afford to ignore. While adoption speeds may vary, bank leaders need to dedicate talent, research and thoughtful planning on how to integrate AI throughout their organizations to improve products, operations, and analytics. Risks exist, Banks should develop ethical frameworks for AI adoption and establish strong governance.  The Banks that set AI strategy and capabilities in motion will gain faster market share unlike that from past technological shifts.

A.I. Risk / Technology Risk

Google DeepMind Forms a New Org Focused on AI Safety - source techcrunch.com

Key Points:

Google forming a dedicated group to focus on AI safety signals the importance of oversight and control measures. As banks increasingly adopt AI, precedence by tech leaders emphasizes taking a thoughtful, holistic approach that proactively addresses safety and ethical risks upfront through governance, oversight and a focus on human wellbeing.  The banks will benefit from Google’s concentrated effort on AI safety, the goal is to maximize benefits while minimizing risks. 

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European Central Bank Evaluates Banks’ Management of IT Risk - source bankingsupervision.europa.eu

Key Points:

The ECB Banking Supervision evaluates banks' management of IT risk based on self-assessments and supervisors' findings from on-site inspections.  Banks have made little progress in resolving existing gaps, and need to enhance their IT and cybersecurity risk controls.  The main areas of concern include IT outsourcing risk, data quality management, IT change risk, IT governance and risk management, and cyber and IT security risk.

Regulatory News - Fines, Losses, & Rules

FINRA Fines LPL Financial $5.5 million - Supervision Falls Short - source FINRA.gov

FINRA enforcement actions taken against LPL Financial, for deficiencies in their supervision, compliance, and sales practices related to certain securities transactions.  The case reinforces priorities around ensuring rigorous supervision, transparent fee disclosures, and strong controls to fulfill duties of care and loyalty to financial services customers.

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CFTC Extends Public Comment Period for Proposed Rule on Real-Time Reporting & Swap Data Recordkeeping & Reporting  - source cftc.gov

The CFTC it is extending the deadline to April 11, 2024 for the public comment period on a proposed rule for CFTC’s swap data reporting rules in Parts 43 and 45 related to the reporting of swaps in the other commodity asset class and the data element appendices to Parts 43 and 45 of the CFTC’s regulations.

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PCAOB (Public Company Accounting Oversight Board) Wants Audits Firms To Properly Claim Registration Status - source pcaobus.org

The proposed PCAOB rules emphasize that audit firms provide transparency in registration status and avoid misleading market participants.

Emerging Risk

FINRA published Regulatory Notice 24-04 to conform to the SEC Shorten Standard Settlement Cycle (T+1) - source FINRA.org

To help firms ensure that they are prepared for the transition to the shortened settlement cycle, FINRA encourages all firms to participate in the industry’s T+1 testing program, which is designed to allow firms to test for the entire trade life cycle, including trade affirmation, confirmation, clearance, settlement and trade exception flows.

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SIFMA Responds to Proposed U.S. Basel III “Endgame” Rules, Liquidity Drain - source sifma.org

SIFMA expresses concerns that proposed Basel III rules would unduly increase bank capital requirements beyond what is needed to address risks, negatively impacting liquidity and the ability of US capital markets to serve businesses and consumers unless changes are made

Risk Data to Geek Out On

The Importance of Counterparty Credit Risk Management - Vice Chair for Supervision Michael S. Barr - source federalreserve.gov

Vice Chair Barr underscores that counterparty risk management must match the complexity and interconnectedness of markets to protect banks and the broader system.  He emphasizes several core elements of effective counterparty risk management for banks - deeply understanding customer risk profiles, measuring and limiting aggregated exposures, maintaining conservative margins, responding decisively to emerging risks, and instilling a culture of accountability. Robust governance and oversight of trading and derivatives activities is crucial to avoid severe losses. A strong Risk culture is paramount here for firms.

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Thank you for reading,

Naeem

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