Risk Headlines

Pause on New Rules, GOP Lawmakers Tell Regulators - source bankingdive.com

Key Points:

The impending presidential transition signals a potential major shift in banking regulation, with Republican lawmakers pushing for immediate regulatory pause and rollbacks. Key regulatory proposals, including Basel III capital requirements, face uncertain futures, requiring banks to prepare for multiple scenarios while maintaining compliance with existing frameworks.

• Regulatory uncertainty during transition

• Capital requirement proposal delays

• Interagency coordination challenges

• Political transition is creating regulatory uncertainty

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JP Morgan AI Chief Explains Why the Biggest Banks Will Win the AI Race - source thefinancialbrand.com

Key Points:

JPMorgan Chase's approach to AI demonstrates that large banks hold significant advantages in the AI race due to their vast data resources and established risk frameworks. The bank's strategic implementation, focusing on controlled innovation while maintaining strong risk management, suggests that AI adoption isn't optional but rather a competitive necessity. The potential 25-40% efficiency improvement represents a critical strategic advantage, while the emphasis on human oversight and existing risk frameworks provides a secure foundation for AI expansion.

A.I. Risk / Technology Risk

AI Meets Investor Relations - The Future of Earnings Calls Is Here - source wsj.com

Key Points:

Generative AI is rapidly transforming how public companies prepare and deliver earnings communications, with 44% of IR professionals already incorporating AI tools. The technology offers sophisticated capabilities for message consistency checking, question prediction, and communication refinement, while potentially reducing costs and increasing efficiency. However, the use of public AI tools poses significant risks for handling sensitive financial information, making private LLM implementation crucial for maintaining information security.

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Scaling Application Security for GenAI - source deloitte.com

Key Points:

GenAI development capabilities and application security creates a complex challenge requiring a multi-layered approach that balances innovation and speed with security controls while maintaining developer productivity and code quality.

• Comprehensive security framework needed

• Balance between speed and security

• Developer-centric security approach

• Multi-layered governance requirements

Regulatory News - Fines, Losses, & Rules

SEC Enforcement Actions 2024 Summary - source yahoo.com

Key Points:

The SEC's enforcement activities in FY 2024 show intensified focus on off-channel communications and recordkeeping violations, with unprecedented levels of admissions of guilt and cooperation agreements. While total actions decreased 12% to 80, monetary penalties remained substantial at $1.5 billion, with particular emphasis on Broker-Dealer violations and whistleblower protections. The SEC's emphasis on cooperation has led to more favorable outcomes for firms that self-report and remediate issues proactively. It may surprise some teams that 22 firms paid $465 million in penalties for recordkeeping violations stemming from off-channel communications, but an even bigger risk exists concerning books and records, which firms are likely overlooking.

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PCAOB Game Changer - Inside the New Audit Firm Reporting Rules - source wsj.com

Key Points:

The PCAOB's new rules represent a fundamental shift in audit firm oversight, requiring unprecedented transparency through financial statements and operational metrics from large accounting firms beginning in 2027. This change will provide banks with valuable insights into their auditors' operations and stability, while potentially affecting audit costs and relationships.

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Fed Chair Michel Barr Testifies on Supervisory & Regulatory Activities - source federalreserve.gov

Key Points:

While Fed Vice Chair Barr presents a generally stable banking sector with strong capital and liquidity positions, he signals growing concerns about commercial real estate exposures and consumer loan delinquencies. The Fed is enhancing its supervisory approach to be more proactive and agile, with potential adjustments to Basel III Endgame and capital surcharge proposals based on industry feedback.

Risk Data to Geek Out On

What is the “Own Risk & Solvency Assessment (ORSA)” for Insurance Companies? - source naic.org

Key Points:

The Own Risk and Solvency Assessment (ORSA) is a crucial regulatory framework for insurance companies that requires a comprehensive evaluation of risk management and solvency positions.

Detailed Analysis

Purpose and Scope
The ORSA serves as a strategic tool to enhance insurers' understanding of the relationship between risk profiles and capital needs, requiring regular assessment of current and future risks. It is designed to be forward-looking and aligned with business and strategic planning.

Key Requirements

• Annual assessment of risk management adequacy and solvency position

• Internal documentation of assessment processes

• Confidential reporting to regulatory authorities

Implementation Framework Risk Assessment Elements

Capital Management

• Determination of capital requirements for each identified risk

• Aggregation of risk assessments

• Selection of appropriate measurement tools and methodologies

• Calibration of approaches to cover extreme loss scenarios

Business Integration
The ORSA should be:

• Proportionate to business scale and complexity

• Embedded within strategic planning processes

• Connected to risk appetite framework

• Integrated with enterprise risk management

Management Responsibilities
Senior leadership must:

• Understand risk exposures and their significance

• Review risk quantification methods

• Ensure appropriate policies and procedures

• Monitor capital adequacy against internal targets

Regulatory Compliance

Threshold Requirements
Applies to insurers with:

• More than $500 million in annual direct written and assumed premium (individual companies)

• More than $1 billion in annual direct written and assumed premium (insurance groups)

Reporting Obligations

• Annual ORSA Summary Report submission

• Documentation of internal assessment processes

• Demonstration of risk management effectiveness

Best Practices

Implementation Strategy

• Develop tailored approaches based on company profile

• Ensure consistency across business units

• Maintain flexibility for strategic adjustments

• Foster two-way dialogue with regulators

Risk Culture Development

• Promote enterprise-wide risk awareness

• Integrate risk considerations into decision-making

• Establish clear communication channels

• Build resilient risk management processes

The ORSA represents a fundamental shift from traditional compliance-based approaches to a more comprehensive risk management framework that requires active engagement from senior leadership in understanding and managing their organization's risk profile.

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Thank you for reading,

Naeem

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