Risk Headlines

Citigroup Facing New Regulatory Scrutiny - source wsj.com

Key Points:

Citigroup's ongoing struggle with regulatory compliance, particularly in data management and risk assessment systems continues to reveal the ongoing regulatory challenges facing the bank.

The FDIC's expected downgrade of Citigroup's living will plan from "shortcoming" to "deficiency" is a significant development, indicating that despite efforts to address these issues, the bank has not made sufficient progress in the eyes of key regulators. The situation underscores the complexity of modernizing legacy banking systems and the high stakes involved in meeting regulatory standards for systemically important financial institutions.

While immediate consequences are not imposed, the potential for serious penalties such as increased capital requirements or growth limitations underscores the urgency of addressing these issues. CEO Jane Fraser acknowledges the multi-year, multi-billion dollar effort required to address these systemic issues, indicates the depth of the challenge Citigroup faces in modernizing its systems and satisfying regulatory requirements.

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OCC Reports On Key Risks in Federal Banking System - source occ.gov

Key Points:

OCC today reported the key issues facing the federal banking system in its Semiannual Risk Perspective for Spring 2024.  The OCC highlighted credit, market, operational, and compliance risks, as the key risk themes in the report.  The report focuses on issues that pose threats to financial institutions, further details of the report in the section “Risk Data to Geek Out On”.

A.I. Risk / Technology Risk

Generative AI Poised for Leading Role as Regulatory Data Burden Grows - source a-teaminsight.com

Key Points:

Generative AI and LLMs offer promising solutions to the growing challenges of regulatory data management in banking, potentially revolutionizing compliance processes and efficiency.  The increasing complexity of regulatory requirements is driving the need for more sophisticated solutions, which AI can provide through improved data processing, contextual understanding, and lineage tracking. The alignment of AI capabilities with regulatory principles, such as those outlined in BCBS 239, suggests that AI adoption could lead to more comprehensive and effective compliance processes. 

However, the transformative potential of AI in this field also implies significant changes in how banks will likely approach compliance, potentially requiring new strategies, skills, and governance structures to fully leverage these technologies while managing associated risks.

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Truist Bank Confirms Breach After Stolen Data Shows Up on Hacking Forum - source bleepingcomputer.com

Key Points:

Truist Bank has confirmed a data breach following a cyberattack in October 2023, after stolen data appeared on a hacking forum. The threat actor is selling data purportedly containing information on 65,000 employees, bank transactions, and source code for Truist's IVR system for $1 million.

Regulatory News - Fines, Losses, & Rules

CFTC Fines Commodities Trader Trafigura $55 Million - source reuters.com

Key Points:

The Trafigura case reveals a troubling pattern of misconduct, including insider trading, market manipulation, and whistleblower suppression. The significant financial penalty imposed by the CFTC sends a strong message about the consequences of such behavior.  It serves as a wake-up call for other firms to review their compliance programs, corporate culture, and policies related to whistleblowers.

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FED Request Bank to Bolster it Risk Management & AML Programs - source federalreserve.gov

Key Points:

The Board enforcement requires Evolve Bank to enhance its policies and programs, particularly in risk management, compliance, and fraud prevention, and to improve oversight and monitoring of its fintech partnerships.

Risk Data to Geek Out On

OCC Reports On Key Risks in Federal Banking System Details - source occ.gov

Key Points:

The OCC “Semiannual Risk Perspective for Spring 2024 “ report provides an instructive overview of the increasingly complex risk landscape facing banks in 2024.  The report highlights growing risks across multiple dimensions - credit, market, operational, compliance, and climate-related - as the economic environment becomes more challenging.  While economic conditions were favorable in 2023, the banking industry faces an array of increasing risks in 2024 that will require vigilance, resources, and proactive risk mitigation efforts to maintain safety and soundness.

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Thank you for reading,

Naeem

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