Risk Headlines

DOJ’s New Playbook: Why Your Compliance Program Needs to Be Your Best Defense -source justice.gov

Key Points:

This news item may have gotten lost, but the Department of Justice's has made significant updates to corporate compliance and enforcement , emphasizing the critical role of robust compliance programs in preventing and detecting corporate crime.Updated Evaluation of Corporate Compliance Programs (ECCP):

1. Updated Evaluation of Corporate Compliance Programs (ECCP):

   • Inclusion of AI and disruptive technology risks: This reflects the DOJ's recognition of the growing impact of AI on business operations and potential for misuse. Companies, especially in the financial sector, will need to demonstrate that they have assessed and mitigated AI-related risks.

   • Enhanced focus on whistleblower protection: This underscores the DOJ's commitment to encouraging internal reporting. Companies will need to show they have robust anti-retaliation policies and foster a culture where employees feel safe reporting concerns.

   • Emphasis on compliance data access: This highlights the importance of data analytics in modern compliance programs. Companies may need to invest in technology and training to ensure compliance teams can effectively monitor and analyze relevant data.

2. Compensation Incentives and Clawbacks Pilot Program:

   • This program aims to align financial incentives with ethical behavior. Companies will need to review and potentially revise their compensation structures to include compliance-related criteria.

   • The fine reduction for clawing back compensation from culpable employees provides a strong incentive for companies to hold individuals financially accountable for misconduct.

3. Corporate Whistleblower Awards Pilot Program:

   • This program expands whistleblower incentives to new areas of white-collar crime. Companies, particularly in the financial sector, should expect increased scrutiny and potentially more whistleblower reports.

   • The 120-day window for internal reporting before external disclosure incentivizes companies to act quickly on internal reports and self-disclose to the DOJ.

4. Emphasis on cooperation and remediation:

   • The DOJ continues to provide significant benefits for voluntary self-disclosure, full cooperation, and timely remediation. This reinforces the importance of having clear protocols for internal investigations and decision-making regarding self-disclosure.

5. Case examples:

   • The speech provides several examples (BCG, SAP, Trafigura) that illustrate how the DOJ evaluates cooperation and remediation efforts. These examples provide valuable guidance for companies on what constitutes effective cooperation and remediation.The speech underscores the critical importance of investing in and empowering robust compliance programs, fostering a speak-up culture, implementing compliance-tied compensation systems, and being prepared to quickly and thoroughly respond to any detected misconduct.
     

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TD Securities Fined $28 Million for Spoofing -source wsj.com

Key Points:

TD Securities has been hit with over $28 million in penalties across three regulatory bodies for spoofing in the U.S. Treasuries market, a serious form of market manipulation. This case, involving hundreds of fraudulent trades over 13 months by a senior trader, highlights critical failures in trading oversight and internal controls, even after receiving warnings about irregular activity. The severity of the penalties and the involvement of multiple regulators underscore the heightened scrutiny of market manipulation and the expectation for robust surveillance systems. Risk management capabilities should look to improve proactive monitoring and the culture of compliance.

A.I. Risk / Technology Risk

Gen AI Has Made Banking Cheaper - But Has it Made It Better? - by Tony Hughes - source garp.org

Key Points:

A critical exam of the impact of generative AI in the banking industry, highlighting both its potential and limitations. While generative AI promises significant productivity gains, potentially displacing up to 54% of banking jobs according to a Citi report, its real-world impact on bank profitability remains unclear. The technology shows promise in areas like regulatory compliance, fraud detection, and expanding access to banking services, but has not yet demonstrated a clear positive effect on key metrics like net interest margins. 

Tony H. emphasizes that to truly transform banking, AI must do more than just cut costs and automate low-level tasks. There is also the possibility that the current AI boom may not deliver on all its promises.

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AI, Big Data, and the Path Ahead for Productivity- Speech by Fed Governor Lisa D Cook - source federalreserve.gov

Key Points:

Fed Governor Lisa Cook on the importance AI and Big Data on fostering innovation while addressing regulatory concerns around privacy, bias, and fraud. While AI adoption is increasing across various sectors, its full economic impact remains uncertain and will likely unfold gradually as firms experiment and adapt. The need to strategically consider AI implementation, balancing the potential for productivity gains against the challenges of organizational adaptation and workforce adjustment are becoming top priorities for CEO’s.

Regulatory News - Fines, Losses, & Rules

Barclays to Pay $4 Million CFTC Fine Over Self-Reported Swap Violations - source cftc.gov

Key Points:

Barclays Bank PLC has been ordered to pay a $4 million penalty by the CFTC for significant swap reporting violations spanning from 2018 to 2023, affecting over five million transactions. This case, part of a broader $60 million enforcement action against six swap dealers, underscores the regulatory focus on accurate and timely swap data reporting. The CFTC recognized Barclay’s substantial cooperation during the investigation which likely saved the firm from a larger fine.

CRO’s and CCO’s please note from the CFTC's statement that "the costs of violating the law outweigh the costs of compliance" should serve as a clear sign to all financial institutions about the importance of prioritizing regulatory compliance, particularly in complex areas like swap reporting.

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Wall St Firms to Pay Combined $100 Million for Record-keeping Violations 🦄 🦄 - source sec.gov 

Key Points:

The SEC and CFTC imposed significant regulatory crackdown on Wall Street firms for widespread record-keeping violations related to the use of personal devices and messaging apps like WhatsApp for business communications. They have imposed a combined $100 million in fines on multiple firms. This rule has resulted in over $2 billion in fines, and firms can expect a long remediation path which is difficult and taxing on staff.

Risk Data to Geek Out On

Fed Dampens Hope for Big Rate Cuts This Year - source dailyhodl.com

Key Points:

Federal Reserve Chair Jerome Powell's recent comments signal a cautious approach to monetary policy adjustments. While acknowledging the economy's overall strength, Powell indicates that future policy will move towards a more neutral stance, but emphasizes that this is not on a preset course. The Fed's recent 50 basis point rate cut reflects growing confidence in maintaining labor market strength while bringing inflation sustainably down to 2%. For bank CEOs, this suggests a period of gradual policy normalization rather than rapid rate cuts. Powell's emphasis on meeting-by-meeting decisions and careful assessment of incoming data underscores the need for banks to remain agile in their strategies, and prepared for various economic scenarios. The current inflation rate of 2.5% and the Fed's commitment to using its tools to keep the economy in "solid shape" indicate a balanced approach to managing inflation and economic growth, which could impact banks' lending and investment strategies in the coming months.

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Thank you for reading,

Naeem

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