Risk Headlines

JPMorgan Fined Nearly $350 Million- Inadequate Trading Oversight Detected by Fed & OCC - source federalreserve.gov / occ.gov

Key Points:

The regulators are sending a warning to the industry and this underscores the critical importance of robust trade surveillance programs in banking institutions to prevent market misconduct. It highlights how deficiencies in monitoring systems can lead to significant penalties and enforcement actions, emphasizing the need for proactive compliance measures. The implications extend beyond financial penalties, impacting a bank's reputation, risk management practices, and overall regulatory standing. This case serves as a stark reminder of the essential role effective surveillance plays in maintaining a safe and sound banking environment while navigating complex regulatory landscapes.

• Deficiencies in data oversight and reconciliation processes identified in the global trade surveillance program.

• Cease and Desist Order issued due to unsafe banking practices related to trade surveillance.

• Remedial actions undertaken by JPMorgan Chase to address deficiencies and comply with regulatory requirements.

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Compliance Role Crisis: Burning Out, Lacking Power - source fnlondon.com

Key Points:

A burnout crisis driven by ever-increasing regulatory demands, lack of resources and support, and pressure to avoid costly compliance failures is depleting banks' compliance departments and regulators, exposing the industry to heightened operational and reputational risk.  

Banks Compliance teams promote a “culture of compliance” this will likely receive increased scrutiny as large scandals such as SVB collapse are still on the minds of many.

The Firms’ risk operations models are being stressed, but there is a solution. We have designed a sustainable risk ecosystem that provides a comprehensive path forward for firms to navigate their risk environments, you can email me directly to learn more.

A.I. Risk / Technology Risk

How will AI Redefine Banking - source ventureburn.com

Key Points:

There is a transformative potential of AI in banking across customer-facing and internal operations, highlighting opportunities for enhanced efficiency, personalization, risk management and new value creation. However, it also underscores the multi-faceted challenges in scaling AI adoption, spanning technological, organizational, regulatory and talent dimensions, with trustworthiness emerging as a central theme. 

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National Institute of Standards and Technology (NIST) Cybersecurity Framework 2.0 - source nvipub.nist.gov

Key Points:

NIST Cybersecurity Framework 2.0 is enhancing its focus on governance and supply chain risks. The new version includes a "Govern" function for cybersecurity risk management strategy, expanded supply chain risk management, and applicability across sectors.

Regulatory News - Fines, Losses, & Rules

Fed Finalizes Operational Risk Management Rule for Financial Market Utilities (FMUs) - source bankingjournal.aba.com

The Federal Reserve has issued a final rule updating operational risk management requirements for certain systemically important financial market utilities (FMUs) it supervises. This rule aims to address changes in the operational risk, technology, and landscape of FMUs. The final rule includes provisions for incident management and notification, amendments to business continuity planning requirements, updates related to third-party risk management, and new requirements for review and testing to enhance operational risk.

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PCAOB (Public Company Accounting Oversight Board)Wants the Accounting Industry to know There’s a New Sheriff in Town - source fortune.com

The PCAOB Chair, has reshaped the regulator to address a concerning rise in accounting errors and deficiencies found in audits of major companies.  They aim to restore investor confidence in markets by keeping auditors in line through inspections and enforcement penalties, recently evidenced by fines at the major accounting firms.

Risk Data to Geek Out On

A Dive into JP Morgan Lapses in Trade Monitoring - source riskonq.com

These lapses led to the Federal Reserve Board issuing an enforcement action against JPMorgan Chase & Co. and fining the firm approximately $98.2 million, and the Office of the Comptroller of the Currency (OCC) issuing a $250 million civil money penalty, totaling approximately $348.2 million in fines.  Inadequate monitoring of firm and client trading activities between 2014 and 2023, trade surveillance across multiple trading venues, highlighting the need for improved monitoring practices and compliance.

The fines imposed on JPMorgan Chase by both the Federal Reserve and the OCC for inadequacies in its trade surveillance monitoring program indicate a heightened regulatory focus on ensuring financial institutions have effective systems in place to detect and prevent market misconduct.

The enforcement actions highlight the critical role of compliance systems in monitoring trading activities. The deficiencies identified suggest that financial institutions must invest in advanced surveillance technologies and strengthen their governance frameworks to meet regulatory expectations.

The specific lapses in trade monitoring that led to the fine for JPMorgan Chase & Co. were:

1. Deficiencies in Trade Surveillance Program: Since at least 2019, JPMorgan's trade surveillance program operated with certain deficiencies that compromised its effectiveness24.

2. Inadequate Governance Over Trading Venues: The bank failed to establish adequate governance over trading venues on which it was active. Trading venues refer to systems or electronic platforms that bring together multiple third-party buying or selling interests in financial instruments to perform a transaction24.

3. Gaps in Venue Coverage and Inadequate Data Controls: There were gaps in venue coverage and the program operated without adequate data controls required to maintain an effective program. This resulted in the bank's failure to surveil billions of instances of trading activity on at least 30 global trading venues24.

4. Unsafe or Unsound Practices: The consequences of these deficiencies included engaging in unsafe or unsound practices that constitute a pattern24.

5. Failure to Adequately Surveil Trading and Order Activity: From 2014 through 2023, JPMorgan failed at various points in time to adequately surveil certain trading and order activity throughout the firm's Corporate and Investment Bank on at least 30 global trading venues3.  

6. Inadequate Data Oversight and Reconciliation Processes: The Federal Reserve Bank of New York identified areas where JPMorgan's trade surveillance program operated without adequate data oversight and reconciliation processes to achieve effective and comprehensive trade surveillance for the Corporate and Investment Bank3.

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Thank you for reading,

Naeem

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