Risk Headlines

TD Bank Suspends Growth Targets As it Deals with Massive Risk Failures - source wsj.com

Key Points:

TD Bank faces significant challenges following money laundering settlement, requiring substantial investment in compliance infrastructure while operating under US growth restrictions. Q4 results show deteriorating performance across key segments. The incoming CEO signals potential major strategic shifts, with particular focus on US operations review. The bank's suspension of growth targets until H2 2025 suggests extended period of restructuring and compliance focus ahead.

Critical Issues:

• $3.09B fine for money laundering violations

• Suspension of growth targets

• US growth limitations imposed

• Required AML infrastructure upgrades

• US retail banking profits down 32%

• Wealth management down 29%

• Credit loss provisions up to C$1.11B

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Financial Services Chief Risk Officer 2025 Outlook - source rmahq.org

Key Points:

The 2024 survey of 177 North American bank CROs reveals a fundamentally changed banking landscape following the 2023 crisis, with heightened regulatory scrutiny and faster-moving risks requiring enhanced monitoring capabilities.

CROs report increased strategic involvement while prioritizing cybersecurity, fraud prevention, and technology risk management. Despite improved economic outlook, non-financial risks dominate concerns, with significant focus on AI governance and digital disruption.

A.I. Risk / Technology Risk

How AI is Reshaping the Financial Services Industry - source ey.com

Key Points:

AI's impact on banking represents a fundamental shift from traditional operations to an AI-enabled future, requiring both technological advancement and cultural transformation. The integration affects every aspect of banking operations while introducing new challenges in security, compliance, and risk management that must be enhanced to realize the potential benefits.

• Consumer banking: Enhanced service delivery

• Investment banking: Streamlined research and modeling

• Corporate banking: Improved lending and risk assessment

• Capital markets: Advanced trading and compliance

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AI in Wealth Management - source netguru.com

Key Points:

The wealth management industry is experiencing a fundamental transformation driven by AI, with projected dramatic growth in AI-managed assets. While offering significant opportunities in portfolio management, risk assessment, and client service, success requires careful attention to data governance, regulatory compliance, and human capital development. The key is balancing automation benefits with maintaining client trust and personal relationships.

• AI-managed assets projected to reach $6T by 2027

• Significant industry investment in AI infrastructure

Regulatory News - Fines, Losses, & Rules

CFTC SEC Enforcement Actions 2024 Summary - source cftc.org

Key Points:

The CFTC has demonstrated unprecedented enforcement activity in FY2024, securing record monetary relief of $17.1 billion with particular focus on digital asset markets, communication surveillance, and swap reporting compliance.

Financial institutions face intensifying scrutiny over recordkeeping and communication systems, with penalties exceeding $1.23 billion across 28 institutions. Banks will need to continue prioritizing compliance programs, especially in emerging areas like digital assets while ensuring comprehensive surveillance systems and accurate regulatory reporting.

Significant compliance cases against major banks:

• JP Morgan ($200M penalty) - surveillance system failures

• Toronto Dominion ($79M total) - communication oversight issues

• Bank of NY Mellon ($5M) - swap reporting failures

• Barclays ($4M) - swap transaction reporting issues

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Financial Stability Board 2024 List of G-SIBs - What Bank Leaders Need to Know - source wsj.com

Key Points:

The 2024 G-SIB list maintains 29 banks with two institutions changing buffer buckets, primarily due to shifts in complexity metrics. While the total number remains stable, these changes signal continued regulatory focus on systemic risk management and capital adequacy. For affected institutions, new capital buffer requirements will take effect January 2026, alongside existing TLAC standards and enhanced supervisory expectations for risk management, governance, and resolvability planning.

The 2024 G-SIB framework reflects a consistent regulatory approach to managing systemic banking risk through interconnected requirements spanning capital adequacy, loss absorption capacity, resolvability, and risk management. These requirements demonstrate regulators' continued focus on preventing another financial crisis by ensuring the largest global banks maintain sufficient financial and operational resilience.

Risk Data to Geek Out On

Some Pitfalls in Estimating High-Quality Liquid Assets (HQLA) from Public Sources - source bpi.com

Key Points:

Public HQLA estimates significantly deviate from actual regulatory-eligible amounts, with the gap widening post-pandemic. This has crucial implications for liquidity risk management and regulatory compliance. While total HQLA remained stable relative to assets, there's been a notable shift toward Level 1 assets, suggesting changes in banks' liquidity management strategies. Understanding these measurement challenges is essential for accurate liquidity planning and regulatory engagement.

The analysis reveals fundamental challenges in estimating bank liquidity positions using public data, highlighting a significant disconnect between estimated and regulatory-eligible HQLA. These differences, driven by trapped liquidity, asset encumbrance, and measurement timing, have important implications for both internal liquidity management and external stakeholder understanding of bank resilience.Detailed Analysis.

Core Bullet Points:

• Significant measurement gaps in public HQLA estimates

• Complex interplay of regulatory restrictions and reporting methods

• Evolving liquidity management strategies post-pandemic

• Need for more precise measurement tools

Detailed Analysis:

The report reveals several critical implications:

1. Measurement Accuracy: Significant challenges in public assessment of bank liquidity

2. Regulatory Impact: Complex interplay of rules affecting eligible HQLA

3. Market Understanding: Potential misinterpretation of bank liquidity positions

4. Risk Management: Need for enhanced internal measurement approaches

5. Policy Implications: Importance of accurate data for regulatory design

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Thank you for reading,

Naeem

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