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Risk Accelerating, who has a strategy to solve (look here)!
ALSO: Traders Provide Risk Outlook & the Broker Dealer T1 Conversation
Hello Everyone, welcome back to the Risk Queue and let’s jump in.
-Naeem, CEO & Founder, Risk On Q
PICKS
Trader Insights- What are the Risk Drivers for 2024!
EU is moving AI ahead, early AI guardrails being established to support AI technologies.
Risk Study: Accenture publishes 2024 Risk Study, many firms would agree with the findings!
Risk Headlines
Traders Select The Biggest Market Risk Drivers for 2024 - source reuters.com
Key Points:
Inflation and interest rate moves impact valuation of bonds, currencies, and other assets that traders invest in. Traders will want to closely track inflation readings and changes in rate hike expectations. Positioning ahead of jobs reports or elections creates short-term trading opportunities as well. Monitoring market liquidity and risk sentiment shifts will enable traders to adapt strategies nimbly to the prevailing backdrop. Finally, lowered recession fears reduce market volatility that traders tend to benefit from.
A.I. Risk / Technology Risk
EU Passes AI Act - source techcrunch.com
Key Points:
The incoming regulations introduce new AI compliance and governance demands that elevate regulatory, legal, operational and reputational risks. Bank's may have substantial execution risk in operationalizing these rule changes across a complex, federated organization. The time is now to develop the processes, governance models and internal controls to take advantage of the many AI capabilities coming to market.
Regulatory News - Fines, Losses, & Rules
OCC Slaps A $65 million Fine to RBC Subsidiary For- “Risk and Control Failures” - source fintechfutures.com
The cease and desist order will create intense regulatory pressures on the bank in the near-term. The Bank will need to lead a robust response to satisfy regulators concerns. Tackling these issues will require changes in staffing, resources, systems upgrades, and enhanced executive attention.
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Federal Reserve Survey on Bank Lending Practices Jan 2024 - source federalrserve.gov
The January 2024 Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) analyzed changes in standards, terms, and demand for bank loans to businesses and households over the past three months. For loans to businesses, there were tighter standards and weaker demand reported for commercial and industrial (C&I) loans across all firm sizes. Similarly, there were tighter standards and weaker demand for all commercial real estate (CRE) loan categories.
Regarding loans to households, lending standards tightened across all categories of residential real estate (RRE) loans except government residential mortgages and GSE-eligible residential mortgages. Demand also weakened for all RRE loan categories and home equity lines of credit (HELOCs). Additionally, standards tightened for credit card, auto, and other consumer loans, with weakened demand reported.Responses came from 64 domestic banks and 20 U.S. branches and agencies of foreign banks, received between December 18, 2023, and January 9, 2024.
Emerging Risk
The Year Ahead for the Broker-Dealer Community - source bondbuyer.com
Key Points:
The MSRB and FINRA have proposed reducing municipal trade reporting timeframes from 15 minutes to 1 minute. This poses significant operational challenges for firms, especially regarding manual trades and structured products which require more processing time. If implemented as proposed, firms would need to overhaul trade reporting policies, procedures, and supervision to ensure compliance. Operation teams in this space will carry the burden of the workload, long nights and weekends to come.
Risk Data to Geek Out On
Accenture Risk Study - Hyper Disruption Demands Constant Reinvention - source accenture.org
Firms need to fundamentally transform their risk management strategies and capabilities to effectively navigate an environment of exponential disruption and interconnected risks. Those Firms Failing to adapt will significantly lose out to competitors who have made risk management a strategic priority.
Thank you for reading,
Naeem
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