Banking Risk and Regulation

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🚗 As Wells Fargo pushes the Fed to remove its punishing asset cap, Banking Risk and Regulation looks under the bonnet to bring you exclusive details on how the lender has overhauled its three lines of defence from top to bottom. 📉 The US’s fourth-largest bank has been fighting its way back from a major scandal when it emerged in 2016 that its much-touted “cross-selling” prowess was built on a house of cards: unauthorised accounts opened with falsified records and forged customer signatures. 💸 The Federal Reserve Board's then outgoing chair, Janet Yellen, slapped Wells Fargo with a $1.95tn asset cap, one of the harshest regulatory penalties, in 2018. ⚠️ The scandal exposed the lender’s lines of defence as weak and inadequate. Over nearly a decade, a slew of regulatory enforcement actions focused the bank on building out its three lines of defence. 📜 Now the bank has submitted a third-party review of its risk and control overhauls to the Fed, entering a key phase in its almost seven-year effort to escape the cap, writes Giovanni Legorano. 🗣️ A person familiar with the reform says: “The regulatory enforcement actions focused on ensuring that Wells Fargo had a fit first line and second line risk management function. 🔄 “It was a fundamental change to the firm, which is why it’s [taken] the best part of 10 years to implement.” 🔽 Read more about what the bank has been doing below. https://lnkd.in/eWjy9GuB #WellsFargo #Banking #BankingIndustry

🗣️ Britt Johnston and Tina Mavraki CFA discussed strategies to address non-financial misconduct with Lucy McNulty for her Following the Rules podcast. They elaborate on fixing the “frozen middle” at firms and how toxic cultures can cost banks big. 📊 Johnston, with 30 years of experience on trading floors, now leads Natixis’s UK conduct and culture program and oversees broader initiatives across EMEA. 🌍 Mavraki is a portfolio non-executive director and strategic advisor on cultural change, as well as a former capital markets professional at Citi and Morgan Stanley. 🔽 See an abridged version of their Q&A with Lucy below. https://lnkd.in/ehNz9mDC #CultureandConduct #Banking #BankingIndustry

📊 Cases of poor culture and non-financial misconduct at large banks in the UK have soared by 70 per cent since 2021, according to a recent survey by the Financial Conduct Authority. ⚡ Banking Risk and Regulation digs into the raw numbers to pull out the main findings in a series of charts. 📝 The most prevalent forms of reported misconduct were bullying, harassment and discrimination. 📉 “On the surface, these latest findings seem to show that far from the City dealing with these issues, it may even be going backwards,” said Dame Meg Hillier MP, Chair of the House of Commons Treasury Committee. 👀 Story by Natasha Teja. Read more below. https://lnkd.in/eryYKhMK #NFM #NonFinancialMisconduct #FCA

🌍 Chief risk officers are increasingly managing short-term risk as geopolitical volatility and macroeconomic uncertainty reshape their strategies, a global survey shows. 📊 New findings from the World Economic Forum suggest the risk landscape is shifting how risk management units operate within large institutions, potentially sidelining long-term planning in favour of immediate concerns. ⚠️ Nearly all respondents predicted that geopolitical uncertainty would persist throughout 2024, with 71 per cent expecting significant political instability in major economies. 📉 This outlook underlines a growing trend of adapting to near-term risks, such as volatile markets and political unpredictability, at the expense of longer-term initiatives, say experts. 💡 This focus on immediate risk mitigation may limit innovation and growth. 🎯 “Often the perceived risk is higher than the actual risk, causing missed opportunities,” commented one asset management executive and a former CRO based in Asia. 👀 Story by Blake Evans-Pritchard. Read more below https://lnkd.in/eBy_BX65 #ChiefRiskOfficers #Banking #Risk

💸 The U.S. Commodity Futures Trading Commission has fined six registered swap dealers a total of $60mn in the past year, with Barclays the latest to be penalised $4mn for reporting violations. 📉 A growing enforcement trend is prompting questions about why banks and swap dealers — despite more than a decade of oversight — are still struggling to meet the requirements. ⚖️ While supervisors were initially lenient, giving firms time to adapt, the recent surge in fines reflects a shift. What has materially changed? 🛠️ Struan Lloyd, managing director of regulatory reporting firm Cappitech from S&P Global Market Intelligence, points out that regulators now have the tools and expertise to act on reporting shortcomings. 📊 “The first few years it was making sure firms got this right. I think it’s now coming to the time where the regulators are getting better at monitoring the data,” he says. 🚨 “Certainly they’re getting to a point where they’ve potentially spoken to clients in the past. I think now we are starting to see fines coming for misreporting.” 👀 Story by Kari McMahon. Read more below. More insights from Laurent-Olivier Labeis of REGnosys, Eleanor Hsu of ISDA, Eric T. Young of Guidepost Solutions and Alan McIntyre of Kaizen. Read more https://lnkd.in/eWp5XvNz #Swaps #Derivatives #Banking

🤖 Since OpenAI first rolled out ChatGPT, dozens of competing large language models from GPT-4 to Gemini and Llama2 to Claude have hit the market. 💼 Now that banks are moving beyond experimentation to using these models in the ordinary course of business, they need to be at the cutting edge of GenAI guardrails. ⚠️ When it comes to using generative artificial intelligence for complex, highly specialised tasks, hallucinations and inaccuracies are still a major problem. 💰 Accordingly, businesses in financial services have invested heavily to build the ultimate hallucination-proof LLM. 🛡️ Guardrails programmers and software engineers have largely concentrated on continually tweaking and refining the LLM to root out AI model-driven errors. 🔧 This fine-tuning process includes prompt engineering — carefully designing inputs to the model to generate the correct responses — and so-called “retrieval augmented generation” techniques, which boost the LLM by feeding it specialised data. 💸 But even with those investments, errors still get through, and production costs climb with each new layer of refinement and manual intervention. ❓ This challenge has raised an important question. What if, instead of trying to perfect a single model, we created a second model with the sole function of gut-checking the first model? Article by Kshitij Jain of EXL. https://lnkd.in/eGndwUuM #GenAI #ChatGPT #AI

Why is credit risk rapidly falling down CROs' list of worries? Why is a UK open banking dispute putting the FCA's funding call at risk? And how is a UK-EU data sharing 'cliff edge' sparking compliance concerns? Those questions and more are answered in our weekly round-up.

Our MD James Rees spoke to Banking Risk and Regulation about DORA compliance and third party risk - read the article below! #DORAcompliance #cybersecurity #thirdpartyrisk

Here is my latest opinion piece, published yesterday in the Financial Times' Banking Risk and Regulation. The European Risk Management Council has released the Q4 2024 Risk Sentiment Index (RSI) for the UK, US, and APAC. In this article, I analyse the RSI data to provide insights into the perceptions of CROs regarding the risk landscape for financial services in 2025. Key findings: ·        Cyber risk is ranked as the number one risk for 2025 across all three markets. ·        Operational risk is expected to rise rapidly. CROs are increasingly concerned that advanced digital technologies, such as AI, could be weaponised by criminals to exploit vulnerabilities in financial institutions and their clients. ·        CROs across all three markets agree that credit risk is no longer a primary concern for 2025. Remarkably, for the first time since we launched RSI surveys in 2018, credit risk does not rank among the top three risks in any of the regions surveyed. Many thanks to all RSI survey respondents. Please read the article here: https://lnkd.in/eF7TRWHN  #riskmanagement #risk #cro