regulations - Blog - Global Risk Community2024-03-29T07:01:34Zhttps://globalriskcommunity.com/profiles/blogs/feed/tag/regulationsChange Management: A Risk-Based Approach to Reorganization, Regulation and Recessionhttps://globalriskcommunity.com/profiles/blogs/change-management-a-risk-based-approach-to-reorganization2019-06-06T21:08:32.000Z2019-06-06T21:08:32.000ZSteven Minskyhttps://globalriskcommunity.com/members/StevenMinsky<div><p></p><h3><span style="font-weight:400;"><a href="{{#staticFileLink}}8028295685,original{{/staticFileLink}}" target="_blank"><img src="{{#staticFileLink}}8028295685,original{{/staticFileLink}}" width="350" class="align-right" alt="8028295685?profile=original" /></a>In a recent poll, LogicManager found that among 78 senior executives, 70% believed their organization’s goals would be impacted by a recession and yet nearly sixty percent either did not have a plan or were unsure if a change management plan was in place to prepare.</span></h3><h3><span style="font-weight:400;">Adequately preparing for change happening within and outside of a company is not a new goal. Yet many companies struggle with achieving it. So here’s something new: by incorporating change management into your enterprise risk management program, you’ll be able to balance the risk-reward trade offs of change in every scenario.</span><span style="font-weight:400;"> </span></h3><p><span style="font-weight:400;">There are, indeed, an infinite number of scenarios where change will occur in and outside of your business. Regardless of the names these changes go by, your company’s success will always depend on your ability to identify and mitigate the risks associated with this change.</span></p><p></p><p><span style="font-weight:400;">I will take you through three scenarios:</span></p><ol><li style="font-weight:400;"><span style="font-weight:400;">Organizational change</span></li><li style="font-weight:400;"><span style="font-weight:400;">Regulatory change</span></li><li style="font-weight:400;"><span style="font-weight:400;">Recession risk</span></li></ol><p></p><p><span style="font-weight:400;">In these scenarios, combining change management and risk management is integral to your organization’s success.</span></p><h2><span style="font-weight:400;">Scenario One: Organizational or Initiative Change Management</span></h2><p><span style="font-weight:400;">I want to start with organizational or initiative change management because at the end of the day, it encompasses all types of change. That is to say, even if change occurs outside of your company, changes and initiatives within your organization will also have to occur in order to keep up.</span></p><p></p><p><b>So what is organizational/initiative change management?</b> <span style="font-weight:400;">Organizational change management involves identifying the groups and people who will need to change as the result of a new project, process, or strategy, and in what ways they will need to change. Organizational change management then involves creating a customized plan for ensuring impacted employees receive the awareness, leadership, coaching, and training they need in order to change successfully.</span></p><p></p><p><b>What does ineffective change management look like?</b> <span style="font-weight:400;">Change initiatives fail when the change does not achieve its intended objectives, does not deliver the promised results, uses more resources than necessary, remains bogged down by delays, or decreases employee morale.</span></p><p></p><p><b>How can risk management make change management successful?</b> <span style="font-weight:400;">Many business experts have already identified the hallmarks of successful change management. What I want to illustrate is how risk management can help you attain those hallmarks.</span></p><p></p><p><a href="{{#staticFileLink}}8028295492,original{{/staticFileLink}}" target="_blank"><img src="{{#staticFileLink}}8028295296,original{{/staticFileLink}}" class="align-center" alt="8028295296?profile=original" /></a></p><h2><span style="font-weight:400;">Scenario Two: Regulatory Change Management</span></h2><p><span style="font-weight:400;">Perhaps the type of change management most people are familiar with is</span> <a href="https://www.logicmanager.com/erm-software/plugins/regulatory-change-management-software//?utm_source=GlobalRisk&utm_medium=referral&utm_campaign=Referral%20Traffic" target="_blank">regulatory change management.</a> <span style="font-weight:400;">With thousands of regulatory changes per year, companies are challenged to respond to change at an ever-increasing rate.</span></p><p></p><p><span style="font-weight:400;">Regulatory change management is a great use case for enterprise risk management since non-compliance carries many risks and because its success depends on centralized documentation, clear communication, and engagement.</span></p><p></p><p><span style="font-weight:400;">Here is an ideal process for managing regulatory change successfully:</span></p><p><a href="{{#staticFileLink}}8028296063,original{{/staticFileLink}}" target="_blank"><img src="{{#staticFileLink}}8028296063,original{{/staticFileLink}}" class="align-center" alt="8028296063?profile=original" /></a></p><h2><span style="font-weight:400;">Scenario Three: Recession Change Management</span></h2><p><span style="font-weight:400;">Yes,</span> <a href="https://www.logicmanager.com/erm-software/2019/01/16/prepare-recession-risk-erm//?utm_source=GlobalRisk&utm_medium=referral&utm_campaign=Referral%20Traffic" target="_blank">a recession falls under change management.</a> <span style="font-weight:400;">Why?</span> <b>Because a recession means change.</b> <span style="font-weight:400;">Changes in the market. Changes in available resources. And so on. We’ve enjoyed a healthy economy for some time now, but many experts are starting to point to signs of an impending recession. Integrating change management and risk management will be a vital step to surviving this kind of change.</span></p><p></p><p><span style="font-weight:400;">There’s a misconception that core business priorities, shifted by the recession, will bounce back after the recession is over. On the contrary, these priorities typically shift permanently as a result, which means preparing for this kind of change earlier rather than later will give you a sharp competitive edge.</span></p><p></p><p><span style="font-weight:400;">Before a recession, when everything is going up, companies tend to go on autopilot and focus less on how they’re providing their core service or product. But then, when the economy is on the downturn, organizational priorities shift to value and efficiency, and suddenly, businesses have to scramble to refocus their attention on creating business processes that deliver their product or service efficiently and cost-effectively while making difficult personnel, product, policy, process, and service decisions.</span></p><p></p><p><span style="font-weight:400;">Avoiding this scramble requires being proactive - the name of ERM’s game. To get off autopilot and refocus on value and efficiency, organizations need a way to risk assess their offerings and identify which aspects of them provide or hinder value or efficiency before the recession hits.</span></p><p></p><p><span style="font-weight:400;">Cross-functional risk assessments and ERM will help you engage with subject matter experts to identify potential</span> <a href="https://www.logicmanager.com/erm-software/2019/01/16/prepare-recession-risk-erm//?utm_source=GlobalRisk&utm_medium=referral&utm_campaign=Referral%20Traffic" target="_blank">risks of a recession,</a> <span style="font-weight:400;">as well as opportunities to mitigate these risks by refocusing on value and efficiency within key departments, products, and services. Going forward with these opportunities means implementing change within your company, which means you’ll be scrolling back up to scenario one to make sure those changes are managed successfully.</span></p><p></p><p></p><p></p><p></p></div>Facebook’s Failure to Mitigate Cyber Risks Could Cost Billionshttps://globalriskcommunity.com/profiles/blogs/facebook-s-failure-to-mitigate-cyber-risks-could-cost-billions2018-11-14T21:12:55.000Z2018-11-14T21:12:55.000ZSteven Minskyhttps://globalriskcommunity.com/members/StevenMinsky<div><h2 class="graf graf--h4 graf-after--h3 graf--subtitle"><span style="font-size:18pt;"><strong>In late September, Facebook announced that it had discovered a breach in its network that had exposed the personal data of nearly 50 million users to hackers.</strong></span></h2><p class="graf graf--p">The hackers exploited a feature in Facebook’s code to gain access to user accounts, potentially enabling them to take control of them. The <a href="https://www.nytimes.com/2018/09/28/technology/facebook-hack-data-breach.html" class="markup--anchor markup--p-anchor" target="_blank">breach</a> was the largest in Facebook’s fourteen years of existence.</p><p class="graf graf--p">The fallout Facebook is facing from this breach is the latest example of the <a href="https://www.logicmanager.com/erm-software/2018/04/26/see-through-economy-risk-management/" class="markup--anchor markup--p-anchor" target="_blank">see-through economy</a> at work. Since September 27, Facebook’s market value has dropped over 8%. However, the string of recent scandals that have occurred since July 20 of this year has reduced Facebook’s market value by nearly 25%. This is the financial cost of Facebook’s <a href="https://qz.com/1171602/facebook-shareholders-filed-a-proposal-that-would-establish-a-risk-oversight-committee/" class="markup--anchor markup--p-anchor" target="_blank">decision</a> to reject an investor proposal for the company to create a separate and independent risk committee. Had Facebook headed this request, this breach would have been avoided.</p><p class="graf graf--p">Furthermore, Facebook could face a fine of as much as $1.63 billion in the European Union for the breach under the GDPR law that went into effect earlier in 2018. This is one of the first major tests of the GDPR. While there have been a number of other breaches, few if any have been on the scale of Facebook’s recent breach.</p><p class="graf graf--p">Under <a href="https://www.logicmanager.com/erm-software/2018/08/16/gdpr-readiness-statistics/" class="markup--anchor markup--p-anchor" target="_blank">GDPR</a>, companies are required to notify regulators within 72 hours of the breach occurring. Facebook could face a fine of up to $850 million if they were found to be outside of the 72-hour window. According to a <a href="https://www.wsj.com/articles/facebook-faces-potential-1-63-billion-fine-in-europe-over-data-breach-1538330906" class="markup--anchor markup--p-anchor" target="_blank">report</a> in <em class="markup--em markup--p-em">The Wall Street Journal</em>, it appears Facebook may have notified Ireland’s Data Protection Commission, the lead privacy regulator for Facebook in the EU, within the 72-hour timeline.</p><p class="graf graf--p">The Irish DPC, however, has said that Facebook’s notification “lacked detail.” If EU regulators determine that Facebook failed to take sufficient measures to secure user data prior to the breach, Facebook would face a maximum fine of €20 million ($23 million) or 4% of worldwide revenue, whichever is greater. Based on Facebook’s 2017 revenue, the latter amount would be $1.63 billion.</p><h3 class="graf graf--h3"><span style="font-size:14pt;"><strong>A Risk-Based Approach to GDPR</strong></span></h3><p class="graf graf--p">The GDPR is risk-based, which means that failing to take sufficient measures to mitigate a risk can result in greater penalties for companies. To avoid penalties, companies can use enterprise risk management software to document what the company did, when it did it, and which employees were responsible for the planning and execution. Proper operationalization of <a href="https://www.logicmanager.com/grc-software/risk-management/" class="markup--anchor markup--p-anchor" target="_blank">ERM software</a> would have likely enabled Facebook to avoid most, if not all, the GDPR penalties.</p><p class="graf graf--p"><a href="https://www.logicmanager.com/erm-software/2018/04/26/see-through-economy-risk-management/" class="markup--anchor markup--p-anchor" target="_blank">Reputation risk</a> is also a major factor for both customers and investors. For Facebook, the failure to quickly react to the breach and communicate how they were not negligent in managing data privacy prior to the incident, coupled with its post-breach reaction, is a considerable impediment to its efforts to regain user and investor trust after a <a href="https://www.logicmanager.com/erm-software/2018/03/23/esg-investors-target-facebook-repeat-failures-risk-management/" class="markup--anchor markup--p-anchor" target="_blank">series of privacy and security scandals</a>.</p><h3 class="graf graf--h3"><span style="font-size:14pt;"><strong>Facebook Could Avoid Costly Fines with Enterprise Risk Management</strong></span></h3><p class="graf graf--p">Within an ERM platform like LogicManager, all of a company’s assets containing EU resident data are clearly documented. The company would be able to quickly determine whether or not EU resident data was compromised as a result of a breach and avoid the GDPR penalty by reporting the breach to EU authorities within 72 hours.</p><p class="graf graf--p">Furthermore, a company is able to demonstrate that its efforts to secure EU resident data is commercially reasonable and sufficient with ERM software. Our software aggregates and connects all the separate policy, risk, readiness standards, controls, and monitoring activities, enabling companies to provide authorities with evidence to back up their case. Our solution not only shows what was done but how comprehensive mitigation activities were, according to commercially responsible standards, enabling our customers to prove their <a href="https://www.logicmanager.com/erm-software/plugins/gdpr-compliance/" class="markup--anchor markup--p-anchor" target="_blank">GDPR compliance</a>.</p><p class="graf graf--p">LogicManager is an ERM platform, which, in contrast to a GDPR solution, would also show all the federal and different state jurisdictions in which it has obligations in the United States to also meet those reporting requirements on time.</p><p class="graf graf--p">Facebook, Google, and other technology firms are aggressively opposed to regulators formalizing privacy risk management responsibilities. These companies would be in a much better position with robust ERM software cybersecurity and privacy governance because it would enable them to clearly demonstrate and support their accountability and existing capabilities for protecting their customers, users, and investors.</p><p class="graf graf--p"><em class="markup--em markup--p-em">This blog was originally posted on</em> <a href="https://www.logicmanager.com/erm-software/2018/11/14/facebook-failure-mitigate-cyber-risks-could-cost-billions/" class="markup--anchor markup--p-anchor" target="_blank"><em class="markup--em markup--p-em">LogicManager.com</em></a></p></div>Are You and Your Vendors Ready for GDPR?https://globalriskcommunity.com/profiles/blogs/are-you-and-your-vendors-ready-for-gdpr2018-04-27T20:50:31.000Z2018-04-27T20:50:31.000ZMichael Joneshttps://globalriskcommunity.com/members/MichaelJones<div><p class="p1"><em><br />Don’t assume you’re immune from this European regulation with huge </em><em>fines</em></p><p class="p1"><em><br /><a href="{{#staticFileLink}}8028269265,original{{/staticFileLink}}"><img width="750" src="{{#staticFileLink}}8028269265,original{{/staticFileLink}}" class="align-full" alt="8028269265?profile=original" /></a><br /></em></p><p>All may be relatively quiet on the regulatory front in the U.S., but this May new privacy regulations are taking effect in the European Union, which will likely impact even the most provincial U.S. financial institutions.<br /><br />The E.U.’s General Data Protection Regulation (GDPR), approved in April 2016, is much broader than the U.S.’s most well-known privacy regulations, the Gramm-Leach-Bliley Act (GLBA) and the Health Insurance Portability and Accountability Act of 1996 (HIPPA). GDPR will be implemented on May 25, 2018. It protects any information that links to an individual, including names, email addresses, IP addresses, photos, social networking sites in addition to what Americans consider sensitive customer data. Breaches must be disclosed within 72 hours.<br /><br />The bad news for U.S. institutions is that GDPR doesn’t just apply to E.U. members. It also applies to organizations outside the E.U. that offer goods or services or monitor the behavior of EU data subjects. Simply put, it applies to all companies processing and holding the personal data of subjects residing in the E.U. regardless of the company’s location. This includes both the controller of the data, which is responsible for storage, use and disclosure policies and procedures, and the processor, which houses the data for the controller.<br /><br />The worse news is that fines are huge: up to four percent of gross revenues for the most egregious violations, including insufficient customer consent to process and two percent of gross revenues for violations like not having records in order or failing to promptly notify customers and authorities of a breach.<br /><br />Don’t think this includes you? Think again. These strict privacy regulations can apply to financial institutions in the United States.<br /><br /><strong>Customers, Clients & Members</strong> <br /> <br />You may not do business overseas directly, but your customers might. <br /><br /></p><ul><li><strong>Clients or members with dual citizenship.</strong> If you have a client or member with dual citizenship, you can fall under this regulation.</li><li><strong>Clients or members with customers in the E.U.</strong> If one of your clients or members has a website that sells products and ships them overseas, you may have E.U. individuals interacting with your institution.<br /><br /></li></ul><p><strong>Vendors<br /></strong><br />From global and internet banking to peer-to-peer payment and bill pay, your vendors may be conducting business operations or transactions with individuals in the E.U. If your vendor gets fined under the regulations, the financial damage could have a major impact on its ability to operate. It could also implicate your institution because you are responsible for the actions of your vendors taken in your name.<br /><br />Make sure your vendors are ready and limit liability with four key questions:<br /><br /></p><ol><li><strong>Are consent forms updated?</strong> If a vendor conducts an overseas payment transaction for a U.S. business leveraging your financial institution, you need to ensure consent forms are updated and ready.</li><li><strong>Does the vendor have a data protection officer?</strong> This is required by GDPR for large scale processors and monitors of data.</li><li><strong>Does the vendor’s process for notification of breaches comply with GDPR?</strong> Notification of authorities and customers must occur within 72 hours, a big change for institutions operating in one of the many U.S. states with notification requirements that have much longer timeframes.</li><li><strong>Are agreements with vendors updated pursuant to GDPR?</strong> Make sure your vendor agreement includes provisions that address GDPR and any other new regulation that comes along.<br /><br /></li></ol><p class="p1">Taking the time to ask these questions can save you from potentially larger issues. Don’t assume GDPR doesn’t impact you.<br /><br /></p></div>Trump’s Assault on Bank Regulationshttps://globalriskcommunity.com/profiles/blogs/trump-s-assault-on-bank-regulations2017-02-08T03:21:06.000Z2017-02-08T03:21:06.000ZEnrique Raul Suarezhttps://globalriskcommunity.com/members/EnriqueRaulSuarez<div><p></p><p></p><p><a href="{{#staticFileLink}}8028258688,original{{/staticFileLink}}"><img src="{{#staticFileLink}}8028258688,original{{/staticFileLink}}" class="align-center" width="520" alt="8028258688?profile=original" /></a></p><p></p><p style="text-align:center;"><span class="font-size-4"><strong>Trump Issues Orders to Roll Back Bank Regulations Adopted in the Wake of the 2008 Wall Street Crash</strong></span></p><div class="prose"><p></p><p style="text-align:center;"><span class="font-size-3">By Barry Grey</span></p><p style="text-align:center;"></p><p style="text-align:center;"><span class="font-size-3"><a href="http://www.wsws.org/en/articles/2017/02/04/dodd-f04.html" target="_blank">World Socialist Web Site</a> 4 February 2017</span></p><p style="text-align:center;"></p><p><span class="font-size-3"><em>President Donald Trump signed executive directives on Friday initiating a sweeping rollback of regulations on banks and financial brokers enacted under the Obama administration following the Wall Street crash of 2008.</em></span></p><p></p><p><span class="font-size-3">Trump’s actions target in particular the 2010 <strong>Dodd-Frank bank regulations</strong> and a Labor Department rule set to take effect in April requiring financial advisers to put the interests of retired clients before their own monetary rewards.</span></p><p></p><p><span class="font-size-3">The billionaire president seemed to flaunt his promotion of Wall Street’s interests, signing the two measures after meeting in the White House with his business council. The council is chaired by Stephen A. Schwarzman, the multi-billionaire chief executive of the private equity giant Blackstone Group.</span></p><p></p><p><span class="font-size-3">Among the dozen or so corporate executives in attendance were Jamie Dimon, another billionaire, who heads JPMorgan Chase, the largest US bank, and Laurence D. Fink, the mega-millionaire chief of the investment firm BlackRock.</span></p><p></p><p><span class="font-size-3">“We expect to be cutting a lot out of Dodd-Frank because frankly, I have so many people, friends of mine that had nice businesses, they can’t borrow money,” Trump said during his meeting with the corporate bosses. He praised Dimon, who has bitterly campaigned against the Dodd-Frank law. JP Morgan Chase was fined billions of dollars in the aftermath of the 2008 crisis for multiple violations of bank regulations and laws, including fraudulent sub-prime mortgage deals that contributed to the collapse of the US housing market in 2007. A frequent visitor to the Obama White House, Dimon was for a time known as “Obama’s favorite banker.”</span></p><p></p><p><span class="font-size-3">“There’s nobody better to tell me about Dodd-Frank than Jamie,” Trump declared.</span></p><p><span class="font-size-3">Trump also had high praise for Fink, touting BlackRock’s management of Trump money for earning “great returns.”</span></p><p><span class="font-size-3">Nothing could more clearly expose the farce of Trump’s pretensions to be a champion of the American worker.</span></p><p><span class="font-size-3">Wall Street celebrated the attack on financial regulations with a stock buying spree focused on bank and financial shares. The biggest winners were JPMorgan, Goldman Sachs and Visa on a day that saw the Dow surge 186 points to recoup recent losses. It closed once again above the 20,000 mark, ending at 20,071. The Standard & Poor’s 500 and Nasdaq indexes also recorded big gains, with the Nasdaq ending the trading session in record territory.</span></p><p></p><p><span class="font-size-3">Trump’s assault on bank regulations is of a piece with his moves to gut all legal and regulatory restrictions on corporate profit-making. Since taking office two weeks ago, he has signed executive orders mandating the lifting of regulations across the board, removed obstacles to the construction of the Keystone and Dakota Access oil pipelines, and picked long-time opponents of the Environmental Protection Agency, occupational health and safety rules, and limitations on industrial and mining pollution to head the federal agencies tasked with overseeing these activities.</span></p><p></p><p><span class="font-size-3">The White House economic program—including sharp tax cuts for corporations and the wealthy, an infrastructure program that amounts to a tax windfall for private investors, a hiring freeze for federal workers, and historic cuts in social programs such as Medicaid, Medicare and Social Security—is the fulfillment of the wish list of America’s financial oligarchy.</span></p><p></p><p><span class="font-size-3">Trump and his aides have denounced the 2010 Dodd-Frank law as a “disaster” and an “overreach” of government authority, and they have questioned its constitutionality. In fact, it is a largely token measure passed mainly to provide political cover for Obama’s multi-trillion-dollar bailout of Wall Street and the financial elite.</span></p><p></p><p><span class="font-size-3">Under Obama, not a single leading banker was prosecuted for the criminal activities that led to the biggest financial disaster and deepest slump since the 1930s, destroying the jobs, life savings and living standards of tens of millions of workers in the US and around the world.</span></p><p></p><p><span class="font-size-3">Despite the minimal restraints imposed by Dodd-Frank, during the Obama years bank profits soared, the wealth of the richest 400 Americans increased from $1.57 trillion to $2.4 trillion, the Dow rose by 148 percent, and the concentration of income and wealth in the hands of the top 10 percent, and above all the top 1 percent and 0.01 percent, reached historically unprecedented levels.</span></p><p></p><p><span class="font-size-3">But the financial oligarchy, whose grip on the country increased under Obama, will brook not even minor limitations on its “right” to plunder the American and world economy. The Obama years paved the way for the emergence, in the Trump administration, of a government that embodies the oligarchy not only in its policies, but also in its personnel, beginning with the billionaire real estate speculator and reality TV star at its head.</span></p><p></p><p><span class="font-size-3">Besides Trump, at least three multi-billionaires will occupy high posts in the administration, including Wilbur Ross, Betsy DeVos and Carl Icahn. Mega-millionaires will include Stephen Mnuchin, Rex Tillerson, Andrew Puzder, Elaine Chao and Gary Cohn, who gave up his number two post as president of Goldman Sachs to become the director of Trump’s National Economic Council.</span></p><p></p><p><span class="font-size-3">Overseeing Wall Street as head of the Securities and Exchange Commission will be the longtime lawyer for Goldman Sachs, Jay Clayton. In addition to Cohn, other Goldman alumni include Mnuchin and Trump’s top political adviser, Stephen Bannon.</span></p><p></p><p><span class="font-size-3">On Friday, Cohn told Bloomberg Television, “We’re going to attack all aspects of Dodd-Frank.” He absurdly accused the law of “shackling” US banks.</span></p><p></p><p><span class="font-size-3">The White House could do “quite a bit” on its own, he said, while making clear that the administration would work with the Republican-dominated Congress to finish the job of ripping up bank regulations. House Republicans are preparing to put forward a bill to replace Dodd-Frank in the coming weeks.</span></p><p></p><p><span class="font-size-3">Cohn singled out two provisions of the Dodd-Frank law for particular attack. The first is the so-called Volcker Rule, which restricts the ability of federally insured banks to make financial bets on their own behalf, in what is known as “proprietary trading.” Such gambling, including with depositors’ money, played a major role in the collapse of the banking system in 2008. Wall Street banks, led by Goldman Sachs and JPMorgan, have pushed relentlessly for the elimination of this provision.</span></p><p></p><p><span class="font-size-3">The second provision is the Consumer Financial Protection Bureau, a largely toothless body under the aegis of the Federal Reserve Board that is tasked with shielding the public from the depredations of the banks, credit card companies and other financial firms. Cohn indicated that the White House might demand the resignation of its director, Richard Cordray, as the first step in the bureau’s evisceration or outright elimination. “Personnel is policy,” he said.</span></p><p></p><p><span class="font-size-3">The second action Trump signed was a memorandum instructing the labor secretary to delay implementation of the rule banning financial advisers and brokers from recommending to their retired clients more expensive investments for the purpose of generating greater returns to the advisers. A 2015 report from the Obama administration concluded that “conflicted advice” costs retirement savers $17 billion a year.</span></p><p></p><p><span class="font-size-3">Even as Trump was issuing his executive directives on Friday, Senate Republicans were voting to repeal a rule linked to Dodd-Frank that requires oil companies to publicly disclose payments they make to governments in connection with their business operations around the world. Among those who lobbied against the Securities and Exchange rule was the new secretary of state, Rex Tillerson, in his capacity as CEO of Exxon Mobil.</span></p><p></p><p><span class="font-size-3">This amnesty for corporate bribery and criminality reveals the essence of the Trump administration’s scorched earth campaign against business regulations.</span></p><p></p><p><span class="font-size-3">The Democrats will do nothing to oppose these policies. Their opposition to Trump is focused on differences over US imperialist foreign policy, not opposition to his assault on the democratic and social rights of working people.</span></p><p></p><p><span class="font-size-3">But workers looking for an alternative to the political establishment who may have entertained hopes in Trump’s promises to restore decent-paying jobs will be rapidly disabused. The realization that they have once again been conned will have socially explosive consequences.</span></p><p></p></div><p></p></div>"Help! I've got this document to write..."https://globalriskcommunity.com/profiles/blogs/help-i-ve-got-this-document-to-write2016-06-29T12:38:37.000Z2016-06-29T12:38:37.000ZJulian Maynard-Smithhttps://globalriskcommunity.com/members/JulianMaynardSmith<div><p>As a risk professional, you're under a lot of pressure to write documents. Maybe it's a methodology manual, validation report, or other document you’re expected to write for your regulator; a status report for the board; or even that very important email. Whatever it is, some of the following worries probably sound very familiar to you:</p><p>"I've got to write a report and I don't know where to start - what's the best way to do it?"</p><p>"It's taking me ages to edit this Word document - aren't there some clever shortcuts?"</p><p>"I can never find stuff because our shared folder's a nightmare - isn't there a better way to organise our documents?"</p><p>For answers to all these worries, check out the posts at:</p><p><a href="http://www.linkedin.com/today/author/julianms">www.linkedin.com/today/author/julianms</a></p><p>And if you want more advice or staff training, I'll be delighted to help you: if we're already connected on LinkedIn just send me a message that way; and if we're not, feel free to connect by sending an invitation to jfmaynardsmith@gmail.com.</p></div>Killing Off Community Banks in Favor of Megabankshttps://globalriskcommunity.com/profiles/blogs/killing-off-community-banks-in-favor-of-megabanks2015-10-24T00:06:54.000Z2015-10-24T00:06:54.000ZEnrique Raul Suarezhttps://globalriskcommunity.com/members/EnriqueRaulSuarez<div><p><a href="{{#staticFileLink}}8028237861,original{{/staticFileLink}}"><img src="{{#staticFileLink}}8028237861,original{{/staticFileLink}}" width="211" class="align-center" height="153" alt="8028237861?profile=original" /></a></p><p></p><h2 class="center" style="text-align:center;"><strong>Killing Off Community Banks — Intended Consequence of Dodd-Frank Act? “Orderly Liquidation Authority”. Consolidation of Megabanks</strong></h2><h2 class="center" style="text-align:center;"> </h2><p class="center" style="text-align:center;"><span class="font-size-3">Source:</span></p><p class="center" style="text-align:center;"></p><p class="center" style="text-align:center;"><span class="font-size-3"> <a href="http://www.globalresearch.ca/author/ellen-brown" target="_blank">Ellen Brown</a></span></p><p class="center" style="text-align:center;"><span class="font-size-3"><a href="http://ellenbrown.com/2015/10/21/killing-off-community-banks-intended-consequence-of-dodd-frank/" target="_blank">The Web of Debt Blog</a></span></p><p class="center" style="text-align:center;"><span class="font-size-3">21 October 2015</span></p><p></p><p><em>The Dodd-Frank regulations are so lethal to community banks that some say the intent was to force them to sell out to the megabanks. Community banks are rapidly disappearing — except in North Dakota, where they are thriving. </em></p><p>At over 2,300 pages, the Dodd Frank Act is the longest and most complicated bill ever passed by the US legislature. It was supposed to end “too big to fail” and “bailouts,” and to “promote financial stability.” But Dodd-Frank’s “orderly liquidation authority” has replaced bailouts with bail-ins, meaning that in the event of insolvency, big banks are to recapitalize themselves with the savings of their creditors and depositors. The banks deemed too big are more than 30% bigger than before the Act was passed in 2010, and 80% bigger than before the banking crisis of 2008. <a href="http://www.sanders.senate.gov/newsroom/recent-business/break-up-the-big-banks" target="_blank">The six largest US financial institutions</a> now have assets of some $10 trillion, amounting to almost 60% of GDP; and they control nearly 50% of all bank deposits.</p><p>Meanwhile, their smaller competitors are struggling to survive. <a href="http://www.wsj.com/articles/after-five-years-dodd-frank-is-a-failure-1437342607" target="_blank">Community banks and credit unions are disappearing</a> at the rate of one a day. Access to local banking services is disappearing along with them. Small and medium-size businesses – the ones that hire two-thirds of new employees – are having trouble getting loans; students are struggling with sky-high interest rates; homeowners have been replaced by hedge funds acting as absentee landlords; and bank fees are up, increasing the rolls of the unbanked and underbanked, and driving them into the predatory arms of payday lenders.</p><p>Even some well-heeled clients are being rejected. In an October 19, 2015 article titled “<a href="http://www.wsj.com/articles/big-banks-to-americas-companies-we-dont-want-your-cash-1445161083?utm_content=Morning%20Scan%20for%20October%2019%2C%202015%7D&utm_medium=email&ET=paymentssource:e5363525:767732a:&utm_source=newsletter&utm_campaign=morning%20scan-oct%2019%202015&st=email" target="_blank">Big Banks to America’s Firms: We Don’t Want Your Cash</a>,” the Wall Street Journal reported that some Wall Street banks are now telling big depositors to take their money elsewhere or be charged a deposit fee.</p><p>Municipal governments are also being rejected as customers. <a href="https://www.bostonglobe.com/business/2015/10/01/bank-america-dumping-small-towns-and-cities-clients/7mDXv3M1StuZOBcwtFCuSN/story.html" target="_blank">Bank of America just announced</a> that it no longer wants the business of some smaller cities, which have been given 90 days to find somewhere else to put their money. <a href="http://money.cnn.com/2015/07/15/investing/bank-of-america-branches-layoffs/" target="_blank">Hundreds of local BofA branches</a> are also disappearing.</p><p>Hardest hit, however, are the community banks. <a href="http://www.americanbanker.com/bankthink/warring-ideologies-dash-small-banks-hopes-for-reg-relief-1076927-1.html" target="_blank">Today there are 1,524 fewer banks</a> with assets under $1 billion than there were in June 2010, before the Dodd-Frank regulations were signed into law.</p><p><strong>Collateral Damage or Intended Result?</strong></p><p>The rapid demise of community banking is blamed largely on Dodd-Frank’s massively complex rules and onerous capitalization requirements. Just doing the paperwork requires an army of compliance officers, and increased capital and loan requirements are eliminating the smaller banks’ profit margins. They have little recourse but to sell to the larger banks, which have large staffs capable of dealing with the regulations, and which skirt the capital requirements by parking assets in off-balance-sheet vehicles. (See “<a href="http://www.reuters.com/investigates/special-report/usa-bankrules-weakening/" target="_blank">How Wall Street Captured Washington’s Effort to Rein in Banks</a>” in Reuters in April 2015.)</p><p><a href="http://www.mpamag.com/news/on-its-fifth-anniversary-hensarling-slams-doddfrank-23302.aspx" target="_blank">According to Rep. Jeb Hensarling</a> (R-Texas), chairman of the House Financial Services Committee, the disappearance of community banks was not an unintended consequence of Dodd-Frank. He said in a speech in July:</p><blockquote><p>The Dodd-Frank architecture, first of all, has made us less financially stable. Since the passage of Dodd-Frank, the big banks are bigger and the small banks are fewer. But because Washington can control a handful of big established firms much easier than many small and zealous competitors, <em>this is likely an intended consequence of the Act</em>. Dodd-Frank concentrates greater assets in fewer institutions. It codifies into law ‘Too Big to Fail’ . . . . [Emphasis added.]</p></blockquote><p>In an article titled “<a href="http://www.mondaq.com/unitedstates/x/344612/Financial+Services/The+FDICs+New+Capital+Rules+And+Their+Expected+Impact+On+Community+Banks" target="_blank">The FDIC’s New Capital Rules and Their Expected Impact on Community Banks</a>,” Richard Morris and Monica Reyes Grajales concur. They note that “a full discussion of the rules would resemble an advanced course in calculus,” and that the regulators have ignored protests that the rules would have a devastating impact on community banks. Why? The authors suggest that the rules reflect “the new vision of bank regulation – that there should be bigger and fewer banks in the industry.”</p><p><strong>The Failure of Regulation</strong></p><p>Obviously, making the big banks bigger also serves the interests of the megabanks,<a href="http://dealbook.nytimes.com/2013/05/23/banks-lobbyists-help-in-drafting-financial-bills/?_r=1" target="_blank">whose lobbyists are well known</a> to have their fingerprints all over the legislation. How they have been able to manipulate the rules was seen last December, when legislation drafted by Citigroup and slipped into the Omnibus Spending Bill loosened the Dodd-Frank regulations on derivatives. As <a href="http://www.motherjones.com/politics/2014/12/spending-bill-992-derivatives-citigroup-lobbyists" target="_blank">noted in a Mother Jones article</a> before the legislation was passed:</p><blockquote><p>The Citi-drafted legislation will benefit five of the largest banks in the country—Citigroup, JPMorgan Chase, Goldman Sachs, Bank of America, and Wells Fargo. These financial institutions control more than 90 percent of the $700 trillion derivatives market. If this measure becomes law, these banks will be able to use FDIC-insured money to bet on nearly anything they want. And if there’s another economic downturn, they can count on a taxpayer bailout of their derivatives trading business.</p></blockquote><p>Regulation is clearly inadequate to keep these banks honest and ensure that they serve the public interest. The world’s largest private banks have been caught in criminal acts that former bank fraud investigator Prof. William K. Black calls <a href="http://usawatchdog.com/jp-morgans-frauds-are-epicunprecedented-in-world-history-william-black/" target="_blank">the greatest frauds in history</a>. The litany of frauds involves more than a dozen felonies, including bid-rigging on municipal bond debt; colluding to rig interest rates on hundreds of trillions of dollars in mortgages, derivatives and other contracts; exposing investors to excessive risk; and engaging in multiple forms of mortgage fraud. <a href="http://www.huffingtonpost.com/2013/03/06/eric-holder-banks-too-big_n_2821741.html" target="_blank">According to US Attorney General Eric Holder</a>, the guilty have gone unpunished because they are “too big to prosecute.” If they are too big to prosecute, they are too big to regulate.</p><p>But that doesn’t mean Congress won’t try. Dodd-Frank gives the Federal Reserve “heightened prudential supervision” over “systemically important” banks, essentially putting them under government control. According to Hensarling, <a href="http://www.wsj.com/articles/after-five-years-dodd-frank-is-a-failure-1437342607" target="_blank">writing in the Wall Street Journal</a> in July, Dodd-Frank is turning America’s largest financial institutions into “functional utilities” and is delivering the power to allocate capital to political actors in Washington.</p><p>Thomas Hoenig, former president of the Federal Reserve Bank of Kansas City, gave a speech in 2011 in which <a href="http://www.americanbanker.com/bankthink/warring-ideologies-dash-small-banks-hopes-for-reg-relief-1076927-1.html" target="_blank">he also described banking as a “public utility.”</a> (What he actually said was, “You’re a public utility, for crying out loud.”) Six months later, Hoenig was appointed vice chairman of the FDIC.</p><p>If the megabanks are going to be true public utilities, they probably need to be publicly-owned entities, which capture profits and direct credit in a way that actually serves the people. If Dodd-Frank’s several thousand pages of regulations cannot create a stable and sustainable banking system, the regulatory approach has failed. The whole system needs to be revamped.</p><p><strong>Restoring Community Banking: The Model of North Dakota </strong></p><p>Even if the megabanks were to become true public utilities, we would still need a thriving community banking sector. Community banks service local markets in a way that the megabanks with their standardized lending models are neither interested in nor capable of.</p><p>How can the community banks be preserved and nurtured? For some ideas, we can look to a state where they are still thriving – North Dakota. In a September 2015 article titled “<a href="https://ilsr.org/map-shows-how-well-the-bank-of-north-dakota-works/" target="_blank">How One State Escaped Wall Street’s Rule and Created a Banking System That’s 83% Locally Owned</a>,” Stacy Mitchell writes that North Dakota’s banking sector bears little resemblance to that of the rest of the country:</p><blockquote><p>North Dakotans do not depend on Wall Street banks to decide the fate of their livelihoods and the future of their communities, and rely instead on locally owned banks and credit unions. With 89 small and mid-sized community banks and 38 credit unions, North Dakota has <em>six times</em> as many locally owned financial institutions per person as the rest of the nation. And these local banks and credit unions control a resounding 83 percent of deposits in the state — more than twice the 30 percent market share that small and mid-sized financial institutions have nationally.</p></blockquote><p><a href="http://www.opednews.com/articles/Are-Community-Banks-Too-Sm-by-Scott-Baker-130312-662.html" target="_blank">Their secret is the century-old Bank of North Dakota</a>, the nation’s only state-owned depository bank, which partners with and supports the state’s local banks. In an April 2015 article titled “<a href="http://www.publicbankinginstitute.org/is_dodd_frank_killing_community_banks_the_more_important_question_is_how_to_save_them" target="_blank">Is Dodd-Frank Killing Community Banks? The More Important Question is How to Save Them</a>”, Matt Stannard writes:</p><blockquote><p>Public banks offer unique benefits to community banks, including collateralization of deposits, protection from poaching of customers by big banks, the creation of more successful deals, and . . . regulatory compliance. The Bank of North Dakota, the nation’s only public bank, directly supports community banks and enables them to meet regulatory requirements such as asset to loan ratios and deposit to loan ratios. . . . [I]t keeps community banks solvent in other ways, lessening the impact of regulatory compliance on banks’ bottom lines.</p><p><a href="http://ilsr.org/rule/bank-of-north-dakota-2/" target="_blank">We know</a> from FDIC data in 2009 that North Dakota had almost 16 banks per 100,000 people, the most in the country. A more important figure, however, is community banks’ loan averages per capita, which was $12,000 in North Dakota, compared to only $3,000 nationally. . . . During the last decade, banks in North Dakota with less than $1 billion in assets have averaged a stunning 434 percent more small business lending than the national average.</p></blockquote><p>The BND has also been very profitable for the state and its citizens. Over the last 21 years, the BND has generated almost $1 billion in profit and returned nearly $400 million to the state’s general fund, where it is available to support education and other public services while reducing the tax burden on residents and businesses.</p><p>The partnership of a state-owned bank with local community banks is a proven alternative for maintaining the viability of local credit and banking services. Other states would do well to follow North Dakota’s lead, not only to protect their local communities and local banks, but to bolster their revenues, escape Washington’s noose, and provide a bail-in-proof depository for their public funds.</p><p><em><strong>Ellen Brown</strong> is an attorney, founder of the <a href="http://publicbankinginstitute.org/" target="_blank">Public Banking Institute</a>, and author of twelve books including the best-selling <a href="http://webofdebt.com/" target="_blank">Web of Debt</a>. Her latest book, <a href="http://publicbanksolution.com/" target="_blank">The Public Bank Solution</a>, explores successful public banking models historically and globally. Her 300+ blog articles are at <a href="http://ellenbrown.com/" target="_blank">EllenBrown.com</a>. Listen to “<a href="http://itsourmoney.podbean.com/" target="_blank">It’s Our Money with Ellen Brown</a>” on PRN.FM.</em></p><p></p><p></p></div>Basel Committee Ushers in Next Phase of Enterprise/Integrated Risk Managementhttps://globalriskcommunity.com/profiles/blogs/basel-committee-ushers-in-next-phase-of-enterprise-integrated2013-08-29T13:06:53.000Z2013-08-29T13:06:53.000ZSecondFloorhttps://globalriskcommunity.com/members/SecondFloor<div><p>The Basel Committee, which creates regulations for banks, has published a set of principles regarding effective risk data aggregation and risk reporting, which will provide a fantastic business case for risk professionals to improve their risk frameworks. I’ve included highlights below, but you can take a look at the full report<a href="http://www.bis.org/publ/bcbs239.pdf" target="_blank"> here.</a></p><p>The principles for effective risk data aggregation and risk reporting will be mandatory for globally systemically important banks (G-SIBs) from 2016, and the Basel Committee recommends that national regulators make them mandatory for domestically systemically important banks (D-SIBs). There are currently 29 G-SIBs, and D-SIBs will probably be the top four or five largest and/or most complex banks in each country. Beyond this, I believe the principles in the Basel document will become an industry standard by which all banks will be assessed by institutional investors and during due diligence processes for mergers and acquisitions.</p><p><strong>The Basel Committee’s principles cover four closely related topics, and are common sense, though not easily attainable: </strong></p><p>• Overarching governance and infrastructure </p><p>• Risk data aggregation capabilities </p><p>• Risk reporting practices </p><p>• Supervisory review, tools and cooperation </p><p>A couple excerpts from the report that will resonate with most practitioners explain why the principles are necessary. These explanations will come in handy as ‘I-told-you-so’ introductions to many a business case for the next steps in enterprise/integrated risk management frameworks and in business analytics at group level (because it’s ultimately the board and senior management that own this challenge):</p><p>• Ensure that management can rely with confidence on the information to make critical decisions about risk.</p><p>• Accurate, complete and timely data is a foundation for effective risk management. However, data alone does not guarantee that the board and senior management will receive appropriate information to make effective decisions about risk. To manage risk effectively, the right information needs to be presented to the right people at the right time. Risk reports based on risk data should be accurate, clear and complete. They should contain the correct content and be presented to the appropriate decision-makers in a time that allows for an appropriate response.</p><p><strong>Other elements within the principles that point to some solid professional challenges are:</strong></p><p>• Supervisors observe that making improvements in risk data aggregation capabilities and risk reporting practices remains a challenge for banks, and supervisors would like to see more progress</p><p>• These risk reporting capabilities should also allow banks to conduct a flexible and effective stress testing which is capable of providing forward-looking risk assessments</p><p>• When expert judgment is applied, supervisors expect that the process be clearly documented and transparent</p><p>• A bank’s board and senior management should promote the identification, assessment and management of data quality risks as part of its overall risk management framework.</p><p>• A bank’s risk data aggregation capabilities and risk reporting practices should be fully documented and subject to high standards of validation.</p><p>• Capabilities to incorporate new developments on the organisation of the business and/or external factors that influence the bank’s risk profile</p><p>• Risk management reports should accurately and precisely convey aggregated risk data and reflect risk in an exact manner. Reports should be reconciled and validated</p><p>The Basel principles for effective risk data aggregation and risk reporting might not look 100% practical for inclusion in the real world, as opposed to a wish-list paper exercise, but at SecondFloor we believe it creates the right mindset.</p><p><strong>The list of globally systemically important banks</strong>, it is created by the Financial Stability Board, and can be found at: <a href="http://www.financialstabilityboard.org/publications/r_121031ac.pdf">http://www.financialstabilityboard.org/publications/r_121031ac.pdf</a>. This latest list was created in Nov 2012 and will be updated again in Nov 2013.</p><p><strong><a href="http://info.secondfloor.com/ContactUs.html" target="_blank"><span>For more about SecondFloor’s solution for efficient analytics and critical and regulatory reporting, and how it can help with integrated risk management contact SecondFloor today.</span></a></strong></p><p><span> </span></p></div>MiFID II – Trade Automation, Part 2https://globalriskcommunity.com/profiles/blogs/mifid-ii-trade-automation-part-22013-04-02T08:30:37.000Z2013-04-02T08:30:37.000ZKiki Pentheroudakihttps://globalriskcommunity.com/members/KikiPentheroudaki<div><p><i>by Kiki Pentheroudaki </i></p><p>We have discussed the historic development of automated trading and how regulators are pushing high-frequency traders to become market makers. We now want to look at further ways to regulate automated trading under MiFID II.</p><p><a href="http://www.thetradenews.com/news/Trading___Execution/Dark_pools,_HFT_braced_for_a_tough_2013.aspx">The impact of high frequency trading (HFT) flow on markets will also see continued attention from market participants and regulators alike</a>. In 2012, significant regulatory attention focused on HFT, such as provisions in the European Parliament's version of MiFID II. The document called for venues to instate order-to-trade ratios, a 500 millisecond minimum resting time for orders, and a ban of the maker-taker pricing model, which rewards posting passive liquidity but can lead to potential conflicts of interest among market participants.</p><p>For HFT there are concerns that not all high frequency traders are currently required to be authorised under MiFID as the exemption in Article 2.1(d) of the framework directive for persons who are only dealing on their own account can be used by such traders. While HFT represents an increasing and substantial share of market transactions and the liquidity they provide to the market may replace the more traditional market making activities, high frequency traders have no incentive or obligation to continue to provide ongoing liquidity in a distressed market situation unlike registered market makers.</p><p>High-frequency traders usually remain in the market for a mere blink of an eye but this restriction – an introduction of the 500 millisecond latency in a bid to make a stand - against the rise of high-frequency trading could significantly alter the way they operate and could also have unintended consequences for the wider market.</p><p>The HFT community says that Brussels’ plans will result in less liquidity and wider spreads for other market participants, while some in the market believe HFT will likely benefit from the move anyway as they will just pinpoint 499 and 501 milliseconds in the future to generate their profits (the original MiFID regulation made no such provision).</p><p>From a wider regulatory perspective, the CFTC and SEC are currently reviewing rules on Automated Trading and HFT. They are working together with the markets to consider recalibrating the existing market-wide circuit breakers. The CFTC has published proposals targeted at specialist automatic trading rules as part of the rules for the newly introduced Swap Dealers and Major Swap Participants. Persons involved in "automated and high frequency trading" who are direct members of a regulated market or MTF will be required to be authorised and supervised as investment firms. There will be specialist rules for firms involved in algorithmic trading including compliance, risk controls, and notification to regulators of algorithms. In addition firms will be required to flag the use of algorithms in transactions and orders.</p><p>Several concerns have been raised regarding the very broad scope of the proposed provisions, in particular on the obligation for algorithmic traders to provide liquidity at all times, and the legal uncertainty that would be created by the fact to leave the specification of the scope of this provision to delegated acts. Independent investors said they hoped MiFID II would shield them from HFT practices, which are often accused of distorting stock markets and profiting at the expense of traditional market players.</p><p>Regulators need to find a balanced approach of checks and balances to weed out the ‘bad’ HFT from the ‘beneficial’.</p></div>MiFID II – Trade Automation, Part 1https://globalriskcommunity.com/profiles/blogs/mifid-ii-trade-automation-part-12013-03-26T10:53:39.000Z2013-03-26T10:53:39.000ZKiki Pentheroudakihttps://globalriskcommunity.com/members/KikiPentheroudaki<div><p><i>by Kiki Pentheroudaki</i></p><p></p><p>MiFID II is intended to regulate the use of automated trading to ensure a level-playing field for all market participants. In a two-part overview we will provide you with insight into how regulators are thinking. Part one focuses on the history of automated trading and MiFID’s proposals around market-making for high-frequency traders.</p><p>Automated or algorithmic trading is used by a wide range of market participants. Profits from high-speed trading in American stocks were ca. $1.25 billion in 2012, 74% lower than the peak of about $4.9 billion in 2009, according to <a href="http://www.nytimes.com/2012/10/15/business/with-profits-dropping-high-speed-trading-cools-down.html?pagewanted=all&_r=0">estimates</a> from brokerage firm Rosenblatt Securities.</p><p>According to the Committee of European Securities Regulators (<a href="http://www.consob.it/documenti/quaderni/qdf69en.pdf">CESR</a>) high frequency trading (HFT) accounts for up to 40% of total share trading in the EU. Studies suggest that HFT using market making and arbitrage strategies has added liquidity to the market, reduced spreads and helped align prices across markets.</p><p>On the other hand, there is evidence that the average transaction size has decreased, which makes it difficult for institutional investors to execute large orders. HFT is also linked with the increased use of dark liquidity – i.e. any pool of liquidity, which is not pre-trade transparent such as broker crossing networks and dark pools. Perhaps the most significant new risk arises through the misuse of algorithms (rogue or badly tested algorithms) posing a threat to the orderly functioning of markets in certain circumstances.</p><p>MiFID II aims to rectify some of these assumed irregularities by introducing a number of regulatory measures:</p><ul><li>Pushing users of automated trading strategies to be market makers at all times, ensuring they can provide liquidity on a regular basis</li><li>New organisational requirements for firms using algorithmic trading such as robust risk controls to ensure the resilience of their systems, appropriate trading thresholds and limits that will prevent sending erroneous orders</li><li>Authorisation of high-frequency traders at investment firms when they are direct member of a trading venue</li><li>Introduction of minimum resting times for orders sent to an official trading venue</li><li>Intention to move trading away from dark pools </li></ul><p>The European Commission’s MiFID consultation paper requires operators of algorithmic trading strategies to “post firm quotes at competitive prices with the result of providing liquidity on a regular and ongoing basis to trading venues at all times, regardless of prevailing market conditions”.</p><p>Continuously posting firm quotes can come in two different guises: </p><ul><li>At one extreme, interpreting the requirement that algorithmic traders have to post firm quotes reflecting usual spreads for securities at all times the market is open, could have severe adverse effects on the business model of such traders and potentially drive them out of the market</li><li>On the other hand, if the interpretation of the requirement is designed to mimic the requirements applied currently to official market-makers, the impact on HFT is likely to be <a href="http://www.bis.gov.uk/assets/foresight/docs/computer-trading/12-1080-eia21-economic-impact-mifid-rules-high-frequency-trading">minimal</a> </li></ul><p>The impact of this market-making requirement will critically depend on how the requirement to ‘continually post firm quotes at competitive prices is interpreted. There will be significant additional risk applied to automated trading if the requirement is interpreted to mean that at all times the market is open, and that every algorithmic trader has to offer to buy and sell a security across a spread that reflects the usual spread for that security.</p><p>The push for transparency remains in full force, yet some market participants have questioned the introduction of market making obligations on the grounds that these may cause market makers to quit the market entirely or perhaps transition into other products such as derivatives or bonds. The legislative process is approaching the home stretch and this area will be put under more scrutiny going forward.</p><p><i>Next week’s part two will</i> delve into more regulatory requirements such as authorisation, minimum resting times and the impact on dark pools.</p></div>MiFID II is coming – are you prepared?https://globalriskcommunity.com/profiles/blogs/mifid-ii-is-coming-are-you-prepared2013-02-13T10:30:00.000Z2013-02-13T10:30:00.000ZTom Riesackhttps://globalriskcommunity.com/members/TomRiesack<div><p><b><i>After EMIR, Basel III and Dodd Frank, MiFID II is now on the horizon. Are you keeping up with the latest regulatory developments</i></b> <b><i>in the market</i></b><b><i>?</i></b></p><p>Alarmed by the impact of the latest financial crisis, regulators globally have released a set of new regulations. While most financial institutions are already working diligently on the implementation of EMIR, Basel III and Dodd Frank, the change in the EU Council presidency to Ireland and the current consultations around MiFID II give further incentives to have a closer look at the challenges that the revision of the Markets in Financial Instruments Directive (MiFID) brings to market participants.</p><p><b>The final implementation challenges for Dodd Frank, EMIR and Basel III are still coming, but now is the time to prepare for MiFID II</b></p><p>The original MiFID legislation was introduced in 2007. Since then, a number of changes to the marketplace have taken place, including the rise of high-frequency trading. The financial crisis has shown that transparency is key to ensuring financial market stability, therefore a review of this critical piece of legislation was ordered and is now in the final stages of the rule-making process.</p><p>While its impact concerns all areas of the securities market and organisations involved in this space (e.g. sell-side and buy-side banks, corporate end-users, trading and post-trade venues, CCPs, CSDs) the question that should be asked is not “Will I be impacted?” but rather “How do I proceed?”</p><p><b>Better be involved before you get involved</b></p><p>Being a complex piece of regulation, MiFiD II requires a thorough analysis to identify the impact it will have on financial services firms. While the regulation affects the full value chain, the main focus can be broken down to the following areas:</p><ul><li><b>Market Structure:</b> Introduction of Organised Trading Facilities (OTFs) and regulatory requirements for Multilateral Trading Facilities (MTFs)</li><li><b>Trade Automation:</b> Introduction of tighter rules governing the use of high frequency and algorithmic trading</li><li><b>OTC Derivatives and Commodities:</b> Extension to further products not yet part of MiFID as well as stricter regulation of commodities and corresponding derivatives</li><li><b>Transparency:</b> New requirements on transaction reporting and data consolidation as well as on pre- and post-trade transparency</li><li><b>Investor Protection:</b> Strengthening client protection and information disclosure</li><li><b>Organisational Requirements:</b> Strengthening customer rights and revision of sales staff incentives (inducements)</li></ul><p><b>Quick and decisive action may yield the chance to realise synergies from the regulation and find new business opportunities</b></p><p>Adapting to the required changes of MiFID II will no doubt be costly and take a huge effort but there is light at the end of the tunnel. A smart and structured approach will enable institutions to leverage solutions that have already been introduced as part of other regulatory efforts.</p><p>With the start of this new blog series, Capco will report selected developments and challenges regarding MiFID II, and will run a forum for discussion. In regular releases we plan to post updates on this topic, diving deeper into certain parts of the regulation and, thus, probe our understanding of the challenges ahead.</p><p><i>Blog authored Florian Zimmermann, Nicky Heber and Tom Riesack</i></p><p> </p></div>Davos 2012 – should everyone bank on innovation?https://globalriskcommunity.com/profiles/blogs/davos-2012-should-everyone-bank-on-innovation2012-02-07T16:53:33.000Z2012-02-07T16:53:33.000ZRob Heyvaerthttps://globalriskcommunity.com/members/RobHeyvaert<div><p>Cost cutting and better risk management remained high on the European financial services agenda at the recent World Economic Forum. Institutions worldwide are facing similar concerns, because of the ongoing instability in the current economic environment. Yet cost cutting initiatives and the move to further enhance risk management are often undertaken to the detriment of what customers today are looking for – innovation.</p><p> </p><p>Regulation is intended to create transparency, but if not managed efficiently, it can run the risk of stifling business. Financial institutions need to re-investigate the way they look at regulation. They must think about how they can configure their business and technology to meet the increasing need for transparency.</p><p> </p><p>There are signs, however, that an industry shift is starting to take place. Institutions realize that return on equity demands that the focus on core activities and services can be spun out or procured from technology service providers. In addition, some banks are already working more closely with other banks - in some cases even with competitors - to share non-proprietary IT infrastructure and platforms, and as a result drive down costs.</p><p> </p><p>Our estimate is that global financial services institutions still need to reduce total costs by at least 20% - or approximately $500 billion* as they strive to get back to the return on equity levels they were achieving before the crisis. It goes without saying that this is not an insignificant figure. Any move to further reduce costs, deliver greater shareholder value and provide the customer with the ever increasing levels of experience they continue to demand needs to be well thought through.</p><p> </p><p>Regulatory reform shows no sign of waning resulting in the new normal of higher capital burden. The institutions that will survive will be ones that look at how investments in innovation and restructuring of IT infrastructure will benefit them – and their customers - now and in the future.</p><p> </p><p>*figures are given in US billions</p></div>