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Dewar to Step Down as UK FSA’s Head of Risk
The UK Financial Services Authority’s (FSA) head of risk, Sally Dewar, has announced this week that she will be stepping down from her role at the regulator at the beginning of next year. Dewar, who has been instrumental in the FSA’s recent hard line approach to the market (see some of her recent work on the Single Customer View reforms here), was tipped to be Hector Sants’ successor as chief executive of the regulator, following his announcement that he would be stepping down earlier this year (see here).
US FCIC Criticises State of Goldman’s Slow Production of Incomplete and Inaccurate CDO and Customer Data
Following the damning evidence provided by the Lehman examiner report earlier this year (see our coverage here), proof yet again of the poor state of the industry’s data management systems comes this month from the US Financial Crisis Inquiry Commission’s (FCIC) recent dealings with Goldman Sachs. The regulatory body, which was established in May last year to examine the causes of the financial crisis, has been investigating data around Goldman’s synthetic and hybrid collateralised debt obligations (CDOs) based on mortgage backed securities (MBSs) and has criticised the firm’s slow and incomplete provision of the required data.
UK FSA Slaps JPMorgan with £33.32m Fine for Client Money Rules Infractions
As if it was a warning shot to those dragging their heels in meeting the UK Financial Services Authority’s (FSA) recent call for firms to provide more data about their management of client assets (see our coverage here), the regulator has this week fined JPMorgan Securities Limited £33.32 million for breaches of its client money rules. It is the largest fine ever levied by the FSA and it indicates that the regulator is taking the management of client assets seriously in light of the collapse of financial institutions such as Lehman Brothers and the resulting liquidity issues.
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BIS Working Paper Highlights the Challenges in Data Aggregation for Systemic Risk Monitoring
The current regulatory focus on improving the monitoring of systemic risk at a global level is certainly a laudable aim, but the practical reality of drawing together a unified database that provides risk exposure data at an industry wide level is easier said than done. A recent Bank for International Settlements (BIS) working paper, written by researchers Stephen Cecchetti, Ingo Fender and Patrick McGuire, examines the challenges involved in producing such a global risk map in order to support a two step approach to systemic risk monitoring.
Hong Kong’s SFC Fines Two Merrill Lynch Subsidiaries for Risk Management and Valuations Oversight Failings
Hong Kong’s Securities and Futures Commission (SFC) has fined two Merrill Lynch Asian subsidiaries a total of HK$3,500,000 (US$450,000) for systems and controls failings in their risk management and monitoring systems that led to the mis-marking of activities in a derivatives trading book. The SFC’s investigation found that during the period from December 2007 to October 2008, a managing director of Merrill Lynch had mis-marked a trading book in exotics options by manipulating the volatility marks in the valuation model, and accessed the computer system without authority to alter pricing parameters on various occasions. Merrill Lynch (Asia Pacific) Limited and Merrill Lynch Futures (Hong Kong) Limited’s risk management systems and controls were therefore judged to be unable to detect the mis-marking.
Regulatory Change is Driving Risk Management Agenda Say 63% of Respondents to SAS and EIU Survey
The pace of change for risk management reform within the financial services industry has increased significantly over the last year as a result of regulatory drivers, according to a recent survey conducted by the Economist Intelligence Unit (EIU) on behalf of risk management system vendor SAS. Of the 346 banking and insurance executives who responded to the survey, 63% indicated that regulators were the stakeholders with the most influence on risk issues over the last 12 months. However, as well as helping to drive investment, uncertainty over future regulation is also holding back effective risk management, according to 39% of respondents.
CESR’s Ratings Agency Consultation Paper Sets Out CRA Data Requirements
Following more than a year of discussions about how to best tackle the underlying issues with credit ratings in the post-crisis environment (see discussions back in March last year for example, here), the Committee of European Securities Regulators (CESR) has produced a new consultation paper detailing the data requirements for these ratings agencies under the new regime of heavier scrutiny. Industry participants have until the 18 June to provide feedback to CESR about the new requirements, which include details about the typical set of information competent authorities may request from credit ratings agencies (CRAs) on an ongoing basis.
UK FSA’s Risk Head Dewar Sends Out Second Warning on Client Assets; Three Strikes and You’re Out…
As part of its tougher stance towards the market and in a follow up to a related “Dear CEO” letter sent out in January (see our coverage here), the UK Financial Services Authority’s (FSA) managing director of risk Sally Dewar has sent out another letter warning firms to respond to its request for information on their management of client assets. The letter is aimed at those insurance brokers and investment firms that have thus far failed to reply to its previous appeal for these firms to improve the way they protect client assets, including record keeping considerations, and declare their intentions in writing.
Middle Office Cinderella Finally Getting its Day in the Spotlight Due to New Transparency Requirements, Says Op Risk Panel
The new transparency requirements that are being mooted as part of the MiFID review process by the Committee of European Securities Regulators (CESR) have resulted in a surge of interest and investment in the middle office, according to panellists discussing operational risk at last week’s Xtrakter user conference. Godfried De Vidts, director of European Affairs at Icap, explained that the need for a more harmonised approach to the post-trade space is being highlighted by the push for greater data transparency and the fragmentation of the clearing environment with the addition of new central clearing counterparties (CCPs) on the scene.
CCPs Will Not be a Panacea for the Risk Management of OTC Derivatives, Says SunGard Panel
Forcing all OTC derivatives trades to be centrally cleared will result in a whole host of unintended consequences, including a potential increase in systemic risk, agreed a panel of sell side firms and vendors at a recent SunGard event in London. Clearing via central counterparties (CCPs) has been on the regulatory agenda for some time (see McCreevy’s comments at the start of last year for example, see here) and many in the industry are concerned that a regulatory knee jerk reaction to the financial crisis will mean OTC trades that are not liquid enough to be centrally cleared could be forced down the CCP route.
Caribbean on Course for Risk Technology Investment, Says Central Bank of Trinidad and Tobago’s Williams
Regulators in the Caribbean are closely monitoring the developments in the US with regards to tackling the fallout of the financial crisis, in particular the technology solutions that are being deployed to meet the new risk management requirements of the market. Ewart Williams, governor of the Central Bank of Trinidad and Tobago, indicated that his own country is seeking to ensure that financial institutions pay more attention to their risk management practices and the “crucial role of adequate and properly designed information systems”, he said during a Caribbean business seminar at the end of last month.
CESR’s CP on Non-equity Markets Transparency Confirms More Derivatives Data Requirements on the Cards
The Committee of European Securities Regulators (CESR) has issued a consultation paper on post-trade transparency this month, which indicates that European firms may soon face a whole host of new data requirements for structured products. The paper, which is part of the ongoing MiFID review process that is being conducted over the course of this year (see our recent coverage here), recommends that trade information with a basic set of data be published for corporate bonds and the more standardised structured products including asset backed securities (ABSs), collateralised debt obligations (CDOs) and credit default swaps (CDSs).
MiFID JWG Reconvening in June, JWG’s Di Giammarino Points to Overlooked Reference Data Aspects of MiFID Review
In light of the current review of MiFID going on at the European level (see recent coverage here), the MiFID Joint Working Group (JWG) is set to reconvene at the start of June to discuss the key business and IT related issues. One such issue will be the impact of all this regulatory work on the reference data space, an area that PJ Di Giammarino, CEO of think tank JWG feels has been too often overlooked during recent discussions on MiFID.
Majority of PRMIA Members Back the Establishment of a US-based Data Utility
US Republican senator Richard Shelby may be sceptical about the Financial Services Bill’s proposals for the establishment of a data collection agency (see here), but US risk management professionals are seemingly keen for such a utility to be introduced. According to a recent survey of chief risk officers (CROs) by the Professional Risk Managers’ International Association (PRMIA) and the Committee to Establish the National Institute of Finance (CE-NIF), 63% of the 98 respondents indicated that they were keen for the US government to step in and collect system-wide data in order to monitor systemic risk.
Regulators are Cracking Down on Counterparty Identifiers in Line with the MiFID Review
The UK Financial Services Authority’s (FSA) recent fining of German bank Commerzbank (see our coverage here) for its transaction reporting failures is just one instance of the regulator’s current focus on the data details of a firm’s business. One of the underlying problems in Commerzbank’s case was the incorrect allocation of counterparty codes and the use of proprietary codes for these counterparties, which is exactly why the FSA and other European regulators are so keen for the mandatory inclusion of Bank Identifier Codes (BICs) in these transaction reports, among other data standards.
IMF Looks at Data Challenges of Better Supervision of the Global Markets
In a similar vein to the rest of the global regulatory community, the International Monetary Fund (IMF) is examining how it can better monitor the financial markets and the data concerns related to that challenge. In a paper published earlier this week, the IMF indicates how it plans to map the interconnectedness of financial institutions across borders, including filling the gaps in financial sector data and collaborating with key entities involved in financial stability work.
UK FSA Slaps Commerzbank with £595,000 Fine for Transaction Reporting Data Failures
The UK Financial Services Authority (FSA) has fined Commerzbank £595,000 for transaction reporting failures stemming from underlying data errors, including the use of multiple internal codes for the same counterparties. The German bank’s fine may be a fraction of the £2.45 million imposed on Barclays last year (see here), but it indicates that the regulator is continuing to focus on the data details of the reports that it receives from the industry.
Wall Street Reform Act Includes Key Risk and Data Requirements in Light of Lehman Failure
The US House Committee on Financial Services’ Wall Street Reform and Consumer Protection Act, which is currently making its way through the US legislative process, is seeking to rectify a number of inadequacies in light of the failure of Lehman, including key provisions around data and risk management. For example, the issue of living wills legislation and the creation of a Systemic Risk Council will both likely compel firms to invest in their data management and risk systems.
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