Operational risk remains key challenge for banks | Japanese regulator orders bank to improve internal controls | Mnuchin vows to streamline anti-money-laundering rules
July 17, 2018
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Internal Audit Watch
Bank fails 2nd part of Fed stress test; limits put on 3 others
The US subsidiary of Deutsche Bank failed the second phase of the Federal Reserve's stress test because of deficiencies in capital-planning controls. The central bank also said Goldman Sachs and Morgan Stanley are barred from increasing capital distributions, while State Street needs better management and analysis of counterparty risk.
Reuters (6/28),  CNBC (6/29),  The Wall Street Journal (tiered subscription model) (6/28),  Risk (subscription required) (6/28) 
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The IIA's Audit Intelligence Suite 2018 Benchmarking Questionnaire
This year's questionnaire has been enhanced with new Employee Compensation section which incorporates the most popular components of The IIA's Compensation Study. In addition to benchmarking your audit activity, you can assess your team and survey your key stakeholders. Once you know the results, you will be in a better position to improve your audit function. Get started now!
Risk Management
Operational risk remains key challenge for banks
Operational risk continues to be an area of concern for banks. "Losses from these operational risk episodes can be catastrophic, not just in a strictly monetary sense, but in terms of the impact on the bank's overall business and reputation, sometimes threatening its very existence," according to this brief from Bain & Co.
Bain & Company (7/10) 
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Japanese regulator orders bank to improve internal controls
Japan's Financial Services Agency told Higashi-Nippon Bank to strengthen its internal controls after finding some of the bank's loans exceeded what customers needed and that some fees lacked transparency. The regulator said internal auditors should have looked into the lending and fees more thoroughly, and the bank's managing director said some managers had hindered internal oversight for the sake of bringing in more money.
Nikkei Asian Review (Japan) (tiered subscription model) (7/14) 
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Regulation & Compliance
Mnuchin vows to streamline anti-money-laundering rules
Anti-money-laundering regulations under the Bank Secrecy Act need streamlining, Treasury Secretary Steven Mnuchin said in testimony before the House Financial Services Committee. Mnuchin said he will look into relaxing a rule passed in May that requires banks to identify who owns at least 25% of an account's legal entity.
American Banker online (subscription required) (7/12) 
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Finance leaders react to UK's Brexit white paper
Leaders in the financial industry have offered varied reactions to the British government's white paper on Brexit, which notably drops a demand for UK banks to have easy access to the EU. Simon Lewis, CEO of the Association for Financial Markets in Europe, welcomes the "further clarity and detail on the UK government's position" but stresses a need for further progress, saying businesses need "certainty of a transition period and direction on the future trading relationship to minimise disruption" to clients.
Markets Media (7/12),  Bloomberg (tiered subscription model) (7/12) 
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Auditing Conduct and Culture
An organization's culture should not be overlooked by internal audit as a source of potential harm. PWC's Rehana Anait has spent decades gaining expertise in this arena, and says it is especially important now. Not only is it a factor in the success of an institution, regulators are paying close attention to its possible effects. Read more.
Fraud & Ethics
CFPB part of DOJ task force targeting fraud
The Consumer Financial Protection Bureau is one of three agencies joining the Justice Department on a task force to combat fraud. The coordinated effort is expected to keep multiple agencies from fining companies for the same behavior.
Reuters (7/11) 
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IIA-certified individuals are required to earn two of their CPE/CPD credits in Ethics.
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Banks can turn to fintechs to aid with open banking
The transition to open banking and accompanying regulatory changes, as exemplified by the Second Payment Services Directive (PSD2), are posing challenges for banks ill-equipped to handle them. This is where fintech startups can help, serving as trusted partners rather than competitors.
Payments Journal (7/11) 
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Aite predicts over $1T in 2018 cryptocurrency trading
Cryptocurrency trading is expected to exceed $1 trillion by year-end, up 25% compared with last year, according to Aite Group. An estimated $100 billion in cryptocurrencies traded over the counter in the first four months of this year, a trend Aite expects to continue.
The Trade (UK) (7/11) 
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Commentary: Demographics, technology working against big banks
Banks are bracing for disruption by major tech companies and startups appealing to a new generation of consumer that does not want to be tied to a local bank branch. "The expectations of younger consumers and the traditional mentality of big banks are fundamentally opposed," writes student Nicola Medicoff, runner-up for her analysis in the Bank of England/Financial Times schools blogging competition.
Bank Underground (Bank of England) (6/28) 
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Audit report podcast series
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The Financial Services Audit Center is the premier resource for auditors in the financial-services industry, delivering low-cost, high-quality knowledge sharing as well as relevant reporting on trends, benchmarking and critical content. Learn more.
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In whatever state of knowledge we may conceive man to be placed, his progress towards a yet higher state need never fear a check, but must continue till the last existence of society.
John Herschel,
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About the IIA Financial Services Audit Center (FSAC)
FSAC is an IIA specialty center for audit professionals in the banking, asset management, and insurance sectors. FSAC advances the professional practice of auditing in the financial services industry through thought leadership, education and training events, professional guidance, and advocacy. Learn more about FSAC and how you can add the center to your IIA membership.
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