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.
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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.
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.
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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.
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.
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.
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.
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.
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.
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.
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