Who should bear the cost of regulation?

Published 20 November, 2017, Kirsten Nelson-de Búrca, legal and regulatory analyst

NOT SUCH A LEVEL PLAYING FIELD

Many corporate banks, investors and institutions have made significant investments in the traditional ‘financial hubs’, such as London, Zurich and Frankfurt, over the years.

With ongoing Brexit concerns, organisations are looking for financial hubs to base themselves in within the European Union. Outside of London. Large investments in recent years have resulted in Ireland becoming a base for world-class national and international headquarters. Ours included.

Based on data relayed in the European Commission’s Special Barometer 386, English is by far the most widely spoken foreign language within the European Union. According to the Tax Foundation, the corporate taxation rate in Europe sits at an average of 18.35%. Ireland sits significantly lower at 12.5%. This, teamed with the fact that English is one of Ireland’s mother tongues, makes Ireland a pretty attractive business realm.

 

THE RESULT OF IMPOSED LEGISLATIVE PENALTIES

However, there is always balance. Although corporate tax is less, the Banking and Payments Federation Ireland has found that ‘regulatory costs in Dublin exceed those in rival financial centres elsewhere in Europe. For example, in 2014, one bank paid €255,000 to be registered with the Central Bank of Ireland, the Irish regulator. In the same year, this bank paid €120,000 in Luxembourg for the equivalent registration there. Even though this bank’s Luxembourg operations are larger than those in Dublin.

 

COMPLIANCE REGISTRATION AND SET-UP TAXES NEED TO BE CONSIDERED

With fines and regulatory costs, there are many forms of legislation and regulation that companies must adhere to.

When assessing a set-up, companies might also consider the legal attitude toward commercial law in a given country. For example, Ireland might be seen as favourable due to the establishment of the Commercial Court. This division of the High Court deals with business disputes where the value of the claim is at least €1 million, or is a dispute concerning intellectual property, among other factors.

To prevent further accusations of failure to control competition between financial centres, regulator charges should be assessed separately to fines. Each legal jurisdiction has its downfalls, but the obligation to assess the responsibilities and risks that a firm might assume in a new jurisdiction must be executed by the firm itself.

If you need assistance in understanding your own regulatory requirements, Corlytics is here to help.

US Regulatory Outcomes: Does the punishment fit the crime?

Published 6th November, 2017, Ivar Eilertsen, Senior Advisor, North America

There is a widespread perception that European Banks are disproportionately penalised by US regulators following a compliance failure. Representatives from both US and European banks privately admit this. On first glance, the data appears to back up this assertion. Data from the Corlytics’ Economic Crime Barometer that covers anti-money laundering/bank secrecy act, sanctions, fraud, bribery, tax evasion and misappropriation illustrates that over the previous five years, just 10 European banks have paid 40% of all fines to US regulators. In fact, the average value of a fine for financial crime transgressions for European banks is almost $0.5 billion USD, which is over 10 times the average that US firms pay to US regulators.

LIES, DAMNED LIES, DAMN STATISTICS

However, while the top level figure provides great headlines, it lacks the deep analysis that more accurately characterises the actual behaviour of the US regulators. Examining the major economic crime violations in more detail shows that fines for violations of US sanctions on Iran is, unsurprisingly, a particularly egregious failure. One European bank accounted for almost $9 billion in fines for these sanctions violations in 2014 alone. Why didn’t US banks get fined? Well, they didn’t violate sanctions to Iran. And maybe that gets to the heart of the issue. When US banks understand the potential financial and non-financial consequences of non-compliance, they act accordingly. The European institutions seem to lag behind.

LARGEST EVER FINE

If we look at the largest ever financial penalty for any institution, it was levied by a US regulator for selling mortgaged backed securities during the sub-prime crisis that was instrumental in the financial crisis. That fine was for almost $16 billion USD. It was more than double the value of any levied on European institution, despite European players also being guilty of sub-prime transgressions.

When, looking a little deeper at these enforcements, almost 50% of both of these highlighted penalties were for restitution to customers, illustrating that rulings were applied in a similar manner. It is interesting to note that US banks have received more fines over $1 billion than non-domestic banks.

A STEADY APPLICATION OF THE LAW

When it comes to levying enforcement outcomes, what is clear is that US regulators examine the impact on the economy, the stability of the financial system, and crucially the damage inflicted upon consumers. US regulators ensure that hard pressed consumers are made whole again, applying penalties that make the financial institutions change their behaviour for the better. Changing malpractice within financial institutions is a clear indicator that the punishment does fit the crime.

EXPOSURE

For financial institutions, understanding the root causes of rulings is crucial to ensuring that transgressions don’t occur again. While understanding the quantum of the fine is important, understanding the control failures, which legislation and regulation was contravened is key to understanding a regulator’s intent. Corlytics provides this intelligence to financial institutions, inform risk control self-assessments, and steering compliance efforts to protect the firm.

Should you have concerns about your regulatory risk exposure and the impact that it may have on your business, please don’t hesitate to contact us.

Ivar Eilertsen, Senior Advisor North America

 

Previous articles

A Change of regulatory focus in financial services 

Published 19th October 2017, Ross Power, Legal and regulatory analyst, Corlytics

In the ten years since the global financial crisis, policymakers and regulators worldwide have focused on eliminating the idea that banks were too big to fail.

While effects of the financial crisis are fading, global financial regulation is set to take a new direction with a lot of movement afoot.

Bank of England governor, Mark Carney, is set to step down as chairman of the Financial Stability Board which recommends financial policies to the G20. Chairman of the Basel Committee on Banking Supervision which sets global minimum bank capital policies, Stefan Ingves, is to leave his position. Jaime Caruanz, general manager of the Bank of International Settlements, is due to step down by the end of the year. The era of global consensus on strict financial sector reform is further impacted by the uncertainty engendered by Brexit on how European regulators will govern the UK once it exits the European Union (EU) as well as deregulation of financial services proposals gaining traction in the United States.

REGULATORY RESPONSE FROM THE EUROPEAN UNION

Through the European Commission, the EU and its G20 partners have attempted to reform the financial sector framework. The aim was to mitigate future risk and encourage stability and transparency of the sector following the financial crisis.

The European Commission set up high-level expert groups and produced the Larosière Report in 2009 and 2010. This led the way on the regulation of EU financial markets and financial institutions. The fundamental catalyst for regulatory reform is to create a safer banking sector that manages crisis prevention, early intervention and bank resolution. The reforms aim to reduce the risky activities that contributed to the global financial crisis.

WHAT DOES THE FORMATION OF THE BANKING UNION MEAN FOR THE EUROPEAN UNION?

The anticipated formation of the Banking Union is an attempt to restore market confidence, enhance market transparency and strengthen regulatory supervision. This will create a single rulebook for all financial institutions and market participants in the EU.

This strategy has manifested in the Capital Requirements Directive (CRD IV), the Directive on Bank Recovery and Resolution (BRRD) and the Deposit Guarantee Scheme (DGS).

CRD IV will enhance supervision and governance, institute policies on executive remuneration, reduce the reliance on external credit ratings and improve stability. The BRRD puts together tools and rules for banks to resolve issues in a compliant way. Thus, bank failure costs are not borne by taxpayers and governments. The DGS echoes this rationale by increasing market participant confidence and mitigating the risk of runs on the banks.

FINANCIAL REGULATION TAKES A NEW DIRECTION

While the appetite for regulatory reform has reduced, insight from Corlytics suggests that European regulators have pivoted their focus. Regulators are now focused on assessing whether lenders have enough easy-to-sell assets to cope with market volatility.

This is illustrated by the European Central Bank, who recently issued its first fine for breach of liquidity requirements to Permanent TSB Group (PTSB) in Ireland between October 2015 and April 2016. The ECB imposed a €2.5 million penalty fine for the breach. PTSB stated the breaches arose through a misinterpretation of a revised regulation. At no point during this period did the group’s actual liquidity position deteriorate.

Dealing with regulations and compliance has always been a costly and far-from-hassle-free experience. These imposed reforms have changed the focus in the financial services industry. They need to be monitored to assess whether they deliver the intended aims and if they have unintended consequences.

 

If you need assistance in understanding your own regulatory requirements, Corlytics here to help.

Ross Power, legal and regulatory analyst, Corlytics

Rules for Robots – regulatory enforcement trends?

Published 21st August 2017, Kevin O’Leary, VP Product Management, Corlytics

Every job is at risk of being replaced by a robot – even in financial services, or so it seems.  From back office applications like algo-trading and fraud detection, robotics process automation is now moving steadily into the front office. Robo-advisors offer lower cost automated investment opportunities to clients and on the trading floor.  New Artificial Intelligence powered software supports human traders. The objectives make sense of course: reduced cost, less errors and hopefully happier customers.

Regulators are keen not to get in the way of this innovation. The FCA Sandbox in the UK and the Innovation Testing License provided by the DFSA in Dubai show how regulators are facilitating invention and creativity – especially for smaller firms exploring new business models. However, invention and risk remain constant companions. As intelligent automation penetrates the industry further, what can we expect?

 

Corlytics assesses regulatory risks across the globe. In the last 18 months, Corlytics has seen a rise in enforcement cases that involve IT failure. Since the start of 2016, more than $400m in enforcement penalties have been issued that involve a technology element. Recurring enforcement themes include failures around governance, testing and record-keeping of automated systems. Robots are not invulnerable. Even simple coding errors can wreak havoc.

Risks are magnified when some badly-behaved software gets in the way.

 

Not surprisingly, regulators are not forgiving when core principles of market conduct and treating customers fairly are not followed – whether by human or machine. This creates an interesting organisational challenge. The technological expertise required to build robotic systems and the business expertise to supervise their behaviour are not the same. Handing over the “build-the-robot” challenge to specialist firms brings with it additional oversight and governance problems.

 

As the use of robotics expands further into the domain of client relationships, we expect regulators to focus not just on issues like cybersecurity and data protection, but on “robot conduct” issues too.

Rules for robots. Expect more not less.

Kevin O’Leary, VP Product Management, Corlytics

Is your compliance talent mapped correctly to protect your future regulatory risk?

Published 21th July, 2017, Mike O’Keeffe, General manager of Corlytics Solutions Limited

In the last ten years since the financial crisis began, banks and financial houses have taken on thousands of compliance professionals. The clear majority of whom are focused where the banks and financial institutions have previously been fined. This effort has helped in shoring up the defences and bringing specific areas of concern in order.

 

People are the largest (and often most expensive) asset for large global financial institutions. Banks should be looking at how best to optimise the investment they have made in their staff. Once efforts have been made to shore-up the compliance processes, and internal mechanics brought in line with the regulators’ expectations, banks should be reassigning talent to potential upcoming hot spots.

 

For example, both the frequency and amount of sanctions fines peaked in 2014, with a total of 33 serious fines with a total amount of $9.5 billion USD. Since then sanctions fines have tailed off to six fines so far in 2017 to a total value of $100 Million USD. Many financial institutions ramped up their sanctions teams in the past few years, but now that financial institutions seem to have come to grips with sanctions violations and the regulatory regime. They are beginning to wonder if staff can be redeployed to other areas of concern to ensure that they are fully compliant with regulations and the intention of regulators.

MAPPING COMPLIANCE TALENT

By looking to spot trends, banks can redeploy highly skilled, professional compliance staff. Making better use of their human resource and putting solutions in place to protect the bank. This seems like a good idea, but how do banks and financial institutions map regulatory intent to interpretation?

 

Currently most banks have no good way to assess this redeployment exercise. Meaning that significant resource is ineffectively deployed. Also, compliance teams aren’t best served to comply with the wider array of regulations facing them, to assess and prioritise regulatory risk. Right now, for every $1 top US banks spend on compliance, they are spending $3 in fines. This model must be fixed.

 

GLOBAL METADATA

Different regulators apply different enforcements models and processes. Corlytics has developed a taxonomy that structures enforcement notices enabling businesses to look across jurisdictions for common trends and patterns. This global intelligence means Corlytics can spot emerging trends that are otherwise invisible. For example, for AML/BSA violations, 2017 year to date has seen fines of over $1.25 Billion levied, as much as the previous 2 years combined. Maybe a deployment of staff towards this area would see better adherence to regulations and guidelines by properly aligning the best assets with the greatest regulatory risk.

 

What’s even more interesting is looking at the emerging areas of risk in new areas of regulation. With MiFID II and GDPR just around the corner, are you deploying your resources properly to ensure that you are effectively dealing with emerging areas of regulatory risk?

Ready to better map your compliance teams for tomorrow’s regulatory risk? Get in touch.

Mike O’Keeffe, General Manager of Corlytics Solutions

Central Bank of Ireland ups the ante

Published 28th May, 2017, Mike O’Keeffe, General manager of Corlytics Solutions Limited

It’s clear that the Irish regulator is tightening controls of illegal behaviour of financial service providers in Ireland, following its €3.5m fine for Bank of Ireland (BOI) on Tuesday.

The investigation into the bank’s controls found that it delayed in the reporting of six suspicious transactions to An Garda Síochána and Revenue.

The Central Bank, the regulator who issued the fine, found “significant failures” in BOI’s anti-money laundering (AML) and counter terrorist financing controls, policies and procedures.

Some of these included risk assessment, suspicious transaction reports, and correspondent banking.  The breaches occurred in July 2010 and persisted on average for over three years.

According to Derville Rowland, the director of enforcement at the Central Bank, “The high volume and range of breaches uncovered point to significant weaknesses in the strength of Bank of Ireland’s implementation of anti-money laundering and counterterrorist financing legislation.”

PUNISHED FOR LACK OF PROTECTIVE PROCESS

Fundamentally, this points to a lack of adequate controls within the bank. Something which was confirmed by a Bank of Ireland spokesman, who was quick to point out that this settlement was not as a result of actual money laundering or terrorist financing.

What is interesting is that of the last four enforcement actions taken in Ireland, two of them were due to outsourcing of financial services to other institutions. In the instance of the Bank of Ireland, services were outsourced to a correspondent bank outside of Europe. Correspondent banking is the process of using another bank (a correspondent bank) to transfer money to a jurisdiction in which the bank that originates the transaction does not operate. When dealing with correspondents, responsibility still lies with the bank itself to perform due diligence on the customers (both originator and beneficiary) of the transaction. This is where Bank of Ireland’s controls were seen to be weak.

The last three fines of this type across Ulster Bank, AIB and now Bank of Ireland totalled €8.75m. From examining the Corlytics database, we can see that the total amount of all fines from the Central Bank of Ireland from 2009 to May 2017 was €10,734,000. Clearly, this is indicative of a regulator sharpening its claws.

IRISH REGULATOR BUILDING MOMENTUM SINCE 2015

The regulator has clearly stepped up its pace in the last six months. A second look at the data illustrates that the number of enforcements has in fact been increasing year on year since 2015.

 

By taking a more analytical look at the Corlytics data, we can clearly see the control breaches that have lead to the BOI fines, which were in relation to AML management and enhanced due diligence, are top of the list when it comes to the enforcements that have been levied against organisations. In fact, €3.8 million of the €10.7 million in fines are made up of control failures for AML management.

Clearly, this signals how important the regulator views compliance with the regulations and guidelines which are in place in Ireland.

 

 

A MORE PROACTIVE APPROACH

The Central Bank of Ireland is beginning to operate in the same way as other major international regulators and is well placed to tackle issues within the financial services industry in Ireland.

It is gearing up to tackle issues within financial services on a much more serious basis than it previously did. It was announced today that it is to divide financial regulation into two distinct functions – prudential regulation and financial conduct. Prudential regulation will include the directorates for credit institutions; insurance; and asset-management supervision, while financial conduct will encompass consumer protection; securities and markets supervision; and enforcement. The sudden increase in financial regulation has been the driver behind this move said the Central Bank Governer, Philip Lane

Major financial institutions who are now considering setting up in Ireland as a result of Brexit will have to contend with a vigilant regulator who will penalise if necessary. The depth of information within the latest enforcement notice to Bank of Ireland is impressive. Demonstrating that this regulator must be taken seriously.

Mike O’Keeffe, General Manager of Corlytics Solutions

Financial regulation post Brexit – the end of soft touch Dublin? Published May  22nd 2017,Rory Flynn, head of legal at Corlytics

The full effect of Brexit is being felt in the financial services sector. JP Morgan has been the latest financial giant to announce a move to Dublin, buying an office with enough room for 1,000 staff. Meaning it will potentially double its current Dublin headcount of 500.

With Dublin just a hop, skip and a jump away from London, we expect many more firms to finalise intentions to either launch or expand operations in Ireland’s capital city. As Brexit uncertainty continues.

Whilst Dublin is geographically so close to London, firms moving operations there will need to be aware of the significant differences in financial regulation between both markets.

The Central Bank of Ireland (CBOI) is the regulator for firms to pay attention to. It is responsible for the supervision of most financial institutions in Ireland including banks, building societies and a broad range of non-bank firms. Compared to Great Britain’s Financial Conduct Authority (FCA) which regulates over 56,000 entities, the CBOI is currently responsible for regulating around 10,000 entities. It will now naturally be preparing to step this up ahead of a potential influx of new financial firms coming into the country.

BUT HOW DO BOTH REGULATORS CURRENTLY STACK UP ?

We’ve looked at our data from 2009 to present day and have found that for every USD$1.05 the Central Bank of Ireland fines, the Financial Conduct Authority fines USD$99. That is some difference. When the FCA does issue an enforcement notice, it is generally more severe than the CBOI. The CBOI currently is fining a lot less frequently than the FCA and for a lot less money. The average fine for the CBOI is approximately USD$800,000 whereas the average FCA fine is almost over 10 times this figure, at USD$8.9 million.

None of this demonstrates that the CBOI is a weaker or lesser regulator. Simply that the work it must do is a fraction of the FCA’s. International firms already in – and planning to move – to Dublin should expect an active regulator that is prepared to increase its enforcement activity if necessary and make itself known. It’s likely that fines from the CBOI will start to significantly increase. In the very near future, the current perception of a soft approach in Ireland may be misplaced.

Firms relocating from London should expect swift fines in the event of any wrongdoing upon relocation. These will be at the extreme end of the spectrum – more akin to fines issued under the FCA – to dissuade any further infractions.

If your firm is considering a move to Dublin and require regulatory support, do get in touch with Corlytics.

Rory Flynn, Head of legal at Corlytics

 

Regulatory regime in Australia hots up

Published May  11th 2017,  John Byrne, CEO of Corlytics

In Tuesday’s budget speech, Australian Treasurer Scott Morrison signalled a significant change to the country’s regulatory regime. The changes are set to impact not only regulated firms, but also the senior managers that run them.

“Greater competition and accountability – now,” said Mr Morrison.

A new Banking Executive Accountability Regime is being introduced, requiring all senior executives to be registered with the Australian Prudential regulation Authority or APRA. If found in breach, they can be deregistered and disqualified from holding executive positions. If banks breach misconduct rules, they will also face bigger fines starting at $50 million for small banks and $200 million for large banks.

X FINES INCREASE 110X

What is interesting is the magnitude of the shift. Currently, the Australian regulators have limited powers to impose fines – typically being no greater than $3 million. A move to increase potential fines to 100x current levels completely changes the regulatory risk profile of every firm, now directly hitting the balance sheet with possible future fines.

THIS SHIFT IN THINKING ALIGNS THE AUSTRALIAN REGULATORS WITH THEIR INTERNATIONAL PEERS

For example taking one category of breaches, our global data shows that for fixed income instruments, currencies and commodity (FICC) regulatory breaches from 2010 to 2014, the total fine amount issued by the Australian Insurance and Investment Commission was USD 403K. Whereas the Financial Conduct Authority in the UK issued penalties that totalled almost USD 3 billion.  The pattern is the same across a number of breach categories.

REGULATED EXECUTIVES NEED TO PREPARE

This action doubtless will create an appetite to ensure that Australian firms look to reduce regulatory risks. It will also focus the minds of senior managers – especially as Australia has a track record in taking action against individuals for wrongdoing. In the period 2014-2016, there were 105 fines for individuals in regulated firms.

To combat this personal risk, senior managers operating in the Australian financial services industry will take a new and closer look at their regulatory risk.

KNOW WHAT YOU’RE DEALING WITH

Corlytics uniquely analyses enforcement data and other important regulatory information to allow organisations to understand the consequences of enforcement actions across regulators and jurisdictions. Senior managers within Australian Banks can use this intelligence to accurately assess the risk that they may now be exposed to as a result of the changes outlined by the Treasurer.

Should you have any questions about the risk to which your organisation is now exposed, please don’t hesitate to get in contact. 

John Byrne, CEO of Corlytics

 

Compliance, guardians of professional scepticism.

Published April 27th 2017,  John Byrne, CEO of Corlytics

Accountancy firm Grant Thornton, has been fined £2.3m and severely reprimanded by the Financial Reporting Council (FRC) over failings in its audit of a company called AssetCo, a fire engine manufacturer.

The regulator said Grant Thornton, and its partner with 23 years experience Robert Napper, had admitted a “lack of professional competence and due care”.

This had allowed AssetCo to falsely inflate its value and its share price.

Mr Napper was fined £130,000 and banned from auditing for three years, while the accountancy firm paid £200,000 in additional costs.

But the auditors had been at fault by failing to employ the required level of ‘professional scepticism’.

WHAT PROFESSIONAL SCEPTICISM IS EXPECTED?

Given the weight of this fine, we can expect significant implications that go beyond auditors and actuaries that are providing important financial reports for investors. How will this impact on Financial Conduct Authority certified persons under the Senior Managers Regime, where there are personal consequences for the actions of the business?

The FRC said that the failings of the audit firm, and the now-retired audit partner, in the audit of AssetCo’s accounts were not deliberate or reckless and did not amount to dishonesty. But if they had been more sceptical of the financial information being given to them they would have uncovered the dishonesty.

Given this duty of care, what does this mean for senior persons at FCA regulated firms? What is the new threshold for ‘professional scepticism’?

To answer this, we looked into our global regulatory risk and enforcements database at all the cases involving lifetime bans imposed by the FCA since 2009. 60% OF ALL THE CASES BROUGHT INVOLVED BANS FOR THE HEADS OF COMPLIANCE FUNCTIONS. 

IS COMPLIANCE NOW THE GATEKEEPER FOR “PROFESSIONAL SCEPTICISM”?

If you would like to discuss your risk profile and areas of exposure, call us.

SMR statements of principle to be aware of:

  • Statement of Principle 5

An approved person performing an accountable higher management function must take reasonable steps to ensure that the business of the firm for which they are responsible in their accountable function is organised so that it can be controlled effectively.

  • Statement of Principle 6

An approved person performing an accountable higher management function must exercise due skill, care and diligence in managing the business of the firm for which they are responsible in their accountable function.

  • Statement of Principle 7

An approved person performing an accountable higher management function must take reasonable steps to ensure that the business of the firm for which they are responsible in their accountable function complies with the relevant requirements and standards of the regulatory system.

John Byrne, CEO of Corlytics

Regulatory reform in the US – Should we prepare for post-regulation?

Published on Friday 21st April, 2017 by Rory Flynn, head of legal at Corlytics

As of next weekend, Donald Trump will have been in office for 100 days. During this time, no-one reading this blog will have escaped the constant debate in the media about regulatory reform in America. We have listened to bold plans for financial regulation to be entirely repealed, the Consumer Financial Protection Bureau (‘CFPB’) to be dismantled and its director, Richard Cordray, removed.

Is this all smoke and mirrors? Or do US firms need to prepare for a post-regulation world?

An Executive Order was signed recently commencing a process which may well lead to the repeal of vast sections of the Dodd Frank Act, 2010. Potentially its complete removal. The rationale for this drastic action being that the Act is over onerous on regulated firms. Consequently, crippling the US free-market economy.

The Volcker Rule – part of the Dodd Frank Act which forbids banking entities from engaging in short-term proprietary trading of securities, derivatives, commodity futures and options on these instruments on their own account or owning, sponsoring or maintaining relationships with hedge funds or private equity funds – is in the cross-hairs of this process of reform.

In just the past few days, Deutsche Bank won the unenviable ‘prize’ of being the first bank to be hit with a major fine for failing to ensure that its traders comply with the Volcker Rule’s ban on overly risky market bets. The Federal Reserve announced that Deutsche Bank will pay a combined $156.6 million in civil money penalties – $19.7 million of which is the specific fine for failure to comply with the Volcker Rule.

If repealed, we may see more of this kind of behaviour. And consumers will be once again be offered credit in unsustainable terms. Thanks to the incentives which such products offer to regulated institutions. Do we really want such a reversion?

TO THE RESCUE

This is where the CFPB comes in. To date, this bureau has been responsible for returning $11.8 billion to wronged consumers. Consumer complaints to the CFPB have also risen 7% in the last 12 months – indicating that now certainly isn’t the time to roll back regulation.

If we see the CFPB abolished, or indeed other aspects of Dodd Frank repealed, there is the very real possibility of misconduct going unpunished in the future. In addition to Deutsche Bank’s recent fine, should the CFPB not have been in place 12 months ago:

  • Wells Fargo may not have received a $100 million fine for the widespread illegal practice of secretly opening unauthorised deposit and credit card accounts
  • Citibank may not have been hit with a multimillion dollar fine for illegal debt sales and debt collection practices
  • and All American Cashing Inc. may not have been penalised for allegedly tricking and trapping consumers with false information

More worrying still is the fact that the Department of Justice recently filed an amicus curiae brief in a Washington Federal Appeals court case, providing further information for the court from non-litigants. This agreed with a decision of a three-judge panel of the US Court of Appeals for the District of Columbia last October, that the CFPB, as it is currently composed, is unconstitutional. The main thrust of the brief is that the CFPB unconstitutionally places power in the hands of a single director who cannot be removed by the President except for cause. They do not go so far as to call for the abolition of the agency, but urged the Court to at least make the director accountable to the President.

Notably this brief does not go so far as to call for the abolishment of the CFPB but does urge the Court to make the director accountable to the President. It strikes me that the petitioning of the Court in such a manner is more incongruent to the ideal of the separation of powers than the precise accountability of the CFPB director.

BUSINESS AS USUAL?

It may well be argued that the proposed changes would weaken the CFPB, by opening a vital agency up to the political whims of the Executive and the budgetary priorities of Congress. A weak CFPB could incentivise a lack of transparency on Wall Street – and within the financial services industry more generally – putting the US at risk of recession and economic instability, once more.

Whilst the issues continue to be battled out in the courts and within Congress, regulated global firms must continue as normal. Regulation cannot and will not be switched off overnight. We may well be in no different a situation at the end of the next 100 days. So, don’t get complacent. Don’t speculate.

Rory Flynn, Head of legal at Corlytics

Libor, let’s not blame the bank of England,

Published on April 18th2017, John Byrne CEO Corlytics

Last week the Bank of England came under intense pressure following a leaked phone call from Barclays claiming it had been put under pressure from up high, to lower Libor rates. Having an immensely powerful regulatory risk database at my fingers we looked back at the scandal that has been rumbling since 2012.

HARD FACTS

Our global data shows that from 2012 to date there have been 60 fines from seven regulators, involving 13 different institutions totalling more than USD 9.246 billion. With no fines so far this year.

Breakdown of banks’ wrong doings

The Corlytics data shows that more than half (53 percent) of all fines given equalling USD 4.9billion were cases, 18 in total, where senior managers were cited as being aware of inadequate controls and/or were complicit in the manipulation.

The most commonly cited breach (64 percent and 28 fines given), equalling a staggering USD 5.9 billion, was in cases where traders used brokers to manipulate rates.

Warnings for inappropriate action were given along the way. Nine percent of all fines were given in cases where there was a prior regulatory warning about similar weaknesses or there was disciplinary action in the area.

This misconduct took place on average over four to five years. It was prolonged and deliberate. With many cases showing awareness by senior management or indeed collusion on their part.

IN DEFENCE OF THE BANK OF ENGLAND

The Bank of England is primarily responsible for the systemic stability of the UK banking system and its global role within the financial markets. The Bank has always denied allegations it encouraged banks to submit lower readings for Libor.

The investigation into the conduct of various banks, during the Libor scandal, exposed an unparalleled level of wrong-doing.

The Bank of England may have approached the banks to reduce the Libor rates, but:

  • Did the Bank of England ask the banks to get their traders to reveal their larger clients’ positions to other traders using instant messaging?
  • Did the Bank of England then ask the banks then to collude with other traders, to place bets against their respective client positions?
  • Did the Bank of England then ask traders to access and request that the banks’ rate setters, set rates in their favour and against the interest of their clients?

Of course, not.

The reality is that these banks had allowed a lack of controls in important areas that enabled their traders to make a lot of money. This was not just in rigging markets, but in betting against their own clients. The Bank of England cannot be held responsible for that.

John Byrne, CEO of Corlytics

Picture this, a clear regulatory vista,

Published April 11th 2017, John Byrne, CEO

Today’s financial firms have more and more regulations that they are supposed to be aware of and comply with or prepare to comply with. That is an almost herculean task. Global banks have had since 2009 to get their regulatory infrastructure in place but for many others – like asset managers and insurance companies this is a very real new world.

WHERE DID IT ALL START?

The financial crisis—coupled with the determination of regulatory authorities not to put taxpayers on the hook for another round of bailouts—has led to a proliferation of new regulatory measures. The scale and pace of banking regulatory change is unprecedented.

Dealing with regulations and compliance has always been a costly and far-from-hassle-free experience. Regulatory documents require specialist skills and experience to understand and deal with. Now large banks must deal with multiple jurisdictions and multiple timetables for new regulations.

In a determined push to make banks and financial institutions more transparent, global regulators are getting tough. Issuing billions of dollar fines, and jail time, for non-compliance. This has put regulatory risk well and truly top of the financial fright list.

So how do you get ahead of it and protect yourself? 

KNOW WHAT YOU’RE DEALING WITH

Since 2009 54,000 regulatory documents have been published from 130 different regulatory bodies in G20 countries alone. That is an awful lot to keep up with. From these regulations, thousands of legal compliance cases have been brought.

When I set up Corlytics in 2013 it was in response to a gaping hole. Financial firms were under pressure to understand and comply with new regulation globally. The regulators were sharing this data, but nowhere was the intelligence that allowed you to assess your risk profile. Monitor, measure and predict what was happening and create one workable picture. So, we pulled together specialists from a number of different professions to build that 360 degree picture. 

DID YOU KNOW…

The average specialist lawyer in their lifetime might handle 40 regulatory compliance cases. Corlytics has over 7,000 cases on our database, and we are growing it daily. Each case is read by two specialist lawyers providing metadata and insight. This isn’t just Big Data, this is Super Smart Data.

This global intelligence means we can pick out emerging trends that others just can’t see yet. 

GET SPECIFIC

Running analytics across this legal and regulatory data our banking risk analysts, data scientists and technologists are able to warn you of what regulations you are up against. A specific dollar amount of risk exposure (not to mention jail time) can be calculated, empowering you to make the right choices.

We are working with global institutions that need to deal with specifics. That is why our reports, assessments and appraisals are trusted by The Bank of England, The Financial Conduct Authority and Financial Times, to name a few.

We deal with facts, not opinions. We deconstruct the data, with scientific rigour and develop unique metadata. Giving us the world’s largest, most comprehensive regulatory risk intelligence data.

CORLYTICS 360-DEGREE RISK INTELLIGENCE

For global banks Corlytics helps makes sense of all these threatening legal obligations. Rating the risk, turning the legalese into dollar impact, so you can take the right action. We have flexible ‘what if’ tools developed allowing you to assess the impact of different scenarios. Covering future risk.

The data needs to be understood by different departments within financial houses. The lawyers in compliance and the mathematicians in risk. We translate our Super Smart Data into a common, workable picture.

For regulators and advisors, we are able to produce in depth risk analysis, benchmarking against other regulators and calculate impact using our Fine Estimator.

So if you want a personalised picture, let’s talk.

John Byrne, CEO of Corlytics


As senior advisor for North America, Ivar Eilertsen is focused on working with North and South American based global banks, regulators and financial services players to manage and mitigate financial risk.

 

Based out of New York, Ivar heads a team spanning New York and Boston. He will work closely with Corlytics’ current key US and Canadian customers. Ensuring an immediate return on their investment through successful solution implementation of Corlytics’ technology.

Ivar Eilertsen has worked with CEO John Byrne, in John’s last FinTech company, Information Mosaic, which was sold to Markit in 2015.

 


Kevin O’Leary leads product management at Corlytics where he is responsible for product strategy and roadmap. Kevin brings more than 20 years’ experience in product management, financial crime risk monitoring, analytics and technology.

He joined Corlytics from BAE Systems where he led the financial crime product portfolio. At BAE Systems he was responsible for regulatory compliance, fraud and risk solutions delivered to Tier 1 financial institutions and government customers globally. Corlytics is Kevin’s third start-up, having previously worked for Norkom Technologies (acquired by BAE Systems) and Straatum (acquired by Lam Research Corporation).

Kevin holds a Batchelor of Engineering in Electronic Engineering, an Masters in Applied Mathematics and has been granted six patents for the industrial applications of analytics.


Mike O'Keeffe is general manager of Corlytics Solutions Limited, which serves the UK market. As general manager, Mike is responsible for leading operations in the UK and ensuring customer needs are met, from initial sales conversations right through to product delivery and on-going support. Mike works closely with customers to exceed expectations and ensure that they gain an immediate return on their investment through successful solution implementations. He has over 15 years in the development and delivery of advanced analytics solutions for the risk, compliance, fraud and security markets to major blue-chip organisations.  

Prior to working with Corlytics, Mike held roles as general manager of security product innovation at Telstra, as VP of product management and product marketing at Cognevo, and had senior product management and delivery roles at BAE Systems Applied Intelligence and Norkom Technologies. Mike holds a degree in Industrial Biochemistry, and a graduate diploma in Technical Communications from the University of Limerick and an MBA from Dublin City University.


Mike O'Keeffe is general manager of Corlytics Solutions Limited, which serves the UK market. As general manager, Mike is responsible for leading operations in the UK and ensuring customer needs are met, from initial sales conversations right through to product delivery and on-going support. Mike works closely with customers to exceed expectations and ensure that they gain an immediate return on their investment through successful solution implementations. He has over 15 years in the development and delivery of advanced analytics solutions for the risk, compliance, fraud and security markets to major blue-chip organisations.  

Prior to working with Corlytics, Mike held roles as general manager of security product innovation at Telstra, as VP of product management and product marketing at Cognevo, and had senior product management and delivery roles at BAE Systems Applied Intelligence and Norkom Technologies. Mike holds a degree in Industrial Biochemistry, and a graduate diploma in Technical Communications from the University of Limerick and an MBA from Dublin City University.


Rory Flynn is Corlytics’ head of legal. He is responsible for the global team of legal regulatory analysts together with acting as the company’s Legal Counsel.

The global legal team is comprised of legal and business graduates. They are engaged in building meaningful intelligence through complex analysis of the international legal regulatory framework.

Before joining the leadership team at Corlytics, Rory was a practicing barrister at the Irish bar with a specialist interest in intellectual property, employment law, civil litigation and company law. He has also held lecturing posts at Griffith College and University College Dublin. Rory holds an LLM in Commercial Law from University College Dublin, an LLB in Irish Law and a Barrister-at-Law degree from the Honorable Society of Kings Inns.


John Byrne is founder and CEO of Corlytics, responsible for setting the company’s vision and strategy.

He is a serial entrepreneur in the financial technology sector, John has built and sold a number of global technology based enterprises. He co-founded one of the first campus companies in Ireland in 1985 in the energy technology sector and built Information Mosaic in 1997, a global player in the securities software industry which was sold to Markit in 2015.

 

He set up Corlytics to provide real regularly risk intelligence. Following a tsunami of global regulation arrived for the financial markets in 2009, John realised there was no joined up intelligence and predictive analytics to help the banks, regulators and their advisors make informed decisions. Corlytics was formed in 2013 and today is the global leader in regulatory risk intelligence.

 

John is a frequent speaker at industry events and has spoken at events such as SIBOS and NEMA. He has also spoken at many other conferences on operational and systemic risk and more recently at RegTech Summits in London and New York. John is a graduate of Stanford Business School and has a Bachelors degree in Electronic Engineering


John Byrne is founder and CEO of Corlytics, responsible for setting the company’s vision and strategy.

He is a serial entrepreneur in the financial technology sector, John has built and sold a number of global technology based enterprises. He co-founded one of the first campus companies in Ireland in 1985 in the energy technology sector and built Information Mosaic in 1997, a global player in the securities software industry which was sold to Markit in 2015.

 

He set up Corlytics to provide real regularly risk intelligence. Following a tsunami of global regulation arrived for the financial markets in 2009, John realised there was no joined up intelligence and predictive analytics to help the banks, regulators and their advisors make informed decisions. Corlytics was formed in 2013 and today is the global leader in regulatory risk intelligence.

 

John is a frequent speaker at industry events and has spoken at events such as SIBOS and NEMA. He has also spoken at many other conferences on operational and systemic risk and more recently at RegTech Summits in London and New York. John is a graduate of Stanford Business School and has a Bachelors degree in Electronic Engineering


Rory Flynn is Corlytics’ head of legal. He is responsible for the global team of legal regulatory analysts together with acting as the company’s Legal Counsel.

The global legal team is comprised of legal and business graduates. They are engaged in building meaningful intelligence through complex analysis of the international legal regulatory framework.

Before joining the leadership team at Corlytics, Rory was a practicing barrister at the Irish bar with a specialist interest in intellectual property, employment law, civil litigation and company law. He has also held lecturing posts at Griffith College and University College Dublin. Rory holds an LLM in Commercial Law from University College Dublin, an LLB in Irish Law and a Barrister-at-Law degree from the Honorable Society of Kings Inns.


John Byrne is founder and CEO of Corlytics, responsible for setting the company’s vision and strategy.

He is a serial entrepreneur in the financial technology sector, John has built and sold a number of global technology based enterprises. He co-founded one of the first campus companies in Ireland in 1985 in the energy technology sector and built Information Mosaic in 1997, a global player in the securities software industry which was sold to Markit in 2015.

 

He set up Corlytics to provide real regularly risk intelligence. Following a tsunami of global regulation arrived for the financial markets in 2009, John realised there was no joined up intelligence and predictive analytics to help the banks, regulators and their advisors make informed decisions. Corlytics was formed in 2013 and today is the global leader in regulatory risk intelligence.

 

John is a frequent speaker at industry events and has spoken at events such as SIBOS and NEMA. He has also spoken at many other conferences on operational and systemic risk and more recently at RegTech Summits in London and New York. John is a graduate of Stanford Business School and has a Bachelors degree in Electronic Engineering


John Byrne is founder and CEO of Corlytics, responsible for setting the company’s vision and strategy.

He is a serial entrepreneur in the financial technology sector, John has built and sold a number of global technology based enterprises. He co-founded one of the first campus companies in Ireland in 1985 in the energy technology sector and built Information Mosaic in 1997, a global player in the securities software industry which was sold to Markit in 2015.

 

He set up Corlytics to provide real regularly risk intelligence. Following a tsunami of global regulation arrived for the financial markets in 2009, John realised there was no joined up intelligence and predictive analytics to help the banks, regulators and their advisors make informed decisions. Corlytics was formed in 2013 and today is the global leader in regulatory risk intelligence.

 

John is a frequent speaker at industry events and has spoken at events such as SIBOS and NEMA. He has also spoken at many other conferences on operational and systemic risk and more recently at RegTech Summits in London and New York. John is a graduate of Stanford Business School and has a Bachelors degree in Electronic Engineering