Understanding Risk Management and Compliance, What Is Different After Monday, March 24, 2014 [NOOK Book]

Overview

A piece of advice usually contains an implicit threat, but smart persons can focus on the positive side.

In a less civilized world, we need explicit threats.

There are still many implied rules in the financial services sector. But, after the crisis, everything becomes precisely and clearly expressed.

The European Systemic Risk Board (ESRB) explains it very well:

"Preventing ...

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Understanding Risk Management and Compliance, What Is Different After Monday, March 24, 2014

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Overview

A piece of advice usually contains an implicit threat, but smart persons can focus on the positive side.

In a less civilized world, we need explicit threats.

There are still many implied rules in the financial services sector. But, after the crisis, everything becomes precisely and clearly expressed.

The European Systemic Risk Board (ESRB) explains it very well:

"Preventing and mitigating systemic risks to financial stability has become an explicit policy objective.

Before the financial crisis, authorities identified vulnerabilities and risks to financial stability in their financial stability reports.

In some cases, authorities did not have the tools to address identified risks.

In other cases, micro- prudential tools were thought sufficient to address systemic risk.

Moreover, there was often an implicit assumption that creating awareness of the risks would be sufficient to mitigate them.

This approach failed.

The new approach is to use concrete macro- prudential instruments to address systemic risks to financial stability."

Well, I prefer the old approach ... but I understand.

Of course, I don't believe that this "new approach" is so new. An example is always useful.

Up to the 1970s in the UK there was informal regulation of the banking industry by the Bank of England.

Banking was dominated by firms that focused on deposit-taking and lending.
The City elite, which ran the banks, insurance companies, investment funds, stockbroking firms and so forth, was relatively narrow.

Concentrated in a small geographical area and coming from broadly similar social, economic and educational backgrounds, they resembled a club in which members saw their world as revolving around notions of camaraderie, loyalty, professionalism and trust.

In such an atmosphere the members of the 'club', including the Bank of England, saw no need for formal legal powers or for intervention from outside.
This was the old world...

But, it is time to return to the paper of the European Systemic Risk Board (ESRB).

"The aim of macro-prudential policy is to reduce the probability and impact of such crises.

Its benefits only accrue over time, while its implementation costs are immediately felt and visible.

This leads to an inherent "inaction bias" that calls for an effective macro-prudential policy framework that fosters prompt and decisive policy action to address risks to financial stability."

Read more at Number 4 below.

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Product Details

Meet the Author

George Lekatis is the General Manager of Compliance LLC, a leading provider of risk and compliance training and executive coaching in 36 countries.George has more than 17,000 hours experience as a professional speaker and seminar leader. He has worked for more than 18 years as a management consultant and educator and has demonstrated exceptional presentation and communication skills.George is the president of the Basel ii Compliance Professionals Association (BCPA, basel-ii-association.com), the largest association of Basel ii professionals in the world, and the Basel iii Compliance Professionals Association (BiiiCPA, basel-iii-association.com), the largest association of Basel iii professionals in the world.George is also president of the Sarbanes Oxley Compliance Professionals Association (SOXCPA, sarbanes-oxley-association.com), the largest Association of Sarbanes Oxley professionals in the worldGeorge is an expert witness, qualified to investigate and testify about risk and compliance management standards, policies, procedures, best practices, due care and due diligence.
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