From lawsuits to models: Compliance risk and financial crime

Bernhard Gehra, Norbert Gittfried and Georg Lienke

Contents

Foreword

Preface

Introduction

Introduction to Part I: The origins of non-financial risk management

1.

The complete history of operational risk regulation (abridged)

2.

Financial institutions and non-financial risk: Learning from the corporate approach

3.

The painful financial side of NFR

4.

“Risk management is about managing risk” and “It’s all about people”: Psychology might be more important than models

5.

The confusion of Babel: What’s in the name NFR – taxonomy

Introduction to Part II: Governance of non-financial risk management

6.

“It’s the culture, stupid”: Risk culture as the key building block of NFR management – and why some banks have come through the Covid-19 pandemic better than others

7.

Do you know who is who? Three lines of defence in the context of NFR

8.

Herding cats? NFR divisions as truly diverse units

9.

“Just do it!”: Partially self-organising governance structures for NFR frameworks

Introduction to Part III: Tools and instruments for non-financial risk management

10.

A risk by any other name: Identification, classification and agendas

11.

Old but gold? Mastering the RCSA despite Covid-19

12.

Biases in scenario analyses and how to mitigate them

13.

When scenarios are not severe enough: Stress testing for non-financial risk

14.

Ending NFR in NFR: From Excel sheets to professional IT systems for NFR management

15.

Breaking up with risk management: Using the power of controls for good not the prevention of evil

Introduction to Part IV: Focus areas of non-financial risk management

16.

It won’t be over after Covid-19: Pandemics and operational resilience

17.

Dealing with IT complexity and innovation: Delivering business resilience and customer outcomes

18.

Protecting the new gold: Information security

19.

Conduct risk and the impact of Covid-19

20.

From lawsuits to models: Compliance risk and financial crime

21.

Others are doing it cheaper: But can they really? Opportunities and risks in outsourcing

22.

Managing reputation and stakeholders

Introduction to Part V: The future of non-financial risk management

23.

ESG risk as a new (and very important) trigger for NFR

24.

Looking into the crystal ball: What will NFR management look like in 2030?

25.

This time will be different: An alternative future of NFR management

26.

Right time, right place: The drive for change in operational and non-financial risk

Financial crime presents substantial risk to financial institutions and corporations, mainly due to the unpredictability of events, volume of underlying allegations, and the potential intensity of regulatory repercussion. This holds particularly true for financial institutions.11 This chapter will focus on financial institutions unless explicitly mentioning non-financial services providers, with most statements having similar validity for the non-financial sector. The main reason that regulatory scrutiny has intensified is that financial crime (ie, money laundering, terrorist financing, the violation of financial sanctions and embargos, bribery and corruption, and fraud) can have such a detrimental effect on the real economy. There is pressure on institutions to be on top of their game and find an operating model that reduces risk to a minimum. Where regulators launch investigations, pressure is ramped up even further. The best way to avoid negative eventualities is to get ahead of the curve. That means monitoring regulatory changes, building state-of-the-art target operating models, and putting in place the information technology capabilities to respond to the challenges in front

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