Algorithmics highlights the most influential op risk events of the past 15 years
Past op risk events still relevant, says Algorithmics
The most influential op risk events of the past 15 years involve market practice events, outright fraud, the role of press coverage and management response, according to Algorithmics’ First database. In detailing these older cases in its monthly newsletter, Algorithmics seeks to stress the importance of evaluating the mistakes of the past to help avoid the same mistakes in today’s operating environment.
“These events demonstrate that although the new cases are vitally important to educational awareness programmes, self assessments, new product approvals and scenarios, the old cases should not be ignored. We continue to encourage our clients to revisit some of the older cases as they hold valuable lessons for today’s operating environment,” says Penny Cagan, a managing director at Algorithmics. “For instance, it is not such a large leap of imagination to look at cases such as those involving the derivatives blow-ups of 1994 after the Federal Reserve raised interest rates multiple times and gain insight into what risks may arise if we enter a similar situation today. We would need to account for differences, such as the role hedge funds play in the market today, but the lessons learned from the past decade are still relevant.”
One of the most interesting cases remembered in the newsletter is the Wall Street research analyst conflict-of-interest cases in 2002, where some 11 Wall Street firms agreed to a $1.4 billion settlement that was the result of a joint investigation by state and federal regulators and industry self-regulators, into the conflicting interests of the equity research and investment banking divisions of Wall Street players, as well as the practice of ‘spinning’ scarce shares of initial public offerings into favoured individuals’ accounts.
The case led to the re-evaluation of how fraud was investigated on Wall Street from the scrutiny of one-off fraud events, to the complete investigation of how firms conducted business and standard market practices. The resulting changes in legislation and regulation have had an impact on global markets and regulators, with Wall Street firms agreeing to insulate research analysts from investment bankers with strengthened Chinese walls. Research analysts are also required to publish their stock ratings and price target forecasts, independent research firms are required to provide ‘independent advice’ to retail investors for each firm involved and ‘spinning’ is completely banned.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
More on Regulation
Industry calls for major rethink of Basel III rules
Isda AGM: Divergence on implementation suggests rules could be flawed, bankers say
Saudi Arabia poised to become clean netting jurisdiction
Isda AGM: Netting regulation awaiting final approvals from regulators
Japanese megabanks shun internal models as FRTB bites
Isda AGM: All in-scope banks opt for standardised approach to market risk; Nomura eyes IMA in 2025
CFTC chair backs easing of G-Sib surcharge in Basel endgame
Isda AGM: Fed’s proposed surcharge changes could hike client clearing cost by 80%
UK investment firms feeling the heat on prudential rules
Signs firms are falling behind FCA’s expectations on wind-down and liquidity risk management
The American way: a stress-test substitute for Basel’s IRRBB?
Bankers divided over new CCAR scenario designed to bridge supervisory gap exposed by SVB failure
Industry warns CFTC against rushing to regulate AI for trading
Vote on workplan pulled amid calls to avoid duplicating rules from other regulatory agencies
Bank of Communications moves early to meet TLAC requirements
China Construction Bank becomes last China G-Sib to release TLAC plans
Most read
- Top 10 operational risks for 2024
- Top 10 op risks: third parties stoke cyber risk
- Japanese megabanks shun internal models as FRTB bites