Bank CCOs Outline Their Top Emerging Risks Of 2021

By Al Barbarino
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Law360 (July 21, 2021, 9:19 PM EDT) -- The transition to hybrid work arrangements stemming from the pandemic is among the top emerging compliance risks going into the second half of 2021, a group of big bank chief compliance officers said this week. 

Speaking at a Securities Industry and Financial Markets Association event, the compliance executives with some of the largest and most powerful banks — from Morgan Stanley to Goldman Sachs — added that growing regulatory scrutiny around environmental, social and governance issues is both a top concern and opportunity.

In addition, the booming digital assets industry will become increasingly challenging to grapple with as it engrains itself into mainstream banking, they said. Lastly, after so-called meme stock volatility earlier this year showed how social media can drive wild market swings, the compliance chiefs riffed on how they intend to keep their firms and employees out of the headlines.

Here's what they had to say:

Post-Pandemic Workforce

Keeping tabs on employees in a hybrid environment — which combines remote and on-site work — could be challenging, the CCOs said.

Michael Richman, CCO with Goldman Sachs, said he anticipates that more workers in consumer-focused sides of the business will work from home more often, including those in call centers and salespeople in private wealth and banking units.

"I think more of the businesspeople are going to be out of the office than they were historically, which will put pressure on compliance," Richman said. "I think that a lot of the people that are overseeing and monitoring and trying to detect their activity will be out of the office."

Mary Beth Findlay, CCO with Credit Suisse Securities (USA) LLC, pointed out that more flexible arrangements will require a completely fresh look at the "new control landscape," particularly after relief offered by banking regulators amid the pandemic goes away.

"As we build a new program and the relief is different, we need to now step back and look at something that's sustainable," she said. "What is that new framework going to look like for flexibility?"

Despite the challenges, many CCOs advocated for a hybrid working environment moving forward, as a number of general counsel with top banks had on Tuesday.

"There definitely is value in having people together to learn, side-by-side," Findlay said. "[But] it doesn't have to be all the time."

Edvard S. Olsen

Edvard S. Olsen, the Americas CCO at Barclays, drilled into the key challenges he believes will be associated with the hybrid work environment.

He pointed to internal challenges like maintaining office culture and talent development, as well as external concerns including the monitoring of new communication channels and data privacy issues.

"We're at an inflection point from an industry perspective," Olsen said. "Those that adjust and really handle this the most effectively and are the most agile, I believe, are really going to be the leaders in the space."


From the White House to the head of the U.S. Securities and Exchange Commission, there has been a monthslong push for reform on environmental, social and governance matters.

At the SEC, that's come together via a range of initiatives like the launch of an ESG-related enforcement task force and calls for a new, standardized disclosure framework that would include more stringent reporting requirements related to climate risks.

SEC Chairman Gary Gensler recently instructed his staff to look into potential metrics that could be used in future rulemaking on new ESG disclosure frameworks.

Raul F. Yanes

"[ESG is] a growing business opportunity ... but also presents challenges in new packaging and disclosures, in conflicts, and how to manage those issues," said Raul F. Yanes, CCO with Morgan Stanley.

"There's been a signal from the SEC, in any event, that they're expecting a pretty built-out framework around those risks," Yanes added, noting that compliance folks will need to "think a little differently about how we take the traditional compliance tools and wrap [them] around a new subject area."

Jennifer Taylor, CCO with Citigroup's Institutional Clients Group, pointed out that getting up to speed is not "just about the regulations, it's about the various reporting standards that we'll have to follow," advocating for a holistic, companywide approach.

"The cross-enterprise approach to managing ESG risk is going to be so important because it will pervade all of our businesses," she said. "The compliance program will have to adapt and evolve."

Digital Assets

An array of global financial institutions — from JPMorgan Chase & Co. and BNY Mellon to Mastercard and PayPal — have put their weight behind cryptocurrency.

In March, Goldman Sachs also said it would launch a crypto trading desk focused on trading Bitcoin futures and other derivatives.

Richman, the Goldman CCO, acknowledged that the emerging space is a "complicated area."

"It's not just trading crypto, it's issuing debt denominated in crypto, it's making loans secured by crypto, there's custody and subcustody, trading and futures structured notes, private funds and ETFs," he said. "Compliance has to react to that and develop a compliance program around this new product, or whatever it is."

Richman also pointed to disclosure and suitability issues surrounding crypto, as well as the financial crime risks.

Crypto has become a particular focus of the U.S. Treasury Department's financial crimes unit, which recently hired its first-ever digital assets adviser and called crypto out in a new list of anti-money laundering priorities.

"One of the things we're struggling [with] and thinking about is what should our personal trading policy be around our employees trading crypto?" Richman added. "There aren't a lot of answers, and we're trying to figure it out."

Social Media-Driven Market Activity

Nancy Swift

Nancy Swift, head of enterprise compliance with Fidelity Investments, noted that 2021 changed how compliance will have to approach social media.

Previously, it has "largely been around capturing and retaining and monitoring it, but now we actually see social media driving market events," she said.

Swift, who was referring to the market volatility earlier this year surrounding the stock of video game retailer GameStop and other meme stocks, asked fellow panelists how they are adapting their programs.

Yanes of Morgan Stanley said the firm is establishing rules about how employees should or should not react to these market events, including those that touch on "communicating internally [and] avoiding conflicts."

Goldman too is providing guidance on what employees can include in communications on social media and when they need compliance's approval, Richman said.

Without such a framework, "the volume is so high, the speed is so fast [that] it's going to be very hard for us to [operate] in a timely way for them to be able to accomplish their commercial objectives," he said.

--Editing by Steven Edelstone.

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