Companies & Sectors
Disparity rules higher in defining ‘conduct risks’, says survey

According to a Thomson Reuters survey on constituents of conduct risk, culture came out on top (76%), closely followed by corporate governance (74%), then conflicts of interest and reputation (both at 68%)

The findings of a new survey has shown that although conduct risk has become one of the highest priorities for regulators worldwide, there is still great disparity in how firms are defining conduct risk and similarly how regulators are referring to the concept. This is according to the Thomson Reuters Conduct Risk Report 2013.


“The last 12 months have shown increased focus on conduct risk which is not surprising due to ever-demanding regulatory requirements,” says Chris Perry, managing director, Risk, Thomson Reuters. 


Key findings from the report include:


           84% of respondents did not have a working firm-specific definition of “conduct risk”.

           Firms were in broad agreement on what constitutes conduct risk. Culture came out on top (76%), closely followed by corporate governance (74%), then conflicts of interest and reputation (both at 68%).

           Firms in Europe and Australasia have done the most work to address conduct risk, while the North America and the Middle East have done the least, according to the survey.

           Most of the changes made have been implemented in the last 12 months, suggesting that firms’ awareness of conduct risk is growing and that the emphasis which regulators are placing on consumer protection and having the right corporate culture is beginning to take hold. 

           Almost two-thirds of respondents have implemented arrangements to deal with conduct risk while just over 50% of the firms surveyed reported having no, or a partly developed conduct risk appetite in place. 


Remuneration was also shown as a key component to conduct risk, meaning the way in which staff are rewarded and incentivised to behave in the right way are significant factors that contribute to a firm’s culture.


Perry said, “Good conduct is good business. The cost of poor conduct is high; not just in terms of enforcement actions, now totalling in the billions of dollars, but also in the reputation damage and the wider erosion in trust that this creates across the industry, as the Thomson Reuters Trust Index reveals”.


“As the public looks to more transparency in our banks, and banks look to preserve and create value, firms and senior managers need to be able to define and measure what “good” looks like in terms of culture and customer outcomes in order to understand and respond to the implications of the regulatory focus on conduct risk,” added Perry.


Thomson Reuters Accelus surveyed more than 200 compliance and risk practitioners from financial services firms across the Americas, Europe, Africa, Asia, Australia and the Middle East to find their views on how the industry is defining and dealing with conduct risk. Respondents represented firms from across the financial services sector including banks, insurers and fund managers.


SAT upholds SEBI order against Krupa, Sanjay Soni

While reducing penalty slapped by SEBI on Krupa Sanjay Soni and Sanjay Soni to Rs20 lakh from Rs60 lakh, the SAT said there was no piece of evidence on record to prove that both the individuals had controlled the group trading in Shree Global TradeFin

The Securities Appellate Tribunal (SAT) has upheld an order given by market regulator Securities and Exchange Board of India (SEBI) against two individuals in a case related to fraudulent and manipulative dealings in the shares of Shree Global Tradefin.


However, SAT has slashed the penalty slapped by SEBI on Krupa Sanjay Soni and Sanjay Soni to Rs20 lakh from Rs60 lakh.


A probe by the market regulator had found that Krupa and Sanjay along with other entities had formed a 'group' and had dealt in the scrip Shree Global in a fraudulent and manipulative manner in 2009.


In September 2012, SEBI had imposed a fine of Rs30 lakh each on Krupa and Sanjay following which both had approached the SAT challenging the market regulator's rulings.


In an order dated 24th January, SAT said that "the impugned order in case of each appellant (Krupa and Sanjay) is upheld with a modification of the penalty to Rs10 lakh per appellant ie in all Rs20 lakh to be paid within a period of two months from the date of receipt of copy of this order...".


SAT observed that a number of shares had been dealt by executing self-trades through several brokers. In addition there was trading of some shares in a synchronised manner.


While not finding any "legal infirmity" in SEBI's order, SAT said that there was no piece of evidence on record to prove that both the individuals had "controlled" the tradings /demat accounts of the members of the so called "group", among others.


"The appellants' nexus with the trades of the group entities has not been, therefore, established," SAT said.


"Moreover, no action has been taken against the persons who acted as a group along with appellants," it added.


Probe carried out by SEBI revealed that Shree Global share price recorded a jump of 31.77% in 163 trading days between 23rd March and 20 November 2009.


Four questionable claims Obama made on NSA surveillance

US President Obama, who delivered a speech on surveillance policy last week, has made a series of misleading statements about the NSA

Since the first disclosures based on documents provided by former National Security Agency (NSA) contractor Edward Snowden, US president Barack Obama has offered his own defenses of the programs. But not all of the president’s claims have stood up to scrutiny. Here are some of the misleading assertions he has made.

1. There have been no abuses.

And I think it's important to note that in all the reviews of this program [Section 215] that have been done, in fact, there have not been actual instances where it's been alleged that the NSA in some ways acted inappropriately in the use of this data … There had not been evidence and there continues not to be evidence that the particular program had been abused in how it was used. -- Dec. 20, 2013

At press conferences in June, August and December, Obama made assurances that two types of bulk surveillance had not been misused. In fact, the Foreign Intelligence Surveillance Court has reprimanded the NSA for abuses both in warrantless surveillance targeting people abroad, and in bulk domestic phone records collection.

In 2011, the FISA Court found that for three years, the NSA had been collecting tens of thousands of domestic emails and other communications in violation of the Fourth Amendment. The court ordered the NSA to do more to filter out those communications. In a footnote, Judge John D. Bates also chastised the NSA for repeatedly misleading the court about the extent of its surveillance. In 2009 – weeks after Obama took office – the court concluded the procedures designed to protect the privacy of American phone records had been “so frequently and systemically violated that it can fairly be said that this critical element of the overall … regime has never functioned effectively.”

The NSA told the court those violations were unintentional and a result of technological limitations. But the NSA’s own inspector general has also documented some “willful” abuses: About a dozen NSA employees have used government surveillance to spy on their lovers and exes, a practice reportedly called “LOVEINT.”

2. At least 50 terrorist threats have been averted.

We know of at least 50 threats that have been averted because of this information not just in the United States, but, in some cases, threats here in Germany. So lives have been saved. -- June 19, 2013

The record is far less clear. Obama’s own review group concluded that the sweeping phone records collection program has not prevented any terrorist attacks. At this point, the only suspect the NSA says it identified using the phone records collection program is a San Diego cab driver later convicted of sending $8,500 to a terrorist group in his homeland of Somalia.

The NSA’s targeting of people abroad appears to have been more effective around counter-terrorism, as even surveillance skeptics in Congress acknowledge. But it’s impossible to assess the role the NSA played in each case because the list of thwarted attacks is classified. And what we do know about the few cases that have become public raises even more questions:

Contrary to what Obama suggested on the “Charlie Rose Show” in June, the AP has reported that the FBI did not need either program to identify Najibullah Zazi, later convicted of plotting to attack the New York subway system.

ProPublica has reported that one case began with a tip from British intelligence, not NSA surveillance.

In another case, no one has been charged related to the alleged plot.

3. The NSA does not do any domestic spying.

We put in some additional safeguards to make sure that there is federal court oversight as well as Congressional oversight that there is no spying on Americans. We don't have a domestic spying program. What we do have are some mechanisms where we can track a phone number or an e-mail address that we know is connected to some sort of terrorist threat, and that information is useful. -- Aug. 7, 2013

In fact, plenty of Americans’ communications get swept up. The government, of course, has the phone records of most Americans. And, as the FISA Court learned in 2011, the NSA was gathering tens of thousands of domestic emails and other communications.

Additionally, the NSA's minimization procedures, which are supposed to protect American privacy, allow the agency to keep and use purely domestic communications in some circumstances. If the NSA “inadvertently” vacuums up American communications that are encrypted, contain evidence of a crime, or relate to cybersecurity, the NSA can retain those communications.

The privacy standards suggest there is a “backdoor loophole” that allows the NSA to search for American communications. NSA critic Sen. Ron Wyden, D-Ore., has said, “Once Americans' communications are collected, a gap in the law that I call the 'back-door searches loophole' allows the government to potentially go through these communications and conduct warrantless searches for the phone calls or emails of law-abiding Americans.”It’s not clear whether the NSA has actually used this “backdoor.”

And while the NSA acknowledges that it intercepts communications between Americans and surveillance targets abroad, the agency also intercepts some domestic communications that mention information about foreigners who have been targeted. As a result, the NSA has sometimes searched communications from Americans who have not been suspected of wrongdoing – though an NSA official says the agency uses “very precise” searches to avoid those intercepts as much as possible.

4. Snowden failed to take advantage of whistleblower protections.

I signed an executive order well before Mr. Snowden leaked this information that provided whistleblower protection to the intelligence community – for the first time. So there were other avenues available for somebody whose conscience was stirred and thought that they needed to question government actions. -- Aug. 9, 2013

Obama’s presidential policy directive forbids agencies from retaliating against intelligence personnel who report waste, fraud and abuse. But the measure mentions only “employees,” not contractors. Whistleblower advocates say that means the order does not cover intelligence contractors.

“I often have contractors coming to me with whistleblower-type concerns and they are the least protected of them all,” attorney Mark Zaid told the Washington Post.

What’s more, the directive was not yet in effect at the time Snowden came forward.Since the leaks, the Office of the Director of National Intelligence has said the Executive Branch is evaluating the scope” of the protections.

Former NSA employee Thomas Drake argues that even if Snowden were a government employee who went through the proper legal channels, he still wouldn’t have been safe from retaliation. Drake says while he reported his concerns about a 2001 surveillance program to his NSA superiors, Congress, and the Department of Defense, he was told the program was legal. Drake was later indicted for providing information to the Baltimore Sun. After years of legal wrangling, Drake pleaded guilty to a lesser charge and got no prison time.




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