counterparty risk

Who’s Minding the Bots?

Artificial intelligence (AI) is being implemented in nearly all sectors of the economy at an increasing rate. A 2019 survey by Gartner showed that 37 percent of organizations had already implemented AI in some form. When it comes to integrating AI into your company, what are the risks? What are the opportunities? On March 12, 2021, the Industry Relations and Corporate Governance Committee of the CFA Society Toronto convened a panel of experts to look at how effectively a company’s corporate governance can provide proper oversight and avoid mistakes. In other words, “who and how we will mind the bots.” […]

Climate Risk Survey

Investors continue to ask for more investment strategies that target environment and sustainability. When it comes to capability to manage financial risks due to climate change, how far along are firms in addressing the issues? The second annual global survey of climate risk management at financial firms, sponsored by the Global Association of Risk Professionals (GARP), was presented in a webinar on September 22, 2020. The report is co-authored by Jo Paisley, Co-President, and Maxine Nelson, Senior Vice President at GARP. Paisley began by taking a quick poll of the audience, chiefly GARP members. “Why are you interested in the […]

Psychology of Money

In 2009, award-winning journalist Morgan Housel was awash in information about the 2008 financial collapse. Yet, try as he might, he could not find the answer to the question: “Why did people behave the way they did?” This is what led him to start formulating notes for what became a blog, and eventually a book titled The Psychology of Money: Timeless lessons on wealth, greed, and happiness (Harriman House, 2020). The book was launched on September 8. “What is a person’s relationship with greed and fear? The psychological side of investing is the most important side,” Housel said, “because if you […]

Machine learning sniffs out corruption

“Bribery and corruption are by-products of risk culture,” said Aparna Gupta, Associate Professor at Lally School of Management at Rensselaer Polytechnic Institute. “We can take a step back and devise methods to detect it using textual data and machine learning.” Gupta was the second of two speakers at the one-hour webinar “Corruption and Corporate Governance” sponsored by the Global Association of Risk Professionals (GARP) on October 30, 2019. Since culture is intangible, empirical work on the relation between risk culture and risk management is limited. Traditional approaches for assessing risk culture have many drawbacks such as bias and lack of comparability. Nonetheless, […]

Earthquakes kill, and so does bribery

“Bribery and corruption are not victimless crimes,” said Hilary Rosenberg, Managing Director and Global Head of Anti-Bribery & Corruption at Standard Chartered Bank. To drive home the point, she showed a brief video in which the pile of rubble from an earthquake is compared to a house collapsing because corruption allowed an unsafe building to be approved. Furthermore, corruption “can hinder economic progress and destroy people’s trust in their government,” Rosenberg said. She was the first of two speakers at the one-hour webinar “Corruption and Corporate Governance” sponsored by the Global Association of Risk Professionals (GARP) on October 30, 2019. Anti-corruption policy […]

Barcodes of Finance 4

7.      Will blockchain technology affect the drive toward barcodes? It most definitely should—and in a positive way. The maintenance of a distributed database of identifiers, both for participants and products traded throughout the global financial supply chain is the easiest global blockchain infrastructure application to be developed. A global database of all the world’s participant and product identifiers, maybe a half billion records, is limited in scale, both as to data recorded in its distributed ledger and in its limits of processing speed—seconds required, at the most. Both parameters of speed and scale are well within the boundaries of current […]

Barcodes of Finance 3

5.      Great, the G20 set up the Financial Stability Board to set things straight. So, what’s the problem? It was thought by all that “regulatory compulsion” at such a global level, overseen by the world’s most prominent collection of leaders of the largest economies, would finally solve the collective action problem that stymied the industry from doing this on their own.  Industry members could not justify stepping aside from each firm’s own self-interest in maintaining the status quo. It would be costly to re-engineer legacy systems built in convoluted increments over the previous six decades. Everyone without exception wanted to […]

Barcodes of Finance 2

3.      What allowed non-standard transaction date to persist and what was your response? I had spent my whole career in various sectors of finance and as an advisor to many financial institutions as a consulting Partner with PwC, responsible for the Financial Services sector. I saw the same sets of transaction data described differently in each firm, even though they would need to match perfectly between firms in order to confirm the transaction with the counterparty and either receive payment or pay for it.  This disorder was managed by delaying the payment until all the details were reconciled, first by […]

Barcodes of Finance 1

After the holidays, Morty was bragging he’d been out to a new, very swanky seafood restaurant. “The maître d’ said they’re planning to bring in seafood barcodes.” I immediately pictured a slab of fish on Styrofoam with the price barcode sticker on it—straight from my local supermarket. “And this is at a high-end place?” I said skeptically. “Yeah, but it’s an identifier code, not a price sticker. It’s so the customer can verify they’re getting what they’re paying for,” he said. “Apparently there’s a big push to identify species, and make the information available.” Talking about fish barcodes reminded me […]

Early Warning Signs

“Overall, the energy sector remains stressed,” said Irina Baron, Associate Director at Moody’s Analytics. Baron was the third and final panellist discussing new dynamics in the handling of financial risk management in the energy sector at a webinar sponsored by the Global Association of Risk Professionals on November 29, 2017. Based on expected default frequency (EDF), 75 percent of US publicly-traded companies in the energy sector are not investment-grade risks. “Agency ratings give us a sense of which firms are more likely to default,” she noted. The drawback is that the realized default rate cannot be forecast. However, the expected […]