Foreign Exchange: leading drastic change at investment banks
Since the 2007 financial crisis, and in spite of difficult economic and market conditions, investment banks have invested significantly in improving their control environment.
The market tremors from the Foreign Exchange (FX)-fixing scandal and subsequent probe — triggering a flurry of fines, litigation cases and prosecutions — have been a critical catalyst for such major changes.
So far, investment banks have achieved significant change across four dimensions:
- Changed control approaches to new types of risk (e.g., conflicts of interest)
- Clarified and defined new expectations related to culture and conduct
- Adapted policies and procedures to new regulation and client expectations
- Simplified business models and control environments by increasing the level of trading automation
Investment banks are now expected to turn their focus to five transformational areas:
- Formalizing progress by explicitly adopting the new FX Global Code
- Enhancing efficiencies across new control and risk management approaches
- Reinforcing the accountability of the front office and removing the unnecessary duplication across the three lines of defense
- Makiing certain that the new approach is implemented globally across all business units and principles are extended to asset classes (beyond FX)
- Systematically leveraging the use of information to improve the detection of abnormal situations and behaviors
From backward-looking investigation work into misconduct and forward-looking remediation of front-office controls, our latest report delves into current initiatives to improve investment bank FX control environments as well as future areas for transformation.
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