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The Morning Risk Report: Security, Compliance Are Top Trust Priorities, Executives Say
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The introduction to today’s newsletter is by David Smagalla, who spoke to International Data Corp. about its latest survey.
Good morning. In its debut “Future of Trust” survey, published in August, International Data Corp. polled 791 technology-focused C-suite executives, directors and vice presidents in 20 countries, asking them what areas their organization deemed important to be perceived as trustworthy in the marketplace.
Security topped the list, with 68% of respondents deeming that important, followed closely by regulatory compliance, with 66% identifying it as a key element. ESG came in third, with 61% of respondents saying that it was one of their top trust priorities.
One might assume that transparency (44%) and ethics (32%) would be further up on the list.
But the fact that security and compliance are the top two investment areas is not a surprise, said Amita Potnis, global lead for Future of Trust research practice at IDG. “It’s important for organizations to understand that regulatory compliance is a horizontal category covering security, privacy, environment sustainability, transparency and other business functions,” she said.
If you had any doubt about the increasing importance of compliance professionals to technology businesses, this should likely change your mind.
Read on for more from the day’s news and events...
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WSJ Risk & Compliance Forum
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Join us on Oct. 12 for the WSJ Risk & Compliance Forum. The virtual program includes sessions on anti-money laundering laws, emerging risks, compliance and cryptocurrencies, lessons from Wirecard and workshops on ESG reporting and responding to ransomware. Register here.
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U.S. Banks’ Compliance Costs Have Nearly Doubled During Pandemic
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Banks have long grappled with the growing costs of building effective compliance programs, and the coronavirus pandemic doesn’t appear to be helping, according to the results of a recent LexisNexis Risk Solutions survey.
The average annual cost of compliance among the mid- to large-size U.S. financial institutions surveyed by LexisNexis has nearly doubled since pre-pandemic times, the data and analytics company said. Financial institutions with $10 billion or more in assets spent an average of $27.8 million in 2021, a 95% rise from 2019, according to the study.
The pandemic has also acted as a drag on compliance, with 68% of U.S. respondents reporting that due diligence for new customers is taking longer, and 55% reporting reduced productivity.
More institutions now rank real estate and hospitality as the top money-laundering risks alongside e-commerce, the survey said. Technology is another emerging concern, with 83% of large financial institutions reporting an increase in exposure to crime involving digital payments.
—Dylan Tokar
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Binance Adds Two Former IRS Special Agents to Investigations Team
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Binance Holdings Ltd. has hired two former special agents from the Internal Revenue Service’s cyber crimes unit, as one of the world’s largest cryptocurrency exchanges bolsters its security efforts.
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Tigran Gambaryan, who spent a decade in the IRS’s criminal investigation unit and worked on the probe of digital-currency startup Ripple Labs Inc., is joining Binance as vice president of global intelligence and investigations, the company said Thursday.
Matthew Price, who also worked in the criminal investigation unit, joined the company as senior director of investigations. Mr. Price has 15 years of experience in law enforcement and intelligence, including leading international cyber investigations targeting actors seeking to use cryptocurrency for illicit purposes.
Binance in recent months also has hired a former Europol specialist and a former crime detective of Mariposa County, Calif., in its security efforts.
“We have been working to staff up our regulatory, compliance and security teams for months now,” a Binance spokeswoman said in an email. “This is a reflection of the rapid growth of the technology and user adoption. ... We now have hundreds of global compliance and regulatory experts working around the clock to meet our obligations to regulators—and we will not shy away from that responsibility.”
Binance’s hires come as much of the cryptocurrency industry has been facing increasing regulatory pressure. Binance, which was founded in China but said it doesn’t have an official headquarters, recently started blocking user accounts in mainland China after that nation’s central bank declared all crypto-related transactions illegal.
—Mengqi Sun
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Credit Suisse Promotes Two Chief Auditors to Interim Co-Heads of Group Internal Audit
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Credit Suisse Group AG named chief auditors Nitesh Patel and Roger Senteler to serve as interim co-heads of group internal audit. They succeed Rafael Lopez Lorenzo, who was appointed as the Swiss lender’s new chief compliance officer in September.
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The appointment, announced Thursday in an internal memo, comes as Credit Suisse continues to manage the fallout over losses tied to the collapse of Archegos Capital Management and the insolvency of another key client, Greensill Capital, earlier this year.
Credit Suisse said Messrs. Patel and Senteler are well-positioned to lead its internal audit function during this interim period, bringing their extensive track records of a wide range of front- and back-office areas to their new roles as well as their experience reporting to boards in the U.K. and Switzerland, according to the memo, sent by a spokeswoman.
Mr. Patel, who joined Credit Suisse in 2003, is currently responsible for change, third-party relationships, operations and technology. Mr. Senteler joined the Swiss bank in 2016 and is responsible for international wealth management and global wealth management. They will start in their new roles Friday.
—Mengqi Sun
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Petróleos de Venezuela S.A., or PDVSA, is the Venezuelan state oil company. PHOTO: ISAAC URRUTIA/REUTERS
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Federal authorities are scrutinizing two U.S. trading giants and the financial advisers who handled the accounts of a businessman under investigation for allegedly helping a former Venezuelan oil minister launder billions of dollars, according to people familiar with the matter.
Morgan Stanley, Interactive Brokers LLC and several financial advisory firms managed large-sum accounts for Venezuelan businessman Luis Mariano Rodriguez Cabello, who is under investigation for his role in allegedly helping conceal some of the $2 billion in question within the U.S. financial system for his cousin, former Venezuelan oil minister Rafael Ramírez, according to the people as well as government documents reviewed by The Wall Street Journal.
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The Federal Communications Commission proposed new regulations for phone companies that transmit calls from overseas onto the U.S. telephone network, part of a long-running effort to stem billions of illegal and annoying robocalls inundating Americans.
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New federal antitrust enforcers want to toughen up regulation of the private-equity industry, putting a spotlight on ways that buyout firms might be warping competition. The FTC has begun looking at all mergers more thoroughly, vexing some private-equity buyers who had grown accustomed to an easier review process, say people who work with buyout firms.
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Law-enforcement officials criticized social-media companies for failing to do more to stop the online sale of a growing number of counterfeit pills that look similar to prescription painkillers, but contain sometimes lethal amounts of fentanyl.
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An arcane accounting term has become a focal point of securities regulators in Washington and Beijing, whose goals are, oddly, aligned when it comes to U.S. listings of Chinese companies.
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A once-senior Chinese law-enforcement official was ejected from the Communist Party in a blaze of accusations, an indication that the anticorruption campaign that defined President Xi Jinping’s early years in power is far from over and could pick up pace as he seeks to stay on as leader.
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Senate Confirms Chopra to Head Consumer Financial Protection Bureau
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Medical Cost Disputes to Be Settled by Arbitrator
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The exterior of Springhill Medical Center in July. PHOTO: NICOLE CRAINE FOR THE WALL STREET JOURNAL
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U.S. authorities are alarmed at the rising sophistication of ransomware operators, who have taken in hundreds of millions of dollars while causing major outages for transportation systems, gas pipelines and other critical infrastructure. The security firm Recorded Future estimates that there were about 65,000 incidents worldwide last year.
Hospitals have increasingly become targets, with hackers betting that executives will pay quickly to restore lifesaving technology—adding even more pressure to healthcare providers already strained by the pandemic. In May, the Federal Bureau of Investigation warned that ongoing ransomware attacks on medical providers and first responders were putting the public in danger and risked delays in medical care.
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Facebook Inc. came under fire Thursday for its efforts to target young people, with members of a Senate panel accusing the company of disregarding internal research that showed its Instagram app is harmful for many teen girls.
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During a three-hour Senate hearing, lawmakers relentlessly pressed a Facebook executive to explain internal documents disclosed by The Wall Street Journal showing that Instagram makes body-image issues worse for a substantial minority of teen girls and is blamed by teens for increases in anxiety and depression. The hearing is expected to build momentum to update the Children’s Online Privacy Protection Act, a 1998 law governing websites that gather data on children.
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Nike, which makes around half of its footwear in Vietnam, said last week it had lost 10 weeks of production there. PHOTO: JUSTIN SULLIVAN/GETTY IMAGES
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Manufacturers looking to shift production out of China during the U.S.-China trade war piled into Vietnam, attracted by its low wages and the government’s business-friendly reputation.
But strict lockdowns to contain a Covid-19 wave in the largely unvaccinated country have crippled manufacturing since July, forcing companies such as Nike Inc. and Lululemon Athletica Inc. to shift production to other countries. That is prompting some businesses to rethink their heavy reliance on factories in Vietnam.
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American frackers, already struggling to hire enough workers, are concerned that the coming U.S. vaccine mandate will worsen the situation at a time of rising oil-and-gas prices.
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A lack of natural-gas storage facilities in the U.K., where capacity has been allowed to dwindle in recent years, has amplified the risks of a global shortage of the fuel and raised concerns that energy supplies won’t hold up if there is a cold winter.
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The global chip shortage has slammed the auto sector this year, cutting factory output by several million vehicles and erasing billions in revenue for car companies. Next year is expected to be nearly as challenging, industry analysts say.
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California Port’s 24-Hour Operation Is Going Unused
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The Government Accountability Office issued a report recommending Congress make it harder for troubled companies to hand out executive bonuses shortly before filing for bankruptcy. PHOTO: TING SHEN/BLOOMBERG NEWS
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Businesses in financial distress paid out $165 million in executive retention bonuses before filing bankruptcy in the last fiscal year, according to a government-watchdog report recommending that Congress require court oversight of such awards.
The retention bonuses were paid to 223 executives from 42 companies months or in some instances just days before the businesses they led filed for chapter 11, the Government Accountability Office said Thursday. Paying bonuses before a chapter 11 filing means those awards generally avoid scrutiny from bankruptcy judges, who must follow tough rules restricting executive awards paid once a corporate chapter 11 case begins.
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Target is among brands that have paused their advertising campaigns with Ozy, according to people familiar with the matter. PHOTO: JOE RAEDLE/GETTY IMAGES
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Several major advertisers of embattled digital-media startup Ozy Media are putting their ad campaigns on hold in the wake of a New York Times article that raised questions about the company’s business practices.
Ford Motor Co., Airbnb Inc., Goldman Sachs Group Inc. and Target Corp. are among the advertisers that have paused their campaigns, according to people familiar with the matter. Together, the paused ad campaigns—which include other companies—amount to about $5 million in revenue for Ozy, one of the people said.
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