08 February, 2010 - 10:59

Finance firms to spend bilions on risk management - survey

The top 100 financial institutions will spend over $100 billion a year implementing risk governance frameworks by 2012, according to research from business advisory firm Deloitte.

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This is more than double the figure they spent on risk and control activities in 2006, the last full year before the financial crisis, says Deloitte, which surveyed chief risk officers (CROs) or equivalents at 28 financial institutions, including investment and retail banks and insurers.

Most respondents expect spending on risk and compliance to continue to rise and say much of it is a direct result of the global financial crisis. Money is being spent on people, computer systems and meeting Basel II and Solvency II capital standards.

However, despite the growing financial investment in risk governance Deloitte believes the success of such expenditure hinges on a corresponding behavioural change in risk culture.

While 93% of the CROs surveyed say their firms have comprehensive enterprise-wide risk statements in place, only 67% suggest these are having a significant impact on risk taking behaviour.

Martyn Jones, chairman, corporate governance services group, Deloitte, says: "It is clear that financial institutions are investing more heavily in risk management, but some are struggling with the integration. The fundamental issue is around behavioural changes - without changes in attitudes and behaviour no framework will be truly effective.

In October a report by financial regulatory agencies warned that firms need to make substantial and sustained investments in IT infrastructure if they are to overcome severe underlying weaknesses in their risk management capabilities.

The Senior Supervisors Group that comprises watchdogs from seven countries (US, Canada, France, Germany, Japan, Switzerland, UK) observed that underlying weaknesses in governance, incentive structures, information technology infrastructure and internal controls would require need to be overhauled.

Interestingly enough (and contrasted to some of the reports we’ve seen lately), Cluley thinks that simply barring access to Facebook is not the solution. “Social networks can be an essential part of the business mix today,” he says, “and the answer is not to bar staff from participating in them but to apply some ’social security’ instead.”

For any social service that attracts 350 million users there is always going to be the spammers and hackers that attempt to abuse its users. However, I appreciate Cluley's comments that despite that the business value is still too great to just block access.

I don't believe it's news anymore when I tell you core system sales have tapered off in the past ten years. But here's proof. In the year 2000, 7.3% of the FI population acquired a new core system. In 2009, the rate was approximately 2%. Going forward, it may stay at 2% or it may continue to decline, but it won't increase.

Great to see a couple categories in there that RiskKey applies to although I'm a little concerned when Art, who I really enjoy reading, says that core systems have done a "superb job of keeping their core systems up-to-date." What? Really?

If you mean up and running, ok, but really trying to address the real problems that core systems have in regards to knowing, protecting, and helping their customers I'd say NO.

- Brad

Senator Dodd seems to be considering dropping his committee's plans to create a standalone Consumer Financial Protection Agency. But the focus will continue on strengthening regulations.

TBA Chairman-Elect Jeff Austin III to testify this morning at Subcommittee on Financial Institutions and Consumer Credit hearing TBA's Chairman-Elect Jeff Austin III, vice chairman of Austin Bank, Jacksonville, will be testifying before Congress today at 9 a.m. (central) on "The Condition of Financial Institutions: Examining the Failure and Seizure of an American Bank." Bankers can watch a live webcast of this Subcommittee on Financial Institutions and Consumer Credit hearing by clicking here or here. Austin is in Washington, D.C., along with TBA President Eric Sandberg, TBA General Counsel John Heasley and the following bankers: Julie Cripe, Manny Galindo, Mark Long and Mary Ward. They have spent the week meeting with members of the Texas delegation, as well as Sen. Richard Shelby, ranking member on the Senate Banking Committee. They are armed with a letter signed by 526 bankers opposing the Consumer Financial Protection Agency. The letter is being hand-delivered to Sens. Kay Bailey Hutchison and John Cornyn. It appears we are already making inroads in the Senate, as Senate Banking Committee Chairman Chris Dodd has indicated he may drop plans to create a stand-alone Consumer Financial Protection Agency, and, instead, focus on strengthening existing regulators.

Texas Bankers Association| 203 W 10th St. | Austin, TX 78701 phone: 512-472-8388| fax: 512-473-2560| Feedback

Back to the Books: 2010 is the Year for New Skills, Certifications

Career Trends Survey Taps Risk Management, Cybersecurity, Fraud/Forensics as Growth Areas Across Industries

What will be the hot information security jobs in 2010?

How will professionals grow their skills – and will their employers foot the bill?

What are the minimum academic and professional requirements for information security professionals and leaders today?

These are among the key questions posed by the first annual Information Security Today Career Trends survey. The goal of the research: to create the benchmark for information security careers – where the jobs are and what’s required to fill them.

The challenge: to create this benchmark at a time when the economy is recovering, the threat landscape is shifting and organizations are re-setting their information security priorities.

But then this survey also takes advantage of a unique opportunity: Led by President Obama, the U.S. has embraced cybersecurity as a national priority, and as such the nation’s businesses, academic institutions and government agencies are focused as never before on information security and assurance. There is no better time to benchmark information security careers. And, frankly, there might not be a better time to start – or re-start – one.

Where do you expect to see the greatest need for new information security professionals in 2010 and beyond

 

When asked "which industry-recognized certifications do you feel necessary and/or plan to pursue in the next year.", 30% said CISSP, 22% said CISM and 19% said GIAC., according to the Career Trends Survey performed by ISMG in September, 2009. http://bit.ly/7suB5n

Originally published December 17, 2009 at 8:09 PM | Page modified December 17, 2009 at 9:58 PM

McCain, Cantwell sponsor bank bill

Two senators, including Washington state Democrat Maria Cantwell, have called for breaking up large financial firms that perform both commercial and investment banking, adding a wrinkle to already difficult Senate talks on how to regulate Wall Street.

By The Associated Press and Bloomberg News

 

Sen. Maria Cantwell

WASHINGTON — Two senators, including Washington state Democrat Maria Cantwell, have called for breaking up large financial firms that perform both commercial and investment banking, adding a wrinkle to already difficult Senate talks on how to regulate Wall Street.

Cantwell and Sen. John McCain, R-Ariz., on Wednesday introduced legislation that would bar commercial banks from undertaking brokerage activities. Democrats introduced a similar bill in the House.

Such a ban, a reinstatement of the Depression-era Glass-Steagall Act, which was repealed a decade ago, would strike directly at such institutions as Goldman Sachs, JPMorgan Chase, Citigroup, Bank of America and Wells Fargo, which engage in both commercial and investment banking.

"Banks need to be lending to small businesses and homeowners, not fueling risky Wall Street investment schemes," McCain said. "We must return stability, security and confidence to commercial banking for the American public."

Under the Senate legislation, financial firms operating commercial banks and investment houses would have to decide whether to focus on commercial banking or investment banking. Commercial banks would be banned from engaging in insurance activities.

A former bank regulator quickly criticized the proposal.

"Trying to split them up is crazy," said John Douglas, a former Federal Deposit Insurance Corp. general counsel who leads the bank regulatory practice at Davis Polk & Wardwell in New York. "The integration of the securities and banking function came about because of the need of large corporate customers to have integrated banking and securities services."

Cantwell, however, noted that Wall Street firms are poised to post soaring end-of-year profits and bonuses, while Main Street continues to suffer.

The president of the Independent Community Bankers of America said a growing realization has emerged in Congress the repeal may have been a mistake.

"We cruise along for 80 years without a major calamity infecting the entire financial system, and then less than eight years after the repeal of Glass-Steagall we have a financial meltdown in this country," said Camden Fine, president of the Washington, D.C.-based trade group for about 5,000 smaller U.S. banks. "That's no accident."

Rep. Maurice Hinchey, D-N.Y., introduced a version of the bill a day after House Majority Leader Steny Hoyer told reporters that renewal of Glass-Steagall is under discussion.

The House last week passed a bill that would overhaul U.S. financial rules in response to last year's $700 billion taxpayer-funded bank bailout and in an effort to prevent future crises. The legislation included government authority to break apart large, healthy firms whose size threatens the economy and to seize and unwind failed companies whose collapse in bankruptcy could disrupt the financial system.

In the Senate, members of the Banking Committee are crafting similar legislation, incorporating ideas proposed in June by President Obama. Cantwell said she and McCain will try to advance their legislation even if it's not incorporated into the Senate financial overhaul bill.

Compliance as Security: The Root of Insanity

BT's Jason Stradley on how companies lose their way by confusing a completed compliance checklist with ironclad security.

December 08, 2009 — CSO —

There is an ever-increasing pressure for security executives to be a champion of compliance within their respective organizations. Given that there seem to be new or changing compliance requirements emerging on a fairly regular basis, this can be viewed as both a blessing and a curse.

As our government acquires increasing financial interests in some private business sectors, this trend may continue to escalate.

The blessing is that in some instances it gives the security function some additional leverage to drive results and deliver greater overall value. The curse is that the regulatory compliance requirements just add to the already voluminous amount of reactionary items that already exist on the security executive's plate. The security function is an area of responsibility that already has far too many variables that cause reactionary behavior if permitted. In some organizations this additional set of variables can be the straw that breaks the camel's back.

Great article from CSO magazine talking about how organizations just chase their tails with the regulatory framework of the month and should instead build a information security framework that is more comprehensive and proactive.

Square CEO & Co-Founder Jack Dorsey. Photo by Bijan Sabet.

In February 2009, Jim McKelvey, who’d left the technology business and became a glass blower, lost an order because he couldn’t accept a credit card from a customer who wanted to buy his creation. He called his friend and Twitter co-founder Jack Dorsey. The two talked about lost opportunities in the current payment ecosystem that is dominated by giants such as Visa, MasterCard and PayPal.

Within days McKelvey left St. Louis, moved to San Francisco to team up with Dorsey and Tristan O’Tierney and start working on what would eventually become Square. It took them a month to cobble together a working prototype. Dorsey worked on the backend server, O’Tierney on the iPhone app and McKelvey worked on the hardware and on establishing relationships with payment partners.

“We went through the whole payments process and worked on designing a brand new (person-to-person) payment system,” said Dorsey in a conversation earlier today. The San Francisco-based start-up today came out of stealth with a tweet by Dorsey.

What is Square?

It is essentially a small magnetic reader that plugs into the headphone jack of an iPhone. When a credit card (or a debit card) is swiped through the reader, it reads the data and converts it into an audio signal. The microphone picks up the audio, sends it through the processors and then is routed to Square’s software application on the iPhone. From there the encrypted data is transmitted using either Wi-Fi (for iPod Touch) or a 3G Internet connection to a backend severs which in turn communicate with the payment networks to complete the transactions.

“We don’t store any information on the devices,” Dorsey said. And because this tiny white reader, which is small enough to hook up on a keychain, uses the headphone jack, Square can work with any device: Android, Blackberry, Symbian Phones and even computers. “As long as we have software on that device, our reader works,” said Dorsey. Right now, they only have software for the iPhone & iPod Touch. I have seen Square working at Dorsey’s café Sightglass (my new favorite in San Francisco) and it works as advertised.

Who’s Square for?

When I asked Jack if this was a tool and a service for merchants or was it for the consumers, he answered “for both.” Dorsey has big ambitions and wants to enable a people-to-people payment system that marries the convenience of “plastic” and “mobile devices” for every day transactions. He said that often on Craigslist you buy something that costs a few hundred dollars – say a couch. Carrying that much cash for a purchase can be a risky. On the other hand, if the seller has a Square credit card reader and the Square app installed on either an iPhone (or an iPod Touch), then she can easily accept credit cards.

Square owners are authenticated and attached to a bank account, much like PayPal. Dorsey said the company is working hard to reduce the time of authentication from a couple of days to a few minutes. The rest of the payment process is pretty similar to PayPal. You get an SMS and an email with confirmation and the details.

While I applaud the idea of everyone owning a Square device, the hurdles are manifold. Square would need to support many different devices. Having followed the wireless industry long enough, I can tell you building and supporting an application for different platforms is as tough as climbing a straight wall of rock.

In comparison, merchant adoption of Square would be a no-brainer. When I visited India, I came across pizza deliverymen and grocery store delivery folks who carried a wireless-enabled credit card machine, which essentially did what Square does. In cities like New York, it is common to find Taxicabs with wireless-enabled card readers. Square takes it one step further and turns any wireless device into a card reader.

Why Square exists & Who Should Be Worried

I think that this is truly disruptive. The reason Square exists is because of three macro trends: the pervasiveness of mobile Internet, the increase in the use of electronic payment systems and most importantly the availability of low-cost, always-on computers (aka smart phones) that allow sophisticated software to conduct complex tasks on the go.

The marriage of computing and connectivity without the shackles of being tethered to a location is one of the biggest disruptive forces of modern times. It is (and will continue) to redefine the business models for decades.  Square is simply riding these waves.

My view is that Square (or something like Square) is going to disrupt the businesses of companies such as VeriFone and Symbol, a division of Motorola that makes point-of-sale devices. Verifone makes a $900 wireless credit card terminal versus Square running on a $299 iPod Touch. I rest my case. Will Square (or another Square type company) be a success tomorrow? Probably not! But in a few years, the sheer economics is going to turn the tide against the dedicated hardware makers.

Dorsey, who was careful in staying away from naming his competitors, said his company’s focus is on software and making software do complex things. The software may add facial recognition capabilities, thus making the transaction process even more secure and painless.

What’s Next?

Square’s potential is such that the company is said to have raised about $10 million in funding from Khosla Ventures and several angels including many Hollywood stars. Gideon Yu, former CFO of Facebook and now a partner at Khosla Ventures, is the one who invested in Square. Various sources in Silicon Valley attest that this has been a much sought after deal for venture capitalists.

Many of them will probably have a chance to invest in this company. For Square, if it truly wants to deliver on its ambitions, will need more than just luck – it will need capital. And there is no denying that the challenges facing Square are many. But the simplicity of the idea, the audacity of their dream and the convergence of diverse technology trends make Square a company to watch.

Reed Says ‘I’m Sorry’ for Role in Creating Citigroup (Update1)

By Bob Ivry

Nov. 6 (Bloomberg) -- John S. Reed, who helped engineer the merger that created Citigroup Inc., apologized for his role in building a company that has taken $45 billion in direct U.S. aid and said banks that big should be divided into separate parts.

“I’m sorry,” Reed, 70, said in an interview yesterday. “These are people I love and care about. You could imagine emotionally it’s not easy to see what’s happened.”

Citigroup was formed in 1998 when Citicorp, a commercial bank, combined with Sanford I. Weill’s Travelers Group Inc., which owned the investment firm Salomon Smith Barney Holdings Inc. The New York-based company lost $27.7 billion in 2008 and took $118 billion in writedowns. Now 34 percent-owned by the Treasury Department, Citigroup sought help in the wake of a credit freeze that claimed three of Wall Street’s biggest firms and led to the deepest recession in 70 years.