Avoiding the Pitfalls of Single System Dependence: Lessons from the JP Morgan Incident

Avoiding the Pitfalls of Single System Dependence: Lessons from the JP Morgan Incident

AU Energy Compliance, Compliance, NT Energy Compliance
In today's fast-paced business environment, companies often rely on a single system or process to ensure quality oversight and control. However, this can lead to significant risks and problems, as demonstrated by the JP Morgan incident in 2012. The JP Morgan incident involved the bank's use of a single system, used by its trading operations in London known as the 'London Whale', to compute VaR (Value at Risk). This system, contained in a single Excel file, failed to accurately identify and assess the VaR associated with the bank's portfolio of complex financial instruments, leading to a multi-billion dollar loss. A task force report noted 'Spreadsheet-based calculations were conducted with insufficient controls and frequent formula and code changes were made.' The incident highlights the dangers of relying on a single system…
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Why you need to customise your Compliance Management Framework

Why you need to customise your Compliance Management Framework

Compliance, NT Energy Compliance
Compliance management is an integral part of any business and is essential for minimizing the risk of non-compliance with applicable laws and regulations. Ensuring that a compliance management framework reflects the actual practices of those within the business and the scope of the business activities is key to achieving effective compliance. A compliance management framework is designed to ensure that a business is compliant with applicable laws, regulations and standards. It provides a structure for compliance-related activities and sets out the processes and procedures that must be followed. The framework must be tailored to the specific needs of a business, based on the size and scope of its operations, the type of industry it operates in, and the applicable laws and regulations. Changing business needs It is important that the…
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Managing the compliance of contractors

Managing the compliance of contractors

AU Energy Compliance, Compliance, Financial Services
Start with a risk assessment. A risk assessment is a means of identifying the risks that your business faces and assessing the likelihood of them occurring. It also involves determining the controls you currently have in place to manage those risks, as well as whether or not any additional controls are necessary. When you are considering if your contractors are a compliance risk, look at their role, responsibility, applicable regulatory penalties and existing controls. We've looked at the need for more comprehensive risk assessments in previous posts, if you don't have sufficient resources to conduct such an assessment consider hiring a third party to do so. The formality of the controls should depend on the risks. There are no hard and fast rules. You should design controls to achieve your…
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When should you hire a compliance manager?

When should you hire a compliance manager?

AU Energy Compliance, Compliance, Financial Services
If you're wondering if it's time to hire a compliance manager, ask yourself how often you think about regulatory compliance and whether your business is across all regulatory obligations with appropriate controls in place. If the answer to the last question is not enough or no, it may be time to take on such an employee. A dedicated compliance manager can immediately free up precious time for other members of senior management by taking on the compliance burden. With a specific person tasked with staying up-to-date on regulation changes, communicating new requirements and emerging issues, developing and implementing policies and procedures as well as conducting routine audits, you'll have more resources to focus on growing your business. You know you need a compliance manager when... You want to avoid penalties…
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Investigating Regulatory Breaches

Investigating Regulatory Breaches

AU Energy Compliance, Compliance, Financial Services
For an executive within an energy business, identifying a regulatory breach can be a gut-wrenching experience. Being told that your business has inadvertently breached the law, understandably raises concerns about the impact of the breach on your customers, stakeholders, and reputation. The obligation to report Businesses in various industries have obligations to report potential breaches to regulators. A failure to report a breach can itself be a breach, and such a failure will generally make matters worse. So businesses, including energy retailers, need to have clear processes in place to identify, assess, and report on potential breaches. Mandatory reporting obligations are found in various industries. Energy retailers operating in National Energy Customer Framework, for example, have reporting obligations under the AER's Compliance Procedures and Guidelines and further under s 273(2)…
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An Alternative to Compliance by Coercion

An Alternative to Compliance by Coercion

AU Energy Compliance, Compliance, Financial Services
Traditional mechanisms used by both government and private enterprises seeking to increase compliance focus on penalties as disincentives. Penalties take a variety of forms, including fines, loss of licence, and enforceable undertakings. In this post, we examine an alternative- focused on behavioural psychology and ‘nudge theory.’ Penalties as a compliance tool The belief that greater penalties will result in greater compliance assumes that regulated entities operate under a decision-making model which perfectly takes into account both the costs and benefits of each decision made and that resources required to ensure compliance are not limited.  Neither assumption is safe. The public’s responses to COVID-19 public health measures provide a perfect case study for the need for more sophisticated responses to encourage compliance. With fines in NSW increasing, have we seen greater…
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The use of Machine Learning in Compliance

The use of Machine Learning in Compliance

AU Energy Compliance, Compliance, Financial Services
The regulatory environment is evolving at a lightning pace. As a result, compliance officers must also keep up. To meet this challenge, AI applications have become more capable, particularly in regards to providing answers that are easy to interpret. As you might imagine, using an AI-powered system to process this data would be incredibly valuable for companies in a variety of fields—from financial institutions to insurance companies to tech firms. In compliance, the goal is to ensure regulatory compliance by identifying, evaluating and responding to regulatory requirements. The work can be challenging; firms and individuals often work in an environment without sufficient information to effectively meet goals and objectives. As artificial intelligence and automation become more prevalent in the world, it’s imperative that firms continue to utilize compliance know-how in…
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