ARTICLE
20 April 2018

NY Fed Vice President Calls For Evolving Risk Management Practices

CW
Cadwalader, Wickersham & Taft LLP

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Cadwalader, established in 1792, serves a diverse client base, including many of the world's leading financial institutions, funds and corporations. With offices in the United States and Europe, Cadwalader offers legal representation in antitrust, banking, corporate finance, corporate governance, executive compensation, financial restructuring, intellectual property, litigation, mergers and acquisitions, private equity, private wealth, real estate, regulation, securitization, structured finance, tax and white collar defense.
Federal Reserve Bank of New York Executive Vice President and General Counsel Michael Held shared his concerns about "excessive formalism" and rigid reliance on the standard risk management model.
United States Finance and Banking

Federal Reserve Bank of New York Executive Vice President and General Counsel Michael Held shared his concerns about "excessive formalism" and rigid reliance on the standard risk management model. The model sets forth distinct roles and responsibilities for three units within a company's risk governance framework: (i) front-line business units, (ii) independent risk management and (iii) internal audit. Mr. Held warned against "silos" and an overreliance on a rigidly constructed framework at the expense of flexible management of firm-specific risks.

To improve effectiveness, Mr. Held encouraged first line units to:

  • seek out a "diversity of viewpoints" when assessing risk management processes, avoiding the tendency to defer to existing and accepted practices;
  • carefully evaluate all options before making the decision to implement a particular risk management structure;
  • consider both pecuniary and non-pecuniary incentives to encourage safe practices;
  • work on developing a culture informed by moral reasoning; and
  • keep current on technological advancements to improve anticipation of risks.

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