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Fraud, Regulatory Risk Themes to Watch in 2014: EY Americas

DEC 16, 2013 2:01pm ET
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U.S.-based real estate financing companies, especially the global firms that face more complex regulatory risks, are continuously looking for new solutions.

Judging from client demand, “related risks gaining traction with multinationals as well as industry-specific risk issues” will persist in 2014, says Brian Loughman, the EY Americas leader for fraud investigation and dispute services.

Financial companies are expected to focus on several key themes that are now emerging more clearly.

1. Information security is more than ever related to reputational risk, so reputational harm and business risk associated with cyber-crime will become part of a legal team’s responsibility. These risks are requiring immediate and planned responses organized by inside and outside counsel, he says. This is a change from the traditional way where the chief information security officer focused on attacks and “their damaging and potentially public nature.” Additionally, there is potential shareholder risk “due to state-run and industrial cyber-espionage” that can lead to losses of, among others, unique business process or client data that make cyber-security a complex “board level exercise.”

2. The impact of regulation on the financial services industry in general and mortgage companies of all sizes in particular will be stronger than ever.

Regulatory pressure from the qualified mortgage rule as well as the broader regulatory focus on systemic risk and in line with Consumer Financial Protection Bureau rulemaking will continue in 2014. Enforcement pressure, “which heretofore has focused on the largest institutions, may also migrate to midsized banks in 2014. This could prompt reassessment and enhancement of risk and compliance efforts for this tier.

3. Anti-money laundering and corruption programs also are expected to face greater scrutiny, according to EY's fraud investigation and dispute services practice experts.

“Global regulators and the Department of Justice continue to press large, global financial institutions on the issues of money laundering, trade sanctions and bribery and corruption, stressing the need for robust program controls, sophisticated monitoring systems and knowledgeable personnel at the watch.”

It means regulatory scrutiny “is now moving beyond the traditional banking sector into nonbanks,” motivating these institutions to seriously review and enforce their compliance programs and controls.

4. Demand to leverage data related to compliance and anti-corruption will also motivate companies to rely more on analytics and “to ask new questions.”

Traditionally the domain of marketing and sales, data analytics are effectively migrating into “internal audit, compliance and corporate oversight,” as companies use forensic data analytics for proactive business monitoring. As a result, mortgage firms will develop “a better understanding of the risks and rewards of forensic data analytics” and how new techniques can be used to detect fraud and improve fraud risk mitigation programs.

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