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Aug 24, 2018

The week in GRC: Wall Street sees AI use on fraud, and Senate panel approves CFPB nominee

This week’s governance, compliance and risk-management stories from around the web

The Wall Street Journal reported that experts who are experimenting with various aspects of AI at Goldman Sachs and Morgan Stanley say it may be useful in detecting fraud and reducing errors in algorithmic trading – but that there are still many limits with the technology as it stands.

‘A lot of work needs to be done to translate (AI) advancements into benefits for finance,’ said Ambika Sukla, executive director of machine learning and AI at Morgan Stanley. ‘As we work on some of these new models, it’s important to proceed carefully and have a human in the loop.’ AI is also the underlying technology in virtual assistants, which could perform simple tasks and answer simple questions for employees and customers, Sukla said.

– According to The Guardian, Superdrug advised its online customers to change their passwords after it was targeted by hackers claiming to have stolen the personal details of thousands of people. The UK health and beauty retailer told customers it had been contacted by a group claiming to have obtained the details of 20,000 customers, including names, addresses, dates of birth and phone numbers.

Superdrug said it had only seen evidence so far that 386 of the accounts had been compromised. A spokesperson said: ‘The hacker shared a number of details with us to try to prove he had customer information – we were then able to verify [these customers] were Superdrug customers from their email and log-in.’ The company said the information stolen did not include payment card information.

– The WSJ reported that Merrill Lynch will pay $8.9 million to settle SEC allegations that it failed to disclose a conflict of interest. The SEC said Merrill Lynch mishandled 1,500 investor accounts through its relationship with a third-party product provider. According to the agency, Merrill Lynch halted new investments into certain products because of pending management changes at an unnamed third-party bank, and Merrill Lynch’s governance committee planned to vote on a recommendation to terminate the products and offer clients alternatives.

The SEC alleges that the third party appealed to senior Merrill Lynch executives, stymying the governance committee’s vote and resulting in an eventual decision to offer the third party’s products to new Merrill Lynch accounts. Merrill Lynch settled the claims without admitting or denying the SEC’s findings. ‘We promptly enhanced our policies and procedures to ensure the confidentiality of recommendations in the future,’ a Merrill Lynch spokesperson said.

– Almost 350 individuals from companies, trade associations and other entities were due to testify before Congress regarding US duties of as much as 25 percent proposed for $200 billion in Chinese imports, Bloomberg noted. Most were expected to oppose tariffs in response to allegations of Chinese theft of intellectual property and other unfair trade practices.

Although the administration had said it wanted to avoid consumer products and target industries critical to China’s economic future, companies are lining up to complain that a swath of products across multiple industries are being targeted.

– The Trump administration proposed replacing the Clean Power Plan, the centerpiece of former president Barack Obama’s regulatory efforts to combat climate change, according to Reuters. The proposal released by the Environmental Protection Agency, which is open for public comment, would allow states to write their own weaker regulations for power plants and give them the ability to seek permission to opt out of regulations on power plant emissions.

– The AP (via CNBC) reported that the Senate Banking Committee approved Kathy Kraninger as director of the Consumer Financial Protection Bureau (CFPB). Kraninger’s nomination received approval in a 13-12 party-line vote. The nomination now goes to the full Senate for a vote.

Kraninger is a mid-level executive in the Office of Management and Budget. She works directly under Mick Mulvaney, who is both President Donald Trump’s budget director and has been acting director of the CFPB since late November. Mulvaney has sought to roll back many of the rules and regulations established by the bureau, which was created following the financial crisis.

– The UK government published a series of notes advising companies and people how to protect themselves from the potential disruption of a ‘no deal’ break with the EU, from stockpiling drugs to new paperwork for trade, NBC News reported. UK companies trading with the EU will have to contend with a tangle of red tape, possible delays at the border and cashflow disruption if the government is unable to negotiate a Brexit deal before next March.

– According to Reuters, a Missouri trial court judge affirmed a $4.69 billion verdict against Johnson & Johnson in a case involving 22 women and their families who alleged the company’s talc-based products, including its baby powder, contain asbestos and caused them to develop ovarian cancer. The company said it would continue to pursue all available appellate remedies. It denies the allegations and says its talc is safe, and had previously said it was confident the verdict would be overturned on appeal. A lawyer for the women said he was confident the judgment would be upheld on appeal.

– The SEC said it plans to rehear dozens of cases that were pending before its in-house administrative-law judges, following a US Supreme Court ruling that faulted the appointment process for those judges, the WSJ said. The agency has reappointed the judges to comply with the court holding. The SEC said it would give all the cases pending before the in-house judges, or that had been appealed to the commission, the opportunity for a new hearing. In an order, the agency said it would start fresh on all of the cases, telling the judges they ‘shall not give weight to or otherwise presume the correctness of any prior opinions, orders or rulings.’

Reuters reported that US sanctions against Russia tied to a nerve agent attack in the UK will officially take effect on Monday. The measures will terminate foreign assistance and some arms sales and financing to Russia, as well as deny the country credit and prohibit the export of security-sensitive goods and technology. The measures add to existing US sanctions on Russia, including those imposed for its alleged meddling in the 2016 US presidential election. The Russian government has denied involvement in the nerve agent attack and election interference.

 

Ben Maiden

Ben Maiden is the editor-at-large of Governance Intelligence, an IR Media publication, having joined the company in December 2016. He is based in New York. Ben was previously managing editor of Compliance Reporter, covering regulatory and compliance...