As the debate continues between what’s best for businesses and consumers as we look for economic recovery, a few of the amendments expected to come to a vote today involve the creation of a new consumer financial protection agency, a Sarbanes Oxley exemption for small firms, and new power for the Government Accountability Office to audit the Federal Reserve.
While this debate is going on, the Organization for Economic Cooperation and Development released a framework last week to guide policymakers in the reform of international financial markets. According to the announcement, “Increasing transparency is key. The complexity and opaqueness of products made risk assessment difficult for firms and investors and hindered market transparency, a major cause of the crisis.”
The framework’s explanation of the financial landscape includes principles for 1) A definition of the financial system, 2) Transparency, and 3) Surveillance and analysis. Responsibilities for the collection and distribution of relevant data are described for government authorities, industry groups, and international organizations. These principles mirror the focus of other potential regulatory changes and will have a substantial impact in the way organizations document and track a wide range of business processes and transactions if they are carried out in legislation.
It provides a well-written, step-by-step guide to risk management processes that can be applied to whole organizations, or any part thereof. So far, it has received well-deserved praise for its surprising brevity and consolidated value. These are especially important characteristics for a document with as lofty a goal as standardizing what it calls “an integral part of all organizational processes.”
But if we expect the availability of ISO 31000 to have any sort of revolutionary or game-changing impact in the immediate future, we’re getting way ahead of ourselves.
In its complaint, the SEC alleges that, “Madoff and his lieutenant Frank DiPascali, Jr., routinely asked (Jerome) O'Hara and (George) Perez for their help in creating records that, among other things, combined actual positions and activity from... market-making and proprietary trading businesses with the fictional balances maintained in investor accounts.”
The SEC further alleges that O’Hara and Perez tried to cover their tracks by deleting hundreds of files, withdrew hundreds of thousands of dollars from their investments through the company, told Madoff they wanted to stop helping him, and then accepted larger salaries and substantial bonuses for their promise to keep quiet.
It will be interesting to watch this case unfold. I was hoping it would get into issues of whether the IT professionals were considered just uninvolved support staff or key participants in the scheme. Considering the evidence SEC claims to have, I don’t think we’ll hear those arguments in this case, but keep an eye out for how the defense comes together. Fraud prevention is a growing area of concern for government, health care, insurance, financial services, and other industries... which means we could be seeing more cases questioning the responsibility of IT to identify and/or prevent such issues.
As GRC practices continue to gain traction, I’ve had a lot of great conversations lately with clients about the importance of peer interaction for professionals in governance, risk, and compliance roles. With his finger apparently on the pulse of all major technology trends, Forrester’s Josh Bernoff must see this as well. This week he announced the winners of the 2009 Forrester Groundswell Awards, with two top GRC vendors among the winners. (For those of you not familiar with Josh Bernoff or Groundswell, check out the book info here.)
Two weeks ago, I commented on the changing role of the risk management professional, and thought it would be worthwhile to spend a few moments discussing the auditor as well. In a contest of which job is likely to see more change in the next two years, I would expect a photo finish.
Even in the toughest times, winners will invariably emerge. With the way expectations are changing regarding corporate controls and disclosure, risk management professionals (whose lack of influence was seen as a substantial cause of our current state of affairs to begin with) will likely be among the first beneficiaries of our new outlook on business.
Forrester customer inquiries seem to have taken a step back when it comes to risk management. While there are still plenty of incoming technology and vendor selection questions, there has been a noticeable spike in calls about fundamental issues, such as how to build and organize risk management programs. Knowledge and experience in risk management basics is in high demand.
Is regulatory oversight more or less invasive than oral surgery? Sure, both are necessary sometimes. But however you feel about the current level of corporate scrutiny, it’s clearly increasing, and that means the jobs of corporate governance, risk management, and compliance professionals are going to get even tougher.
The last month has seen some dramatic news related to corporate disclosure, most notably a bill approved by the House Financial Services committee that would require public companies to explain executive and employee compensation packages, and to write rules that would prohibit any compensation that could have a substantial, negative effect on financial markets. Lawmakers expect that this bill, if approved, will be rolled up with other legislation.
Every month or so, news events (attacks on government sites, massive privacy breaches, etc.) provide a ‘wake-up call’... a proof point used by vendors and practitioners alike that protecting our national and corporate information assets has never been more critical. On occasion we even see these incidents yield promises of action, for example the anticipated appointment of a US Cybersecurity Czar, which my colleague Khalid Kark discusses here.
But in spite of these warnings, my conversations with enterprise risk and IT risk professionals still reveal many disconnects, including that IT risks are not measured consistently with other enterprise risks. In addition, many IT risk professionals do not see their biggest risks showing up on the corporate risk register.
The evaluation speaks for itself. Forrester goes through great pains to assure a fair, detailed process that looks into the strengths and weaknesses customers care about most — and this Wave is no exception. But considering the amount of time and effort we spent putting this report together, I wanted to provide some additional thoughts on what I learned during the process:
We are now approaching the half-way point of 2009, and most of us are still trying to figure out the nature and scope of regulations that will descend in reaction to the massive corporate failures of the last 9 months. Considering the hefty burden brought by Sarbanes-Oxley in reaction to — by comparison — less egregious issues, it’s no wonder risk and compliance professionals are waiting with nervous anticipation.