Risky Business #5: A round up of the headlines

This user is from outside of this forum

Welcome back to Risky Business, where we once again take a quick look at the stories and developments hitting the headlines in risk. This month’s developments underscore three strategic fault lines in banking risk management: resilience, competitiveness, and supervisory intensity. Regulators are tightening expectations around too-big-to-fail planning while simultaneously recalibrating capital regimes. Enforcement momentum remains high, with penalties against Barclays, Mastercard’s Vocalink, and structural overhauls at Toronto Dominion and HSBC signalling the cost of compliance missteps. At the same time, supervisors are reshaping the agenda — OSFI urging “smart” risk-taking, the OCC redefining “debanking,” and the Bank of England signalling AI’s role in oversight. For boards, the imperative is clear: adjust risk appetite and compliance investment to a shifting landscape where regulatory tone is evolving but scrutiny remains unforgiving.

UBS emergency plan is not “executable,” says Swiss regulator

Financial Times, FINMA
Finma concluded UBS has made progress since acquiring Credit Suisse, but that its resolvability / emergency (“living will”) plan remains insufficiently integrated into its overall resolution strategy to be fully executable. Signals continued regulatory pressure on large banks to ensure credible recovery & resolution planning.

Why it matters
Highlights persistent systemic risk: credible recovery and resolution plans are central to preventing taxpayer-funded bailouts. Banks must maintain executable contingency plans to ensure capital and liquidity can absorb shocks without destabilizing the financial system

Bundesbank Proposes Simplification of Eurozone Banks' Capital Requirements

Reuters
Germany’s central bank, the Bundesbank, proposed reforms to simplify the complex capital requirements for eurozone banks. Suggestions include consolidating capital buffers and redefining the use of capital instruments, aiming to enhance financial flexibility and competitiveness without compromising resilience

Why it matters
Simplifying capital rules can improve flexibility in how banks absorb losses and allocate capital efficiently. Strategically, it enhances competitiveness of Eurozone banks versus US peers while maintaining systemic resilience, particularly during economic stress

US regulators to re-propose Basel III “Endgame” by early 2026

Reuters
The Fed, alongside the FDIC and OCC, plan to re-propose a more “industry-friendly” version of the Basel III Endgame framework. This reflects pushback against earlier drafts which banks saw as too burdensome. Will affect risk-weighted capital, stress testing, disclosure and may shift the compliance burden

Why it matters
Capital requirements directly determine banks’ ability to absorb losses and support lending. Changes in the framework affect strategic capital allocation, risk-weighted assets, and stress testing, influencing both competitive positioning and resilience under adverse scenarios, further complicated by differing regional implementation timeframes

EU banks fear tumbling rates will upset IRRBB balances

Risk Magazine
European banks warned that declining interest rates are complicating the management of Interest Rate Risk in the Banking Book (IRRBB). Conflicting regulatory tests on earnings and balance sheet value are making hedging strategies more complex, raising concerns about potential impacts on profitability and stability

Why it matters
Interest rate risk affects both earnings and balance sheet stability. Strategic hedging and robust IRRBB frameworks are essential to protect capital buffers, preserve profitability, and satisfy regulatory scrutiny amid volatile rate environments

Barclays fined £42mn for AML control failures

Financial Times, Reuters
The UK’s FCA fined Barclays £42mn for anti-money-laundering control failures in its wealth unit, particularly around high-risk clients. The case reinforces that financial crime compliance remains one of the costliest and most reputationally damaging risk exposures for large bank

Why it matters
AML failures can result in significant fines, reputational damage, and operational disruption. Strategically, robust AML frameworks are critical for protecting capital, maintaining market trust, and preventing regulatory enforcement from constraining business growth

Mastercard’s Vocalink penalised for weak governance

Financial Times
The Bank of England fined payments infrastructure provider Vocalink £11.9mn for poor governance and failure to fix control gaps. With payments rails considered critical infrastructure, the sanction highlights regulators’ growing focus on operational resilience beyond traditional banks

Why it matters
Operational resilience is essential for systemic infrastructure providers; governance failings can create cascading risk exposures. Strategic attention to controls ensures that infrastructure continuity supports the broader financial system and prevents capital erosion from operational incidents

US regulators cancel some bank exams amid regulatory rollback

Reuters
Bank supervisors in Washington have cancelled some scheduled examinations and softened enforcement notices, marking a visible regulatory rollback. The shift raises questions about whether reduced oversight will create blind spots in identifying emerging risks across the banking system

Why it matters
Reduced supervisory intensity can lower compliance burden but risks undetected emerging threats. Strategically, banks must self-monitor rigorously to ensure capital adequacy, risk coverage, and resilience are not compromised by lighter regulatory oversight

Canada's OSFI Encourages "Smart" Risk-Taking Among Large Banks

Reuters
Canada's Office of the Superintendent of Financial Institutions (OSFI) urged the country's largest banks to diversify away from mortgage concentration and engage in more "smart" risk-taking in business lending. This reflects a shift towards calibrated risk-taking to support economic growth

Why it matters
Capital allocation and credit risk strategies are being nudged toward supporting broader economic growth. Strategically, this signals a regulatory tolerance for controlled risk-taking, requiring banks to balance risk appetite with capital preservation

OCC Issues Guidance on “Debanking” Practices

Reuters
The OCC issued guidelines urging banks to avoid cutting customers based on political or religious grounds, emphasizing the balance between compliance and equitable access. This move aims to prevent discriminatory practices in banking services

Why it matters
Compliance with equitable access rules intersects with operational and reputational risk. Strategically, banks must manage client acceptance policies carefully to avoid litigation or enforcement, while maintaining capital and operational efficiency

Bank of England Advocates AI in Supervisory Oversight

Reuters
Bank of England Governor Andrew Bailey highlighted the potential of artificial intelligence in enhancing regulatory oversight, suggesting that AI could help regulators detect misconduct and emerging risks more effectively. This marks a step towards integrating advanced technologies in financial supervision

Why it matters
Leveraging AI in supervision affects how banks are monitored and how risk exposures are identified. Strategically, institutions need to anticipate increased data-driven oversight to maintain capital adequacy and compliance while optimizing risk management processes