Managing the winds of change

In recent years Control Staff have found their workload dominated by rooting out bad behaviour resulting from poor culture. The beginning of 2017 heralds a decade since the onset of the Credit Crisis, which set the stage for a fundamental repositioning on how Financial Institutions and their staff conduct business. All the while however, the markets have been in a prolonged cycle of status quo. Households and businesses have enjoyed prolonged low interest rates, and Central Banks have been preoccupied for the most part by the threat of falling prices. This cycle looks set to change.

The Federal Reserve has signalled that rates in the world’s largest economy will appreciate. The United Kingdom and Europe continue to work on how to decouple their longstanding relationship, weakening Sterling, and importing inflation into the UK economy. Traders, in Fixed Income at least, are finding out that volatility is no longer a distant memory.

As the mighty Yield Curve begins to move, forward and inflation curves are reassessed. It is during moves such as these that system driven errors begin to be uncovered. Incorrect curve mapping, stale static data and the assumption of product behaviour are examples of risk unmasked by market change. Control Staff could well find 2017 their most challenging year yet, as work remains to be done improving and monitoring staff behaviour, but market change will test many of the controls perceived to be robust. As staff within Internal Audit, Compliance Monitoring, Product Control and Risk Management plan for the year ahead, we advise them to carefully cast their eyes towards reviewing systems, static data and product mapping, lest the winds of change whip up a storm.

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