French Implementation of the EU CSR Directive: Sustainable Corporate Governance Has Begun

“This implementation in France provides a new framework for non-financial information and marks a major turning point towards greater potential responsibilities for members of the management bodies of the large corporations in question, in particular with the description of diversity policy: non-financial reporting is reviewed via an overall analysis guided by the materiality principle and […]

Repositioning the Compliance Function in the New Governance Era

“… I consider the effectiveness of the Compliance role within the organisational structure and how far the demarcation of the function and its assigned duties are achieving an enterprise-wide culture of good governance and compliance. I posit that, although the delineation of clear responsibilities is important, the benefits of ostensible independence brought about by the […]

Using Knowledge Distillation to improve interpretable models in a retail banking context

” Predictive machine learning algorithms used in banking environments, especially in risk and control functions, are generally subject to regulatory and technical constraints limiting their complexity. Knowledge distillation gives the opportunity to improve the performances of simple models without burdening their application, using the results of other – generally more complex and better-performing – models.” Lire

Cybersecurity, Cloud and Critical Infrastructure

“… there is a risk that the EU’s Network and Information Systems Directive (‘NIS Directive’) might lead to only incremental improvements in the cybersecurity of Europe’s critical infrastructure and digital services, while generating substantial compliance activity, aimed at placating regulators and reassuring the general public.” Lire

What Drives Bank-Specific Capital Requirements? Evidence from the Ssm

“Drawing on recently disclosed information on the Pillar 2 capital requirements of banks directly supervised by the ECB, we find that bank-specific capital requirements are mostly driven by business model and profitability, credit risk, and internal governance and risk management issues. Moreover, we propose a novel measure of bank governance quality that teases out the qualitative dimension of […]

Do Auditors Consider Cybersecurity Insurance in Pricing Audits?

“We conclude that the purchase of cyber insurance is indicative of an overall higher risk profile, but that having that insurance after experiencing a breach and formalizing cyber risk oversight within the audit committee reduces auditors’ perceptions of risk.” “… in a world where algorithmic opacity has become a strategic tool for firms to escape accountability, regulators in the EU, […]

How Climate Change May Impact Operational Risk

“… climate change may drive operational risk losses through complex interactions between three factors: changes in human and institutional behaviors, significant and rapid changes in economic metrics and direct physical impacts.” Lire

Outlook on the Future Regulatory Requirements for AI in Europe

“…  the report first assesses the concepts of fairness, bias and discrimination and illustrates the differences between these terms. In a next step, the existing legal framework is examined with regard to regulations that are already relevant for AI. Building on this analysis, special consideration is given to the Proposal of the European Commission on […]

Cybersecurity and Financial Stability

“Cyber attacks can impair banks operations and precipitate bank runs. When digital infrastructure is shared, banks defend themselves by investing in cybersecurity but can free-ride on the security measures of others. Ex ante free-riding by banks interacts with the ex post coordination frictions underpinning bank runs.”    Lire

Regulatory Oversight and Bank Risk

“Using a sample of bank holding companies over the period 2015Q1 through 2020Q1, we find that risk exposure increases for the large banks that benefitted from the removal of certain regulatory provisions. These banks also benefit from higher profitability and reduced compliance costs.” Lire

Basel III and Recourse to Eurosystem Monetary Policy Operations

“In addition to raising capital requirements, it introduced three ratios, two of which set out minimum standards for liquidity and funding risk, i.e. the liquidity coverage ratio and the net stable funding ratio, and one which aims to limit leverage in the banking system, i.e. the leverage ratio…  This paper investigates the extent to which the […]